ChapterTitle: Title IV Reporting Requirements
SectionTitle: Audits and Program Reviews
6.6 Audits and Program Reviews
ED uses several methods to ensure that schools participating in Title
IV programs follow correct procedures to award, disburse, and
account for federal funds. These methods are also used to monitor
schools' compliance with applicable laws and regulations, identify
procedural problems, and recommend solutions.
6.6.1 Federal Audits
A federal audit is initiated by ED and conducted by ED's Office of
Inspector General (OIG). A school may be selected for a federal
audit if there is concern about the school's administration of Title IV
programs. A federal audit does not satisfy the requirement that a
school must have an annual nonfederal audit.
6.6.2 Compliance Audits
The 1992 reauthorization of the Higher Education Act mandated new
compliance and financial audit requirements. These requirements
were implemented by final regulations published in the Federal
Register on November 29, 1994.
((Annual compliance audit required))
With the new guidelines, all schools and third-party servicers must
have an annual nonfederal compliance audit that covers every aspect
of the school's or servicer's administration of Title IV programs. A
school may not use a third-party servicer's audit in place of its own
required audit. (For more information on working with third-party
servicers, refer to Chapter 3, Sections Two and Six, of The 1995-96
Federal Student Financial Aid Handbook.) ED is currently working
on guidelines for servicer audits. When this guidance is available,
schools will be notified.
There are two types of audits:
- A single audit, where financial and compliance audits are done as
one audit. In a single audit, the compliance audit examines all
federal programs at the school. A single audit is due to ED within
13 months after the fiscal year that is being audited.
- A compliance audit, which covers only Title IV funds. When an
institution has a compliance audit, it is required to have a separate,
basic, generally-accepted-accounting-principle (GAAP) financial
audit. A compliance audit is due to ED within six months after the
end of the institution's most recently concluded fiscal year ending
on or after the most recently completed award year for which the
audit is performed.
The method and the type of audit depends on who controls the
- For-profit institutions must have a compliance audit. The
compliance audit is to be conducted in accordance with ED's
Audit Guide: Compliance Audits (Attestation Engagements) of
the Federal Student Financial Assistance Programs at Participating
Institutions. These institutions must also have a basic GAAP
financial audit. This is to be done in accordance with procedures
detailed in the federal publication Government Auditing Standards
and follow generally accepted auditing standards.
- Nonprofit institutions must follow Office of Management and
Budget (OMB) Circular A-133, "Audits of Institutions of Higher
Education and Other Nonprofit Organizations." OMB Circular A-
133 requires a nonprofit institution with federal funding greater
than $25,000 to have an audit. A nonprofit institution that receives
federal funding of less than $100,000 or from a single source may
choose between a single audit or compliance audit (the audit will
follow the procedures described for a for-profit institution). OMB
is in the process of revising Circular A-133. The revision will
establish higher thresholds than are currently in effect. All other
institutions must have a single audit.
- Public institutions must have an audit that complies with the
Single Audit Act (P. L. 98-502) as implemented by OMB Circular
A-128, "Audits of State and Local Governments." (The Single
Audit Act only applies to state and local governments.) OMB
circular A-128 requires a public institution with federal funding
greater than $25,000 to have an audit. A public institution that
receives federal funding of less than $100,000 can choose a single
audit or compliance audit (the audit will follow the procedures
described for a for-profit institution). All other institutions must
have a single audit. OMB Circular A-128 allows public
institutions to meet their audit requirement by having an A-133
audit instead of an A-128 audit.
((Independent auditor required))
An audit must be performed by an independent auditor following
generally accepted auditing standards and the standards of the U. S.
General Accounting Office (GAO) as set forth in the GAO
publication Government Auditing Standards (1994 revision). The
auditor or auditing firm used for a compliance audit may be the same
one used to audit a school's other fiscal activities. The auditor or
firm must, however, be independent of any auditor or firm
authorizing a school's expenditure of Title IV program funds. The
criteria for independence are given in the just-referenced GAO
publication. An audit conducted by a state auditor who meets the
criteria for independence satisfies the nonfederal compliance-audit
((Cooperating with auditor))
A school must make all program, fiscal, and student records
available to an auditor. (See section 2.8.) Both the school's financial
aid administrator and fiscal officer should be aware of the dates the
auditor will be at the school. Representatives from the business and
financial aid offices should be on-hand during this period to provide
documents and answer questions.
((Submitting an audit report))
A final audit report is prepared by the auditor and submitted to the
school. The school must then submit the audit report to ED or ED's
representative, as determined by the type of audit.
For a single audit (A-128 and A-133), a school must submit two
copies of the single audit report, management letter, and corrective
action plan (if applicable) to:
Federal Audit Clearinghouse
Bureau of the Census
P. O. Box 5000
Jeffersonville, IN 47199-5000
A copy of the transmittal cover sheet that must be sent with single
audits is shown on page 268.
For a compliance audit, a school must submit five copies of the audit
report, management letter, and corrective action plan (if applicable)
U.S. Department of Education
Office of Postsecondary Education
Institutional Participation & Oversight Service
Institutional Monitoring Division, Audit Resolution Branch
600 Independence Avenue, SW
ROB-3, Room 3919
Washington, DC 20202-5430
The separate basic financial statement audit that must be done if a
school has a compliance audit should be mailed to either of the
U.S. Department of Education
Student Financial Assistance Programs
c/o Dun and Bradstreet
899 Eaton Avenue
Bethlehem, PA 18025-0016
U.S. Department of Education
Financial Analysis Branch
600 Independence Avenue, SW
Washington, DC 20202-5323
The timing for submitting reports and the information that must be
submitted will be determined by the type of audit and the guidance
provided. Please review the appropriate guidance for needed
information. If the financial statement needs to be submitted, it must
be submitted to ED within four months after the fiscal year that is
((Corrective action plan))
Regardless of the type of audit that has been performed, if there are
findings, a school must prepare a corrective action plan (CAP) that
addresses the findings included in the audit report. The CAP may be
submitted separately to ED's Regional Inspector General for Audit
(RIGA), or it may be included with the audit report.
((ED actions resulting from audit report))
It is ED's responsibility, not that of an auditor or audit firm, to
determine what action will be taken as a result of an audit report. ED
officials review the audit report and the school's CAP (if applicable)
to determine what action, if any, is necessary. ED may:
- agree with the auditor's findings,
- modify the auditor's recommendations, or
- request additional information from the school.
((ED access to school records and auditor records))
A school is required to cooperate fully during ED's examination of
its audit report. The school must give ED and/or OIG access to any
records or other documents needed to review the audit report. In
addition, the school's contract with its auditor must specify that the
auditor will also give ED and/or OIG access to records and
documents related to the audit, including work papers. Access
includes the right to:
- copy records (including computer records),
- examine computer programs and data, and
- interview employees without the presence of school officials and
without the school's use of a tape recorder.
((Final determination notice))
A school is notified in writing of ED's final determinations. As a
result of ED's examination of a school's audit, the school may be
- revise its administrative procedures;
- provide or reconstruct documentation to establish that
expenditures were properly awarded and disbursed;
- implement corrective actions to prevent further improper
expenditures of federal funds;
- repay improperly expended federal funds; or
- pay fines or interest or both.
((Repayment of liabilities))
If ED determines that Title IV program funds were expended
improperly, the school must repay the funds within 45 days, unless
the school has formally appealed the decision. Appeal procedures
are given in Subpart H of 34 CFR 668.
In addition, if ED determines that Title IV program funds were
expended improperly, ED may, in accordance with Subpart G of 34
((Allowable ED actions))
- take emergency action to withhold a school's Title IV funds,
- fine a school up to $25,000 for each statutory or regulatory
- limit, suspend, or terminate a school's eligibility to participate in
Title IV programs.
Such actions may be taken by ED if:
- a school is unable or unwilling to provide access to its records;
- there is sufficient evidence that federal funds were intentionally
misused or fraudulently expended;
- ED has evidence indicating that a school is incapable of
administering Title IV programs; or
- a school is unable or unwilling to repay improperly expended
6.6.3 Program Reviews
((Purposes of program reviews))
In addition to reviewing schools' compliance-audit reports, ED may
conduct its own program reviews. One purpose of a program review
is similar to that of a compliance audit--to evaluate a school's
management of Title IV programs and to ensure compliance with
laws and regulations.
((Criteria for selecting schools for review))
In selecting schools for review, ED gives priority to schools that
appear to be experiencing fiscal or administrative problems. Criteria
include, but are not limited to:
- a Federal Family Education Loan (FFEL) Program cohort default
rate of more than 25 percent;
- an FFEL Program cohort default rate that places the school within
the top 25 percent of all FFEL Program default rates;
- a default dollar volume that is within the top 25 percent of all
FFEL Program schools;
- a significant fluctuation in a school's FFEL or Federal Pell Grant
- problems reported by an accrediting agency or a state agency;
- a high student withdrawal rate;
- negative reports or complaints from local law enforcement
- complaints or incriminating information from students, parents, or
- other reasonable suspicion of fraud or abuse at a school.
((Unannounced program reviews))
A school may be notified of an upcoming program review in
advance, or the program review may be unannounced. Federal
regulations stipulate that ED officials provide a school with a written
request for a program review, but regulations do not preclude ED
from providing the written request at the same time reviewers arrive
at the school.
((School cooperation required))
School personnel must cooperate fully with ED officials before,
during, and after a program review. Whether the program review is
announced or unannounced, a school is expected to have its records
organized and readily available for reviewers, and it may not object
to providing access to its records. (See section 6.6.2.) However,
because certain school officials might not be immediately available
during an unannounced program review, a school may be allowed
additional time to submit requested information/responses to review
220.127.116.11 Focus of Program Reviews
A program review covers many of the same areas as an audit,
including fiscal operations and accounting procedures, as well as a
school's compliance with specific Title IV program requirements for
student eligibility and awards. Program reviews, however, tend to
focus more on regulatory requirements specific to Title IV programs,
- student records and admission records,
- fund requests and transfers,
- records pertaining to due diligence and collecting Federal Perkins
- time sheets and pay rates for the Federal Work-Study (FWS)
- documents supporting a school's Federal Pell Grant and campus-
based program reporting.
The program review team prepares a written report that is sent to a
school within 30 to 60 days of the review. The school is expected to
respond to the report to provide additional information or if it
disagrees with any of the report's conclusions. When ED has fully
considered and evaluated the school's response, ED sends the final
program review determination letter to the school.
Like an audit, a program review may result in noncompliance
findings or in monetary liabilities for a school.
((Some common reasons for findings))
Some common reasons for noncompliance findings include:
- unmet consumer-information requirements,
- excessive student drop-out or withdrawal rates,
- inadequate notification to FFEL Program borrowers about refunds
made to lenders,
- excessive Federal Perkins Loan Program cohort default rates, and
- improperly maintained satisfactory academic progress records.
((Some common reasons for liabilities))
Some common reasons for monetary liabilities include:
- incomplete or undocumented verification procedures,
- missing or incomplete financial aid transcripts,
- undocumented entrance and exit loan-counseling interviews,
- inadequately established or monitored satisfactory academic
- late refunds or unmade refunds,
- excess cash on hand from Title IV programs,
- inconsistent information in student files,
- inadequately maintained accounting records,
- improperly constructed student budgets,
- ineligible programs or locations,
- an undocumented FISAP income grid,
- failure to exercise due diligence in collecting Federal Perkins
- records not being maintained as required, and
- audit reports not being submitted.
((ED actions resulting from findings))
As a result of program review findings, ED may take emergency
action against a school; fine a school for statutory and regulatory
violations; or limit, suspend, or terminate a school's participation in
Title IV programs, as described in Subpart G of 34 CFR 668. A
school may appeal program-review findings as described in Subpart
H of 34 CFR 668.
6.6.4 State Postsecondary Review Entities (SPREs)
Schools that meet statutory referral criteria may be subject to reviews
by State Postsecondary Review Entities (SPREs) under the State
Postsecondary Review Program (SPRP). SPRP was established by
the 1992 reauthorization of the Higher Education Act and was
implemented in final regulations published in the Federal Register on
April 29, 1994 (34 CFR 667).
((Funding for SPREs))
ED provides federal funds to each SPRE for performing review
functions. If Congress does not appropriate funds for the program,
however, states are not required to perform SPRE reviews.
ED identifies schools for review and refers them to the appropriate
SPRE. The SPRE then reviews the schools to determine their
compliance with state standards. If a school fails to meet state
standards, the SPRE may prescribe corrective actions or determine
that the school should no longer participate in all or some Title IV
programs. Schools have the opportunity to challenge the SPRE's
findings through due process procedures at the state level.
More specific information about SPREs can be found in Chapter 3 of
The 1995-96 Federal Student Financial Aid Handbook.
6.6.5 Guaranty Agency Reviews
((Focus of guaranty agency reviews))
Federal Family Education Loan (FFEL) Program regulations require
guaranty agencies to conduct program reviews at postsecondary
schools. A guaranty agency review is similar to an ED program
review. However, a guaranty agency review focuses on how a
school meets requirements specific to the FFEL Program, as those
loans are made through guaranty agencies. These school
- certifying loan applications,
- maintaining records supporting borrowers' eligibility,
- using established procedures for processing and paying loan
- notifying lenders when students change their enrollment status.
Additional information about guaranty agency reviews can be found
in Chapter 3 of The 1995-96 Federal Student Financial Aid
Handbook and in 34 CFR 682.410.
6.6.6 Repayment of Liabilities from an Audit or Program Review
((Program Determination Letter))
An audit or program review may result in liabilities under any of the
Title IV programs for a current award year or for prior award years.
Such liabilities are reported to a school by ED in a Program
Determination Letter (PDL). If the PDL states that the school owes
funds to ED, it will give specific steps that the school must take to
reimburse ED for improperly spent funds. The institution should
carefully follow the instructions in the PDL for reimbursing these
((Billing disallowed funds))
If a school owes payments to ED, a copy of its PDL is also sent to
the Accounts Receivable Management Group (ARMG) in ED's
Financial Services (FS), where an account receivable is established
for the school. A school is also billed for the disallowed amount of
funds, accrued interest, and penalties through ED's billing agent.
Payment instructions are included with the bill.
((Paying disallowed funds))
If a school owes ED $100,000 or more, it must remit payment
through its financial institution by FEDWIRE. If a school owes ED
less than $100,000, it must remit payment by check to ED's billing
agent. (Additional information about making payments can be
found in Chapter 6 of the ED/PMS Recipient's Guide.)
A school may not reduce amounts reported as expended on its
ED/PMS 272 Report to account for expenditures disallowed as a
result of an audit or program review. Any Title IV funds returned
for this purpose will not be credited to a school's ED/PMS account
and will not reduce the school's cash-on-hand amount in ED/PMS.
Unless otherwise directed by the PDL, a school may not attempt to
adjust its prior year FISAPs or Federal Pell Grant processed payment
information to reflect expenditures disallowed as a result of an audit
or program review, nor may it make repayments directly to any
Federal Family Education Loan (FFEL) Program lender or to the
Direct Loan Servicing Center.
((Penalties for failure to repay disallowed funds))
If a school does not return funds owed ED as a result of an audit or
program review, any of the following penalties may occur:
- The school may be assessed penalty and administrative charges, as
well as accrued interest on any unpaid balance.
- The school may be referred to a commercial collection agency and
charged the agency's collection costs.
- The school may be referred to the U. S. Department of Justice for
collection and legal action.
- The school may be referred to other government agencies from
which it receives funds for administrative offsets.
- The school may be reported to credit bureaus.
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