Finding Text
2025-005 Finding: Material Weakness in Internal Control Over Compliance and Material Non-Compliance Federal Agency: U.S. Department of Education Federal Programs: 84.063 Federal Pell Grant Program; 84.268 William D. Ford Federal Direct Loan Program Compliance Requirement: Special Tests and Provisions: Return of Title IV Funds Questioned Costs: $0, Unknown Repeat Finding: No Criteria: Title 34 U.S. Code of Federal Regulations (CFR) Part 34 CFR 668.22 requires an institution to determine the amount of Title IV aid earned when a Title IV recipient withdraws during a payment period or period of enrollment and to apply the Return of Title IV Funds requirements in accordance with the regulation. 34 CFR 668.24 requires institutions to establish and maintain program and fiscal records documenting the administration of Title IV programs, including documentation supporting each student’s receipt of Title IV funds, the amount, date, and basis of the institution’s calculation of the treatment of Title IV funds when a student withdraws, and documentation of the return of Title IV funds to the Department, as applicable. In addition, 2 CFR 200.303 requires the non-Federal entity to establish, document, and maintain effective internal control over federal awards that provides reasonable assurance of compliance with applicable statutes and regulations, including monitoring controls over key compliance processes. Condition: The College did not have a formal supervisory review process over Return of Title IV Funds (R2T4) calculations and related return activity. R2T4 calculations and submissions were prepared by the Financial Aid Director without documented independent review or approval. Additionally, the College did not maintain sufficient documentation to clearly identify and trace the specific return transmitted for each student subject to an R2T4 calculation with an institutional portion due to the Department. Rather than recording the return as a distinct transaction supported by a documented calculation and remittance trail, the Financial Aid Director manually adjusted the disbursed amounts in PeopleSoft to reflect net amounts after the return and also made manual updates within COD, without maintaining a supporting documentation package, audit trail, or reconciliation. As a result, for students tested, the engagement team could not reperform or trace student-level returns from the R2T4 calculation through COD activity and ultimately to cash activity in the federal funds accounts (e.g., G5). Given that this process applies to all students requiring an R2T4 calculation and an institutional return, the absence of supervisory review, documentation, and reconciliation represents a pervasive control deficiency. Cause: Management has not established formal written procedures and control requirements for R2T4 processing, including supervisory review and approval of calculations, documentation retention standards, and reconciliation of student-level R2T4 return amounts to system activity and federal cash activity. Responsibilities for review and reconciliation were not clearly defined, and the process relied on manual system edits that did not retain a reliable transaction trail. Effect: Because the College did not implement supervisory review over R2T4 calculations and did not maintain a complete documentation and reconciliation trail for student-level returns, the College was unable to demonstrate that institutional returns required by R2T4 were consistently calculated, recorded, and remitted in accordance with federal requirements. Recommendation: The College should strengthen controls over the R2T4 process by implementing the following: 1. Establish written R2T4 procedures requiring a standardized calculation and documentation package for each applicable withdrawal, including the withdrawal determination date, key calculation inputs, earned/unearned aid, and the institutional return amount. 2. Implement documented supervisory review and approval of each R2T4 calculation and related return submission prior to processing. 3. Eliminate undocumented manual netting edits and require returns to be recorded in a manner that preserves a clear, auditable trail (e.g., distinct transactions). 4. Perform and document periodic reconciliations of R2T4 calculation results to COD activity and COD activity to federal cash activity (e.g., G5), with documented investigation and resolution of differences. Auditor’s Note: The engagement team noted that the College’s inability to clearly trace and reconcile student-level R2T4 return amounts to COD activity and federal cash activity (e.g., G5) is consistent with the broader cash management control deficiencies described in the Cash Management finding. Specifically, the absence of standardized documentation, reconciliations, and monitoring over Title IV cash activity limits the College’s ability to evidence that R2T4 returns were processed and remitted accurately and in a manner that is verifiable and reproducible. View of Responsible Officials: See Auditee’s Corrective Action Plan.