As required under 34 CFR §668.172 and Section 2 of Appendix A or B to Subpart L of Part 668, a proprietary, private non-profit, or foreign school1 must include a Financial Responsibility Supplemental Schedule (Supplemental Schedule) as part of any audited financial statements submissions to the Department on or after July 1, 2020. Due, in part, to changes in accounting standards and changes made to the regulations, the elements needed to calculate a school’s composite score may not be readily available in the school’s audited financial statements.
To account for these changes, the regulations now require additional disclosures in the financial statements and a Supplemental Schedule that contains all of the financial elements required for the Department to calculate a school’s composite score.
Each item in the Supplemental Schedule must have a reference to the Balance Sheet, Statement of (Loss) Income, or Notes to the Financial Statements (proprietary schools); or Statement of Financial Position, Statement of Activities, or Notes to the Financial Statements (non-profit schools). An amount entered in the Supplemental Schedule must tie directly to a line item or be part of a line item (if part of a line item, it must also include the actual amount in a Note to the Financial Statements or a Note to the Supplemental Schedule). The Department considers the Supplemental Schedules and any related Notes as material information for its evaluation of a school’s financial responsibility and eligibility to participate in the Title IV programs.
Appendix A to Subpart L of 34 CFR Part 668 presents an example of a properly presented Financial Responsibility Supplemental Schedule for a proprietary school. Appendix B to Subpart L of 34 CFR Part 668 presents an example of a properly presented Financial Responsibility Supplemental Schedule for a non-profit school. Although the examples include numbered line items to assist in illustrating how Supplemental Schedule amounts tie to financial statement line items, there is no requirement that line items in a school’s financial statements be numbered.
The Department recognizes that there may have been a lack of specificity on what was required for the audit submission prior to this Dear Colleague Letter. Schools could have satisfied the audit requirement for the Supplemental Schedule by either having the auditor provide a separate “in relation to” opinion for the Supplemental Schedule pursuant to AU-C Section 725 Supplementary Information in Relation to the Financial Statements as a Whole, or by incorporating the Supplemental Schedule into the financial statements so that the auditor opinion on the financial statements included the incorporated Supplemental Schedule.
Each institution is responsible for engaging its auditor to perform the appropriate work to meet the requirements under the regulations. Specifically, at a minimum, the auditor must follow and meet the requirements of AU-C Section 725 Supplementary Information in Relation to the Financial Statements as a Whole2 to evaluate and report on the Supplemental Schedule. Going forward, financial statement audits that do not include the Supplemental Schedule and an auditor’s in-relation-to opinion will be rejected as incomplete and schools will need to submit a corrected audit as directed by the Department.
We thank you for your cooperation in the implementation of these regulations. If you have any questions about the information provided in this letter, please direct them to: firstname.lastname@example.org.
Deputy Assistant Secretary
for Policy, Planning, and Innovation
Office of Postsecondary Education
1 Applicable foreign schools are foreign proprietary veterinary, nursing, and medical schools that are allowed by statute to participate in the William D. Ford Federal Direct Loan program and foreign schools that are treated as private non-profits for Title IV purposes, regardless of whether the financial statements are audited under home country or U.S. Generally Accepted Auditing Standards.
2 Auditors of foreign school financial statements allowed to be prepared in accordance with home country generally accepted accounting principles must follow applicable “in relation to” financial statements auditing requirements of the home country.