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«FINAL AUDIT REPORT ED-OIG/A07L0001 February 2014 Our mission is to promote the U.S. Department of Education efficiency, effectiveness, and Office of ...»

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Table 3, “Pell and Stafford Loan Amounts Potentially in Excess of the Costs for Tuition, Fees, and Books (Annual),” shows the Title IV credit balance scenarios at each of the eight schools that we reviewed as part of this audit.

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A student’s actual credit balance is based on the timing of a school’s charges and its disbursements of Title IV funds. At four of the schools, the resulting credit balances could be more than half the Title IV funds awarded to a student. Such high remaining balances are attractive to those who are looking to defraud the Title IV programs. In fact, the OIG has investigated and obtained indictments against members of fraud rings that targeted three of the eight schools that we reviewed.

Specific Circumstances Should Dictate a Student’s Title IV Award Although section 472 of the HEA states that no distinction is to be made between on-campus or distance education programs when determining a student’s cost of attendance, it excludes certain indirect costs in the calculation of the cost of attendance for a student enrolled in a course of instruction composed of correspondence courses. Section 472 limits cost of attendance for students enrolled in a correspondence program to only tuition and fees and, if required, books, supplies, travel, and room and board costs incurred for periods of required residential training.

By limiting the cost of attendance for correspondence programs, the HEA recognizes the differences in actual costs incurred based on the mode of instruction. The HEA also recognizes that distance education might result in a substantially lower cost of attendance for some students.

Currently, section 484(l)(2) of the HEA permits a school’s financial aid officer to reduce a student’s Title IV aid if the financial aid officer determines that distance education results in a substantially reduced cost of attendance for the student. Section 479A of the HEA requires Final Audit Report ED-OIG/A07L0001 Page 26 of 83 financial aid officers to make such determinations on a case-by-case basis. In other words, a financial aid officer may use professional judgment, based on supplementary information about the financial status or personal circumstances of students, to alter the data used to calculate the estimated family contribution. This alteration of data may include the student’s cost of attendance.

With the sharp rise in the number of students attending classes through distance education and their different educational expense needs compared with students attending on-campus programs, it is time to reevaluate the true cost of attendance for the different modes of instruction (on-campus, distance education, and correspondence). Tailoring the amounts allowed to be included in cost of attendance budgets to fit students’ educational expenses could reduce the amount of Title IV funds obtained to cover unnecessary expenses, thereby decreasing a student’s loan debt. Tailoring the amounts also could lessen or eliminate the activities of fraud rings, thereby protecting the integrity of the Title IV programs.

Recommendations We recommend that the Acting Assistant Secretary for Postsecondary Education, in collaboration with the Chief Operating Officer for FSA—

3.1 Work with Congress to amend section 472 of the HEA to specify that a school’s cost of attendance budget for a student include only those costs that reflect actual educational expenses.

3.2 Provide guidance to schools explaining (1) that a distance education student’s cost of attendance budget should not include expenses that he or she most likely will not incur, and (2) pursuant to section 484(l)(2) of the HEA, a school’s financial aid officer can exercise professional judgment on a case-by-case basis in accordance with section 479A of the HEA and reduce a student’s Title IV aid amount if the financial aid officer determines that distance education results in a substantially reduced cost of attendance for the student.

Department Response The Department agreed in principle with the finding. The Department agreed with Recommendation 3.1 but only partially agreed with Recommendation 3.2. Regarding Recommendation 3.1, the Department currently is assessing recommended changes to the HEA to improve access to, and the quality and affordability of, postsecondary education. This assessment will include reviewing the statutory framework that governs the determination of financial need among student aid recipients and the direct and indirect educational costs of attendance incurred by students pursuing postsecondary education. The Department plans to communicate the results and recommendations of the assessment to Congress before the September 30, 2014, expiration of the authorization of the HEA.

Regarding Recommendation 3.2, the Department stated that OPE will issue guidance to remind schools that they should develop and use different standard costs of attendance for different categories of students. However, the Department will reaffirm that, while schools have the authority to use professional judgment to adjust the cost of attendance, the law limits such Final Audit Report ED-OIG/A07L0001 Page 27 of 83 discretion to be exercised only on a case-by-case basis, rather than across an entire category or class of students. In addition, any such adjustments must be documented in the student’s file.

OIG Response We revised Recommendation 3.2 to clarify that the financial aid officer must exercise professional judgment on a case-by-case basis in accordance with section 479A of the HEA.

Did the Department, Accrediting Agencies, and State Agencies Adequately Oversee Schools to Provide Assurances of Compliance With the Title IV Requirements?

Collectively, the oversight provided by the Department, accrediting agencies, and States has not been adequate to mitigate the risk of schools’ not complying with Title IV requirements that are unique to the distance education environment. For the purposes of this audit, we considered the

following to be Title IV requirements that are unique to distance education:

• verifying a student’s identity,

• determining student academic attendance, and

• maintaining sufficient evidence of a student’s academic attendance.

In addition, the Department has not been collecting data and other information that could help it identify additional risks unique to distance education. Collecting and analyzing sufficient and appropriate data would help the Department proactively adapt existing regulations and guidance or develop new policies to address risks unique to distance education. Sufficient and appropriate data also would help the Department better target its monitoring of schools offering distance education.

Oversight of Distance Education Schools As discussed in more detail in the Background section of this report, the Department, accrediting agencies, and States provide oversight of schools. Accrediting agencies, in accordance with Title IV requirements, oversee the quality of distance education programs, monitor enrollment growth at certain distance education schools, and determine whether schools have processes for verifying a student’s identity. Accrediting agencies are not required to monitor any other aspects of schools’ compliance with the Title IV requirements unique to the distance education environment. States are responsible for authorizing and licensing schools to operate in their States. However, States are not required to monitor schools’ compliance with Title IV requirements unique to the distance education environment. The Department, specifically FSA, has primary responsibility for monitoring schools’ compliance with Title IV requirements, including those unique to the distance education environment.

Final Audit Report ED-OIG/A07L0001 Page 28 of 83 Accrediting Agencies The Department relies on accrediting agencies primarily to monitor the quality of a school’s educational programs. Therefore, accrediting agencies’ reviews focus on the academic quality of the school’s educational programs; their reviews are not designed to identify noncompliance with the Title IV requirements.

We performed work at nine accrediting agencies: two national, two regional, and five specialized. All nine accrediting agencies complied with the following Title IV regulations affecting accrediting agency reviews of schools offering distance education that took effect on July 1, 2010. 13 All nine accrediting agencies

1. had standards, policies, and procedures that address the quality of distance education (34 C.F.R. § 602.16(c)); and

2. established processes to ensure that their accredited schools have policies and procedures in place to ensure that the person who registers in a distance education course or program is the same person who participates in and completes the program and receives the academic credit (34 C.F.R. § 602.17(g)).

States We contacted officials from nine States (Arizona, Arkansas, Florida, Indiana, Ohio, Pennsylvania, South Dakota, Utah, and Virginia) and asked for information about each State’s authorization and licensure processes. We received responses from five (Arizona, Pennsylvania, South Dakota, Utah, and Virginia). In general, all five States indicated that their school authorization processes focused on authorizing and licensing schools that are physically located in the State and seek to offer postsecondary education in the State. Examples of the authorization process included submitting an application that included information such as accreditation status, financial statements, course offerings, and ownership. In addition, one State required school officials to attend a new school orientation session and submit to a site visit by a State official.

States are not required to monitor schools’ compliance with the Title IV requirements. Four of the five States indicated that they do not monitor schools’ compliance with the Title IV requirements. The fifth State did not provide sufficient information for us to determine whether it performed such monitoring.

All five States informed us that they have implemented the State authorization regulation (34 C.F.R. § 600.9) that became effective July 1, 2011, and have processes to

1. authorize, license, approve, or certify postsecondary schools to offer programs in the respective State and

2. review and act on complaints concerning a school and enforce applicable State laws.

–  –  –

Only one State indicated that schools physically located in the State are required to provide additional information if they offer distance education. Pennsylvania requires schools offering distance education to identify available student access to academic and student services as well as textbooks and research resources. Pennsylvania also requires schools to show how students will interact with faculty, how the schools will ensure the integrity of student work, and how coursework will be assessed.

Department Within the Department, OPE develops policies, including the recognition of accrediting agencies and the role of States in authorizing schools, that govern the Title IV programs. OPE does not directly monitor schools’ compliance with the Title IV requirements. FSA is responsible for implementing student financial aid policies and monitoring schools’ compliance with the Title IV requirements. We discuss FSA’s monitoring in Finding No. 4.

Finding No. 4 – FSA Could Improve Its Monitoring of Schools’ Compliance by Targeting Its Reviews on High-Risk Areas FSA could improve the effectiveness of its program reviews of schools’ compliance with the Title IV requirements by targeting part of its monitoring reviews on the highest risk areas.

Focusing on higher risk areas would put FSA in a better position to identify the issues that we identified during our school reviews and to identify other issues unique to the distance education environment.

According to GAO’s “Standards for Internal Control in the Federal Government,” November 1999, 14 the five standards of internal control are control environment, risk assessment, control activities, information and communications, and monitoring. Monitoring should assess the quality of performance over time and ensure that the findings of audits and other reviews are promptly resolved. Sound monitoring processes should include evaluations focused on the effectiveness of the controls. The scope and frequency of such evaluations will depend on the assessment of risks and the effectiveness of ongoing monitoring procedures. The responsibility for good internal control rests with all managers. Management sets the control objectives, puts the control mechanisms and activities in place, and monitors and evaluates the controls. However, all personnel in the organization play important roles in making sure controls are effective and operating as intended.

FSA’s Identification and Analysis of Risk Each year, FSA performs a risk assessment to identify and analyze risks associated with schools’ compliance with the Title IV requirements. For each risk identified, FSA calculates a risk score based on the significance and likelihood of each particular risk. FSA also considers the potential impact or effect of each type of risk. Then, FSA considers existing risk mitigation strategies and develops future action steps to mitigate the impact of the risks on the Title IV programs.

FSA’s fiscal year 2010 and fiscal year 2011 risk assessments identified distance education as one of the highest risk areas. FSA’s concerns were that (1) schools might be expanding distance education programs rapidly without being able to provide adequate support to the increased

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number of students, (2) distance education programs might not have appropriate content and contact hours between instructors and students, and (3) schools offering distance education courses might not be monitoring student attendance and student progress.

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