Docket No. 92-45-SP
Student Financial Assistance Proceeding


The Department of Education (ED) issued a Partial Final
Program Review Determination (PFPRD) dated January 31, 1992
containing three separate findings of liability by Smith Business
School. Under the findings Smith owes ED $56,384.00, consisting of $4,378.00 (Finding Number 13); $3,737.25 (Finding Number 19);
and $48,268.75 (Finding Number 20).

    Because of the PFPRD findings, Smith filed a request for
a hearing on the record under 34 CFR Part 668 subpart H. The
matter was assigned to Judge Allan C. Lewis who reassigned the
matter to me. Written arguments and evidence contained in
briefs were filed by ED's Office of Student Financial
Assistance (OSFA) and by Smith.

    The three disputed findings are documented in the PFPRD
and also in a DE Program Review Report which was sent to
Smith on August 21, 1991.

    In the case of finding 13, Smith awarded Pell Grant funds
during 1990-91 to two students whose income tax returns may or
may not establish that they met the income need test for Pell

    -    Docket No. 92-45-SP

Apparently, the need analyses for the students were not fully

    Another student also possibly failed during 1989-90 to
meet the need test for a Supplemental Educational Opportunity
Grant (SEOG), this time because an income tax return of a
parent of the student may void the basis for an SEOG. The
amounts paid to the possibly ineligible students under finding
13 total $4,378. Smith disputes the amount, saying it should
be only $250. See Appendix 7 of the Smith Response To Opening
Brief dated May 21, 1992.

    In its reply brief dated June 22, 1992, OSFA ignores
Appendix 7 of the Smith brief.

    It may be that the core position of OSFA is that Appendix
7 is "late," in violation of 34 CFR 688.113(b), which requires
among other things that certain school records be submitted no
later than the date that the school receives the final program
review determination. Here there was a partial final
determination dated January 31, 1992, and Appendix 7 may not
have been submitted to DE until the May 21, 1992 brief of

    Alternatively, the position of OSFA may be that Appendix
7 is not exculpatory because the tax returns contained in
Exhibit 7, even though fully examined by DE during the program
review were not at that time fully "verified" by Smith as may
be required by DE regulations. Finally, it may be the OSFA
position that even "verified" tax returns would not have
supported grants to the three

    students.    -

Docket No. 92-45-SP

    In the case of finding 19, Smith failed to deposit
required matching funds for SEOG funds during 1989-90 and
1990-91 amounting $3,737.75. At page 4 of its brief of May 21,
1992, Smith admits liability under finding 19.

    In the case of finding 20, Smith failed to give priority
during 1989-90 and 1990-91 to Pell Grant students. All
students in a sample selected by DE who received Pell funds
were denied SEOG funds while other non-Pell students, with
lesser priority, were given SEOG funds. Smith says that any
such use of grant funds is justified by an overall shortage of
SEOG funds. Smith also says that it failed to expend some of
its Pell funds and that the unexpended amount should be
subtracted from the SEOG total. However, based upon the
samples studied by DE it appears that Smith uniformly denied
SEOG funds to all Pell Grant students and that in the face of
such denial, no disbursement of SEOG funds to students with
lesser priority was warranted. Of course, a larger sampling of
Pell Grant students might show a somewhat different result,
but based on the record, no Pell Grant student is shown to
have received SEOG funds. Thus, the requirement for a refund
by Smith of all SEOG funds for the subject school years is

    Upon the evidence and argument presented, I find that the
Partial Final Program Review Determination dated January 31,
1992 is supported by the record. The position of OSFA on
finding 13 might be better documented, but Smith itself fails
to prove that finding 13 is flawed.

Docket No. 92-45-SP

Specifically, I find deficiencies by Smith as

    Finding 13 - The student need analyses for two Pell
grants and one SEOG award were not fully completed by Smith.

    Finding 19 - Smith failed to provide matching funds for
SEOG funds;

    Finding 20 - Smith refused to provide SEOG funds to Pell
Grant students.

    Because of these deficiencies, Findings 13, 19 and 20 of
the PFPRD date January 31, 1992 are affirmed.

Dated this 25th day of September, 1992.

Paul S. Cross
Administrative Law Judge
Office of Higher Education Appeals
U.S. Department of Education
400 Maryland Avenue, SW
Washington, DC 20202-3644