Assistance Listing number
and name: 84.031 Higher Education—Institutional Aid
Award numbers and years: P031S160090, October 1, 2016 through September 30, 2023;
P031S190167, October 1, 2019 through September 30, 2024;
P031S200096 and P031S200281, October 1, 2020 through September 30, 2025;
P031C210057 and P031C210077, October 1, 2021 through September 30, 2026;
P031S220015 and P031S220179, October 1, 2022 through September 30, 2027
Award year: July 1, 2022 through June 30, 2023
Federal agency: U.S. Department of Education
Compliance requirement: Reporting and special tests and provisions
Questioned costs: N/A
Condition—The District did not act in accordance with several federal regulations for its 10 endowments that 6 of the District’s 10 colleges established with Higher Education—Institutional Aid (HEIA) program monies that have been held by its Foundation since 2005. The District’s 10 endowments held with the Foundation ranged in value from $66,200 to $367,000 with a combined fiscal year-end balance of $1.7 million, including interest earned.1 Specifically, based on our review of the 10 required annual endowment reports, we found that the District and colleges did not:
• Submit 1 of the 10 required reports to the U.S. Department of Education to certify that endowment monies were spent in accordance with federal requirements.
• Review and approve 2 of 2 reports tested prior to submitting them to the U.S. Department of Education, and we noted that these 2 reports did not agree to Foundation records.
In addition, we found that the District and colleges were not aware of and did not evaluate each endowment’s investment performance with the Foundation and did not ensure that the Foundation’s investment policies met federal requirements.
Effect—The District’s failure to submit accurate endowment reports and the lack of monitoring over the Foundation’s administration of its endowments increases the risk that the U.S. Department of Education could terminate the endowments and require the District to reimburse it for the original endowment balances, including interest earned, if the District spent more of the endowments’ income than allowed by federal regulations. We did not note any instances of the District spending more than allowed based on the 2 reports tested.
Cause—The District reported that all the endowment reports submitted to the U.S. Department of Education were prepared by the Foundation and submitted by the colleges. However, the District did not have policies and procedures requiring the colleges to review the reports for accuracy, before they were submitted to the U.S. Department of Education. In addition, the District’s colleges separately contracted with the Foundation to administer the endowments, which included investing the endowment balances and disbursing a portion of the interest earned for allowable program activities. However, the District did not ensure that the Foundation was aware of the program’s requirements or have a plan for ensuring compliance. Further, the District did not have written policies and procedures to monitor the Foundation’s contract and the District’s endowments held with the Foundation, and had not designated anyone to centrally monitor these endowments.
Criteria—Federal regulation permits the District to designate its Foundation to invest and raise monies for the program’s endowments; however, the District is ultimately responsible for ensuring its endowments are administered in accordance with all federal regulations (34 CFR §628.3). The District is required to monitor the Foundation’s compliance with all federal requirements, including those that specify the investment types and risks allowed; require the endowments’ corpuses remain unspent during the grant award period; ensure it spends no more than 50 percent of the endowments’ earnings in accordance with the endowments’ purpose; and verify that endowment income is properly calculated and invested in a savings account or low-risk securities (34 CFR §§628.43 through .46). Additionally, federal regulation and the District colleges’ federal program award terms require the District to submit annual reports for each of its endowments certifying that the endowments comply with federal regulations (34 CFR §628.47[f]). Finally, federal regulation requires establishing and maintaining effective internal control over federal awards that provides reasonable assurance that federal programs are being managed in compliance with all applicable laws, regulations, and award terms (2 CFR §200.303).
Recommendations—The District should develop and implement written policies and procedures to:
1. Require the colleges to review reports for accuracy prior to certifying them and submitting them to the U.S. Department of Education.
2. Update its endowment contracts with the Foundation to include provisions that:
a. Require the Foundation to provide information on each endowment to the District for inclusion in the annual reports.
b. Specify the types of investments and investment risks allowed by federal regulations.
c. Require the Foundation to provide periodic reporting to the District and applicable colleges about the endowments’ investment performance, income calculations, disbursements made from endowment interest, and compliance with federal regulations.
3. Designate an employee to centrally monitor the endowments with the Foundation to ensure the endowments are properly accounted for, spent, and invested in accordance with federal regulations.
4. Ensure that the District’s required endowment annual reports are certified and submitted to the U.S. Department of Education by the District only after the reports have been reviewed and approved for accuracy and agreement to the Foundation’s records by the responsible District employee.
The District’s corrective action plan at the end of this report includes the views and planned corrective action of its responsible officials. We are not required to audit and have not audited these responses and planned corrective actions and therefore provide no assurances as to their accuracy.
This finding is similar to prior-year finding 2022-104 and was initially reported in fiscal year 2021.
1 The endowment grant award numbers and years are as follows: P031010003, October 1, 2001 through September 30, 2006; P031S080044, October 1 2007 through September 30, 2012; P031S080118, October 1, 2008 through September 30, 2014; P031S090050, October 1, 2009 through September 30, 2014; P031A110194, October 1, 2011 through September 30, 2016 (2 endowments); P031A110200, October 1, 2011 through September 30, 2017; P031S150085, October 1, 2015 through September 30, 2020; P031S150098, October 1, 2015 through September 30, 2021; and P031S160090, October 1, 2016 through September 30, 2023.