philander smith college’s administration of title iv student financial assistance programs needs improvement final audit report ---

Philander Smith College’s Administration of Title IV Student Financial
Assistance Programs Needs Improvement
FINAL AUDIT REPORT
------------------

ED-OIG/A06F0018
November 2, 2006
Our mission is to promote the efficiency, effectiveness, and integrity
of the Department's programs and operations.

U.S Department of Education
Office of Inspector General
Dallas, Texas
NOTICE
Statements that managerial practices need improvements, as well as
other conclusions and recommendations in this report represent the
opinions of the Office of Inspector General. Determinations of
corrective action to be taken will be made by the appropriate
Department of Education officials.
In accordance with Freedom of Information Act (5 U.S.C. § 552),
reports issued by the Office of Inspector General are available to
members of the press and general public to the extent information
contained therein is not subject to exemptions in the Act.
November 2, 2006
Dr. Walter Kimbrough, President
Philander Smith College
One Trudie Kibbe Reed Drive
Little Rock, Arkansas 72202
Dear Dr. Kimbrough:
Enclosed is our final audit report, Control Number ED-OIG/A06F0018,
entitled Philander Smith College’s Administration of Title IV Student
Financial Assistance Programs Needs Improvement. This report
incorporates the comments you provided in response to the draft
report. If you have any additional comments or information that you
believe may have a bearing on the resolution of this audit, you should
send them directly to the following Education Department official, who
will consider them before taking final Departmental action on this
audit:
Theresa S. Shaw
Chief Operating Officer, Federal Student Aid
U.S. Department of Education
Union Center Plaza
830 First Street NE, Room 112F1
Washington, DC 20202
It is the policy of the U. S. Department of Education to expedite the
resolution of audits by initiating timely action on the findings and
recommendations contained therein. Therefore, receipt of your comments
within 30 days would be appreciated.
In accordance with the Freedom of Information Act (5 U.S.C. §552),
reports issued by the Office of Inspector General are available to
members of the press and general public to the extent information
contained therein is not subject to exemptions in the Act.
Sincerely,
/s/
Sherri L. Demmel
Regional Inspector General
for Audit
Enclosures
TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY 1
BACKGROUND 3
AUDIT RESULTS 4
FINDING NO. 1 – PSC Did Not Maintain Proper Accounting for Perkins
Loan Funds 4
FINDING NO. 2 – Title IV Aid Was Disbursed to Ineligible Students 6
FINDING NO. 3 – Returns of Unearned Title IV Funds Were Not
Administered 8
FINDING NO. 4 – Verification Was Not Completed For All Selected
Students 9
FINDING NO. 5 – Credit Balances Were Not Properly Administered 10
FINDING NO. 6 – PSC Did Not Properly Administer the Direct Loan
Program 12
FINDING NO. 7 – Changes in Student Status Were Not Reported to NSLDS
13
FINDING NO. 8 – PSC Did Not Meet Administrative Capability Standards
for Title IV Programs 14
OBJECTIVE, SCOPE, AND METHODOLOGY 16
Enclosure 1: Questioned Costs 18
Enclosure 2: PSC’s Response to the Draft Report 1
EXECUTIVE SUMMARY
The purpose of the audit was to determine whether Philander Smith
College (PSC) complied with the Title IV program requirements for
student eligibility, verification, return of Title IV funds, and
accounting for the Federal Perkins Loan program (Perkins) and the
William D. Ford Federal Direct Loan program (Direct Loans). Our review
covered PSC’s fiscal year July 1, 2003, through June 30, 2004. Federal
funds disbursed in the 2003-2004-award year for Pell and Direct Loans
were $2,028,609 and $4,574,054, respectively.
We determined that PSC often did not comply with the Title IV program
requirements, and as a result did not meet the administrative
capability standards for Title IV programs. Based on the significance
of these findings, we concluded that the entire $11.4 million in
Department of Education (Department) funds that PSC expended during
2003-2004 might be at risk for similar misuse.
We found that PSC—
*
Did not account for or properly administer the Perkins Loan Funds;
*
Disbursed $26,548 in Title IV funds to 5 ineligible students from
a sample of 20;
*
Did not return unearned Title IV funds;
*
Failed to monitor the verification process and ensure that all
required verifications were completed;
*
Did not properly handle credit balances for the 8 files we
reviewed;
*
Did not properly disburse or reconcile Direct Loan Program funds;
*
Did not report student status changes to the National Student Loan
Data System (NSLDS); and,
*
Did not meet administrative capability standards for Title IV
Programs.
To correct these deficiencies, we recommend that the Chief Operating
Officer for Federal Student Aid (FSA) require PSC to—
*
Reconcile the Perkins Loan and Direct Loan Programs;
*
Return funds to the Department for disbursements made to
ineligible students;
*
Develop and implement adequate policies, procedures, and
management controls;
*
Refund outstanding credit balances;
*
Calculate and pay imputed interest costs to the Federal Government
for excess cash retained in fiscal year 2003-2004;
*
Ensure personnel are trained in the requirements of the Title IV
Programs; and
*
Contract with a consultant, acceptable to the Department, to
perform a 100 percent file review for years 2003-2004, 2004-2005,
and 2005-2006 to determine if additional Title IV funds were
improperly disbursed.
We also recommend that the Chief Operating Officer of FSA—
*
Continue PSC on provisional certification;
*
Place PSC on the reimbursement payment method;
*
Initiate appropriate action under 34 C.F.R. Part 668, Subpart G,
to fine, limit, suspend, or terminate PSC’s participation in the
Title IV programs;
*
Provide technical assistance to PSC to develop and implement
policies, procedures, and management controls as discussed in
Recommendations 1.1, 3.1, 4.1, and 5.1;
*
Conduct follow up site visits to ensure that PSC follows it
policies and procedures to properly administer the Title IV
programs.
In its response, PSC stated it is committed to bringing its Title IV
program into compliance with Federal laws and regulations. PSC agreed
with our findings and accepted financial responsibility for $430,078
of our recommendations to return total funds of $477,029. PSC did not
agree with Recommendations 2.2, 3.2 (partially), 4.2, 5.2, 6.2, 8.3,
and 8.8. PSC did not comment on Recommendations 1.1, 8.1, and 8.7.
Based on PSC’s response and their commitment to bring their Title IV
program into compliance, we have added recommendations that FSA
provide the assistance necessary. Based on additional documentation
provided by PSC, we removed Recommendation 2.2, modified 3.2 and 5.2,
but kept all others unchanged. The response, excluding the referenced
appendices, which contains student information, is included as
Enclosure 2. The appendices are available upon request.
BACKGROUND
PSC, a historically black college founded in 1877, is Arkansas’s
oldest, private, not-for-profit, four-year, liberal arts college. The
college, accredited by The Higher Learning Commission of the North
Central Association of Colleges and Schools, offers the following
degrees: Bachelor of Arts, Bachelor of Science, Bachelor of Business
Administration, and Bachelor of Social Work.
PSC has participated in the Title IV programs under provisional
certification since 1999. Federal funds disbursed in the
2003-2004-award year for Pell and Direct Loans were $2,028,609 and
$4,574,054, respectively. During our audit period, PSC used a
servicer, Campus Partners, to handle accounting functions and Debtcom,
Incorporated to perform collections for its Perkins program. Debtcom
discontinued operations in July 2004.
PSC hired a consultant in 2002 to close out the Direct Loan and the
Perkins programs. The consultant agreed to reconcile and close out the
Direct Loans and to perform due diligence and assign outstanding
Perkins loans to the Department.
PSC’s 2003 A-133 Single Audit Report had the following reportable
conditions:
*
Reconciliation of bank accounts–the College did not reconcile bank
accounts and adjust the books for reconciling differences on a
monthly basis.
*
Cash Management–PSC did not disburse Title IV funds to students or
parents by the end of the third day following the date the
institution received those funds from the Secretary.
*
Returning Title IV Funds–PSC did not return Title IV funds to the
Department of Education (ED) within 30 days of determining that
students receiving Title IV awards withdrew.
*
Submission of Reports–PSC did not properly monitor, oversee, and
report Federal Pell Grants.
In 2004, the A-133 Single Audit Report had the following reportable
conditions:
*
Financial statements–the College did not provide complete and
accurate monthly financial statements to management on a timely
basis.
*
Reconciliation of bank accounts–the College did not reconcile and
adjust bank accounts on a monthly basis. As a result, adjustments
were made to cash after the year ended.
*
Federal revenue and expenditures–the College could not readily
identify all Federal revenue and expenditures, and revenue was not
recorded in the appropriate account on a consistent basis.
*
Payments disbursed not reconciled–the College credited Direct
Loans and Pell awards to student accounts receivable for which the
College did not receive reimbursement. The students were either
not eligible for these awards, or the College did not submit the
necessary documentation to receive reimbursement.
PSC has experienced frequent turnover in administrators and staff. The
current President, Chief Financial Officer, and Financial Aid
Administrator began their tenures in late 2004 and early 2005.
AUDIT RESULTS
We determined that PSC often did not comply with the Higher Education
Act (HEA) of 1965, as amended, and regulations for administering the
Title IV programs, and as a result, did not meet the administrative
capability standards for program participation. Specifically, PSC did
not—
*
Account for or properly administer the Perkins Loan Funds;
*
Disburse Title IV aid to only eligible students;
*
Return unearned Title IV funds;
*
Complete verification for all selected students;
*
Return credit balances;
*
Reconcile the Direct Loan Program; and,
*
Report changes in student status to National Student Loan Data
System (NSLDS).
FINDING NO. 1 – PSC Did Not Maintain Proper Accounting for Perkins
Loan Funds
PSC did not maintain proper accounting for Perkins loans. PSC’s
Perkins data in NSLDS was not updated. For the period ended on June
30, 2005, NSLDS showed a cumulative, disbursed amount of $180,103
compared to the servicer’s records of $1,621,697.
We reviewed the servicer’s accounting report dated September 30, 2005,
which indicated an outstanding loan amount of $506,687, with no loan
payments since September 2003. Occasionally students made payments at
PSC’s business office, but PSC did not always notify the servicer of
those payments. As a result, during our audit period we determined
that borrowers were not credited for payments of $1,741 made on their
Perkins loans. Since PSC did not keep detailed records of which
students made payments, the number of borrowers affected is unknown.
The servicer’s records indicate 180 borrowers have credit balances
totaling $27,426 that have not been refunded by PSC. In addition, PSC
did not safeguard the Perkins promissory notes that were stored in
cardboard boxes in an unsecured basement rather than in a locked,
fireproof container.
PSC’s Financial Aid consultant stated in her interview on July 15,
2005, that almost 1,200 Perkins loans had been assigned to the
Department to date for the purpose of closing the Perkins program.
When loans are assigned to the Department all rights, authorities, and
privileges associated with a loan are transferred to the United States
Government. As of April 2006, the Department’s records show no Perkins
loan assignments since the mid-1990s.
Federal regulations address the requirements for records, reporting,
and storage of promissory notes as follows:
34 C.F.R. § 674.19 Fiscal Procedures and Records.
(d) Records and reporting. (1) An institution shall establish and
maintain program and fiscal records that are reconciled at least
monthly.
(2) Each year an institution shall submit a Fiscal Operations Report
plus other information the Secretary requires. The institution shall
insure that the information reported is accurate and shall submit it
on the form and at the time specified by the Secretary.
(e) Retention of records—(1) Records. An institution shall follow the
record retention and examination provisions in this part and in 34 CFR
668.24.
(2) Loan records. (i) An institution shall maintain a repayment
history for each borrower. This repayment history must show the date
and amount of each repayment over the life of the loan. It must also
indicate the amount of each repayment credited to principal, interest,
collection costs, and either penalty or late charges.
(ii) The history must also show the date, nature, and result of each
contact with the borrower in the collection of an overdue loan. The
institution shall include in the repayment history copies of all
correspondence to or from the borrower, except bills, routine overdue
notices, and routine form letters.
(3) Period of retention of repayment records. An institution shall
retain repayment records, including cancellation and deferment
requests, for at least three years from the date on which a loan is
assigned to the Department of Education, canceled, or repaid.
(4) Manner of retention of promissory notes and repayment schedules.
An institution shall keep the original promissory notes and repayment
schedules until the loans are satisfied. If required to release
original documents in order to enforce the loan, the institution must
retain certified true copies of those documents.
(i) An institution shall keep the original paper promissory note or
original paper Master Promissory Note (MPN) and repayment schedules in
a locked, fireproof container.
(v) Only authorized personnel may have access to the loan documents.
PSC’s failure to account for and properly administer the Perkins Loan
Program occurred due to a lack of management controls and inadequate
supervision. As a result, PSC’s default rate climbed to 63.6 percent
in 2003; students who overpaid their loan balances have not been
refunded; some students were not credited with payments they made; and
PSC’s accounting records have not been reconciled with the
Department’s.
Recommendations
We recommend that the Chief Operating Officer of FSA—
1.
Require PSC to reconcile all the Perkins Loan accounts, apply
all payments to the applicable borrower loan balance, update the
borrowers’ status, and refund the credit balances.
2.
Initiate appropriate action under 34 C.F.R. Part 668, Subpart G,
to terminate PSC’s participation in the Perkins Loan Program.
PSC Comments – PSC stated that it has assigned $291,706.37 in Federal
Perkins loans to the Department of Education and anticipates full
closure of the program on or before December 31, 2006.
OIG Response – The Department’s Dispute Resolution Group stated that
as of September 26, 2006, $142,780.40 in outstanding Perkins Loans
have been accepted for assignment back. The Department and PSC should
work together to reconcile the difference of $148,925. PSC did not
comment on Recommendation 1.1. The corrective action steps listed in
Recommendation 1.1 should be completed before closure of the program.
PSC did not provide additional information to change our finding and
recommendations.
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FINDING NO. 2 – Title IV Aid Was Disbursed to Ineligible Students
PSC disbursed aid to ineligible students. We reviewed the files for 20
randomly selected students who received Title IV aid to verify their
eligibility and determine if disbursements were properly made.
We determined that 5 of 20 students (25%) were ineligible to receive
$26,548 in Title IV funds. These five students did not maintain
satisfactory academic progress prior to the semesters within our
audit.
Based on the above, we requested PSC to provide a list of students who
earned zero credit hours in a semester during our audit period. We
reviewed files for 163 students PSC identified as earning zero credit
hours in a semester and found that 134 students received Title IV aid.
When zero credit hours are earned in a semester, PSC’s satisfactory
academic progress standards cannot be met in the subsequent semester.
We determined that PSC disregarded this policy and disbursed $263,313
in Title IV aid in a subsequent semester to 59 of these 134 students
who should have been on financial aid suspension.
Satisfactory academic progress is one of several factors to be
considered when determining student eligibility. According to 34
C.F.R. § 668.32 (f), a student is eligible to receive Title IV program
assistance if the student maintains satisfactory progress in his or
her course of study according to the institution's published standards
of satisfactory progress. At 34 C.F.R. § 668.16(e)(1), the Secretary
“. . . considers an institution’s standards to be reasonable if the
standards-- (1) Are the same as or stricter than the institution’s
standards for a student enrolled in the same educational program who
is not receiving assistance under a Title IV, HEA program.” PSC
defines its standards for satisfactory academic progress in the
2003-2004 Office of Student Financial Aid Policies and Procedures
Manual, as, “For any semester or term in which a student withdraws or
completes zero hours, they will automatically be placed on Financial
Aid Suspension for their next semester or term of attendance.” It
further states, “Students are eligible for federal aid while on
academic probation, unless they are also on financial aid suspension.
Students on academic suspension will not be eligible to receive Title
IV financial aid.” For any semester that zero hours were earned, we
questioned the Title IV aid received in the next semester that fell
within our audit period based on lack of satisfactory academic
progress.
According to the 2003-2005 PSC Catalog, the student's academic
progress will be evaluated at the end of each regular academic
semester. A student who fails to maintain a prescribed, minimum
cumulative grade-point average (GPA) will be placed on academic
probation for one semester. If the student has not attained the
minimum cumulative GPA after the probationary period ends, he or she
will be placed on academic suspension for one semester. Based on this
policy, if two semesters of low GPAs occurred (a GPA below the minimum
of 1.5 at the end of 30 semester hours, 1.75 after 60 semester hours,
2.0 after 75 semester hours), the third semester’s Title IV aid was
unallowable due to the lack of satisfactory academic progress.
These disbursements occurred because PSC did not follow its policies
and procedures for ensuring students first met the academic
requirements to be eligible to receive Title IV aid. As a result,
$289,861 ($263,313 + $26,548) in financial aid was disbursed to 64
students who were ineligible because they did not make satisfactory
academic progress.
Recommendation
--------------
We recommend that the Chief Operating Officer of FSA require PSC to—
1.
Return $ 289,861 to the Department for 64 students who did not
meet satisfactory academic progress.
PSC Comments – With one exception, PSC concurred with our findings and
recommendations. The exception was the incarcerated student discussed
in the draft report for which PSC provided additional documentation.
OIG Response – Based on the additional documentation provided, we
removed information concerning the incarcerated student from our
finding and deleted Recommendation 2.2 concerning this student.
FINDING NO. 3 – Returns of Unearned Title IV Funds Were Not
Administered
Returns of Title IV Funds for Students Who Officially Withdrew Were
Not Processed
-------------------------------------------------------------------
PSC did not always perform Return of Title IV calculations for
students who officially withdrew. During our audit period, there were
13 official withdrawals. We reviewed documentation for all 13 and
noted that the withdrawal documents did not include the student’s
signature. We determined that 2 of the 13 students did not receive
Title IV aid, and one student’s Return of Title IV was properly
calculated and returned. However, PSC did not return $19,090 in Title
IV funds for the remaining 10 students.
According to 34 C.F.R. § 668.22(a)(1), “When a recipient of Title IV
grant or loan assistance withdraws from an institution during a
payment period or period of enrollment in which the recipient began
attendance, the institution must determine the amount of Title IV
grant or loan assistance . . . that the student earned as of the
student’s withdrawal date . . . .”
In a December 15, 2002, memo to PSC’s President, the Executive
Director for Student Fiscal Service advised that the Federally
mandated requirement to complete a Return of Title IV calculation had
not been implemented. In a later memo dated July 14, 2003, the Dean of
Enrollment Management discussed the ongoing issue with processing the
Return of Title IV aid. However, the documentation did not reflect the
reason the funds were not returned as required.
Unofficial Withdrawals Were Not Identified
------------------------------------------
PSC did not have a system in place to identify students who
unofficially withdrew. Consequently, PSC did not complete a Return of
Title IV calculation for students who failed to follow the school’s
official withdrawal procedures. The regulation at 34 C.F.R. §
668.22(j)(2) directs an institution to determine the withdrawal date
for a student who withdraws without providing notification to the
institution.
The 2003-2004 Federal Student Aid (FSA) Handbook, Volume 2,
Institutional and Program Eligibility, Chapter 6, Return of Title IV
Funds and PSC’s 2003-2004 Office of Student Financial Aid Policies and
Procedures Manual address the need for a Return of Title IV
calculation if a student fails to earn a passing grade in at least one
class in which the student was enrolled. Both state that in this
situation the institution may not make the presumption that the
student completed the course requirements, may not consider the
student to have completed the period, and must complete a Return of
Title IV Funds calculation.
Based on the FSA Handbook and PSC’s policies and procedures, students
who earned zero hours were unofficial withdrawals. As discussed in
Finding 2, we identified 134 students who earned zero credit hours in
at least one semester during our audit period and received Title IV
funds during the same semester in which zero credit hours were earned.
Eighty-eight of the 134 (66%) students required a calculation of
Return to Title IV. In accordance with 34 C.F.R. § 668.22 (c)(1)(iii),
we performed the required calculations and used the midpoint of the
payment period as the withdrawal date because PSC was not required to
take attendance. We determined that $127,265 in Title IV funds were
not returned to the Department during our audit period.
PSC did not implement procedures to identify students who withdrew
unofficially and did not follow its policies and procedures for
returning unearned funds to the Title IV program. To determine why
this occurred, we interviewed the only remaining, financial aid staff
member from our audit period. She stated that since joining PSC in
2002, five directors have led the Financial Aid Office, there was a
lack of adequate staffing, and the Financial Aid Office and Business
Office did not communicate well during our audit period.
High staff turnover, inadequate staffing, and faulty communication
between the Financial Aid Office and Business Office resulted in
$127,265 of Title IV funds not being returned to the Department during
our audit period.
Recommendations
We recommend that the Chief Operating Officer of FSA require PSC to—
1.
Develop and implement policies, procedures, and management
controls to ensure that—
a.
Students who withdraw or drop out are identified, and refunds are
accurately calculated and returned to the Department;
b.
Students who withdraw officially sign and date the withdrawal
document.
2.
Return $19,090 to the Department for 10 students who officially
withdrew.
3.
Return $127,265 to the Department for unearned Title IV funds
disbursed to 88 students who withdrew unofficially. [$862 of the
$127,265 is also included in Recommendation 4.2.]
PSC Comments – PSC concurred with our finding and recommendations with
one exception. PSC stated that it is only responsible for returning
$12,892.34, which represents their calculations for the 10 students.
PSC stated it has implemented policies, procedures, and management
controls to ensure that the withdrawal process, including Return of
Title IV funds, is properly administered.
OIG Response – We reviewed the documentation that PSC submitted and
have revised our recommendation for 10 of the 13 students who withdrew
officially. For the two students that PSC did not address, we did not
change our recommendation. The one remaining student has already been
properly refunded.
FINDING NO. 4 – Verification Was Not Completed For All Selected
Students
PSC did not complete the verification process for 5 of 20 (25%)
students. We randomly selected and reviewed 20 student files from the
universe of students selected by the Central Processing System (CPS)
for verification to determine if verification was completed correctly.
Four students’ files contained evidence that PSC requested
verification information from students, but PSC failed to forward the
information to the CPS for re-evaluation. One student’s file had no
indication that verification was attempted.
The CPS selects certain Title IV applicants to verify five major data
elements (34 C.F.R. § 668.56). These elements are adjusted gross
income, income tax paid, household size, number enrolled in college,
and certain untaxed income/benefits. Verification ensures that
information on a student’s application and the resulting eligibility
determinations and expected family contribution (EFC) are correct. If
students chosen for verification do not provide the requested
documents, based on 34 C.F.R. § 668.60(b)(1)(i) and § 668.60(c)(2)(i),
they forfeit their Federal Pell Grant for the award year, and the
institution must not disburse Federal Direct Subsidized Loans to the
students.
PSC’s 2003-2004 Financial Aid Policies and Procedures Manual states
that all applicants selected for verification by the United States
Department of Education are verified before an award is made. However,
PSC failed to monitor the verification process and ensure that all
required verifications were completed. As a result, $35,222 in Title
IV aid was disbursed to five students for whom verification was not
performed.
Recommendations
We recommend that the Chief Operating Officer of FSA require PSC to—
1.
Develop and implement policies, procedures, and management
controls to ensure that the verification process is completed.
2.
Return $35,222 to the Department for five students for whom
verification was not performed. [$862 of the $35,222 is also
included in Recommendation 3.3 for unofficial withdrawals.]
PSC Comments – PSC concurred with our finding and stated they have
implemented management controls and a new software system to ensure
that verification is completed. PSC did not concur with our
recommendation to return $35,222 to the Department stating that we did
not provide sufficient evidence to support this recommendation.
OIG Response – PSC did not provide additional information to change
our finding and recommendations. We provided PSC with a sample
verification list of 20 names in July 2005 and a list of the five
students with verification errors in September 2005. Subsequent to
PSC’s response to our draft, we again provided our worksheet analysis.
FINDING NO. 5 – Credit Balances Were Not Properly Administered
PSC maintained credit balances on student accounts and did not always
remit Title IV credit balances to students. The regulations at 34
C.F.R. § 668.164(e) require an institution to pay credit balances
within 14 days. PSC did not ensure policies and procedures were in
place to monitor and manage credit balances. Also, the People Oriented
Information Systems for
Education (POISE) accounting system used by the institution was not
configured to display a cumulative balance with each transaction.
Instead, PSC rolled the ending balance forward at the end of each
fiscal year.
As an alternative to determining whether PSC handled credit balances
properly following each transaction, we reviewed 8 of 72 student files
with credit balances carried forward as of June 30, 2004. PSC had a
100% error rate in handling these balances. We found—
a.
Three students were awarded scholarships totaling $7,625. However,
the student ledgers currently carry credit balances equal to the
scholarship amounts. We questioned $7,625 in Title IV funds
because the scholarship funds were not deducted from the amount of
Title IV aid awarded when determining financial need. Therefore,
the students inappropriately received $7,625 in Title IV aid;
b.
Three students were credited with Title IV funds not disbursed
according to NSLDS;
c.
One student who did not make satisfactory academic progress was
ineligible to receive Title IV funds. The funds should have been
returned to the Title IV program, and were questioned in the group
of unofficial withdrawals in Finding 3; and,
d.
One student had a credit balance carried forward from June 2000;
however, we did not question it because the source could not be
determined.
PSC’s 2003-2004 Financial Aid Policies and Procedures Manual states—
The Executive Director and Director/Counselor, in determining need and
making an award, have the responsibility of including all resources
available to the student when funds are awarded from these programs.
These resources include . . . School and other scholarship and grants
. . . .
PSC’s records were not maintained properly to determine credit
balances or their source. Failure to follow Federal regulations and
institutional policies resulted in students not having use of funds to
which they were entitled, and the institution holding funds to which
it was not entitled.
Recommendations
We recommend that the Chief Operating Officer of FSA require PSC to—
1.
Develop and implement policies, procedures, and management
controls to ensure that credit balances are handled properly
within 14 days.
2.
Refund the $5,591 in credit balances resulting from scholarship
awards to the Title IV Program or students, as applicable.
Review all student accounts with credit balances and determine
if the credit balances resulted from Title IV aid; and, if so,
return the credit balance funds to the Department or students,
as applicable.
PSC Comments – PSC stated that it has revised its withdrawal policy
outlined in the catalog and will strengthen its policies, procedures,
and management controls to ensure compliance with regulatory
requirements. PSC reviewed credit balances occurring as of August 1,
2005, and stated that credit balances as a result of Title IV aid will
be returned to the appropriate program or student by December 31,
2006. PSC submitted documentation that showed reversing entries to
three student ledgers for scholarship awards. In addition, a cancelled
check copy was submitted for one student substantiating that funds
were returned to the Title IV program.
OIG Response – Based on the documentation that PSC submitted, we
changed our recommendation to refund monies from $7,625 for three
students to $5,591 for two students. The documentation PSC provided
for the two remaining students demonstrated reversing entries for
those two students’ ledgers, but no source documents were provided to
substantiate that monies were refunded or an explanation to justify
not making the refund.
FINDING NO. 6 – PSC Did Not Properly Administer the Direct Loan
Program
Direct Loan Monthly Reconciliations Were Not Completed
------------------------------------------------------
PSC did not reconcile its Direct Loan records with the Department's
records on a monthly basis because its system of internal controls did
not have adequate checks and balances. PSC operates under School
origination option 2. According to 34 C.F.R. § 685.102(b)(3)—
School origination option 2: In general, under this option the school
performs the following functions: creates a loan origination record,
transmits the record to the Servicer, prepares the promissory note,
obtains a completed and signed promissory note from a borrower,
transmits the promissory note to the Servicer, determines funding
needs, initiates the drawdown of funds, receives the funds
electronically, disburses a loan to a borrower, creates a disbursement
record, transmits the disbursement record to the Servicer, and
reconciles on a monthly basis.
Because records from the school and Department do not match, the
Department cannot accurately account for the Direct Loan funds or
identify potential problems with timely disbursements or excess cash.
---------------------------------------------------------------------
PSC Did Not Timely Disburse Direct Loan Drawdowns or Timely Return
Excess Cash
------------------------------------------------------------------
PSC did not timely disburse Direct Loan drawdowns to students. Excess
cash was created because PSC did not disburse those funds to the
intended students or to other students within the required time
period. Specifically, 19 of 20 (95%) student files reviewed showed
that disbursements were made to the intended student from 6 to 59 days
after funds were drawn down. The regulations at 34 C.F.R. §
668.166(a)(1) state—
The Secretary considers excess cash to be any amount of Title IV, HEA
program funds, . . . that an institution does not disburse to students
or parents by the end of the third business day following the date the
institution received those funds from the Secretary. Except as
provided in paragraph (b) of this section [for excess cash
tolerances], an institution must return promptly to the Secretary any
amount of excess cash in its account or accounts.
Because PSC participates under School origination option 2, it can
initiate its own funding requests. According to the Department’s The
Blue Book (June 2001), if a school determines that a student has
become ineligible for a portion or all of his Direct Loan
disbursement, the school must return those funds to the Direct Loan
Program. The school must adjust the actual disbursement downward and
initiate a return of funds. The amount that is canceled or adjusted is
returned to the school’s federal bank account where it immediately
must be disbursed to other eligible borrowers (within three business
days) or returned to ED as excess cash. The Blue Book further
instructs, " . . . [T]o maintain a written record of funds
distributed, Option 2 schools should retain copies of Direct Loan
drawdown requests." PSC was not able to provide this list of drawdown
requests. Because a list was not available to match drawdowns with
students, we used the same 20 student files that were randomly
selected for eligibility (discussed in Finding 2) to evaluate timely
disbursements and excess cash. We reviewed the dates that NSLDS/Common
Origination Disbursement (COD) data show the funds were disbursed to
the institution and compared those dates to dates the institution
posted those funds to the students’ accounts. We found PSC often
posted the disbursements late and did not change the anticipated date
of disbursement to the later, actual date of disbursement. When this
occurs, students incur additional loan interest costs for unsubsidized
loans. Likewise, the Department incurs additional interest expense for
subsidized loans when funds are held longer than the three days
allowed.
Recommendation
--------------
We recommend that the Chief Operating Officer of FSA require PSC to—
1.
Calculate and pay imputed interest costs for excess cash
retained in fiscal year 2003-2004.
PSC Comments – PSC submitted a letter from FSA dated April 20, 2006,
which stated that PSC successfully closed out the 2003-2004 Direct
Loan Program Year. PSC did not concur with our recommendation to pay
imputed interest costs for excess cash retained in fiscal year
2003-2004.
OIG Response – We removed our recommendation to PSC to complete the
process to close the Direct Loan program. PSC did not provide
additional information to change our recommendation to pay imputed
interest costs for excess cash retained.
FINDING NO. 7 – Changes in Student Status Were Not Reported to NSLDS
PSC did not report student enrollment changes to NSLDS. NSLDS reported
that PSC usually sent back Student Status Confirmation Reports (SSCRs)
or roster files without making corrections or updating the status of
students. The SSCR is used to determine if the student is eligible for
an in-school deferment or must be moved into repayment. Because SSCRs
were not reported accurately, unofficial withdrawals went unreported.
Failure to update a student’s status delays the date a student should
enter repayment status for loans and the Department incurs additional
interest costs for subsidized loans that should be paid by the
student. According to 34 C.F.R. § 685.309, the SSCRs should be
completed by the school and returned to the Secretary within 30 days.
Recommendation
We recommend that the Chief Operating Officer of FSA require PSC to—
1.
Develop and implement policies, procedures, and management
controls to ensure that SSCRs are completed accurately and
returned timely.
PSC Comments – PSC stated it has implemented management controls and a
new software system which will enable SSCR reports to be submitted
timely six times per year.
OIG Response – We have added a recommendation in Finding 8 below to
have FSA ensure that PSC follows through with properly administering
the Title IV programs, to include accurate reporting of student
enrollment changes to NSLDS.
FINDING NO. 8 – PSC Did Not Meet Administrative Capability Standards
for Title IV Programs
PSC did not administer the Title IV programs in accordance with the
HEA and regulatory requirements. Specifically, PSC did not: (1)
properly account for and administer the Perkins Loan program, (2)
disburse aid to only eligible students, (3) identify students who
withdrew unofficially and return unearned Title IV aid to the
Department, (4) complete verification for all selected students, (5)
return credit balances, (6) properly administer the Direct Loan
program, and (7) report changes in student status to NSLDS.
Under 34 C.F.R. § 668.16, to continue participation in a Title IV
program, an institution must demonstrate that it “is capable of
adequately administering that program under each of the standards
established in this section.” An institution is considered
administratively capable if it—
*
“Administers the Title IV, HEA program in accordance with all
statutory provisions of or applicable to Title IV of the HEA,
[and] all applicable regulatory provisions prescribed under that
statutory authority . . . ” 34 C.F.R. § 668.16(a).
*
“Designates a capable individual to be responsible for
administering all the Title IV, HEA programs in which it
participates . . . ” 34 C.F.R. § 668.16(b)(1).
*
“Communicates to the individual designated to be responsible for
administering Title IV, HEA programs, all the information received
by any institutional office that bears on a student’s eligibility
for Title IV, HEA program assistance . . . ” 34 C.F.R. §
668.16(b)(3).
*
“Has written procedures for or written information indicating the
responsibilities of the various offices with respect to the
approval, disbursement, and delivery of Title IV, HEA program
assistance and the preparation and submission of reports to the
Secretary . . . ” 34 C.F.R. § 668.16(b)(4).
*
“Administers Title IV, HEA programs with adequate checks and
balances in its system of internal controls” 34 C.F.R. §
668.16(c)(1).
*
“Establishes and maintains records required under this part and
the individual Title IV, HEA program regulations” 34 C.F.R. §
668.16(d).
*
“Shows no evidence of significant problems that affect, as
determined by the Secretary, the institution's ability to
administer a Title IV, HEA program and that are identified in—1)
Reviews of the institution conducted by the Secretary . . .” 34
C.F.R. §668.16(j)(1). According to 34 C.F.R. § 668.82(c)(1)—
The failure of a participating institution or any of the institution's
third-party servicers to administer a Title IV, HEA program, or to
account for the funds that the institution or servicer receives under
that program, in accordance with the highest standard of care and
diligence required of a fiduciary, constitutes grounds for–(1) An
emergency action against the institution, a fine on the institution,
or the limitation, suspension, or termination of the institution's
participation in that program.
We attributed this failure to meet administrative capability standards
to (1) frequent staff turnover, (2) a lack of adequate policies,
procedures, and internal controls, and (3) unresolved findings from
the 2003 A-133 Single Audit Report in the areas of bank statement
reconciliation, cash management, Return of Title IV funds, and Pell
grants not properly reported. We concluded that the lack of capability
to administer Title IV programs was so significant that the $11.4
million in Department of Education funds received for Title IV and
other programs during 2003-2004 may be at risk of misuse.
Recommendations
---------------
We recommend that the Chief Operating Officer of FSA—
1.
Continue PSC on provisional certification.
2.
Place PSC on the reimbursement payment method.
3.
Take appropriate action under 34 C.F.R. Part 668, Subpart G, to
fine, limit, suspend or terminate PSC’s participation in the
Title IV programs.
4.
Provide technical assistance to PSC to develop and implement
policies, procedures, and management controls for
Recommendations 1.1, 3.1, 4.1, 5.1 and 7.1
5.
Conduct follow-up site visits as necessary to ensure that PSC
continues to follow through with properly administering the
Title IV programs.
We also recommend that the Chief Operating Officer of FSA require PSC
to—
6.
Ensure personnel are trained in the requirements of the Title IV
Program.
7.
Contract with a consultant, acceptable to the Department, to
perform a 100 percent file review for years 2003-2004,
2004-2005, and 2005-2006 to determine if additional Title IV
funds were improperly disbursed, and reimburse the Department
accordingly.
8.
Reimburse the Department $477,029 as shown in Enclosure 1. This
figure is the total amount questioned in all previous
recommendations.
PSC Comments – PSC stated that with assistance from its new
administration and the Department, it would become compliant with all
Title IV regulations. PSC further stated it has already made great
strides in becoming compliant. PSC feels it would be unfair to the new
administration to place PSC on reimbursement and severely detrimental
to the student body to terminate PSC’s participation in the Title IV
program. PSC accepts financial responsibility for $430,078 as shown in
Recommendations 2.1, 3.2 (with modification), and 3.3 and requests a
payment plan acceptable to all parties to return these funds to the
Department.
OIG Response – PSC’s administration appears committed to bringing its
Title IV program into compliance with federal laws and regulations. We
added Recommendations 8.4 and 8.5 that FSA provide technical
assistance to PSC to develop and implement policies, procedures, and
management controls and to monitor PSC’s continued improvements.
OBJECTIVE, SCOPE, AND METHODOLOGY
The purpose of the audit was to determine whether PSC complied with
the Title IV program requirements for student eligibility,
verification, Return of Title IV funds, Perkins requirements, and
Direct Loan requirements. Our review covered PSC’s fiscal year July 1,
2003, through June 30, 2004.
To accomplish these objectives, we reviewed—
*
The HEA, regulations, and policies applicable to the Title IV
programs;
*
PSC’s policies, procedures, and practices for managing the Title
IV programs;
*
Data obtained from PSC’s Financial Aid, Business, and Registrar’s
offices and its Perkins Loan servicer, Campus Partners;
*
Transaction-level extracts of data from COD and NSLDS;
*
PSC’s A-133 Single Audit Reports for the years ended June 30,
2003, and 2004;
*
Fiscal reports provided by PSC and the Department; and,
*
PSC’s bank statements from our audit period.
We interviewed PSC’s consultant, officials from the Financial Aid,
Business, and Registrar offices, and FSA’s Case Management and
Oversight.
We randomly selected 20 student files from a population of 891 Title
IV recipients during our audit period and reviewed them to determine
if eligibility and disbursement requirements were met. We also
reviewed an additional 20 randomly selected students from a population
of 421 Title IV recipients who had been flagged for verification to
determine if the verification process was completed. We obtained a
list of 163 students who earned zero credit hours for at least one
semester and reviewed those files to determine if Title IV aid was
received and if the Return to Title IV calculations were done. We
performed a Return of Title IV calculation for 88 of the 134 students
who required the calculation.
To test PSC’s cash management, we requested a list of student
disbursements from PSC to match a Direct Loan drawdown request, but
PSC was not able to comply with our request. Instead, we used the same
20 student files that were randomly selected for eligibility. We
compared the dates of disbursement shown in NSLDS/COD to the dates the
institution disbursed the funds to the students to determine if funds
were held longer than three days.
To determine if PSC properly administered credit balances within 14
days, we requested a list of students who had credit balances at the
end of the fiscal year. We judgmentally reviewed 8 of 72 student
accounts that had the higher credit balances.
To achieve the audit objectives, we relied in part on
computer-processed data contained in PSC’s POISE accounting system. We
performed limited testing of the POISE disbursement data by comparing
it to the NSLDS/COD data. We relied on the Department’s disbursement
data. For student transcript data, we relied on PSC’s data.
We did not rely on PSC’s internal controls because of the significance
of the findings.
We conducted onsite work at PSC’s offices in Little Rock, Arkansas,
from July 11 through July 22, 2005, and August 22 through September 2,
2005.
Our audit was performed in accordance with generally accepted
government auditing standards appropriate to the scope of the review
described above.
Enclosure 1: Questioned Costs
Recommendation
Reason
Amount
======
2.1
Return of aid for lack of satisfactory academic progress
$ 289,861
3.2
Return of Title IV funds for official withdrawals
$ 19,090
3.3
Return of Title IV funds for unofficial withdrawals
$ 127,265
4.2
Return of aid for incomplete verification
$ 35,222
5.2
Credit balances resulting from unpaid scholarships
$ 5,591
Total Questioned Costs
----------------------
$ 477,029
Enclosure 2: PSC’s Response to the Draft Report

Philander Smith College
Office of the President
September 10, 2006
Sherri L. Demmel
Regional Inspector General for Audit
United States Department of Education
Office of Inspector General
1999 Bryan Street
Harwood Center, Suite 1440
Dallas, TX 75201-6817
Dear Ms. Demmel:
In response to your letter dated August 11, 2006, please find enclosed
Philander Smith College’s reply to your findings and recommendations.
We have answered those findings and recommendations with emphasis
showing that our management of the Title IV programs has been
strengthened to properly administer such funds. We are certain that
our responses have adequately addressed the concerns of the report.
If you need further assistance, please do not hesitate to contact me.
Sincerely,

Walter M. Kimbrough, Ph.D.
President
Finding NO. 1 – PSC Did Not Maintain Proper Accounting for Perkins
Loan Funds
RESPONSE:
Philander Smith College is currently in a contractual agreement with
Education Management Consultants to liquidate the Federal Perkins
Loan. Due to the complexity of the liquidation process, it has taken
PSC longer than anticipated to end this program. As of August 31,
2006, Education Management Consultants has assigned $291,706.37 in
Federal Perkins funds back to the Department of Education.
Philander Smith College has already terminated its participation in
the Federal Perkins Loan program. We anticipate full closure of this
program on or before December 31, 2006.
Finding NO. 2 – Title IV Aid Was Disbursed to Ineligible Students
RESPONSE:
1.
Philander Smith College concurs with this finding. In June of
2005, upon the arrival of the new Director of Financial Aid a
Satisfactory Academic Progress Policy (SAP) was approved and
implemented. The new policy includes all required components. To
remain in compliance, the Director will monitor SAP at the end
of each Spring term and students will be notified in writing as
to their status. Philander Smith College has strengthened its
policies, procedures and management controls to ensure that the
SAP policy will be implemented.
2.
Philander Smith College does not concur with this recommendation
as further information negates the original documentation in the
student’s folder that suggests the student was incarcerated.
Philander Smith College, through its General Counsel (See
Appendix A) has received information that the student was not
incarcerated in the Arkansas Department of Correction at any
time in 2003 and 2004. Furthermore, the documentation used by
the Office of Inspector General personnel during their site
visit was fraudulent and was not on official letterhead from the
Arkansas Department of Correction. In addition, there is
evidence to support that the student endorsed refund checks
during his alleged incarceration. Therefore, it is our belief
that the student was enrolled at Philander Smith College and
entitled to the Title IV aid available to him at that time.
Please find attached communication from PSC General Counsel
regarding student.
Finding NO. 3 – Returns of Unearned Title IV Funds Were Not
Administered
RESPONSE:
3.1 Effective Fall 2005, student withdrawals are handled at minimum
monthly, but typically at the time the student withdraws, particularly
if the student has withdrawn prior to the 60% point of the semester.
The Director of Financial Aid along with the Business Office will
determine the student’s responsibility and properly notify him/her of
funds (if any) that are going to be returned to whom and when.
Documentation is given to the Business Office and a manual check is
issued back to the proper program. Copies of the checks are attached
to the documentation supporting the just cause for the return of the
Title IV funds and are placed in the student’s financial aid folder.
The Business Office is responsible for returning proceeds within 30
days.
At the close of “enrollment verification”, Philander Smith College
considers all students enrolled with said hours. Students can be
withdrawn from the class by the professor for non-attendance.
Philander Smith College performs a second check of students at the
midterm point in the semester. Faculty reports those students to the
Registrar’s office and all others are considered still in class.
Therefore, the grade earned at the end of the semester is the
student’s grade.
At the close of each semester, the Registrar’s office conducts a
review to determine if students actually earned zero hours or walked
away. In line with the College’s policy, if the student is still
participating in class at the midterm, the grade issued at the end is
the grade earned.
For the 04-05 school year, Title IV return calculations were performed
and funds returned to the proper programs.
After reviewing the OIG Audit, Philander Smith College revised its
withdrawal policy outlined in the catalogue. The new policy is below.
Withdrawal From the College
Students withdrawing from PSC are required to file a Notice of
Withdrawal From College Form. This form may be obtained from the
Office of the Registrar and must be properly signed by all parties
listed on the withdrawal form. The date the student initiates the
withdrawal process will be the official withdrawal date, not the date
the completed form is returned to the Registrar’s Office.
If a student withdraws from PSC during the first five weeks of classes
(the refund period), all courses will be dropped from the student’s
record and the student may receive tuition and fees refund in
accordance with the refund schedule. (Please consult the Tuition
Refund Policy in this catalogue for additional information.) The last
day to officially withdraw from the College without a grade penalty is
listed in the “Academic Calendar” and can be obtained in the
Registrar’s Office. Students who fail to officially withdraw by the
published date will be reported as having failed the course work for
the semester and grades of F will appear on their official
transcripts. Furthermore, at the close of the Enrollment Verification
period it is the assumption of the College that the student is
present and that the grades submitted by the faculty member are the
result of the coursework completed by the student for that class.
Students who have questions about withdrawing should contact the
Registrar’s Office and the Financial Aid Office to determine the
effect on their Title IV eligibility.
If, at the end of a semester, a student’s transcript indicates he has
earned zero hours, Philander Smith College will determine if the
student actually completed the course. The Registrar will maintain for
its files a statement from the student and the teacher that documents
that the student completed the entire semester and the grades reported
are the grades earned.
Catalogue Amendment (p9), Fall 2005.
Effective August 15, 2005
PSC has strengthened its policies, procedures, and management controls
between offices to ensure that withdrawn students are identified and
that Title IV refunds are calculated accurately and returned to the
Department.
2.
Philander Smith College does not concur with this finding.
Please find attached documentation for the 10 students that
shows PSC is only responsible for returning $12,892.34 which
represents the R2T4 calculations for those 10 students. (See
Appendix D)
3.3 The Philander Smith College catalogue for 2003-2005 states, “a
student who enrolls and fails to officially withdraw will be liable
for all changes incurred for the semester.” The catalogue further
states, “if excessive absences occur during the first nine weeks of
the semester, the instructor shall withdraw the student from the class
and shall record a grade of “WP” or “WF” as determined by the
student’s progress at the time. After nine weeks, the instructor shall
record a grade of “F.” It is the belief of Philander Smith College
that the grades submitted at the end of the semester are the grades
earned by all students. The student who failed to withdraw from the
college is responsible both financially and academically for that
semester. With that said, Philander Smith College did not have a
procedure in place to determine whether or not the grades reported
were earned or not, therefore, Philander Smith College concurs with
this finding.
Finding NO. 4 – Verification Was Not Completed For All Selected
Students
RESPONSE:
4.1 Effective Fall 2005, the school began utilizing a new FAMS
software. This software has a mechanism in place that prevents an aid
administrator from disbursing aid to a student who is selected for
verification unless all required documents are on file. While it is an
automated process, it still requires human interaction and requires
the aid officer to populate two different sections of the software
prior to the disbursing of aid for a “selected” student.
A current copy of the revised Policy and Procedural Manual can be
provided to the Department of Education that outlines the procedures
in place that ensures the office remains in compliance with
verification.
Philander Smith College has strengthened its policies, procedures and
management controls to ensure that verification is completed on
selected students by the Central Processing System.
2.
Philander Smith College does not concur with this recommendation
as there is not sufficient evidence to support the $35,222 in
question. The worksheets provided by the OIG staff do not
indicate the students in question or their findings as to the
$35,222.
Finding NO. 5 – Credit Balances Were Not Properly Administered
RESPONSE:
1.
After reviewing the OIG Audit, Philander Smith College revised
its withdrawal policy outlined in the catalogue. The new policy
is below:
Student Excess Aid Refund Policy
Philander Smith College uses student accounts to assess charges and
apply payments against those charges. If a student's account balance
is a credit, it is the policy of the College to refund the credit to
the student in a timely manner (under most circumstances). Credit
balances caused by financial aid are refunded only after a careful
review of the student's account and eligibility for aid. If a credit
balance refund is due the student, the refund is made to the student
within the time frame required by federal regulations. The refund will
be issued in the form of a check made payable to the student and
issued by the Business Office. If a credit balance refund is due as
the result of a PLUS Loan, the refund will be issued in the form of a
check made payable to the borrower.
A student who receives a refund based wholly or partly on financial
aid, and later changes enrollment status, may be required to repay all
or part of the aid received to the College or to the appropriate
federal or state aid programs. Students receiving federal aid other
than Federal Work-Study funds who withdraw or change enrollment status
(increase or decrease semester hours taken) will have federal aid
adjusted in accordance with formulas prescribed by the Federal Title
IV Program, or College policy, whichever is applicable.
A student may choose to have a credit balance applied to future
semesters by submitting a letter in writing to the Business Office.
IMPORTANT NOTE: Credit balance refunds due students are processed
after enrollment verification each semester (consult the semester
schedule of classes for this date). Eligibility for a refund depends
on several factors and will be determined by the Office of Financial
Aid. Changes in any of these factors, such as dropping courses or
withdrawing from the College, could result in delays in receiving a
refund or the reduction of the student's aid package, thereby removing
a potential credit balance.
Return of Federal Title IV Funds Policy
Philander Smith College returns unearned funds received from Federal
student assistance programs to the proper program accounts or lenders
in accordance with Federal Title IV student assistance regulations, as
amended, under 34 CFR, section 668.22(d) of the Reauthorization of the
Higher Education Act of 1965.
The student receiving assistance from Federal Title IV programs is
required to complete a minimum number of hours for which assistance
was received. If the student completely withdraws from school during
the semester or stops attending, but fails to officially withdraw, the
student may be required to return the unearned part of the funds
received to help pay educational expenses for the semester. Liability
for return of Federal Title IV funds will be determined according to
the following guidelines:
1.
If the student remains enrolled and attends class beyond the 60%
mark of the semester in which aid is received, all federal aid is
considered earned and not subject to this policy.
2.
If the student completely withdraws from all classes before
completing 60% of the semester, a pro-rated portion of the federal
aid received must be returned to the federal aid programs equal to
the percentage of the semester remaining.
3.
If the student does not officially withdraw from classes, and
stops attending all classes, a pro-rated portion of the federal
aid received, based on the documented last date of attendance,
must be returned to the federal aid programs. If the college is
unable to document the last date of attendance, one-half of all
federal aid received during the semester must be returned to the
federal aid programs.
Return of Federal Title IV funds will be distributed according to
statutory regulations. Worksheets provided by the U.S. Department of
Education will be used to determine the amounts and order of return.
If a student's share of the return amount exists, the student will be
notified and allowed 45 days from the date of determination to return
the funds to the Business Office of the College for deposit into the
federal programs accounts. If the student does not return the amount
owed within the 45-day period, the amount of overpayment will be
reported to the U.S. Department of Education (DOE) via the National
Student Loan Database (NSLDS) and the student will be referred to the
DOE for resolution of the debt. Unearned aid will be refunded to the
appropriate program(s), if necessary based on these regulations.
PSC has strengthened its policies, procedures, and management controls
to ensure that the handling of credit balances complies with
regulatory requirements.
5.2 We have reviewed the three students representing the questioned
$7625.79. Please find documentation to support the corrections to
their student ledger accounts and the return of funds to the proper
program, if applicable attached. See Appendix C.
Philander Smith College has reviewed all credit balances as of August
1, 2005. Philander Smith College anticipates closure of this project
on or before December 31, 2006. If the credit balance is a result of
Title IV aid, the funds will be returned to the appropriate program or
student, if applicable.
Finding NO. 6 – PSC Did Not Properly Administer the Direct Loan
Program
RESPONSE:
1.
Philander Smith College is in possession of a close out letter
for 2003-2004. Letter dated April 2006. See Appendix B.
2.
Philander Smith College does not concur with this recommendation
as the 2003-2004 school year has been closed.
Finding NO. 7 – Changes in Student Status Were Not Reported to NSLDS
RESPONSE:
7.1 The Registrar’s Office submits the SSCR reports six times a year.
The office now has the capability to submit timely information on
behalf of the school as a result of the college’s purchase of the new
software system. The Registrar is keenly aware of this obligation and
is committed to ensuring this task is completed. The Registrar will
review the information and update each student record according to the
federal regulations. Upon receipt of acceptance of the submitted SSCR,
the Registrar will send a copy of the acknowledgement to the Director
of Financial Aid for his records.
The months of submission are: August, December, February, March, May
and June.
Finding NO. 8 – PSC Did Not Meet Administrative Capability Standards
for Title IV Programs
RESPONSE:
Effective June 6, 2005 Philander Smith College hired a new Director of
Financial Aid. Mr. Page brings over 13 years of financial aid
experience to Philander Smith College and has been charged with
implementing policies and procedures that will bring Philander Smith
College into compliance with all Title IV regulations. The institution
has received numerous audit findings over the last 3-4 years and due
to high turnover within the office it was unable to implement the
necessary changes to become in compliance.
Mr. Page, with the assistance of the new leadership at Philander Smith
College, will ensure that all audit findings are resolved and all
written policies and procedures are implemented and followed. Periodic
audits conducted by Mr. Page will ensure this. Training in the
financial aid office is on-going and the office has received a
commitment from the administration at Philander Smith College, as well
as outside agencies, to make sure it is up to date and knowledgeable
about all Title IV regulations. The staff is encouraged and does
participate in the state, regional and national financial aid
associations.
As the Department of Education is aware, this administration and the
Director of Financial Aid were not employed at Philander Smith College
during the audit year in question. Therefore, we are asking for a
reasonable amount of time to implement and create the positive change
that is needed not only in the financial aid office but the campus
community as a whole. In one year alone, the current administration
has made great strides in bringing Philander Smith College into
compliance with the Title IV aid program. While it would be unfair to
the new administration to place Philander Smith College on
reimbursement, it would be severely detrimental to our student body to
terminate Philander Smith College’s participation in the Title IV
program. Our issues did not evolve over night, thus our corrections
won’t take place over night. The new Financial Aid team can and will
make the office 100% compliant with your assistance.
Although Philander Smith College does not concur with all of the
recommendations outlined in the draft report, we do accept the
following financial responsibility.
2.1 Return of aid for lack of satisfactory academic progress
$289,861.00
3.2 Return of Title IV funds for official withdrawals $12,892.34
3.3 Return of Title IV funds for unofficial withdrawals $127,325.00
Total Questioned Cost $430,078.34
We ask that the Department of Education look favorably upon our new
administrative team and its efforts and allow us to return these funds
on a payment plan acceptable to all parties.
Philander Smith College respectfully asks that no action be taken to
fine, limit, suspend, place on reimbursement, or terminate its
participation in the Title IV program. We are confident that the new
administrative team in place can effectively administer all phases of
the Title IV Federal program.
We have a total commitment from the students, faculty and staff of
Philander Smith College to comply with all regulatory requirements.
The Financial Aid Office (and its Director and staff) and the Business
Office (and its Comptroller and staff) are working hand in glove to
ensure that sufficient policies, procedures, and practices are in
place to meet all federal guidelines.

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