THREE STEPS TO CASH MANAGEMENT COMPLIANCE

Higher Ed Executives Financial Aid Consultants Can help you gain compliance with title iv cash management regulations

FSA recently released an electronic announcement reminding institutions of the requirements for proper cash management compliance. Disbursing aid timely, resolving excess cash and reconciliation are necessary procedures and controls to ensure compliance with the federal regulations. Noncompliance in these areas often results in institutions being placed on the Heightened Cash Monitoring disbursement method and often with a requirement that the school post an irrevocable Letter of Credit equal to a percentage of title iv funds that have been drawn down in prior years. It’s not pretty. The simplest thing to do to avoid this is to have a handle on some cash management basics.

Three Steps to Cash Management Compliance:

1. Submit disbursement records timely.

All disbursement records should be sent to COD within 15 days after making the disbursement or becoming aware of the need to adjust a student’s previously reported disbursement.

2. Keep an eye out for excess cash and if necessary, return any undisbursed funds to the Department.

Excess Cash is any amount of title iv funds (excluding Perkins) that the school does not disburse to students or parents by the end of the third business day after the date the school received funds from the department. Excess cash can also occur when a school deposits previously disbursed funds into their federal bank account and lets it sit for more than three days before disbursing it to another student or returning it to the Department.

3. Reconcile regularly.

If you are reconciling all title iv disbursements on at least a monthly basis, you’ll be in a good position to ensure that you are meeting the disbursement reporting and excess cash deadlines. Regularly reconciling both internally between business office and financial aid office data as well as externally between financial aid office data and the Department’s COD and G5 systems will make final reconciliation and program year closeouts a snap. Plus, your auditors will be very happy to see the proof of your regular efforts.

TEN REASONS SCHOOLS ARE PLACED ON HEIGHTENED CASH MONITORING

West Virginia’s Public Colleges recently made the news when the Department placed more than a dozen schools in the state on Heightened Cash Monitoring after the schools failed to provide their audit on time. It’s extremely rare to see a public school placed on Heightened Cash Monitoring since public schools are backed by the “full credit and faith of the state” but the Department cited the State’s colleges for their demonstrated lack of administrative capability over the late and missing audits. So let’s look at the ten reasons a school gets placed on HCM.

10 REASONS SCHOOLS ARE PLACED ON HEIGHTENED CASH MONITORING

Accreditation Problems – Includes accreditation actions such as the school’s accreditation has been revoked and is under appeal, or the school has been placed on probation.

Administrative Capability – Concerns about the institution’s ability to manage the Title IV programs including student file maintenance, record retention, and verification. 

Audit Late/Missing – School did not submit their audit by the due date and is considered not financially responsible.

Audit (Severe Problems) – School has severe audit findings which could include financial statements, internal controls, and compliance with laws, regulations, and provisions of contract or grant agreements.

Default Rate – A school’s cohort default rate for Perkins loans made to students for attendance at the school exceeds 15% or the cohort default rate for Federal Stafford loans or for Direct Subsidized/Unsubsidized Loans made to students for attendance at the school equals or exceeds 30% for the three most recent fiscal years or if the most recent cohort default rate is greater than 40%.

Denied Recertification (PPA Not Expired) – School’s recertification was denied but its Program Participation Agreement has not yet expired.

Financial Responsibility – School has a failing or a zone composite score or other concerns such as unreconciled accounts.

Change In Ownership Problems (Eligibility) – Issues identified with information needed on a Change in Ownership application such as missing/incorrect same-day balance sheet or other needed documentation; or an unreported CIO is discovered.

Program Review – School is being reviewed by the Department as part of its normal oversight and monitoring responsibilities or as a result of concerns regarding the school’s administrative capability and financial responsibility.

Program Review (Severe Findings) – School has potential of severe program review findings such as failure to make refunds or return of Title IV funds.

 

TITLE IV FUNDS MUST NEVER ESCHEAT TO A THIRD PARTY

At schools that issue paper checks to students for credit balances, the check issuing process is often handled by someone removed from the financial aid and student accounts functions. Check processing is typically handled by an accounts payable employee or someone similar in the back accounting office. The same goes for EFT/ACH transactions. When a school issues a check, EFT or ACH payment to a student that results from a Title IV Credit Balance, it must have a process in place to ensure that the funds are delivered to the student and never escheat to a third party. 

A school’s credit balance process must ensure that FSA funds never escheat to a state, or revert to the school, or any other third party. All Title IV Credit Balances must be issued to the student (or parent for PLUS loan funds). However, if after attempting to deliver the funds to a student the school determines it is not possible to do so, funds must be returned to the Department of Education.

All Title IV funds, except FWS Program funds that a school attempts to disburse directly to a student or parent must be returned to the Department if the student or parent does not receive the funds or cash the check. For FWS Program funds, a school is required to return only the Federal portion of the payroll disbursement. If a school attempts to disburse a credit balance by check or EFT and the check is not cashed or the EFT is rejected, the school must return the funds no later than 240 days after the date it issued that check or made the EFT. Therefore schools should have a process to ensure that all student disbursement checks (including EFT and ACH) are cashed within 240 days or otherwise returned to the department.  This rule is applicable to all credit balances of one-dollar or more.

Schools are required to abide by the federal regulations which govern how FSA funds must be managed and those that fail to have adequate systems in place run the risk of administrative capability findings in annual audits and program reviews.

DEADLINE FOR T1 AND T2 ARRANGEMENTS EXTENDED

The cash management final regulations, published on October 30, 2015 require institutions with Tier One (T1) and Tier Two (T2) arrangements to list and identify the major features and commonly assessed fees associated with each financial account offered under those arrangements during the process through which a student chooses options for receiving payments of Federal student aid. Schools were required to follow the format that the Department specified in disclosing this information to students by July 1, 2017, but the Department had not provided the format leaving schools to develop their own.

After soliciting comments, the Department announced the release of their new suggested disclosure format. To allow institutions sufficient time to adopt the final format, if they elect to do so, the Department is allowing additional time, until January 1, 2018 to comply with the applicable disclosure requirements.

According to an Electronic Announcement, the official version of this document is the document published in the Federal Register. This document has been sent to the Office of the Federal Register but has not yet been scheduled for publication. You can grab it here in the meantime.

NEW PROGRAM REVIEW GUIDE FOR SCHOOLS

We’ve been promised an updated Program Review Guide for years and after long last, it’s here. Not surprisingly it looks a lot like the last program review guide but contains updated information about the general guidelines established by the U.S. Department of Education for both Department personnel tasked with conducting program reviews of institutions as well as information to assist institutions in preparing for and participating in a program review. The new guide covers everything from general program review processes to procedures and guidelines for following up. Surprisingly the Department doesn’t give away any secrets like their use of the “Wayback machine”  but it’s still great to have an updated reference guide for if and when the occasion arises.

At NASFAA’s 2017 Conference Jeff Baker explained that the Department continues to expand the number and focus of program reviews it conducts each year while admitting that they would like to do more than they are presently capable of doing.

MOST FREQUENTLY CITED PROGRAM REVIEW FINDINGS

A financial aid consultant can help your college identify risks and prevent program review findings

What are the most frequently reported program review findings according to ED?

ED recently released an updated program review guide packed with lot’s of great info to help schools and colleges understand the in’s and out’s of a program review. The new guide covers everything from general program review processes to procedures and guidelines for following up. According to the guide, these are the most frequently cited program review findings. 

These are the top ten most frequently cited program review findings at colleges and universities.

  • Crime Awareness Requirements Not Met
  • Verification Violations
  • Return to Title IV Calculation Errors
  • Student Credit Balance Deficiencies
  • Drug Abuse Prevention Requirements Not Met
  • Student Status – Inaccurate/Untimely Reporting
  • Entrance/Exit Counseling Deficiencies
  • Consumer Information Requirements Not Met
  • SAP Policy Not Adequately Developed and/or Monitored
  • Inaccurate Record keeping

How does your institution assess it’s risk and preparedness for audits and program reviews?

To learn more about how your institution can adjust its processes and reporting to minimize its risk of these federal student aid compliance issues, please contact us.


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TIER ONE AND TIER TWO DISCLOSURE REQUIREMENTS

Multiple independent agencies (Consumers Union, GAO, USPIRG, ED’s OIG, FDIC etc.) have found that students in relationships with third-party servicers that provide direct payments to students often face higher costs, deceptive business practices, and misleading direct marketing. As a result in 2015, the Department began requiring institutions to provide disclosures to their students and report certain data about their contracts to ED.

A Tier 1 (T1) Arrangement is one in which a school contracts with a third-party servicer to perform one or more of the functions associated with processing direct payments of Title IV funds on behalf of the school, and the school, or third-party servicer makes payments to one of the following:

• One or more financial accounts that are offered to students under the contract
• A financial account where information about the account is communicated directly to students by the third-party servicer, or the school on behalf of or together with the third-party servicer
• A financial account where information about the account is communicated directly to students by an entity contracted with or affiliated with the third-party servicer.

A Tier 2 (T2) Arrangement is one in which a school has a contract with a financial institution, or entity that offers financial accounts through a financial institution, under which financial accounts are offered and marketed directly to students enrolled at the school.

A financial account is marketed directly if
• the school communicates information directly to its students about the financial account and how it may be opened;
• the financial account or access device is cobranded with the school’s name, logo, mascot, or other affiliation and is marketed principally to students at the institution; or
• a card or tool that is provided to the student for school purposes, such as a student ID card, is validated, enabling the student to use the device to access a financial account.

By September 1, 2017, any institution with a Tier one (T1) arrangement, and/or a Tier two (T2) must post on its website T1 and/or T2 contract data pertaining to the total consideration paid or received by the contracting parties under the arrangement for the most recently completed award year.
Each such institution must also post the mean and median costs its students incurred, as well as the number of students who had financial accounts under the contract at any time during the most recently completed award year, unless the institution had fewer than 30 enrolled students with accounts opened under the T1 or T2 arrangement. The regulations require that thereafter, these postings must be updated within 60 days after the end of each award year.

To meet this requirement, institutions must do the following:
• Post information regarding the mean and median costs students incurred and the number of student accountholders prominently, and as the first piece of information at the URL provided to the Department under §668.164(e)(2)(viii) and (f)(4)(v)
• Place information regarding to the total monetary consideration paid or received by the contracting parties directly below the information regarding student accounts
• Place any non-monetary consideration between the contracting parties directly below information pertaining to the monetary consideration.

For more information on the most recent Cash Management guidelines associated with T1 and T2 arrangements, click here.

PROPRIETARY SCHOOLS NEW AUDIT REQUIREMENTS

for profit school audit

For the first time in sixteen years, the U.S. Department of Education Office of Inspector General (OIG) has released a new Audit Guide for Proprietary Schools. The Guide replaces the one from 2000 and contains new instructions for how independent auditors should audit proprietary schools for compliance with federal financial aid regulations.

Proprietary schools are required to have a financial statement audit and compliance audit conducted by an independent auditor each year. The new Audit Guide for Proprietary Schools takes effect for fiscal years that begin after June 30, 2016. Thus, schools with a fiscal year ending June 30, 2017 will be the first to be audited under the expanded procedures.

The audit procedures contained in the new Guide increase both the size and scope of testing significantly, while bringing focus to a number of items that haven’t been part of examination level attestations before.

Understanding these changes and their impact on your school is crucial to planning, and preparing to have a good clean audit during your next audit cycle. It goes without saying that increased findings could lead to heightened regulatory oversight and increased likelihood of program reviews. But what may not be apparent is that systemic problems are more easily revealed with larger samples and a vastly expanded scope.

The updated Guide contains several major changes from the prior version, which raise the level of required testing to be performed by a school’s independent auditor.

Prior guidance only required auditors to conduct an examination-level attestation engagement of a school’s management’s assertions of compliance. The new Guide instructs auditors perform a full compliance audit each year. This essentially changes the scope of the work your auditor will perform from an examination of compliance to an audit of compliance. It sounds like a subtle difference, but the change necessitates much more rigorous testing than in the past. Auditors will have to visit each campus annually where processing or awarding is done. As a result, expect auditors to spend more time conducting site visits. And that’s going to cost more.

One of the biggest changes is the way the student universe is used to draw an audit sample. Under the new guidance, samples must be separated into two categories:

  • Students who were enrolled, graduated or on approved leave of absence
  • Students who have withdrawn, dropped, enrolled but failed to begin attendance or were terminated

As a result, schools can expect the number of students included in an audit sample to increase as much as 50-60%. Auditors will have to test more files from the withdrawn, dropped and terminated population. That means your auditors will be looking at more R2T4 calculations and testing timeliness of refunds and post withdrawal disbursements. They’ll also be looking at NSLDS enrollment reporting compliance, exit counseling, and loan calculations for students who drop and re-enroll.

The new procedures include expanded testing for verification, enrollment reporting, student eligibility, and disbursement activities. Expect your auditors to ask for your school’s written policies and procedures related to these items. Auditors are required to confirm that each school has a written policy and procedure for student verification processes, disbursement approval, disbursement, and delivery of Title IV funds. Expect your auditors to verify the verification status that your school reports to COD, in addition to confirming that disbursement dates on students’ ledger cards tie out to disbursement dates in COD. The Guide also requires a school’s auditors to compare a school’s written procedures to actual process the school uses and report on any differences. And the scope of the audit doesn’t stop there.

The procedures in the Audit Guide specify that the required monthly reconciliations for the federal direct loan program must also be audited. Schools must have documentation showing that monthly reconciliation is being done between ED’s records and a school’s financial aid and business office records each month. They’ll be looking for source documentation to ensure proper internal controls.

We’ve always said that when it comes to audits and program reviews, the folks with the biggest pile of documentation win. And to win the game, you have to be sure that your school maintains verifiable source documentation and that it concurs with any published information. For example, Auditors will test Gainful Employment Reporting, certain consumer information such as Campus Crime statistics and placement rates for the first time. The new procedures require them to trace and verify the data used in compiling these statistics all the way back to the source documents.

Finally, although it has long been understood that it was the school’s responsibility to calculate their own 90/10 ratios some schools weren’t doing so. Instead they were relying on their auditor to do it for them. The new Guide makes it clear that a proprietary school must disclose in a note to the financial statements the percentage of its revenues derived from Title IV program funds and that the calculation presented in the notes to the financial statements must be made by the school, not the auditor performing the audit. In addition, the Guide requires auditors to determine whether the amounts to include in the 90/10 calculation for student revenue are determined on a student by student basis. Why you ask?

As you can expect, the OIG is wise to schemes schools have used to manipulate their 90/10 calculation, so auditors have been given specific guidance on procedures to determine the validity of transactions. The Guide instructs auditors who determine that a school’s calculation is misstated by any amount to disclose it as a finding in the report on internal control over financial reporting and compliance.

The Audit Guide for Proprietary Schools can be found here: http://bit.ly/2dzHbCX


We take the stress out of audits and program reviews. Find out more here

ANNUAL COMPLIANCE AUDITS REQUIRED FOR SFA CLUSTER

Compliance and Financial Statement Audit

In the past, annual compliance audits weren’t required for all schools participating in Title IV, but ED’s recent reinterpretation of the HEA has some colleges doubling back.

Last year the Department of Education announced its plan to begin requiring annual compliance audits at Public and Non-Profit colleges beginning in fiscal year 2017. Until now, some schools only conducted financial statement audits each year under guidance from the Office of Management and Budget under the Single Audit Act and 2 CFR 200. Until recently, the Single Audit Act and 2 CFR 200 allowed schools to submit a compliance audit once every three years when an institution’s participation in the Title IV programs was determined to be low-risk. However, the Department’s position was announced in an August 2016 electronic announcement which stated that the provisions of both the HEA and the associated implementing regulations require submissions of the institution’s audited financial statements and compliance audit every year.

Last month the Department announced that this guidance was not able to be incorporated into the Office of Management and Budget’s 2017 Compliance Supplement, but still plans to include it in the Fiscal Year 2018 guidance schedule to be released later this year

The Department also reiterated the guidance from their August 2016 announcement that institutions should contact their School Participation Division if their auditor, in following previous OMB guidance, made a determination that their Student Financial Assistance Program Cluster was low risk. ED also confirmed that this guidance stands for calendar year 2016 and 2017 audits as well. You can read the full electronic announcement here: http://bit.ly/2qXbkzW


Need help responding to Audit and Program Review findings? We’re here to help. Call 203-836-4806 or Email Info@Ed-Executives.com

 

FINAL REGULATIONS FOR STATE AUTHORIZATION – DISTANCE ED

As required by the Higher Education Act, State authorization has been a longstanding requirement that necessitates state oversight of institutions. Each Title IV eligible institution has to be authorized in the state in which they are located as a condition for participation in Title IV Federal student aid programs.  While all higher education institutions must have state authorization in the states in which they are physically located, there have been no federal regulations for distance education providers in states where the institutions are not located and since 2010, ED has been seeking tighter regulations.

Just before the holidays, the U.S. Department of Education announced final rules on State Authorization of Postsecondary Distance Education detailing new requirements for colleges and schools that offer online distance education programs to students physically located in other states to follow. The rule is scheduled to go into effect July 1, 2018 and requires institutions offering distance education to be legally authorized to operate and monitored by an appropriate state agency in each state where their students reside. For schools with a national presence, this requires a school to obtain authorization is nearly every state in the country. Fortunately, the new regulations recognize authorization through participation in a state authorization reciprocity agreement such as SARA (which now boasts as many as 45 states sharing reciprocity), as long as the agreement does not prevent a state from enforcing its own laws.

Here’s a summary of the new rules:

  • Student Complaint Process Documentation – Institutions must document the state process for resolving student complaints regarding distance education programs.
  • Disclosure Requirements – Institutions must provide public and individualized disclosures to enrolled and prospective students in distance education programs, including adverse actions taken against the school, the school’s refund policies, and whether each program meets applicable state licensure or certification requirements. Schools must also explain to students the consequences of moving to a state where the school is not authorized, which could include loss of eligibility for federal student aid.
  • Branch Campuses or Additional Locations in a Foreign Location Authorization – Foreign branch campuses or locations must be authorized by the appropriate foreign government agency and, if at least half of a program can be completed at the foreign location or branch campus, be approved by the accrediting agency and reported to the state where the main campus is located.

Read the Federal Register, which includes important preamble info here and be on the lookout for implementation guidance later this year.