ARCHIVED INFORMATION -- Annual Accountability Report Fiscal Year 1995
Pell Grant Program
Oversight and Analysis of Audits of Postsecondary Educational Institutions Needs Improvement. (reportable condition)
The Higher Education Act of 1965, as amended, authorizes Education to provide grants to assist financially disadvantaged students in obtaining quality postsecondary education. The largest grant programs are the $6.3 billion Federal Pell Grant program and the $616 million Federal Work Study Programs. Grants are provided to approximately 4 million students. The amount of the grant for which the student is eligible is based on his/her family income and the institutions' tuition. The institution guides the student in completing the grant application and processes the application through Education's central processing facility. The institution is also responsible for confirming income data reported by the students on a sample basis.
Although the grants are made for the benefit of the students, they are paid directly to the institutions which apply them primarily against the students' tuition. Approximately 7,900 institutions received grant funds. Approximately 2,600 of these institutions are proprietary (for-profit) institutions, the balance are government and not-for-profit institutions. In testing grant expenditures, our financial audit focused on Education's control structure for ensuring that funds provided to the institutions were for eligible students at allowed amounts. Education's control structure over the institutions includes the following:
- Institutions are required to submit applications and meet statutory eligibility and certification requirements for participation in Education's programs.
- All participating institutions must have independent financial and compliance audits performed annually.
- On-site reviews of a sample of institutions each year conducted by Education personnel.
- Students applying for grant assistance must submit applications to Education's central processing site. At this central processing site Education performs some student eligibility checks and computes factors that are later used to determine eligible grant amounts (based on data reported in the application by the students).
Results of External Audits Need to be Summarized and Followed-up
Education's principal control for ensuring that grant funds are being spent for eligible students at allowed amounts is its requirement that all participating institutions have routine financial and compliance audits performed by Independent Public Accountants or State Auditors (auditors). These audits are required by the Single Audit Act for government entities, by OMB Circular A-133 for not-for-profit institutions and by the Higher Education Act for proprietary institutions. Education has issued guidance for the auditors performing these audits which requires testing of controls and transactions related to the grant funds obtained by these institutions. However, during our audit of Education's processes for overseeing the institutional audits we found that:
- There is inadequate assurance that all postsecondary institution audit reports are received. Education maintains two systems for audit report tracking and resolution; however, neither system had been used to identify late or missing reports. Thus, Education could not be assured that all audits of the institutions are being performed.
- More timely resolution of audits of postsecondary institutions is required. When problems are noted in the audit reports that are received, Education follows-up with the institutions to work out an agreed upon course of corrective action, which in some cases requires repayment of funds improperly used by the institutions. Education's policy, as well as the requirements of OMB Circular A-50, is to require a response to problems identified in the audit reports within six months of receipt of the reports. In the sample we selected for testing, we found that approximately a quarter of the audit reports that identified problems were not resolved with the institutions within six months of receipt.
- Extent of misspending is not quantified. Education does not have processes in place to periodically estimate the extent of misspending that is occurring in its postsecondary grant programs. This information is necessary for Education to assess whether grant expenditure amounts included in its financial statements are fairly presented in accordance with laws and regulations governing these programs. This information is also needed to assess whether a cost-effective control structure is in place to ensure that funds are expended for eligible students at allowed amounts.
Education has initiated efforts to identify missing postsecondary institution audit reports and analyze their findings. However, this process was not complete by the time our field work ended.
Effectiveness of On-site Monitoring Reviews Should Also be Improved
Education's regional offices perform on-site reviews of postsecondary institutions to provide technical assistance and determine compliance with program regulations, including appropriate use of grant funds. OPE states approximately 860 institutions (out of a population of 7,885) were reviewed during fiscal year 1995. During our audit we noted the following with regard to these reviews:
- Improved risk analysis is required in selecting institutions for review. The Office of Postsecondary Education (OPE) has identified 25 risk factors to aid the field offices in identifying higher risk institutions on which to focus their limited monitoring resources. These 25 risk factors, however, resulted in identification of the majority (95%) of institutions as in need of review. There was no further weighing or ranking of the risk factors to identify the highest risk institutions for review. Thus, the risk factors as presently constituted are not effective as a means of targeting limited resources. We understand that OPE has assembled a team to further refine the risk assessment process to better target its limited monitoring resources towards the highest risk institutions.
- Reviews are not resolved timely. Education's policy requires issuance of the monitoring report within 30 days of the on-site monitoring of the institutions. In the sample we selected for testing, we found that approximately half of the reports were not issued within this timeframe. About 10% of the reports had not been issued within 120 days after completion of the reviews.
Redundancies Exist in Audit Tracking Systems
Education currently maintains two systems for audit tracking and resolution. The Common Audit Resolution System (CARS) maintained by the Office of the Chief Financial Officer is used to track audit reports for all recipients of Education funds. The Institutional Data System (IDS) maintained by the Office of Postsecondary Education (OPE) is used to track receipt of audit reports for institutions receiving postsecondary funds. While these two systems collect information unique to each office, they also contain a substantial amount of similar information. Data interfaces have been developed that generally reduce duplicate data entry, but it is still inefficient to develop and maintain systems that contain many redundancies to achieve similar objectives.
We recommend that Education:
- Complete the process of identifying missing/delinquent reports with regard to the external audits of postsecondary educational institutions and following-up with institutions to obtain the reports. One option for identifying participating institutions that have not submitted audit reports is to compare the payments database (Central Registry System) to the audit reports database.
- Timely follow-up with institutions where audit reports identify questioned costs or material control weaknesses. For these institutions, Education should quantify the extent of any misspending and seek reimbursement of misspent funds.
- Continue to perform periodic quality control reviews of the audits to ensure that the audits are addressing areas of risk to Education.
- Quantify the extent of missing reports and questioned/sustained costs to assess materiality on the department's financial statements.
- Complete development of a risk-based strategy for determining how to most effectively deploy limited institution monitoring resources. This monitoring strategy should be coordinated with audit coverage provided through the external audits already required of the institutions. For example, Education should consider focusing a portion of its monitoring resources on institutions where the external audits disclose problems or on those institutions that do not timely submit audit reports. Conversely, where the external auditors do not disclose financial and compliance issues, Education's reviews might focus some attention on areas not already covered by the independent auditors (i.e., program delivery issues).
- Consider maintaining a single automated system to track reports stemming from audits of government, not-for-profit, and proprietary educational institutions. Additionally, Education should determine if the external audit reports received from lenders could also be tracked in this same system, thus resulting in maintenance of a single audit tracking and resolution system for the entire Department.
[Cash - Timely Reconciliations]
[PAS/PMS Systems - Disaster Recovery and Security Concerns]