Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

Institutional Eligibility and Administrative Requirements - Program Reviews and Audits

AwardYear: 1997-1998
EnterChapterNo: 3
EnterChapterTitle: Institutional Eligibility and Administrative Requirements
SectionNumber: 6
SectionTitle: Program Reviews and Audits
PageNumbers: 139-154


The Department uses several methods to ensure that schools, lenders,
and guaranty agencies are using correct procedures to award,
disburse, and account for the use of federal funds. In this section we
will discuss audits and program reviews that are conducted at schools
that participate in the SFA Programs, as well as other quality control
measures.

If in a program review or audit a school is identified as having
disbursed improperly SFA funds, the school must restore those funds
as appropriate. Program reviews and audits are not conducted solely
to recover funds, but also to identify procedural problems at the
school and recommend solutions. Several other ways for a school to
obtain technical assistance are discussed at the end of the section.

If a school is cited for fraud or other serious program abuses in a
program review or audit, the school may be subject to corrective
action and/or sanctions, such as fines, emergency action, or
limitation, suspension, or termination (see Section 9).

AUDIT REQUIREMENTS FOR SCHOOLS

The law requires that a school that participates in any SFA Program,
including participating foreign schools, must have an independent
auditor conduct, at least once a year, an audit of a school's
compliance with the laws and regulations that are applicable to the
SFA Programs, and an audit of the school's financial statements. A
compliance audit covers the school's administration of the SFA
Programs. The auditor will examine whether the school is complying
with the laws and regulations that are applicable to the SFA
Programs. A financial audit provides the Department with
information necessary to evaluate a school's financial responsibility
(see Section 2.)

As in the past, schools can meet these audit requirements by having
an audit performed under the guidelines of the Department's SFA
Audit Guide, Compliance Audits, Attestation Engagements of
Federal Student Financial Assistance Programs at Participating
Institutions or, if applicable, by having an audit performed under the
guidelines of the Single Audit Act*1* (known as A-128 audits and
A-133 audits). Single Audit Act audits are discussed later in this
section.

Previously, compliance audits and financial audits performed under
the Department's SFA Audit Guide had separate submission
requirements, and did not necessarily cover the same period of time.
While the compliance audit was based upon the award year and had
to be submitted within six months after the end of the school's fiscal
year, the financial audit was based on the school's fiscal year and had
to be submitted within four months of the end of the school's fiscal
year.

[[NEW]]
[[Combined audit submission]]
Final regulations published November 29, 1996 now require a school
that has an audit performed under the SFA Audit Guide to submit
simultaneously both the compliance and financial audit within six
months of the end of the school's fiscal year. Both the compliance
audit and the financial statement audit must be performed on a fiscal
year basis. In addition, both audits must be prepared in accordance
with Generally Accepted Government Auditing Standards (GAGAS).
The compliance audit and financial statement audit may be
performed by different auditors. However, both audits must be
submitted as one package and must cover the school's fiscal year.

Because the compliance audit submission is now required within six
months after the school's fiscal year ends, the combined submission
will provide the Department with more timely information for some
schools. It also permits the Department to view a school's
compliance and financial information for the same period of time.

As a result of this change, the compliance audit of a school that has a
fiscal year that does not coincide with an award year will cover parts
of two award years (see the example below).

[[The graphic "Example - Fiscal year not equal to award year" on
page 3-140 is currently unavailable for viewing. Please reference your
paper document for additional information.]]

[[NEW]]
The November 29, 1996 final regulations include a new definition of
independent auditor to make clear that the compliance and financial
audit submitted under these regulations must be performed by
independent certified public accountants (CPAs) or by government
auditors that meet certain governmental standards.

[[Defintion of independent auditor]]
INDEPENDENT AUDITOR--An independent CPA or a
government auditor, except that a government auditor must meet
the Government Auditing Standards qualification and
independence standard, including standards related to
organizational independence.

[[Audits by Inspector General]]
The Office of Inspector General (OIG) also conducts audits, usually
in cases where there may be concern over the school's administration
of the SFA Programs. A federal audit such as this does not satisfy the
requirement that a school have an annual compliance and financial
audit.

TYPES OF AUDIT GUIDELINES

As mentioned previously, in addition to audits performed under the
SFA Audit Guide, audits performed under the guidelines of the
Single Audit Act (known as A-128 audits and A-133 audits) will also
meet the Department's audit requirements.

[[Audit options depend on control]]
Under the Single Audit Act (chapter 75 of Title 31, U.S.C.),
certain types of schools must have an audit in accordance with
one of two circulars prepared by the Office of Management and
Budget (OMB). For many schools, this is a combined audit of
all the federal programs at that school. OMB Circular A-128
applies to public schools that are state entities; OMB Circular
A-133 applies to nonprofit postsecondary schools. Both OMB
circulars are available through the OMB Home Page at
http://www.whitehouse.gov/WH/EOP/OMB/html, or by calling
OMB's Publication Office at (202) 395-7332.

Audits performed under the Single Audit Act have distinct auditing
and submission requirements. Changes to the audit submission
requirements brought about by the November 29, 1996 final
regulations do not affect Single Audit Act submissions. A school
submitting an audit under the guidelines of the Single Audit Act
must use the submission deadlines established by the Single Audit
Act.

The type of audit a school or servicer may have depends on its
method of control: public, for profit, or nonprofit. All for-profit
schools must comply with the audit requirement by having an SFA
compliance audit under the criteria of the Department's SFA Audit
Guide. All public schools must comply with OMB Circular 128,
which allows an SFA compliance audit under the criteria of the
Department's Audit Guide or an A-133 audit under limited
circumstances. All nonprofit institutions must follow OMB circular
A-133.

AUDIT SUBMISSION DATES

As mentioned earlier, beginning with the 1997-98 award year, a
school's or servicer's annual compliance and financial audit
performed under the SFA Audit Guide must be based upon the
FISCAL YEAR and submitted to the Department within SIX
MONTHS after the end of the school's or servicer's FISCAL YEAR.
(As discussed previously, these requirements do not apply to audits
performed under the Single Audit Act, which are already based on a
school's fiscal year.)

[[NEW]]
This new requirement is effective for audits submitted on or after
July 1, 1997. Because the period of time being audited for a
compliance audit has changed to the fiscal year, a school's first
combined submission may need to include an additional partial year
report as part of its compliance audit. For example, for a school with
a fiscal year end of December 31, the first combined submission (due
June 30, 1998) must include a financial audit covering January 1,
1997 to December 31, 1997 (the school's fiscal year), and a
compliance audit with two reports: one for the period July 1, 1996 to
December 31, 1996, and another for the period January 1, 1997 to
December 31, 1997. The school's next combined submission, due
June 30, 1999, must include both a financial and compliance audit
for January 1, 1998 to December 31, 1998. The charts that follow list
audit due dates and what period the audit must cover for four fiscal
years.

If a school has already committed to having an audit performed, or
has already had an audit performed for periods different than those
listed on the charts, the school must contact the Institutional
Participation and Oversight Service at the following address for
guidance

U.S. Department of Education
Office of Postsecondary Education
Institutional Participation and Oversight Service
Data Management and Analysis Division
600 Independence Avenue, SW
ROB 3, Room 3919
Washington, DC 20202-5430

[[The audit submission deadline charts on page 3-143 are currently
unavailable for viewing. Please reference your paper document for
additional information.]]

Generally, a school's first audit performed under these requirements
must cover the entire period of time since the school began to
participate in the SFA Programs. Each subsequent audit must cover
the period since the preceding audit that is accepted by the
Department.

COMPLIANCE AUDIT SUBMISSION REQUIREMENTS

The compliance audit must be conducted in accordance with

- the general standards and the standards for compliance audits
contained in the U.S. General Accounting Office's (GAO's)
Government Auditing Standards, and

- applicable audit guides from the Department's Office of the
Inspector General.

In conducting an audit, a school or servicer and its auditor should use
the Department of Education's latest SFA Audit Guide, the
accounting and recordkeeping manual for the SFA Programs (known
as The Blue Book), and the ED Payment System Users Manual.

The Blue Book is developed under contract with the Office of
Student Financial Assistance. The full title is The Blue Book:
Accounting, Recordkeeping, and Reporting by Postsecondary
Educational Schools for Federally-Funded Student Financial Aid
Programs. Schools may request copies of the Department's Audit
Guide and The Blue Book by writing to: Federal Student
Information Center, P.O. Box 84, Washington, DC 20044.

The auditor or auditing firm the school or servicer uses for its
required nonfederal audit may be the same one that usually audits the
school's or servicer's fiscal transactions. To produce unbiased
conclusions, the auditor must be independent of those authorizing the
expenditure of SFA Program funds. The criteria for independence
are given in Chapter IV Section B of the GAO Standards for Audit of
Governmental Organizations, Programs, Activities, and Functions.
The most important sections of the Standards are published as
Appendices B and C of the December 31, 1980 Student Assistance
General Provisions regulations. An audit conducted by a state auditor
will also satisfy the nonfederal audit requirement.

[[Access to audit results]]
The Department may require a school to provide a copy of its
compliance audit report to guaranty agencies, lenders, state agencies,
the Department of Veterans Affairs, or accrediting agencies.

FINANCIAL STATEMENT SUBMISSION REQUIREMENTS

[[Additional information]]
A school's audited financial statement must cover the school's most
recently completed fiscal year. In addition to a school's financial
statements, the Department may request that the school submit
additional information. For example, the Department may require a
school to submit or provide access to the accountant's work papers.
Also, if the Department finds it necessary to evaluate a particular
school's financial condition, the Department can require a school to
submit an audited financial statement more frequently than once a
year.

Financial statements must be prepared on an accrual basis in
accordance with generally accepted accounting principles (GAAP),
and audited by an independent auditor in accordance with GAGAS
and other guidance contained in OMB Circular A-133, OMB
Circular A-128, or in audit guides from the Department's Office of
the Inspector General, as applicable.

[[CLARIFICATION]]
[[Consolidated statements]]
The November 29, 1996 final regulations make clear that, in some
cases, a school's relationship with another entity may cause the
Department to require a school to submit additional financial
statements of the school and the entity, such as: audited consolidated
financial statements; audited full consolidating financial statements;
audited combined financial statements; or, under certain
circumstances, audited financial statements of one or more related
parties. This occurs when the Department determines that the
activities or financial health of another entity may impact upon the
school's total financial health. So that the Department can make this
determination, a school must include in its audited financial
statement a detailed description of related entities based on the
definition of a related entity in the Statement of Financial
Accounting Standards (SFAS) 57. In addition, the description must
include all related parties and a level of detail that would enable the
Department to identify readily the related party. This information
may include, but is not limited to, the name, location, and description
of the related entity, including the nature and amount of any
transaction between the related party and the school, financial or
otherwise, regardless of when it occurred.

[[NEW]]
[[Reporting for 85/15 Rule]]
The November 29, 1996 final regulations require a proprietary
school to disclose the percentage of its revenues derived from the
SFA Programs that the school received during the fiscal year covered
by the audit as a footnote to its audited financial statement. This is a
change in the way a school is required to provide the information
necessary to assess compliance with the 85/15 Rule. Previously, a
proprietary school was required to have the CPA who prepared the
audited financial statement report on the accuracy of the school's
determination by performing an examination level attestation
engagement. Information regarding the calculation of this percentage
is found in Section 1.

AUDITS FOR FOREIGN SCHOOLS

[[NEW]]
Foreign schools must also submit annual compliance and financial
audits. However, because the November 29, 1996 final regulations
provide modified financial responsibility requirements for foreign
schools, the requirements for preparation of the financial statement
vary based on the amount of SFA Program funds received by the
school. A school that received less than $500,000 (in U.S. dollars) in
SFA Program funds during its most recently completed fiscal year
may have its audited financial statement prepared according to the
standards of the school's home country. A foreign school that
received $500,000 or more in SFA Program funds during its most
recently completed fiscal year must have its audited financial
statement translated and presented for analysis under U.S. Generally
Accepted Accounting Principles (GAAP) and Generally Accepted
Government Auditing Standards (GAGAS). See Section 2 for more
information on financial responsibility determinations for foreign
schools.

AUDITS FOR THIRD-PARTY SERVICERS

[[Exceptions for some servicers]]
There are also annual financial and compliance audit requirements
for third-party servicers. A third-party servicer must submit an
annual compliance audit. However, if a servicer contracts with only
one SFA school, and that school's own audit sufficiently covers all
the functions performed by the servicer, the servicer does not have to
submit a compliance audit. If a servicer contracts with several SFA
schools, a single compliance audit can be performed that covers all
its administrative services for each school. A servicer must submit its
compliance audit within six months after the last day of the servicer's
fiscal year. The Department may require a servicer to provide a copy
of its compliance audit report to guaranty agencies, lenders, state
agencies, the Department of Veterans Affairs, or accrediting
agencies.

In addition to submitting a compliance audit, a servicer that enters
into a contract with a lender or guaranty agency to administer any
aspect of the lender's or guaranty agency's programs must submit
annually an audited financial statement. This financial statement
must be prepared on an accrual basis in accordance with generally
accepted accounting principles (GAAP) and audited by an
independent auditor in accordance with GAGAS and any other
guidance contained in audit guides issued by the Department's Office
of the Inspector General.

Guidance for audits of third-party servicers is found in the Lender-
Servicer Audit Guide, published in December 1996.

A school may never use a third-party servicer's audit in place of its
own required audit, because the school is ultimately liable for its own
violations as well as those incurred by its third-party servicers. See
Section 2 for more information on third-party servicers.

HAVING THE AUDIT PERFORMED

[[Scope of the audit]]
The school or servicer must make its program and fiscal records, as
well as individual student records, available to the auditor. (Required
recordkeeping is discussed in Section 7.) Both the financial aid and
business offices should be aware of the dates the auditors will be at
the school, and make sure that someone is on hand to provide
requested documents and answer questions during that period.

[[Exit interview]]
At the end of the on-site review, the auditor will hold an exit
interview. At a school, this exit interview is usually conducted with
the personnel from the school's financial aid and other relevant
offices. The exit interview is not only an opportunity for the auditor
to suggest improvements in procedures, but it also gives the school
or servicer a chance to discuss the draft report and review any
discrepancies cited in the report. The exit interview is a good time to
resolve any disagreements before the final report is prepared.

[[Audit report]]
The final report will be prepared by the auditor and submitted to the
school or servicer. (For both SFA Audit Guide and A-128 audits, the
auditor must report all audit findings. For A-133 audits, the auditor is
required to report only audit findings of noncompliance.) The school
or servicer must submit the SFA Audit Guide audit report to the
Department's Data Management and Analysis Division at the
following address:

[[NEW]]
U.S. Department of Education
Office of Postsecondary Education
Institutional Participation and Oversight Service
Data Management and Analysis Division
600 Independence Avenue, SW
ROB 3, Room 3919
Washington, DC 20202-5430

In addition, the school or servicer must address the auditor's findings
in a Correction Action Plan (CAP), submitted to the Department
separately (at the same address) or included with the audit report.

[[A-133 & A-128 Audits]]
A-133 and A-128 audits must be submitted to the

Federal Audit Clearinghouse
Bureau of the Census
P.O. Box 5000
Jeffersonville, Indiana 47199-5000

The Federal Audit Clearinghouse will process these audits for the
Department. Although the OIG is no longer the submission point for
these audits, the OIG will continue to provide technical assistance on
these audits to schools and auditors.

For an audit performed under the Department's SFA Audit Guide, the
Department reviews the audit report for format, completeness, and to
ensure that it complies with the government's auditing standards. The
Department also notifies the school or servicer that it has 35 days to
add any supplemental information to its CAP.

Based on the audit findings and the school's or servicer's written
explanation, the Department will determine if any funds were spent
improperly. The school or servicer must repay any improperly spent
funds within 45 days, unless the school or servicer has properly
appealed the decision.

[[Access to records]]
[[CLARIFICATION]]
Once the audit is complete, the school or servicer must give the
Department and the OIG access to any records or other documents
necessary to review the audit. A school that uses a third-party
servicer must also give the Department and the OIG access to records
or other documents necessary to review a third-party servicer's
compliance or financial statement audit. In addition, the school's or
servicer's contract with the auditor must specify that the auditor will
also give the Department and the OIG access to the records and
documents related to the audit, including work papers. The
November 29, 1996 final regulations clarify that, in all cases, access
to records includes the ability of the Department or OIG to make
copies of the records.

[[Full cooperation is required for all examination actions]]
Throughout the audit process, and for other examinations such as
program reviews and state reviews, the school or servicer is required
to cooperate fully with its independent auditor, the Department and
its Inspector General, the Comptroller General of the United States,
the appropriate guaranty agency and accrediting agency. Cooperation
includes timely and reasonable access to records (including computer
records) for examination and copying, and to personnel for the
purpose of obtaining relevant information.

ACCESS--Includes the right to copy records (including computer
records), to examine computer programs and data, and to
interview employees without the presence of management or the
presence of the school's or a servicer's tape recorder.

PROGRAM REVIEWS

In addition to reviewing audits, the Department conducts its own
program reviews to identify possible problems in schools' SFA
administration. A program review covers many of the same areas as
an audit, including fiscal operations and accounting procedures, as
well as the school's compliance with the specific program
requirements for student eligibility and awards. However, program
reviews tend to focus more on regulatory requirements that are
specific to the SFA Programs. For example, the program review team
will examine student records and admissions records, fund requests
and transfers, records pertaining to due diligence and the collection
of Federal Perkins Loans, time sheets and pay rates for the Federal
Work-Study (FWS) Program, and documents related to the reporting
process for the Federal Pell Grant and campus-based programs.

[[Written report]]
The program review team prepares a written report that will be sent
to the school within 30 to 60 days of the review. The school may
respond to this report if it wishes to offer additional information to
support its position, or if it disagrees with any of the report's
conclusions. When the Department has fully considered the school's
response and all issues have been resolved, the Department official
will send a copy of the final program review determination to the
school.

It may occasionally be necessary for Department officials to perform
an unannounced program review. The General Provisions regulations
stipulate that Department officials provide a school with a written
request for a program review, but do not preclude the Department
from providing such a request at the time the reviewers arrive at the
school.

[[Emergency action]]
In an unannounced program review, the Department reviewers will
present a written request to school officials before beginning the
review. The school is expected to have its records organized and
readily available, without objection to providing access to those
records. However, because certain school officials may not be
immediately available during the review, the school may be afforded
additional time to submit information regarding the review findings.
THE DEPARTMENT HAS REGULATORY AUTHORITY TO
TAKE AN EMERGENCY ACTION IF A SCHOOL DENIES
ACCESS TO THE REVIEWERS PERFORMING AN
UNANNOUNCED PROGRAM REVIEW. SCHOOL OFFICIALS
WILL BE INFORMED IF AN EMERGENCY ACTION IS TO BE
TAKEN.

EMERGENCY ACTION--upon the recommendation of the case
management team performing the program review, the
Department may withhold SFA Program funds from the school or
its students, and/or withdraw the school's authority to obligate or
disburse SFA funds.

GUARANTY AGENCY REVIEWS

The FFEL Program regulations also require guaranty agencies to
conduct program reviews at postsecondary schools. A guaranty
agency must conduct biennial (once every two years) on-site reviews
at the 10 schools with the highest loan volume through that agency,
as well as at any school whose loan volume is 2% or more of the
guaranty agency's total loan volume. A guaranty agency is also
required to conduct biennial program reviews of schools in its state
that have a default rate over 40%, and any school with a default rate
over 20% if the Department notifies the agency that the school does
not have a default reduction plan. A program review conducted by a
guaranty agency is similar to a Department program review,
consisting of an entrance interview, a review of student records, an
exit interview, and a written report. However, the guaranty agency's
review will focus on how the school meets FFEL-specific
requirements, such as

[[Focus of guaranty agency review]]
- certification of the loan application,

- maintenance of records supporting the student's loan eligibility,

- processing procedures and payment of loan monies, and

- prompt lender notification when the student changes enrollment
status, such as complete withdrawal.

Two copies of the guaranty agency's report are forwarded to the
Department, including the school's payment if liabilities were
assessed.

APPEALING AUDIT AND PROGRAM REVIEW
DETERMINATIONS

[[Only final determinations may be appealed]]
The law allows for appeals of final audit or program review
determinations. Note that only a final determination may be
appealed. The letter conveying a final audit determination is clearly
identified as a "FINAL AUDIT DETERMINATION LETTER"
(FAD) and explains the appeals procedures. For a program review,
the final determination letter is marked "FINAL PROGRAM
REVIEW DETERMINATION LETTER."

[[Review by impartial hearing official]]
If a school or servicer wants to appeal an audit or program review
determination, it must appeal, in writing, to the Departmental official
identified in the determination within 45 days after it receives the
determination. If the school or servicer makes such a request, the
determination will be reviewed by an impartial hearing official
appointed by the Department. In most cases, an oral hearing will not
be required. The school or servicer and the Department must submit
briefs with any accompanying materials to the official, and provide
the other party with a copy of its submission at the same time. If the
final decision is appealed by either party, the Secretary will review it.

[[Repayment of liability]]
If the hearing official (or the Secretary) finds that the school or
servicer improperly expended funds or otherwise failed to comply
with applicable program rules and requirements, the Department will
collect the liability owed, if any. The school or servicer must repay
the funds within 45 days of the Department's notification of the
liability, unless the Department grants an extension. At its option, the
Department may elect to use an administrative offset to collect the
funds owed.

QUALITY ASSURANCE PROGRAM

Under the Quality Assurance Program (QAP), schools design and
establish a comprehensive quality improvement program to increase
award accuracy and strengthen their administration and delivery of
SFA Programs and services. The emphasis of this program is on
prevention or up-front correction and partnerships. It provides
schools with the tools and incentives to accurately and effectively
deliver student aid and to improve their service to students. It is
based on the principles of Total Quality Management, with an annual
cycle of assessment and problem identification with measurement,
solution design and implementation, and monitoring of results for
continuous improvement.

QAP schools are exempt from certain verification requirements
because they develop a school-specific program based on data
gathered in the cycle of QAP activities. Annual reporting
requirements and periodic Quality Assurance site visits help ensure
accountability and program integrity, and provide technical
assistance. Schools that are interested in QAP participation should
contact the Performance and Accountability Improvement Branch at
the following address or phone number:

U.S. Department of Education/OPE/SFAP/IPOS
Performance and Accountability Improvement Branch
600 Independence Ave., SW
ROB-3, Room 3925
Washington, DC 20202-5232
(202)260-4788

[[Self assessment]]
If a school is interested in conducting a self assessment of its
policies, procedures, and overall compliance with SFA requirements,
it can use the "Comprehensive Management Assessments"
instrument used in the QAP. This assessment is universally
applicable, helping any school determine its strengths and
weaknesses in the following areas: institutional participation, fiscal
management, recipient eligibility, award calculation and
disbursement, and reporting and reconciliation.

Even if a school is not interested in participating in the QAP, it
would benefit from this self-assessment exercise. The Student
Financial Assistance Programs will make this assessment available to
all schools during the 1997-98 award year.

[[Consultants & peer review]]
A school can take other steps to improve its operating procedures,
such as contracting with an independent consultant to review its
financial aid office to ensure compliance with federal and state
requirements, and to recommend improvements. Or, it might
undertake a "peer review" by arranging for a financial aid
administrator at another school to visit and review office procedures.

EXPERIMENTAL SITES INITIATIVE

If a school believes that it has a better way to administer aspects of
the SFA Programs than the way required by statute or regulation, it
may apply to be an "experimental site." Using the authority under
section 487A(d) of the Higher Education Act, the Department has
approved exemptions to a variety of SFA statutory and regulatory
requirements. So far, over 130 schools have been designated as
experimental sites.

[[Approved areas of experimentation]]
Ten areas of experimentation have been approved since the 1995-96
award year. They are

- entrance loan counseling,

- exit loan counseling,

- multiple disbursement for single term loans,

- thirty-day delay in loan disbursements for first-time, first-year
borrowers,

- loan fees in cost of attendance,

- loan proration for graduating borrowers,

- crediting SFA funds to prior year charges,

- crediting SFA funds to institutional charges,

- overaward tolerance, and

- accelerated EDExpress processing.

The effective dates for the first nine experiments are July 1, 1995 to
June 30, 2000. The effective dates for the accelerated EDExpress
processing (a short-term experiment) were from March 1, 1996 to
September 30, 1996.

[[How to apply]]
Schools may still apply to be experimental sites. Additional areas of
experimentation are being reviewed continuously. The notice
inviting applications appeared in the Federal Register on April 25,
1995.

If a school would like to apply to conduct experiments in other areas,
they should send their proposals to

Experimental Sites Initiative
Student Financial Assistance Programs/IPOS/PAIB
U.S. Department of Education
600 Independence Avenue SW
ROB-3, Room 3925
Washington, DC 20202-5232

[[Information to be included in proposal]]
The proposal should include the following information:

- What problems experienced by the school, its students, or both
does the proposal address?

- What is the school's proposed solution to the problem?

- From which specific statutory or regulatory requirements does the
school seek relief in order to test its proposed solution?

- What performance measures or alternative actions does the school
propose to use to fulfill the underlying purpose of the
requirements from which relief is sought?

- For what period is the experiment proposed?

- When and how will the results of the experiment be reported to
the Department?

- For an experiment proposed by a group of schools, how will the
group monitor and aggregate the results of the experiment?

[[Review process]]
Applications are subject to a two-step review process. First, a
screening is conducted looking at such areas as audits or default rates
to determine if there are any outstanding problems with the school.
Once the school clears all of the check points, a committee of
Department staff is convened to recommend approval or disapproval
of the proposal. The committee may choose to approve the proposal
as is, with no significant changes, or it may take ideas from several
similar proposals and blend them. For example, the committee may
decide to develop common performance measures for all
experiments in a particular area so that data collected for the
experiment will be comparable.

[[Notification]]
When a proposal is approved, the Department sends a letter to the
applicant schools. The letter includes a brief one-page summary of
the approved experiment. This summary specifies the statutory or
regulatory requirements that are being waived, the performance
measures for the experiment, the reporting requirements, and, in
some cases, any additional requirements that the school must adhere
to as a condition of the experiment.

After the letters are sent out, an amendment to the school's program
participation agreement (PPA) is developed. The PPA amendment is
based on the information in the initial letter.

[[Reporting requirements]]
The school is required to submit an annual report on the experiments
in which it participates. The report generally requires a description of
the results of the experiment, any corrective actions taken by the
school, and specific information relating to each experiment.

[[Termination of experiments]]
Both the school and the Department may terminate the experiment at
any time. If an experiment is terminated, the school must comply
with all of the reporting requirements relating to the experiment for
the period during which it was in effect. Beginning with the effective
date of the termination, the school must comply with all statutory and
regulatory requirements from which it was previously exempted.

[[Outcomes]]
The Department hopes that the results of these experiments will help
in identifying unduly burdensome requirements that may be
unnecessary for effective management of SFA Programs. The
Department plans to use the information gathered through this
initiative to revise existing regulations and to make recommendations
to Congress for statutory changes.

The Experimental Sites Initiative will also encourage schools to
develop alternative approaches to the current prescriptive
requirements. By allowing flexibility in how entrance loan
counseling is handled, for example, schools might develop methods
that are less administratively burdensome, but more effective in
providing loan information.

[[For further information]]
For further information on the experimental sites initiative, please
call the Performance and Accountability Improvement Branch at
202-260-4788.


*1* Changes made to the Single Audit Act may affect the
information presented in this section for 1997-98. The Single Audit
Act Amendment of 1996 substantially revised various provisions of
the 1984 Act. On November 5, 1996, the Office of Management and
Budget (OMB) published in the Federal Register proposed revisions
to OMB Circular A-133 to implement the 1996 Amendments,
including extending OMB Circular A-133's coverage to States, local
governments, and Indian tribal governments, and a proposal to
rescind OMB Circular A-128. As this publication went to print, these
revisions had not been finalized.

Last Modified: 07/28/1998