You are here

Don't Get Distracted: Top Audit Issues in Financial Aid

How to avoid common pitfalls with regulatory compliance issues.
University Business, Sep 2007

GIVEN THE RECENT STU-dent loan controversy in financial aid, many campuses have been focused on reviewing preferred lender list criteria (including a formal RFP process at some institutions), meeting with campus leadership to discuss office policy, and communicating with constituencies, both on and off campus, regarding the situation. Yet, at the same time, aid offices can't pay any less attention to the standard regulatory requirements that can emerge as compliance issues and eZ-Audit submission errors during annual audits and program reviews. Therefore, aid officers should keep in mind the following top regulatory compliance issues, as reported by the U.S. Department of Education Federal Student Aid (FSA) programs, and suggestions included for avoiding these common pitfalls.

Arguably the most burdensome regulatory requirements are those concerning satisfactory academic progress (SAP). Besides following specific SAP regulations, institutions need to be aware of the impact of SAP on student aid eligibility, which brings another set of compliance issues.

There must be a clear division of responsibility between the financial aid and fiscal offices.

Developing an appropriate institutional policy is challenging, as it requires that academic leadership play a role in defining standards that are the same as or stricter than those applicable for students enrolled in the same educational programs who are not receiving Title IV assistance. The policy must also be consistent with other similar institutional policies, such as NCAA guidelines imposed on student athletes. Since SAP regulations are two-pronged- qualitative and quantitative-IHEs often make the mistake of strictly monitoring one element at the expense of the other.

During the Title IV recertification process, there are certain changes that require written approval from the U.S. Department of Education before the disbursement of Title IV aid.

These include changes to the state authorizing agency or accrediting agency; changes to program offerings (including the addition of non-degree programs); and changes to institutional structure (nonprofit versus for-profit). These must be submitted, along with supporting documentation, to receive approval.

To participate in Title IV aid programs, IHEs must demonstrate financial responsibility and annually submit audited financial statements and a compliance audit.

Financial responsibility is demonstrated by the ability to provide the services offered in official publications, properly administer FSA programs (if applicable), and meet financial obligations.

Failure to reconcile Title IV accounts is a common compliance issue. Both the financial aid and business offices must work together to compare records of disbursed amounts for each federal program.

These amounts must also be reconciled to the amounts drawn down and reported to the Grants Administration and Payment System (GAPS) for campus-based aid, and the Common Origination and Disbursement (COD) system for Pell Grants and Direct Loans.

If the net expended amounts differ- which is likely based on timing issues related to the reporting of disbursements by the financial aid office and the actual draw down of cash by the business office-discrepancies should be noted and resolved.

To help schools comply, the U.S. Department of Education Federal Student Aid program provides monthly reconciliation worksheets for each program.

Just as time consuming to administer as SAP regulations, return of Title IV funds requires coordination with state or accrediting agency policy requirements, as well as coordination with key campus officials, to develop procedures (which may or may not be the same) for recipients and non-recipients of Title IV aid.

Instead of dictating an institutional policy, federal regulations require the institution to determine the earned and unearned Title IV aid as of the date enrollment ceases, up to the 60 percent point in each payment period.

The most common compliance issue related to Title IV refunds involves late refunds made to FFEL lenders. Generally, schools must complete the refund calculation and return any unearned funds within 30 days of the student's official withdrawl.

Again, the U.S. Department of Education has developed worksheets and software to help institutions with these calculations.

Another example of a common deficiency, most often cited as a result of a program review, is the processing of Title IV aid at an ineligible location.

An institution's eligibility to participate in FSA programs does not automatically include separate locations and extensions.

The Eligibility and Certification Approval Report (ECAR) that the U.S. Department of Education sends to the institution lists the locations that are approved under the Program Participation Agreement (PPA).

To award FSA funds to students where 50 percent or more of an eligible program is offered, the institution must gain approval and appropriate accreditation for each site.

Besides having a well-organized financial aid office and staff , institutions must document that there is a clear and separate division of responsibility for the administration of financial aid programs between the financial aid and fiscal offices.

At a minimum, institutions must separate the tasks of authorizing payment and disbursing funds so that no one person or office is responsible for both activities.

The most common compliance issue related to Title IV refunds involves late refunds made to  FFEL lenders.

Incidentally, some institutions have hesitated to move to a "one-stop shop" for student financial services because of concerns about separation of duties. However, as long as an institution can document that responsibility for awarding aid and disbursing aid are separated, and that the appropriate checks and balances are in place, having a combined office to handle all student financial services is possible.

A school participating in any FSA program generally must require an independent auditor to conduct, at least annually, a review of the school's compliance with federal regulations, and then provide financial statements and compliance information to the U.S. Department of Education.

Beginning in June 2003, use of the eZAudit Electronic Financial Reporting System is required to submit fiscal year-end financial statements and compliance audits, electronically allowing for automatic error checking and an instant submission receipt.

Clerical errors are common with these forms (e.g., independent auditor's report not on letterhead, incomplete auditor information, and missing independent auditor's report on the financial statements).

Institutions are required to identify a person or people responsible for oversight of financial aid awarding as well as development of appropriate policies and procedures to coordinate all information received by any office (business office, dean's office, registrar's office, etc.) that bears on a student's eligibility for Title IV aid. Any conflicting information involved in the student's application, or suspicion of incorrect data, must be resolved before the disbursement of FSA funds.

Written procedures that include steps for referral to the Office of the Inspector General, if appropriate, as well as a description of how the institution verifies information received from the student and other sources are necessary to comply.

Working together with financial aid professionals, the U.S. Department of Education Federal Student Aid program has developed management assessment modules to help schools understand and comply with regulatory requirements. The modules contain links to applicable laws and regulations, as well as worksheets and, for Title IV refunds, software programs.

As an institution prepares to submit the FISAP, audited financial statements, and compliance audit results, it should consider developing appropriate policies and procedures to ensure compliance, using the activity worksheets and guidelines developed by FSA to identify areas in need of improvement, so that it can then work toward establishing good practices.

Another excellent reference document is the NASFAA self-evaluation guide, which provides a checklist related to regulatory compliance issues in each federal aid program. Certain sections of the guide are also linked to relevant citations in NASFAA's "Compiled Title IV Regulations," which is accessible through the NASFAA website (

Finally, it is important for an institution to review periodically its compliance with regulations for state aid programs. Even solid policies and procedures require regular review and maintenance, particularly given the constantly changing regulations and staff turnover.

Samantha Veeder, formerly the director of financial aid at Hobart and William Smith Colleges (N.Y.), is senior consultant in the enrollment management consulting firm Scannell & Kurz. She can be reached via the firm's website,

Register now for UBTech 2018

Register now for UBTech 2018, June 4-6 at the Mirage, Las Vegas. At UBTech 2018, you’ll network with a dynamic community of higher ed leaders who are shaping the future of campus technology and explore topics like cyber security, distance learning, campus learning space design, communications, personalized learning and more. Your UBTech registration also includes a free pass to the InfoComm exhibit hall.

Register now>>