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January 21, 1997 1997-98 Title IV Training TG 2-1

Session 2 Audit and Performance Requirements

Notes

SESSION 2

AUDIT AND PERFORMANCEREQUIREMENTS

OVERVIEW

A. Introduction

B. Current Standards for Financial Responsibility

C. Changes to Audit Requirements

1. Separate Submission of Audited Financial Statement Is Eliminated

2. Compliance Audit and Audited Financial Statement Now Submitted Together

3. Partial Audit May Be Required

4. Requirements for a Foreign School

5. Additional Disclosure Requirement for Proprietary Schools

D. Changes to Standards and Procedures

1. Refund Reserve Performance Exception

E. EDs New Approach to Institutional Oversight

1. The New IPOS2. Case Management Process

SOURCESFOR FURTHER STUDY

3 Federal Regulations 34 CFR, Parts 600 and 668, Subparts B and H

3 Federal Register, November 29, 1996 (Student Assistance General Provisions; revised

requirements for compliance audits and financial responsibility standards)

3 Federal Student Financial Aid Handbook, 1996-97, Chapter 3

3 The Blue Book, July 1995


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TG 2-2 1997-98 Title IV Training


January 21, 1997

Notes

January 11, 1997 2-1

November 29, 1996Regulatory Changes

3Requirement removed for separate

submission of compliance audit andaudited financial statement

3Simultaneous submission of compliance

audit and audited financial statementrequired

3Compliance audit and audit of financialstatement can be conducted by differentauditors

NEWNEWNEWEQUIREMENTREQUIREMENTREQUIREMENT


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Notes

January 11, 1997 2-2

November 29, 1996Regulatory Changes (contd)

3 Refund reserve 2-year performance

exemption clarified

3 Financial responsibility standards includedfor foreign schools

3 85/15 information must now be included infootnote to audited financial statement

January 11, 1997 2-3

General Standardsfor Financial Responsibility

3 School must:

Deliver its educational programswithout interruption

Meet all financial and administrative

responsibilities to ED

NEWNEWNEWEQUIREMENTREQUIREMENTREQUIREMENT


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January 21, 1997

Notes

January 11, 1997 2-4

General and Refund Standards

3Two specific standards require school to:

Meet obligations to make timely refunds offederal funds; and

Meet tests of past performance3Another set of standards requires school to:

Meet or exceed certain financial tests(acid test ratio of assets to liabilities); or

Meet alternative methods


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Notes

January 11, 1997 2-5

Third-Party ServicerCompliance Audit Not Required

3 Third-party servicer contracts with only 1

school; and

3 Schools audit covers all aspects of third-party servicers program administration

NEWNEWNEWREQUIREMENTREQUIREMENT

REQUIREMENT


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January 21, 1997

Notes

January 11, 1997 2-6

New Audit Requirements

3Both compliance audit and auditedfinancial statement required as single

submission

3Prepared on fiscal year basis

3Submitted 6 months after fiscal yearexcept as provided by Single Audit Act

3Conducted in accordance with Generally-Accepted Government Auditing Standards

NEWNEWNEWREQUIREMENTREQUIREMENT

REQUIREM

ENT


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Notes

January 11, 1997 2-7

Compliance Audits

3 Conducted in accordance with:

OMB Circular A133;

OMB Circular A128;

SFA Audit Guide; or

Other applicable guidelinesfrom OMB/ED

SFA

Audit Guide

SFA Audit Guide

SFA Audit Guide

January 11, 1997 2-8

Schools and Third-Party Servicers

3 Must give access to records, audit workpapers, or other documents for audits

3 May be required to provide complianceaudit to other agencies


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January 21, 1997

Notes

January 11, 1997 2-9

Audited Financial Statements

3 Submitted with compliance audit

3 Submitted for complete fiscal year

3 Audited by independent auditor

3 May include two award years

January 11, 1997 2-10

Partial Audit

3 Initial gap in time may occur when school

changes from award year to fiscal year-based audit

3Affected schools will be required to submitpartial year audit covering that initial gap

in time

3Affected schools must submit initial partialyear compliance audit at end of first year

following effective date of regulations


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Notes


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Notes

January 11, 1997 2-11

Proprietary School Disclosure

3 Must include proportion of revenuereceived from Title IV funding during fiscalyear as footnote to financial statement

(85/15 rule)

3 Replaces requirement that 85/15information be verified through

examination-level attestation engagement

January 11, 1997 2-12

Refund ReservePerformance Exemption

3School is required to meet refund standards3School must submit irrevocable letter per ED

criteria unless it:

Qualifies for 2-year performance standard;or

Demonstrates that its liabilities are backedby full faith and credit of state or equivalentgovernment entity; or

Participates in state tuition recovery fundapproved by ED


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January 21, 1997

Notes

January 11, 1997 2-13

Refund Exemption Also Granted

3 If, in compliance audit for 2 most recentyears, auditor did not:

Note material weakness or reportablecondition in schools report on internalcontrols related to refunds; and

Find that school made late refunds to5% or more of students in sample ofrecords examined


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Notes


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January 21, 1997

Notes

January 11, 1997 2-14

Case Management Process

3 Information collected and researched

3 Information reviewed and analyzed

3 Existing compliance problems identified

3 Potential risk assessed

3 Appropriate action determined

3 Case manager assigned toschool ensures that actions are taken

Information Collection


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Notes

3 Application for recertification

3 School financial statements

3 Audits

3 Compliance records

3 Accrediting agencies and licensing boards

3 State agencies

3 Congressional inquiries

3 Student and other complaints

3 Risk reports

CASE MANAGEMENT PROCESS

INPUTS

Decision on school action to be taken

OUTPUT

3 ED databases

3 Administrative Actions and Appeals Division

3 Accreditation and Eligibility DeterminationDivision

State Liaison and Closed School Branch

3 Default Management Division

3 Performance Improvement and Procedures

Division

Performance and Accountability

Improvement Branch (IQAP)

CASE TEAM


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January 21, 1997

Notes Risk Analysis Model

Action Taken

January 11, 1997 2-15

Case ManagementPossible Appropriate Action

3 Recertification or provisional recertification

required

3 Program review initiated

3 Liability established

3 Strategy developed to provide technicalassistance to school

January 11, 1997 2-16

Case ManagementPossible Appropriate Action (contd)

3 School transferred to ReimbursementPayment Method

3 Letter of credit required

3 School referred for enforcement action

3 School recommended for

participation in QualityAssurance Program


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NotesCASE MANAGEMENT DIVISION CONTACT PHONE NUMBERS

Case Management Division - Northeast

Boston Team (617) 223-9338 CT, ME, MA, NH, RI, VTNew York Team (212) 264-4022 NJ, NY, Puerto Rico, Virgin Islands

Philadelphia Team (251) 596-0247 DE, MD, PA, VA, WV, Washington, DC

Case Management Division - Southeast

Atlanta Team (404) 562-6315 AL, FL, GA, KY, MS, NC, SC, TN

Kansas City Team (816) 880-4053 IA, KS, MO, NE

Case Management Division - Northwest

Chicago Team (312) 886-8767 IL, IN, MI, MN, OH, WI

Seattle Team (206) 287-1770 AK, ID, OR, WA

Denver Team (303) 844-3677 CO, MT, ND, SD, UT, WY

Case Management Division - Southwest

Dallas Team (214) 767-3811 AR, LA, NM, OK, TX

San Francisco Team (415) 437-8276 AZ, CA, HI, NV, American Samoa,Guam, States of Micronesia, Palau,Marshall Islands, Northern Marianas

Case Management Division Director

Washington, DC (202) 205-0183


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TG 2 18 1997 98 Titl IV T i i


J 21 1997

Notes

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