Compliance is an integral part of every organization’s governance program. For colleges and universities, a large component of this program relates to student financial aid and Title IV compliance, as required by their program participation agreement (PPA) with the United States Department of Education.
The importance of developing and maintaining an effective Title IV compliance program has never been more critical. An increasing and changing body of regulations at the federal and state levels, coupled with increased student awareness and litigation activity, requires institutions to identify and manage their regulatory and compliance risk proactively. Failure to address the risks properly can result in monetary liabilities or fines, significant damage to an institution’s reputation, and potential restrictions on or actual loss of eligibility to participate in Title IV programs.
Challenges and Opportunities
Student financial aid is a highly regulated industry. Understanding the requirements of Title IV compliance and the available tools and practices for adhering to such regulations can present significant challenges to institutions. Those participating in federal financial aid programs must comply with all applicable standards and regulations under the Higher Education Act, with zero tolerance for error.
Generally, more than 50 percent of students at an institution receive some form of financial aid, and at many institutions the percentage is much higher, making these institutions highly dependent on this form of revenue. For such schools, losing eligibility to participate in the federal financial aid program – which can happen immediately as a result of noncompliance – would threaten their largest revenue source.
A robust compliance program aimed at proactively assisting management in meeting their student financial aid responsibilities can provide institutions with comfort knowing they will significantly reduce or eliminate the risk of paying liabilities for noncompliance and/or having their institutional eligibility jeopardized.
Every institution must meet the compliance requirements to accurately and timely award, disburse, refund and account for all student financial aid funds. Depending on a schools’ methodology, maintaining a disciplined approach to internal controls and process improvement can result in a significant advantage over other schools by creating an error-free, efficient and student-focused financial aid process that significantly enhances the student experience while saving the institution money.
Beginning July 1, 2010, all schools must participate in the William D. Ford Federal Direct Loan Program (FDLP). For schools previously participating in the Federal Family Education Loan (FFEL) program, this will be a significant change, requiring new processes and systems interfaces. Additionally, institutions must be prepared to reconcile disbursed direct loans much like they reconcile Pell funds today. A seamless transition from the FFEL program to the Direct Loan program will be essential for both students and schools.
Our Point of View
Every institution is different and faces unique challenges in managing risk and meeting its compliance objectives. To drive improvement, an institution must identify and prioritize key risk areas using the following indicators of need:
- Decentralized financial aid processes – Many institutions have multiple campuses and even different types of schools. If each school or campus is processing and distributing financial aid, the opportunity exists to increase efficiency and compliance by centralizing this function into one location.
- Disparate systems that do not talk to each other – Many institutions use separate systems for financial aid, accounting, enrollment, and other administrative functions. It is essential from both an efficiency and compliance standpoint that systems that support and process student financial aid interface with each other and update critical information timely.
- Manual processes and calculations – Financial aid is a complex process and requires a number of calculations for not only eligibility and certification, but also for refunds. As with any process, the more calculations and activities are performed manually, the more time-consuming and error-prone the process is. Automating certain financial aid functions can increase compliance and reduce reliance on key personnel by establishing a consistent and repeatable process.
- Outdated or undocumented policies and procedures – Key financial aid regulations are updated and changed by new laws on a regular basis. If the organization does not follow a rigorous method for ensuring policies and procedures are kept up to date, the risk of error due to faulty training and misunderstandings increases. One of the first tests the Department of Education performs when auditing institutions is evaluating conformity to policy and practice. In other words, does the institution have the required policies and procedures spelled out and does it perform the activities as described?
- Inconsistent or inadequate measurement – Institutions possess massive amounts of data about student attributes, trends and results. However, few institutions effectively turn that data into actionable information and use it to inform the business processes and outcomes. For example, does the institution know what activities contribute to its peak processing and can some of these activities be automated, combined and/or eliminated? Or, is the institution targeting the right students with the right actions? Data might reveal that the institution is spending a disproportionate amount of its budget recruiting a certain type of student who does not stay enrolled at the institution. Likewise, an institution might discover that a blanket policy preventing enrollment for nonpayment negatively impacts students who owe small amounts and are near graduation.
How We Help Companies Succeed
We have worked with many institutions to analyze and to improve their compliance functions and to address the unique risks of their institution. Our approach, which includes an up-front risk assessment, is designed to identify processes and the risks inherent in each process, based on regulatory requirements as well as the institution’s unique control objectives, staff knowledge and level of technology. This risk assessment process leads to the prioritization of risks and also to the development of efficiency opportunities that will lead to both increased compliance and reduced costs.
Our experience shows that many institutions still rely on manual processes in the student aid lifecycle. These manually intense processes often require dependence on key personnel, are highly prone to human error, and are generally inefficient. Institutions of all types and sizes can benefit from our unique perspective and experience in developing more efficient processes that are repeatable, take advantage of technology, and provide a faster and better student experience.
Protiviti delivers high-quality regulatory and compliance risk services thanks to our highly experienced risk consulting specialists. Our extensive regulatory and compliance expertise is the key to meeting our clients’ value expectations. The members of our team not only work with schools as in the examples below, they also have extensive prior risk consulting experience and well-established relationships within the industry and/or the Department of Education.
“I wish we would have done this proactively instead of reactively.” Pending and threatening litigation caused one institution we worked with to take a fresh look at how they were complying with financial aid regulation and the gaps in the institution’s process. We worked with the institution to develop a risk-based approach to identify and correct the compliance issues that existed. Additionally, throughout the project we brought to light many improvement and efficiency opportunities. As a result, the institution was not only brought in compliance but was able to make significant improvements to its student financial aid processes.
Another institution engaged us to help it prepare for a pending Department of Education program review. As the institution had not undergone a program review for some time, management needed assistance to identify potential compliance issues to allow the institution to anticipate the results of the Department’s review and plan for any corrective action and process improvements as needed. We conducted detailed interviews with financial aid staff to identify potential compliance issues, and then validated those issues through a detailed student file review. At the conclusion of the project, the institution was better prepared to tackle the program review head-on, knowing in advance what its compliance risks were and being one step ahead by having corrective action plans in place to address those risks