Two People glasses discussion regulations

The long-awaited new Guide adds more than 70 pages of compliance items to test. Most significant among the changes is student population size calculations.


New Audit Guide Brings Big Compliance Changes to Proprietary Schools

  • Brenda Scherer
  • 9/29/2016

The Department of Education has released its long-awaited Guide for Audits of Proprietary Schools and for Compliance Attestation Engagements of Third-Party Servicers Administering Title IV Programs. (We’ll call it the Guide, for short.) This publication replaces the previous audit guide issued 16 years ago and adds more than 70 new pages; with it come significant changes in your proprietary institution’s future compliance reviews.

The Guide is effective for fiscal years beginning after June 30, 2016, but early implementation is allowed, if you so choose.

From examination to audit

The Guide changes the scope of work from an examination of compliance to an audit of compliance, so auditors will now apply audit standards in their engagements with your compliance activities. While this change affects how your auditors perform their work, your institution won’t see too much of a difference in that regard, except for some language in your engagement letters and reports.

But there are plenty of other changes that will be more palpable to your school’s compliance officers. Those 70 additional pages mean many more compliance items to test. Most significant among these adjustments will be how student population samples are calculated.

Changes to student population sample size calculations

The population of students who received Title IV program funds during the engagement period will still be segregated into two “universes”:

  • Students who were enrolled, graduated, or are on an approved leave of absence
  • Students who withdrew, dropped out, enrolled but never began attendance, or were terminated

The previous Guide required auditors to calculate the withdrawal percentage and then select the sample based on if the percentage was below or above 33 percent. In either case, the maximum number of students tested was 75. Now the sample will be calculated as follows:

  • For each of these two universes of students, a random sample should be selected.
  • For a universe of 250 or more, select a minimum of 60 student files.
  • For a universe between 100 and 249, select 25 percent of the universe.
  • For a universe between 26 and 99, select 25 student files.
  • For a universe of 25 or fewer, select all student files.

This changes the maximum number of students to test to 120 students — an increase of 60 percent.

The Guide specifies that the students selected in the sample will not only be used to test eligibility but will also be used to test the enrollment reporting to the National Student Loan Database System (NSLDS) and to the Common Origination and Disbursement (COD) system. In the past, sample size was left to the auditor’s discretion.

The Guide also provides instruction on the number of students that need to be tested for verification. It stipulates that if fewer than five students in the above sample were selected for verification, a separate sample must be selected to test at least five students with verification procedures completed.

Other testing and reporting additions

The new Guide includes testing for reporting in several areas, but those with most impact are likely to be:

  • Gainful employment reporting
  • Additional testing if your institution uses a third-party servicer to disburse credit balances
  • Consumer information

How we can help

Proprietary schools are just beginning to sort out the compliance and reporting changes outlined in the new Guide. CLA’s higher education professionals are knee-deep in the regulations and can help you interpret and apply the changes to your compliance activities and audit engagements.