- U.S. Department of Education OIG Issues Audit Guide FAQs
- May 4, 2019
On March 16, 2018, the U.S. Department of Education Office of Inspector General issued guidance concerning the OIG’s Guide for Audits of Proprietary Schools and for Compliance Attestation Engagements of Third-Party Servicers Administering Title IV Programs (the “Audit Guide”). The guidance consists of 21 Frequently Asked Questions. It is the first document published by OIG aimed at clarifying procedures in the updated 2016 Audit Guide.
The 2016 Audit Guide constitutes a significant update and expansion of the OIG’s compliance audit requirements, replacing the prior version of the guide published in 2000. Some of the updates in the 2016 Audit Guide reflect statutory and regulatory changes implemented since 2000, including audit requirements related to ED’s Gainful Employment rule. The 2016 Audit Guide also expands 90/10 calculation and incentive compensation testing requirements.
The March 2018 Audit Guide FAQs focus on revised and updated provisions and also address other audit procedures. The Audit Guide FAQs include the following clarifications:
- Pursuant to the 90/10 revenue percentage procedures in Chapter 2, Section E.2, a school must provide 90/10 calculations at the OPEID level, even if the school is part of a school group. Auditors must perform the 90/10 procedures at the eligible school level. Consolidated financial statements submitted for a school group must include separate 90/10 revenue calculations for each school comprising the group. (Note: FAQ 1 mistakenly refers to Chapter 2, Section E.1.)
- Auditors must perform a student-by-student calculation regardless of whether a school has a high or low 90/10 rate. Auditors may not verify a school’s low 90/10 rate by only confirming totals for student non-Title IV revenue and revenue from other sources.
- Pursuant to Chapter 2, Section E.2.g, auditors must determine and disclose errors in a school’s calculation as a finding. FAQ 3 clarifies that auditors must disclose all calculation errors, regardless of the materiality of the errors. If an auditor determines errors in a school’s calculation and the school accepts the determination and corrected calculation, the school should include the corrected 90/10 calculation in the notes to the financial statements.
- Pursuant to Chapter 3, Section B.11, schools must disclose all noncompliance in the management representation letter. Auditors must report all noncompliance as findings, regardless of whether the school or auditor identified the noncompliance. FAQ 12 states that the reporting obligations in Chapter 3, Section B.11 even extend to noncompliance that was identified and corrected. However, FAQ 12 also clarifies that the Guide does not require that the noncompliance identified and corrected by the school be considered for materiality purposes. The auditors should use professional judgment to determine whether such corrected noncompliance warrants an expanded sample.
- Chapter 3, Section C.1.7 of the Audit Guide requires auditors to determine if a school provided incentive payments based upon securing student enrollments or the award of Title IV funds to students. FAQ 13 clarifies that auditors should test both payments between the school and its contractor and between the contractor and its employees. If the auditor cannot access the contractor’s records, the auditor should report that he or she cannot determine whether the school complied with the Incentive Compensation ban due to the scope limitation.
- Pursuant to Chapter 3, Section C.1.7.a, auditors must identify the entire population of persons a school relies on to recruit, admit and/or enroll students, and to award Title IV funds. Section C.1.7.b requires the auditor to examine compensation plans, performance evaluations, personnel files, and other records for employees, contractors, and other persons a school relies on to recruit, admit and/or enroll students, or award Title IV funds. FAQ 14 clarifies that auditors must examine the records for the entire population of persons identified in C.1.7.a in accordance with C.1.7.b. Auditors may not review files for only a sample of persons identified in C.1.7.a.
- FAQ 15 acknowledges that gainful employment data covers the most recently completed award year, which does not necessarily align with a school’s audit period. FAQ 15 advises that auditors should review gainful employment data reported during the audit period, but also should use professional judgment to determine whether a separate sample should be selected. Where there is no overlap between the audit period and gainful employment reporting period, an auditor should select a separate sample. Where the audit period and gainful employment reporting period overlap, auditors may rely on the sample as described in C.2.4.c.