Nonprofit institutions that manage Federal Student Aid funds are familiar with the Single Audit process that is required annually. These annual reviews are typically the only method institutions have to evaluate whether federal funds are being awarded appropriately and that a school’s processes comply with federal rules.
Audits are essential. However, the Single Audit procedures are not as comprehensive as many professionals believe. It is common for schools without significant audit findings to encounter multiple compliance issues in the U.S. Department of Education’s (ED) Program Review.
In this article, we reveal the most common compliance issues that Single Audit procedures may not uncover that could be findings if ED conducted a Program Review.
If ED notified you of a Program Review tomorrow, would you be ready?
Understanding Single Audits vs. Program Reviews
Single Audits incorporate an audit of an institution’s financial statements and includes a requirement to test significant clusters, defined as federal aid programs where an institution spends $750,000 or more in a fiscal year. However, while the 2023 Title IV Audit Guide (formally the Guide for Financial Statement Audits of Proprietary Schools and for Compliance Attestation Examination Engagements of Proprietary Schoos and Third-Party Servicers Administering Title IV Programs, “Audit Guide”) includes specific procedures that are comprehensive and require reporting all errors, the Single Audit Guide incorporates high level procedures included in the Compliance Supplement and instructs the auditor to consider materiality when it comes to reporting findings. When performing a Single Audit, the Compliance Supplement provides the auditor significant discretion when determining their audit procedures.
Program Reviews are conducted by ED and focus specifically on the institution’s administration of Title IV federal financial aid programs. Unlike a Single Audit, a Program Review follows the Program Review Guide for Institutions and includes procedures that are more like the Audit Guide in evaluating the institution’s overall compliance with Title IV regulations, such as student eligibility, recordkeeping, and aid disbursement. Program Reviews often delve deeper into regulatory compliance and can identify minor or administrative issues that may not be detected during a Single Audit.
Our Analysis: The 10 Most Common Issues Identified in Program Reviews
Each year as part of its Annual Conference, ED publishes two lists: the 10 most common audit findings and the 10 most common Program Review findings.
In this article, McClintock & Associates examines the 10 most common program review findings ED shared in 2023 and considers whether or not the issue would be identified by typical Single Audit procedures.
Student Status – Inaccurate/Untimely Reporting – 9.6%
Institutions are required to update the enrollment status of students, including their enrollment level, in NSLDS within 60 days. The suggested procedures in the Compliance Supplement are the same as the required procedures in the Audit Guide so we would expect issues to be identified during a Single Audit. This is a common finding for all types of schools due to the volume of students who change their enrollment status throughout the year. This finding is unlikely to lead to any liability being assessed by ED.
Return to Title IV (R2T4) Calculation Errors – 7.2%
R2T4 errors have always been included on ED’s annual list for Program Review and audit findings. However, we have seen an increase in these errors due to recent changes, such as the COVID flexibility waiver and changes for programs with modular delivery.
While there are procedures for testing R2T4 accuracy and timeliness in the Compliance Supplement, we have worked with schools who revealed that their auditor has not tested R2T4’s because the school “qualifies for a waiver”. In addition, there are some significant nuances to the recent changes and it’s possible that some auditors do not fully understand them.
The issues identified above are systemic and may impact a large number of students. Other systemic issues include properly determining what counts as eligible institutional charges, properly determining a student’s last date of attendance, and assessing whether Title IV aid should be treated as disbursed versus aid that could have been disbursed. Because of this, we have seen Program Reviews identify R2T4 issues that require significant amounts of aid to be refunded to Title IV.
Student Credit Balance Deficiencies – 5.7%
Credit Balance deficiencies occur when institutions fail to promptly return credit balance on students’ accounts unless an optional credit balance authorization is on file for the academic year. This issue arises when an institution holds excess financial aid funds that should be refunded to the student after tuition and other costs have been covered. Several factors could cause this deficiency, including poor tracking systems, lack of timely action, or lack of communication between departments. According to 34 CFR 668 Subpart K, institutions must ensure credit balances are returned within specified timeframes. However, this regulation is notably absent from the Compliance Supplement, leaving some institutions and auditors unaware of the full compliance requirements.
Failure to adhere to these guidelines can lead to significant repercussions, including fines, placement on Heightened Cash Monitoring, or the Reimbursement Method, which can delay cash flow. If corrective actions are not taken as outlined by the Department of Education, institutions could face the loss of Title IV participation. Ensuring compliance with credit balance regulations is vital to maintaining financial stability and meeting federal program requirements.
Inaccurate Record Keeping – 4.3%
Inaccurate recordkeeping is a critical finding in Title IV Program Reviews, emphasizing the importance of maintaining complete and accurate records and a clear audit trail for all transactions. Common violations include inaccurate student ledger entries, missing Federal Work-Study timesheets, and disbursement records that don’t match COD submissions. Institutions must also ensure timely reconciliation of Title IV accounts, proper identification of bank accounts, and compliance with cash monitoring rules. This category of findings is complex, containing numerous components detailed in the Federal CFR and the FSA Handbook. However, many of these critical elements are not clearly specified in the Compliance Supplement, requiring institutions to be particularly diligent in maintaining audit trails and ensuring their processes are aligned with both federal and regulatory guidelines. Failure to meet these standards can result in financial penalties, the return of misspent funds, or increased oversight.
Entrance/Exit Counseling Deficiencies – 4.1%
All students who participate in the Federal Direct Loan Program are required to be provided loan counseling before receiving their first disbursement (“Entrance”) and prior to graduation or after their otherwise cease enrollment (“Exit”). There is no reference to entrance or exit counseling in the single audit compliance supplement, so we would not expect the Single Audit to identify deficiencies. While we wouldn’t expect Entrance or Exit counseling findings in a Program Review to lead to liabilities, it could be an indicator of a lack of Administrative Capability that could create significant liabilities.
Lack of Administrative Capability – 3.7%
Administrative Capability refers to an Institution’s ability to effectively manage the financial aid program. The considerations are broad and include:
- Adequate staffing and expertise
- Accuracy and timeliness of records
- Application of appropriate internal controls
- Timely submission of audits
- Correct disbursement of financial aid to students
Because this finding incorporates a wide range of systemic issues, the consequences can be severe. In addition to fines and penalties, an Institution could be placed on Heightened Cash Monitoring or the Reimbursement Method, both of which can delay future cash flows. If corrective action outlined by ED isn’t taken, then Title IV participation could be terminated.
Satisfactory Academic Progress (SAP) Policy Not Adequately Developed/Monitored – 3.5%
Regulations require an institution to define and evaluate SAP, considering both qualitative and quantitative components. They include many nuances, including when SAP must be considered and the proper evaluation and enforcement. SAP issues are less likely to be identified during a Single Audit because there are not specific procedures outlined to test. Because SAP issues can impact a large number of students, findings can lead to liabilities being owed to Title IV.
Pell Grant Overpayment/Underpayment – 3.3%
The calculation of a student’s Federal Pell Grant is determined by their enrollment status. If a student’s enrollment status changes before they begin attending classes, the institution must adjust the grant accordingly. An institution is liable for overpayments if it fails to follow proper procedures.
Common violations include using incorrect calculation formulas, inaccurate grant amounts, and not updating grants based on changes in enrollment. Findings in this area can compel the institution to disburse additional funds or return amounts to the Department of Education. Additionally, if multiple errors are detected, a comprehensive file review may be required, potentially resulting in interest liabilities for unreturned overpayments.
Consumer Information Requirements Not Met – 3.1%
Historically, Clery Act findings have been common in Program Reviews and have led to significant fines at times. However, this category extends more broadly to also include consideration of the Institution’s Annual Security Report (ASR), on-time graduation rates, and other consumer information that schools are required to provide their current and prospective students. The Compliance Supplement has very limited to no references to these areas, so it is unlikely issues we be identified from your auditor during a Single Audit.
Improper Credit/Clock Hour Conversion – 3.1%
Over the last decade, the definition of programs that must perform a clock-to-credit hour conversion and the method to perform the conversion has gone through several iterations. We also frequently encounter situations where academic departments make changes to programs that they consider to be minor or that are not communicated to Financial Aid. The nuance of the changes regarding the clock-to-credit hour conversions along with the impact of unknown changes can lead to significant findings. The nature of these findings have the potential to impact all students enrolled in some programs, which can lead to significant liabilities being owed to Title IV.
Inaccurate Disbursement Dates/Amounts Reported to COD – 3.1%
This finding is common in both Program Reviews and Title IV Compliance audits because it often involves a manual process. Disbursements are scheduled in COD for all students based on when they are expected to be made. At times, the disbursements are delayed for a variety of reasons and COD is not always updated to reflect the new disbursement date. If there were a large number of instances, then this could be part of the considerations surrounding Administrative Capability. On its own, it is unlikely to lead to liabilities owed to financial aid nor to sanctions by ED.
Preparing for A Program Review
As we see in the above, an ED Program Review might identify a range of potential compliance issues that a typical audit might miss or not even consider. Frequently, these issues result in large liabilities being owed to financial aid. As a result, it’s critical to be proactive. Review your institution’s financial aid processes, communications procedures, university policies — anything that may be subject to review.
Perform internal compliance audits that go beyond the scope of single audits. Ensure that all financial aid processes align with ED requirements.
Maintain detailed and accurate records. Ensure that all documentation related to federal student aid, including student eligibility, disbursement records, and satisfactory academic progress (SAP), is accurate, up-to-date, and easily accessible.
Regularly review and update institutional policies related to financial aid, ensuring they meet current federal requirements. Pay close attention to areas like return of Title IV funds, verification, and loan disbursement timelines.
Train financial aid staff on federal regulations and institutional policies. Regular training helps ensure that they follow proper procedures and stay informed of regulatory changes.
Regularly review compliance reports such as the Annual Security Report (Clery related), data sent to IPEDs, the yearly FISAP financial responsibility scores, and enrollment reporting to identify potential issues early and address them before a Program Review.
Engage professionals familiar with both Single Audits and Program Reviews to ensure a thorough readiness assessment.
Build Robust Compliance with McClintock
Our experienced team deals solely with helping higher education institutions navigate the complexities of Title IV compliance. We are deeply familiar with the Proprietary Audit Guide, which aligns with ED Program Review procedures. Consulting with our team is the best way for institutions of higher education to quickly and efficiently conduct assessments of how they would perform if selected for a Program Review.
Are you prepared? Reach us today to discuss Program Review consulting services.
