IN THE MATTER OF THE CITTONE Docket No. 94-131-SA
INSTITUTE, Student Financial
Respondent. Assistance Proceeding
Wanner, Esq., Office of the General Counsel, for the Office of
Student Financial Assistance Programs, United States Department of
Before: Judge Richard F. O'Hair
This appeal addresses Audit Report Findings #6 and #17 contained in the May 27, 1994, Final Audit Determination (FAD) which was issued to The Cittone Institute (TCI) by the Chief, Audit Resolution Branch, Institutional Monitoring Division, Student Financial Assistance Programs, U.S. Department of Education (ED).See footnote 1 1 The FAD was prepared following departmental review of an institution-wide financial and compliance audit which was prepared for TCI by an independent auditor. TCI submitted this audit of its student financial assistance programs for the two award years ending June 30, 1992, in compliance with the requirements of 34 C.F.R. § 668.23.See footnote 2 2
Audit Report Finding #6 identified a Pell Grant overpayment of $900 to a student who received both a first and second Pell Grant disbursement, but withdrew from the institution prior to completion of the number of clock hours required for a second disbursement. Apparently TCI recognized the overpayment, but mistakenly refunded this amount to a lender as opposed to reimbursing the Pell Grant account. Even though TCI does not contest this liability and has agreed to refund this amount to ED, it has appealed this finding because it believes this
overpayment is also at issue in a finding contained in a Final Program Review Determination
(FPRD) which is currently pending before this tribunal in Docket No. 94-134-SP. TCI is
concerned that it may be held responsible for this $900 obligation in both the audit proceeding
before me and the program review proceeding. Nonetheless, ED has convinced me that the
overpayment liability assessed in the FPRD for excess Pell Grant disbursements is not a
duplication of Audit Report Finding #6 and, therefore, this audit report finding liability is
properly addressed in this proceeding. The $900 assessment is valid and should be
Audit Report Finding #17 addresses a discrepancy in the
cash-on-hand balances in TCI's
Pell Grant program accounts. The audit prepared for the 1990 award year indicates a cash-on-
hand balance at the end of that year of $12,682, whereas the cash-on-hand balance for the
beginning of the 1991 award year for the same Pell Grant account is $5,476. It is ED's position
that these two balances should be identical and that the difference between them, $7,206,
demonstrates TCI's failure to properly account for its receipt and expenditure of Pell Grant
funds. Because of TCI's inability to satisfactorily explain this discrepancy, the FAD required the
institution to reimburse ED in the amount of $7,206.
An institution has a fiduciary responsibility to ED to accurately
"account for the receipt
and expenditure of Pell Grant funds in accordance with generally accepted accounting
principles." 34 C.F.R. § 690.81(a)(2).See
To accomplish this, an institution must maintain a record of each program transaction and
account for all drawdowns and expenditures. Thus, when an
end-of-year audit shows a cash-on-hand balance of one amount, but the beginning cash-on-hand
balance for the subsequent year is a lesser amount, and the institution cannot account for the
difference between the two figures, the institution has violated its fiduciary duties. The
institution is liable to ED for the difference between the two amounts unless it can satisfy its
burden of accounting for these missing funds. 34 C.F.R. § 668.116(d).
TCI presents two theories to explain the $7,206 discrepancy. The
first explanation is that
the audits for the two award years were prepared by two different auditors. The auditor for the
second year suggests that the previous auditor erred in reporting a cash-on-hand balance at the
end of the 1990 award year of $12,682, insisting instead that $5,476 is the correct figure for the
cash-on-hand balance at both the end of the 1990 award year and also the beginning of the 1991
award year. In the alternative, TCI's brief explains the discrepancy as being "simply a
a difference in method [sic] of reporting."
I am not persuaded that either of TCI's theories adequately explains the $7,206 discrepancy in the Pell Grant funds account. To arrive at this conclusion, I must accept the audits for both years as being a correct representation of the funds on hand. In doing this, I find that this leaves $7,206 unaccounted for, which is a violation of TCI's fiduciary responsibility.
TCI's only means of avoiding pecuniary liability for this amount would have been for it to have
completed "a comprehensive review of drawdowns and expenditures for the audit
period," as was suggested by the auditor for the 1991 award year. In the absence of such a
review, I must
find that TCI has not properly accounted for $7,206 of Pell Grant funds and must reimburse ED
in this amount.
Based on the foregoing, it is hereby--
ORDERED, that TCI must refund to ED $8,106.
Judge Richard F. O'Hair
Issued: April 7, 1995
S E R V I C E
A copy of the attached initial decision was sent by CERTIFIED MAIL, RETURN RECEIPT
REQUESTED to the following:
Leslie H. Wiesenfelder, Esq.
Dow, Lohnes & Albertson
1255 Twenty-Third St., N.W.
Washington, D.C. 20037-1194
Sarah L. Wanner, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110