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General Institutional Responsibilities

PublicationDate: 7/1/95
ChapterNumber: 2
ChapterTitle: General Institutional Responsibilities
SectionNumber: 1
SectionTitle: Overview of Fiscal Operations
PageNumbers: 21-29

((Executive Summary))
This chapter discusses the broad range of responsibilities of schools
participating in Title IV programs. The chapter begins with an
overview of institutional eligibility issues, then discusses the
responsibilities of individual offices. Emphasis is given to the fact
that successful Title IV program management is a school-wide effort,
not just the responsibility of a single office, and that the fiscal office
plays an important role in this success.

The chapter also covers consumer information disclosure
requirements, institutional policies and procedures, program
evaluation, record maintenance, and refunds and repayments.

((Key terms))
administrative capability
Campus Security Act
Family Education Rights and Privacy Act (FERPA)
financial responsibility
Institutional Quality Assurance Program (IQAP)
separation of functions
Student Right-To-Know Act
withdrawal date

2.1 Overview of Fiscal Operations

The term "fiscal operations" encompasses a broad range of processes
that may vary from one institution to the next. These variations may
be attributed to the size of the institution, its organizational structure,
the degree to which the fiscal office is automated, or the federal
programs in which the institution participates, to name only a few

From the perspective of managing federal student aid funds, the term
"fiscal operations" includes, but is not limited to:

((General fiscal activities))
- requesting funds from the federal government,

- disbursing funds to eligible students,

- keeping accurate and auditable financial records,

- managing cash,

- accounting for funds and financial activities, and

- reporting on these activities.

Prior to completing any of these tasks, however, institutions first
must be deemed eligible to participate in Title IV student financial
aid programs (Title IV programs) and then must maintain this

((Application to participate))
However, institutions may apply for campus-based funds before
completing these tasks. That is, they may submit a FISAP for the
following award year's funds by October 1 of the preceding award
year. An award authorization will be calculated and held until the
U.S. Department of Education (ED) certifies the institution to
participate in Title IV aid programs. The certification must occur by
June 30 of the preceding award year.

2.1.1 Institutional Eligibility

((General eligibility criteria))
To participate in any Title IV program(s), an institution must:

- meet the standards for an eligible institution,

- demonstrate that it is financially responsible and administratively
capable of participating in Title IV programs,

- enter into a written Program Participation Agreement with ED,

- be certified to participate in Title IV programs.

(For information on the Program Participation Agreement and
certification procedures, please refer to Chapter 3 of The 1995-96
Federal Student Financial Aid Handbook.)

((Types of eligible institutions))
The 1992 amendments to the Higher Education Act (HEA),
commonly referred to as reauthorization, defined three types of
postsecondary institutions that are eligible to participate in Title IV
programs--institutions of higher education, proprietary institutions of
higher education, and postsecondary vocational institutions. (These
terms are defined in Sections 600.4, 600.5, and 600.6 of the
Institutional Eligibility regulations.) A school may fall into more
than one of these categories. The differences in type of institution
relate mainly to how the school is controlled (public, private,
for-profit, nonprofit) and to the minimum program length offered by
the school.

At some schools, ED has certified specific programs. For example,
at a technical school, the cosmetology program might be certified for
participation in Title IV programs, but the air-conditioning and sheet
metal programs might not be.

((85/15 rule))
As of July 1, 1995, a proprietary institution must meet the "85/15
rule" to qualify as an eligible institution. This means that no more
than 85 percent of the institution's revenue in a fiscal year may be
derived from Title IV program funds; at least 15 percent must come
from non-Title-IV program funds. Federal funding that is not from
Title IV funds may make up the 15 percent.*3*

Schools must report directly to ED within 90 days of the end of their
fiscal year when they do not satisfy this requirement. Audits of
schools that do satisfy this requirement must include a statement to
that effect. (See Dear Colleague Letter GEN-95-26.)

The institution's overall financial management capability must be
examined annually by auditors to ensure that good practices are
maintained and that poor ones are corrected. Two important areas in
which standards must be upheld for continued participation in Title
IV programs are financial responsibility and administrative

2.1.2 Financial Responsibility

Within four months of the end of the institution's fiscal year, the
school must submit to ED its audited financial statements for the two
most recent fiscal years. (See Chapter 6.) Using this and other
information, ED evaluates the school according to the factors of
financial responsibility contained in Section 668.15 of the Student
Assistance General Provisions. In general, a school is considered
financially responsible if it:

((Factors of financial responsibility))
- provides the services described in its official publications and

- provides administrative resources necessary to comply with the
requirements for participating in Title IV programs*,

- meets all of its financial obligations*4*, including paying required
refunds to students and debts to ED,

- is current in paying any institutional debts*4*,

- posts an irrevocable line of credit, acceptable and payable to ED,
equal to 25 percent of the total amount of Title IV program
refunds paid by the school in the previous fiscal year*5* ,

- does not have as part of its most recent audit report*4*

- a statement expressing substantial doubt of the school's ability
to continue as a "going concern" OR

- a disclaimed or adverse opinion by the accountant,

- no individual who exercised significant control over the school
owes a liability for a Title IV program violation unless the school
and the individual owing the liability meet the provisions of
Section 668.15(d)(4),

- has not been limited, suspended, or terminated OR has not entered
into a settlement agreement to resolve a limitation, suspension, or
termination within the preceding five years,

- was not required to repay an amount greater than 5 percent of
Title IV funds received for an award year as a result of a finding
during its two most recent program reviews or audits,

- was not cited during the preceding five years for failure to submit
acceptable audit reports in a timely manner, AND

- did not fail to resolve satisfactorily any compliance problems
identified during a program review or audit.

Additional factors of financial responsibility apply to different types
of institutions.

((For-profit institutions))
- A for-profit institution must*4*--

- maintain an acid-test ratio of one-to-one in terms of the school's
cash (excluding any irrevocable line of credit requested by ED)
and current receivables to current liabilities, and

- have not had operating losses in either or both of its last two
fiscal years that in sum have resulted in more than a 10 percent
reduction in the school's tangible net worth, and

- have a positive tangible net worth for its most recent fiscal year,
- have outstanding debt obligations that are listed at or above the
second highest credit-rating level by a nationally recognized
statistical-rating organization.

((Nonprofit institutions))
- A nonprofit institution must*4*--

- demonstrate at the end of its most recent fiscal year an acid-test
ratio of one-to-one in terms of the school's cash and current
receivables to current liabilities, and

- (1) have at the end of its most recent fiscal year a positive
unrestricted current fund balance or positive unrestricted net
assets or (2) have not had an excess of current fund
expenditures over current fund revenues during the past two
fiscal years that have resulted in more than a 10 percent
reduction in the school's unrestricted current fund balance or
unrestricted net assets,
have outstanding debt obligations that are listed at or above the
second highest credit-rating level by a nationally recognized
statistical-rating organization.

((Public institutions))
- A public institution must*4*--

- have its liabilities backed by the full faith and credit of the state
or other equivalent government entity,

- have a positive unrestricted current fund balance, if reporting
under the Single Audit Act,

- have a positive unrestricted current fund balance in the state's
higher education fund as presented in the general purpose
financial statements,

- submit documentation from the state auditor general that it has
met all of its financial obligations during the past year and has
sufficient resources to meet all of its financial obligations,
have outstanding debt obligations that are listed at or above the
second highest credit-rating level by a nationally recognized
statistical-rating organization.

Section 668.15(d)(1)(ii) of the Student Assistance General Provisions
describes the factors that ED will consider in determining whether a
state's tuition recovery fund may substitute for the federal cash
reserve requirement.

2.1.3 Administrative Capability

((Factors of administrative capability))
In addition to demonstrating that it is financially responsible, a
school must be administratively capable of participating in Title IV
programs. Using a school's audited financial statements and other
information, ED evaluates the school's administrative capability
according to the standards contained in Section 668.16 of the Student
Assistance General Provisions. In general, a school is considered
administratively capable if it:

- administers Title IV programs in accordance with all Title IV

- designates a capable individual to be responsible for administering
Title IV programs,

- communicates to the individual responsible for administering Title
IV programs all information that bears on students' Title IV

- has written procedures for administering Title IV programs,
administers Title IV programs with adequate checks and balances
in its system of internal controls,

- divides the functions of authorizing Title IV payments and
disbursing and/or delivering Title IV funds so that the functions
are carried out by at least two organizationally independent

- establishes and maintains required Title IV records,

- for purposes of determining students' eligibility for Title IV
assistance, establishes, publishes, and applies reasonable standards
for measuring whether students are maintaining satisfactory
academic progress in the completion of their educational

- develops an adequate system for resolving discrepancies in
information related to students' applications for Title IV

- refers to ED's Office of Inspector General any credible
information indicating that an applicant for aid, employee, or
agent of the school might have engaged in fraud or other criminal
misconduct in connection with Title IV programs,

- provides adequate financial aid counseling to Title IV applicants,

- submits in a timely manner all required Title IV program reports,
including the submission of required fiscal reports, financial
statements, and reconciliations,

- does not demonstrate any significant problems in its ability to
administer Title IV programs,

- does not have any individual affiliated with the school who is/has
been debarred or suspended or is engaging in any activity that is
cause for suspension or debarment under Executive Order 12549
of the Federal Acquisition Regulation,

- for a school that seeks initial participation in a Title IV program,
has not had more than 33 percent of its students withdraw during
the latest complete award year,

- has a cohort default rate that is less than 25 percent under the
Federal Family Education Loan (FFEL) Program for each of the
three most recent fiscal years and that is equal to or less than 15
percent under the Federal Perkins Loan Program, and

- does not appear to lack the ability to administer Title IV programs

((FFEL Program))
If a school is determined not to be administratively capable solely on
the basis of its FFEL Program and/or Federal Perkins Loan Program
cohort default rate(s), ED may provisionally certify the school's
participation in Title IV programs.

2.1.4 Separation of Functions

As stated in the previous section, federal regulations require an
institution to divide the functions of authorizing payments and
disbursing funds so that no single office or individual has
responsibility for both functions for any student receiving Title IV
funds. Even at very small institutions, no one person may be
allowed to authorize payment of Title IV funds AND to disburse
those funds.

((Authorizing payments and disbursing funds))
Typically, the financial aid office awards Title IV funds and
authorizes payment of those funds to students. The fiscal office
disburses the funds by crediting student accounts, delivering checks
to students, or delivering cash to students. The person who awards
Title IV funds may not be authorized by the institution to sign checks
or deliver them to students, nor may he or she be permitted to deliver
cash to students or to credit student accounts for tuition, fees, books,
supplies, or other charges.

((FFEL Program))
Under the FFEL Program, the lender DISBURSES the funds, while
the fiscal office DELIVERS them to students. The financial aid
office is allowed to receive FFEL proceeds and then forward them to
the fiscal office for delivery to students.

((Electronic systems))
Separation of functions also applies to electronic systems that
postsecondary institutions use to deliver student aid. For instance, a
school's financial aid office may use the Electronic Data Exchange
(EDE) to determine its students' Federal Pell Grant awards and to
authorize their payments. However, that office could not be
involved in either the ACH/EFT or the FEDWIRE electronic
processes to draw down funds from ED/PMS to pay those students.
The school's business office would perform that function. The key
element here is that a school's electronic accounting system should
be set up so that no one person can circumvent it.

*3* Please note: An institution that determines it satisfied the 85/15
rule during its most recently completed fiscal year must have the
auditor preparing its audited financial statement report on the
accuracy of that determination. This is done by the auditor
performing an "agreed upon procedures attestation engagement."

*4* A school may be considered financially responsible, even if the
school fails to meet this standard, if the school (1) submits to ED an
irrevocable letter of credit of not less than one-half of Title IV
program funds received by the school for an award year or
(2) establishes that it has sufficient resources to ensure against its
precipitous closure.

*5* This standard is not applicable if the school (1) is located in a
state that has a tuition recovery plan that is acceptable to ED and the
school contributes to that tuition recovery fund, (2) has its liabilities
backed by the full faith and credit of the state or by an equivalent
governmental entity, or (3) demonstrates to ED that for each of the
two most recently completed fiscal years the school has made timely
refunds to students and has met all of the financial responsibility

Last Modified: 06/30/1995