«FINAL AUDIT REPORT ED-OIG/A07L0001 February 2014 Our mission is to promote the U.S. Department of Education efficiency, effectiveness, and Office of ...»
Both the 2010 and 2011 risk assessments also identified FSA’s program reviews as high-risk areas. FSA was concerned that it might not be doing a sufficient number of program reviews to ensure that the population of schools as a whole was in compliance with the Title IV requirements. Both the 2010 and 2011 risk assessments also identified reliance on annual compliance audits of schools as another risk area. FSA was concerned that the quality of the audits was not sufficient for its purposes and that the audits were not identifying all significant instances of noncompliance.
FSA’s Monitoring of School Compliance With Title IV Requirements FSA is responsible for monitoring more than 6,000 schools. To fulfill its responsibility, FSA
uses the following four core monitoring tools:
1. Determination of institutional and program eligibility. A school that seeks to establish eligibility to participate in any Title IV program must submit an application to the Department for a determination on whether the school qualifies as an eligible school. According to FSA’s program compliance director, a school obtains regular certification (initial or renewal) to participate in the Title IV programs once every 4 to 6 years. If provisional certification is granted, a recertification is required after 1 to 3 years. FSA generally performs an off-site review of information submitted by the school, rather than conduct an onsite review, to decide whether to recertify the school.
2. Review of annual financial statements. A school that participates in the Title IV programs is required to have an independent public accountant annually audit the school’s general purpose financial statements. The school submits the audited financial statements to FSA. FSA uses the school’s audited financial statements to calculate financial ratios to determine whether the school is financially responsible.
Depending on FSA’s determination about the school’s financial responsibility, it might require the school to provide a letter of credit or to make Title IV disbursements using institutional funds and request subsequent reimbursement from the Department.
3. Review of annual compliance audits. A school that participates in the Title IV programs generally is required to have an independent public accountant annually conduct a compliance audit of the school’s administration of the Title IV programs.
The school submits the compliance audit report to FSA for review, which evaluates the school’s compliance with the Title IV requirements and resolves findings of noncompliance reported by the independent public accountant.
program review specialists conducted 316 program reviews (about 5 percent of all participating schools were reviewed).
When conducting reviews, FSA program review specialists follow a program review manual.
The 2008 version of the review manual was in use during our audit period. The manual provides standardized procedures for conducting program reviews. The manual also outlines elements, including some mandatory ones, the reviewer should test based on the scope of the review.
A scope that includes the review of student files must include a review of the following:
• student eligibility for Title IV disbursements,
• return of Title IV funds for students who withdrew from school,
• proper handling of student credit balances,
• student enrollment status and eligibility for Title IV programs,
• the school’s attendance policies and procedures,
• verification of information reported by students,
• cost of attendance, and
• calculation of awards and disbursement of Title IV funds.
Since the issuance of its 2008 program review manual, FSA has revised sections of the manual to incorporate additional issues specific to distance education. In July 2010, FSA added procedures for testing compliance with school eligibility requirements regarding distance education programs. The procedures include tests for regular and substantive interaction between the students and instructors, which 34 C.F.R. § 600.2 states is one of the key factors for determining whether a course is considered distance education or correspondence. Program review specialists complete these tests by reviewing program descriptions and syllabi and interviewing school employees and students.
In May 2011, FSA again updated its review manual. The attendance section of the May 2011 version addresses distance education programs and the determination of student attendance. The manual now states that attendance must be an academic assignment or substantive interaction between the student and a faculty member. Attendance may not consist of logging in to a class without participation. This revision is aligned with the preamble to 34 C.F.R. § 668.22, which states that evidence of a student logging in to an online class is not sufficient by itself to demonstrate academic attendance by the student (75 Federal Register 66898-66899, October 29, 2010). This revision also is aligned with the revised regulation, effective July 1, 2011, that defines academic attendance for purposes of determining a student’s withdrawal date from school (34 C.F.R. § 668.22(k)(7)).
OIG Results of Eight Schools Reviewed Our review of the eight schools selected as part of this audit identified instances of noncompliance unique to the distance education environment. We concluded that none of the eight schools properly determined and documented students’ academic attendance in accordance with the requirements promulgated in 34 C.F.R. § 668.22(c)(3) as of July 1, 2010. In addition, none of the eight schools used procedures that effectively verified students’ identities as part of the enrollment process (see Finding No. 1 of this report).
Final Audit Report ED-OIG/A07L0001 Page 32 of 83 FSA Monitoring Is Not Sufficiently Focused on Risk Areas Unique to Distance Education To test a school’s attendance policies and procedures, program review specialists randomly select samples from the general population of students who receive Title IV funds. Generally, the sample includes 15 records selected from the universe that includes all Title IV funds recipients at a school for an award year. FSA’s program reviews usually cover 2 award years, resulting in a total of 30 students being selected for review. Because FSA selects its sample only from the general population of students, students enrolled solely in distance education courses might not be included or could be underrepresented in the samples despite the risks inherent in the distance education environment.
In contrast, at the eight schools that we reviewed as part of this audit, we randomly selected samples from a universe of distance education students who earned zero credits for the payment period. Students who earn zero credit hours are a high-risk population because they might have withdrawn from the school without notification, or they might never have begun attendance in the payment period. If the school did not properly determine the student’s attendance, it could improperly disburse Title IV funds to students or not return the appropriate amount of Title IV funds to the Department. Sampling from the high-risk population instead of sampling only from the general population increases the likelihood of identifying problems if they exist. Because it selects samples only from the general population of students, FSA’s program reviews are not as likely as an OIG audit to identify issues unique to the distance education environment.
Between February 2009 and December 2010, FSA reviewed four of the eight schools’ compliance with the Title IV requirements. None of the four program reviews identified the attendance and student identity issues that we identified.
The importance of selecting samples from high-risk populations also was highlighted in the results of the OIG audits and FSA program reviews conducted as part of the FSA/OIG risk project. The risk project identified 27 high-risk schools that offered distance education programs. FSA conducted program reviews of 25 schools, and OIG conducted audits of 2 schools. OIG’s audits of distance education programs at the two schools identified multiple instances of significant noncompliance with the Title IV requirements. FSA’s reviews of the 25 schools identified far fewer and less significant compliance issues.
FSA officials stated that its reviews disclosed few instances of noncompliance specific to distance education. According to the report summarizing the results of the 25 reviews that FSA conducted as part of the FSA/OIG risk project, only 4 reviews identified instances of noncompliance specific to distance education. Still all four instances were related to schools not properly tracking attendance.
Both FSA’s fiscal year 2010 and fiscal year 2011 risk assessments raised concerns that schools offering distance education courses might not be monitoring student attendance and student progress. However, FSA’s program reviews still did not include samples selected from universes of students enrolled solely in distance education courses. To address the risks associated with schools offering distance education that FSA identified in its risk assessment, a better approach would have been to target students with one or more specific attributes, such as no credits earned for a payment period. Otherwise, with the limited amount of testing and time allocated to perform a program review, FSA’s program reviews most likely will not identify compliance issues unique to distance education.
Final Audit Report ED-OIG/A07L0001 Page 33 of 83 Recommendations We recommend that the Chief Operating Officer for FSA—
4.1 Ensure that the sampling methodology for program reviews includes testing of samples of students selected from specific high-risk areas, such as distance education, identified during its annual risk assessment.
4.2 Analyze the results of program reviews conducted using the 2011 version of the review guide to determine whether program reviews are consistently identifying academic attendance issues related to the distance education environment. If the program reviews are not identifying attendance issues, research why, and, if necessary, revise the guide and provide training to staff.
Department Response The Department agreed in principle with the finding and agreed with both recommendations.
Finding No. 5 – More Useful Data on Distance Education Is Needed to Adequately Assess Risk and Direct Monitoring Efforts The Department does not collect sufficient data specific to distance education. At the time we conducted our audit, the Department did not have information on such things as (1) which students attended distance education programs or courses, (2) the amount of Title IV funding that was used by students for distance education programs or courses, and (3) the extent to which individual schools offered distance education programs or courses. The Department cannot adequately manage the Title IV programs in a distance education environment without the data needed to identify and analyze the characteristics, trends, and risks.
According to GAO’s “Standards for Internal Control in the Federal Government,” November 1999 (GAO/AIMD-00-21.3.1), one of the standards of internal control is risk assessment, which is identifying and analyzing risks associated with achieving the objectives, such as those defined in strategic and annual performance plans, and forming a basis for determining how risks should be managed. Risk identification methods may include, but are not limited to, qualitative and quantitative ranking activities, management conferences, forecasting and strategic planning, and consideration of findings from audits and other assessments.
In addition, for an entity to run and control its operations, it must have relevant, reliable, and timely communications. Information is needed throughout the agency to achieve all of its objectives. Program managers need both operational and financial data to determine whether they are meeting their agencies’ strategic and annual performance plans and meeting their goals for accountability for effective and efficient use of resources. In addition to internal communications, management should ensure there are adequate means of communicating with, and obtaining information from, external stakeholders that might have a significant impact on the agency achieving its goals. Moreover, effective information technology management is critical to achieving useful, reliable, and continuous recording and communication of information.
Final Audit Report ED-OIG/A07L0001 Page 34 of 83 Sufficient and Appropriate Data Are Needed to Properly Manage Risk For Department policy makers and program managers to better understand distance education and appropriately manage risk, they must recognize the complex characteristics of distance education and the risks associated with it. Based on our analysis of the data that we received from the eight schools that participated in this audit, the schools disbursed a significant amount of Title IV funds to students who did not earn any credits during a payment period. The eight schools disbursed nearly $222 million to more than 42,000 distance education students who did not earn any credits during at least one payment period from July 1, 2010, through June 30, 2011.
Students who do not earn any credits during a payment period are at a higher risk for improper disbursements because they might not have attended school, and the school should have returned all Title IV funds to the Department. In addition, students who do not earn any credits might not have attended all the courses for which they registered during the payment period or stopped attending school during the payment period, which could potentially affect the amount of Title IV funds for which they are eligible.
Because the Department does not collect such data, Department policy makers and program managers cannot fully identify and fully understand the characteristics and risks unique to distance education.