Final Rule – Compliance Audits and Audited Financial Statements

ANNUAL INSTITUTONAL AUDIT SUBMISSION DEADLINE

• 668.23 Compliance Audits and Audited Financial Statements

The Final Rule sets new annual institutional audit submission deadlines.

(4) Submission deadline. Except as provided by the Single Audit Act, chapter 75 of title 31, United States Code, an institution must submit annually to the Department its compliance audit and its audited financial statements by the date that is the earlier of—

1. 1. Thirty days after the later of the date of the auditor’s report for the compliance audit and the date of the auditor’s report for the audited financial statements; or
   2. Six months after the last day of the institution’s fiscal year.

Fame Comment: This requires that the audits be submitted earlier of 30 days after completion or 6 months after the fiscal year end. ED wants to be able to determine at risk institutions timelier.

The Final Rule clarifies what audits the Department deems acceptable.

(5) Audit Submission Requirements.

In general, the Department considers the compliance audit and audited financial statements submission requirements of this section to be satisfied by an audit conducted in accordance with 2 CFR part 200, or the audit guides developed by and available from the Department of Education’s Office of Inspector General, whichever is applicable to the entity, and provided that the Federal student aid functions performed by that entity are covered in the submission.

AUDIT SUBMISSION REQUIREMENTS

• 668.23 Compliance Audits and Audited Financial Statements

(1) General

To enable the Department to make a determination of financial responsibility, an institution must, to the extent requested by the Department, submit to the Department a set of acceptable financial statements for its latest complete fiscal year (or such fiscal years as requested by the Department or required by this part), as well as any other documentation the  Department deems necessary to make that determination. For fiscal years beginning on or after July 1, 2024, financial statements submitted to the Department must match the fiscal year end of the entity’s annual return(s) filed with the IRS. Financial statements submitted to the Department must include the Supplemental Schedule required under § 668.172(a) and section 2 of appendices A and B to subpart L of this part, and be prepared on an accrual basis in accordance with generally accepted accounting principles (GAAP), and audited by an independent auditor in accordance with generally accepted government auditing standards (GAGAS), issued by the Comptroller General of the United States and other guidance contained in 2 CFR part 200; or in audit guides developed by and available from the Department of Education’s Office of Inspector General, whichever is applicable to the entity, and provided that the Federal student aid functions performed by that entity are covered in the submission.

As part of these financial statements, the institution must include a detailed description of related entities based on the definition of a related entity as set forth in Accounting Standards Codification (ASC) 850. The disclosure requirements under this paragraph (d)(1) extend beyond those of ASC 850 to include all related parties and a level of detail that would enable the Department to readily identify the related party. Such information must include, but is not limited to, the name, location and a description of the related entity including the nature and amount of any transactions between the related party and the institution, financial or otherwise, regardless of when they occurred. If there are no related party transactions during the audited fiscal year or related party outstanding balances reported in the financial statements, then management must add a note to the financial statements to disclose this fact.

(2) Submission of additional information.

1. 1. In determining whether an institution is financially responsible, the Department may also require the submission of audited  consolidated financial statements, audited full consolidating financial statements, audited combined financial statements, or the audited financial statements of one or more related parties that have the ability, either individually or collectively, to significantly influence or control the institution, as determined by the Department.
   2. For a domestic or foreign institution that is owned directly or indirectly by any foreign entity holding at least a 50 percent voting or equity interest in the institution, the institution must provide documentation of the entity’s status under the law of the jurisdiction under which the entity is organized, including, at a minimum, the date of organization, a current certificate of good standing, and a copy of the authorizing statute for such entity status. The institution must also provide documentation that is equivalent to articles of organization and bylaws and any current operating or shareholders’ agreements. The Department may also require the submission of additional documents related to the entity’s status under the foreign jurisdiction as needed to assess the entity’s financial status. Documents must be translated into English.

Fame Comment: This section lists the requirements for the audited financial statements for every entity and allows ED flexibility in requesting additional information.

• 668.32 Student eligibility Ability to Benefit

(e) (2) Has obtained a passing score specified by the Secretary on an independently administered test in accordance with subpart J of this part, and either—

(i) Was first enrolled in an eligible program before July 1, 2012; or

(ii) Is enrolled in an eligible career pathway program as defined in § 668.2; (3) Is enrolled in an eligible institution that participates in a State process approved by the Secretary under subpart J of this part, and either—

(i) Was first enrolled in an eligible program before July 1, 2012; or

(ii) Is enrolled in an eligible career pathway program as defined in § 668.2

(5) Has been determined by the institution to have the ability to benefit from the education or training offered by the institution based on the satisfactory completion of 6 semester hours, 6 trimester hours, 6 quarter hours, or 225 clock hours that are applicable toward a degree or certificate offered by the institution, and either—

(i) Was first enrolled in an eligible program before July 1, 2012; or

(ii) Is enrolled in an eligible career pathway program as defined in § 668.2.

(a)  (5)  (v) If an educational program is designed to meet educational requirements for a specific professional license or certification that is required for employment in an occupation, or is advertised as meeting such requirements, a list of all States where the institution has determined, including as part of the institution’s obligation under § 668.14(b)(32), that the program does and does not meet such requirements; and * * * * * (c)(1) If the institution has made a determination under paragraph (a)(5)(v) of this section that the program’s curriculum does not meet the State educational requirements for licensure or certification in the State in which a prospective student is located, or if the institution has not made a determination regarding whether the program’s curriculum meets the State educational requirements for licensure or certification, the institution must provide notice to that effect to the student prior to the student’s enrollment in the institution in accordance with § 668.14(b)(32). (2) If the institution makes a determination under paragraph (a)(5)(v)

of this section that a program’s curriculum does not meet the State educational requirements for licensure or certification in a State in which a student who is currently enrolled in such program is located, the institution must provide notice to that effect to the student within 14 calendar days of making such determination.

Fame Comment: Students enrolled under ATB prior to July 1, 2012 remain eligible under that criteria.

 

(668.156 Approved State Process -Career Pathway Program

(a)(1) A State that wishes the Secretary to consider its State process as an alternative to achieving a passing score on an approved, independently administered test or satisfactory completion of at least six credit hours or its recognized equivalent coursework for the purpose of determining a student’s eligibility for title IV, HEA program funds must apply to the Secretary for approval of that process.

(a) (2) A State’s application for approval of its State process must include–

1. The institutions located in the State included in the proposed process, which need not be all of the institutions located in the State;

Ii. The requirements that participating institutions must meet to offer eligible career pathway programs through the State process;

Iii. A certification that, as of the date of the application, each proposed career pathway program intended for use through the State process constitutes an “eligible career pathway program” as defined in § 668.2 and as documented pursuant to §668.157;

Iv. The criteria used to determine student eligibility for participation in the State process; and

1. For an institution listed for the first time on the application, an assurance that not more than 33 percent of the institution’s undergraduate regular students withdrew from the institution during the institution’s latest completed award year. For purposes of calculating this rate, the institution must count all regular students who were enrolled during the latest completed award year, except those students who, during that period–
2. Withdrew from, dropped out of, or were expelled from the institution; and

Were entitled to and actually received in a timely manner, a refund of 100 percent of their tuition and fees

(b) For a State applying for approval for the first time, the Secretary may approve the State process for a two-year

initial period if–

1)The State’s process satisfies the requirements contained in paragraphs (a), (c), and (d) of this section; and

The State agrees that the total number of students who enroll through the State process during the initial period will total no more than the greater of 25 students or 1.0 percent of (c) A State process must—

1.Allow the participation of only those students eligible under § 668.32(e)(3);

2.Monitor on an annual basis each participating institution’s compliance with the requirements and standards contained in the State’s process, including the success rate as calculated in paragraph (f) of this section;

3.Require corrective action if an institution is found to be in noncompliance with the State process requirements;

4.Provide a participating institution that has failed to achieve the success rate required under paragraphs (e)(1) and (f) up to three years to achieve compliance;

5.Terminate an institution from the State process if the institution refuses or fails to comply with the State process requirements, including exceeding the total number of students referenced in paragraph (b)(2) of this section; and

Prohibit an institution from participating in the State process for at least five years after termination. enrollment at each institution participating in the State process

d)(1) The Secretary responds to a State’s request for approval of its State process within six months after the Secretary’s receipt of that request. If the Secretary does not respond by the end of six months, the State’s process is deemed to be approved.

(2) An approved State process becomes effective for purposes of determining student eligibility for title IV, HEA program funds under this subpart–

i.On the date the Secretary approves the process; or

ii.Six months after the date on which the State submits the process to the Secretary for approval, if the Secretary neither approves nor disapproves the process during that six-month period.

1. e) After the initial two-year period described in paragraph (b) of this section, the State must reapply for continued participation and, in its application—

1)Demonstrate that the students it admits under that process at each participating institution have a success rate as determined under paragraph (f) of this section that is within 85 percent of the success rate of students with high school diplomas;

2)Demonstrate that the State’s process continues to satisfy the requirements in paragraphs (a), (c), and (d) of this section; and

3)Report information to the Department on the enrollment and success of participating students by eligible career pathway program and by race, gender, age, economic circumstances, and educational attainment, to the extent available.

(f) The State must calculate the success rate for each participating institution as referenced in paragraph (e)(1) of this section by-

(1) Determining the number of students with high school diplomas or equivalent who, during the applicable award year described in paragraph (g)(1) of this section, enrolled in the same programs as students participating in the State process at each participating institution and–

1. Successfully completed education or training programs;
2. Remained enrolled in education or training programs at the end of that award year; or

Successfully transferred to and remained enrolled in another institution at the end of that award year;

1. f) The State must calculate the success rate for each participating institution as referenced in paragraph (e)(1) of this section by-

(2) Determining the number of students with high school diplomas or equivalent who, during the applicable award year described in paragraph (g)(1) of this section, enrolled in the same programs as students participating in the State process at each participating institution;

(3) Determining the number of students calculated in paragraph (f)(2) of this section who remained enrolled after subtracting the number of students who subsequently withdrew or were expelled from each participating institution and received a 100 percent refund of their tuition under the institution’s refund policies;

1. f) The State must calculate the success rate for each participating institution as referenced in paragraph (e)(1) of this section by-

(4) Dividing the number of students determined under paragraph (f)(1) of this section by the number of students determined under paragraph (f)(3) of this section; and

(5) Making the calculations described in paragraphs (f)(1) through (4) of this section for students who enrolled through a State process in each participating institution.

g)(1) For purposes of paragraph (f) of this section, the applicable award year is the latest complete award year for which information is available. 

(2) If no students are enrolled in an eligible career pathway program through a State process, then the State will receive a one-year extension to its initial approval of its State process.

1. h) A State must submit reports on its State process, in accordance with deadlines and procedures established and published by the Secretary in the Federal Register, with such information as the Secretary requires.

(i)The Secretary approves a State process as described in paragraph (e) of this section for a period not to exceed five years.

(j)(1) The Secretary withdraws approval of a State process if the Secretary determines that the State process violated any terms of this section or that the information that the State submitted as a basis for approval of the State process was inaccurate.

i.If a State has not terminated an institution from the State process under paragraph (c)(5) of this section for failure to meet the success rate, then the Secretary withdraws approval of the State process, except in accordance with paragraph (j)(1)(ii) of this section.

Ii .At the Secretary’s discretion, under exceptional circumstances, the State process may be approved once for a two-year period. If 50 percent or more participating institutions across all States do not meet the success rate in a given year, then the Secretary may lower the success rate to no less than 75 percent for two years

(j)(2) The Secretary provides a State with the opportunity to contest a finding that the State process violated any terms of this section or that the information that the State submitted as a basis for approval of the State process was inaccurate.

(3) If the Secretary upholds the withdrawal of approval of a State process, then the State cannot reapply to the Secretary for a period of five years.

1. a) An institution demonstrates to the Secretary that a student is enrolled in an eligible career pathway program by documenting that–

(1) The student has enrolled in or is receiving all three of the following elements simultaneously–

(i) An eligible postsecondary program as defined in § 668.8;

(ii) Adult education and literacy activities under the Workforce Innovation and Opportunity Act as described in 34 CFR  463.30 that assist adults in attaining a secondary school diploma or its recognized equivalent and in the transition to postsecondary education and training; and

(iii) Workforce preparation activities as described in 34 CFR 463.34;

1. a) An institution demonstrates to the Secretary that a student is enrolled in an eligible career pathway program by documenting that–

(2) The program aligns with the skill needs of industries in the State or regional labor market in which the institution is located, based on research the institution has conducted, including–

(i) Government reports identifying in-demand occupations in the State or regional labor market;

(ii) Surveys, interviews, meetings, or other information obtained by the institution regarding the hiring needs of employers in the State or regional labor market; and

(iii) Documentation that demonstrates direct engagement with industry;

) An institution demonstrates to the Secretary that a student is enrolled in an eligible career pathway program by documenting that–

(3) The skill needs described in paragraph (a)(2) of this section align with the specific coursework and postsecondary credential provided by the postsecondary program or other required training;

(4) The program provides academic and career counseling services that assist students in pursuing their credential and obtaining jobs aligned with skill needs described in paragraph (a)(2) of this section, and identifies the individuals providing the career counseling services;

(5) The appropriate education is offered, concurrently with and in the same context as workforce preparation activities and training for a specific occupation or occupational cluster through an agreement, memorandum of understanding, or some other evidence of alignment of postsecondary and adult education providers that ensures the education is aligned with the students’ career objectives; and

(a) An institution demonstrates to the Secretary that a student is enrolled in an eligible career pathway program by documenting that–

(6) The program is designed to lead to a valid high school diploma as defined in § 668.16(p) or its recognized equivalent.

1. b) For a postsecondary institution that offered an eligible career pathway program prior to July 1, 2024, the institution must–

(1) Apply to the Secretary to have one of its career pathway programs determined to be eligible for title IV, HEA program purposes by a date as specified by the Secretary; and

(2) Affirm that any career pathway program offered by the institution meets the documentation standards in paragraph (a) of this section.

(c) For a postsecondary institution that does not offer an eligible career pathway program prior to July 1, 2024, the institution must –

(1) Apply to the Secretary to have its program determined to be an initial eligible career pathway program; and

(2) Affirm that any subsequent career pathway program offered by the institution, initiated only after the approval of the initial eligible career pathway program, will meet the documentation standards outlined in paragraph (a) of this Section.

The Secretary provides an institution with the opportunity to appeal an adverse eligibility decision under paragraphs (b) and (c) of this section.

(e) The Secretary maintains the authority to require the approval of additional eligible career pathway programs offered by a postsecondary institution beyond the requirements outlined in paragraphs (b) and (c) of this section for any reason, including but not limited to –

(1)A rapid increase, as determined by the Secretary, of eligible career pathway programs at the institution; or

(2)The Secretary determines that other eligible career pathway programs at the postsecondary institution do not meet the documentation standards outlined in this section

Fame Comment: This explains exactly what a state has to do to be able to participate as an alternative ATB provider under the Career Pathway Program. Institutions should work with the state to get this approval process in place. After July 1, 2024, any new institution already teaching a career pathway program must submit at least one program for approval from ED. Other schools wishing to start a new career pathways program will have to submit one of them for initial approval. If it is a brand new offering at the institution after July 1, 2024, it must be approved by ED prior to disbursing Title IV funds.

About the Authors:

Materials and content originate from the Department of Education posting, with insights and summaries provided by Tom Netting and Sally Samuels.

Sally Samuels, Director of Compliance, Fame

Sally is one of the country’s leading authorities on Federal financial aid administration with more than 43 years of “in the trenches” experience. As a respected Industry leader, she is frequently called upon to speak at School, Accrediting, Regional and State conferences as well as to act as school liaison during program reviews and compliance audits.

 

Having processed, reviewed and taught financial aid for over 40 years Sally brings real life experiences, observations and illustrations to her audience adding a touch of humor to regulatory compliance. Her style makes the sometime complex topics easy to understand and audiences always come away with practical knowledge that they can apply to their everyday situations. Sally has been published many times in various Higher Education periodicals providing her expertise and insight on administering Federal funding based on compliance with the Federal statutes.

 

 

Tom Netting, President/CEO, TEN Government Strategies, Co-Executive Director, CSPEN

Having spent all of his professional career devoted to higher education policy oversight and implementation, Tom Netting has an extensive knowledge of the laws and regulations governing all aspects of higher education. His considerable background and experience have afforded him the opportunity to view the development and implementation of federal higher education and workforce development policy in their entirety – including issues related to higher education and workforce development, health care, veteran affairs policies and the procurement of federal appropriations.