UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
In the Matter of THE CITTONE INSTITUTE, Respondent.
Docket No. 94-134-SP
Student Financial Assistance Proceeding
Appearances: Leslie H. Wiesenfelder, Esq., Peter D. Horkitz, Esq.,
and Stanley A. Freeman, Esq., for respondent, The Cittone Institute,
Sarah L. Wanner Esq., Office of the
General Counsel, United States Department
of Education, Washington, D.C., for
Student Financial Assistance Programs.
Before: Edward J. Kuhlmann, Administrative Law Judge
studied at auxiliary classroom space located at 130 Gaither Place in Mount Laurel, New Jersey.
SFAP states that the Gaither Place classrooms were not licensed by the State of New Jersey,
accredited by a nationally recognized accrediting agency, or recognized as an eligible site by the
Secretary. SFAP alleges that students received instruction at suite 172 at the Gaither Place site
since September 1991 and in suite 100 at the Gaither Place site beginning in March 1992. SFAP
states that the State of New Jersey never licensed suite 172 and did not license suite 100 until
after instruction already had begun at the Gaither Place location. SFAP maintains that
was required to immediately cease awarding and disbursing Title IV funds to, or certifying Title
IV loans for, students attending school at the ineligible site for any payment period during which
the site was ineligible. The respondent was also required by SFAP to report Title IV funds
disbursed to students who attended classes at the apparently ineligible site.
SFAP is seeking from the respondent repayment of $131,645 of Title IV money paid to 61
students who attended class at the Gaither Place site.
SFAP supports its claim that the Gaither Place classrooms were ineligible for Title IV funds with
two letters from the State of New Jersey Department of Education to the respondent which grant
approval for the Gaither Place classrooms. Those letters , dated September 14, 1992, and July
23, 1992, approved use of suite 172 effective September 14, 1992, and approved the classroom
space in suite 100 effective March 26, 1992. From the existence of these letters, SFAP
that the State of New Jersey had not authorized the Gaither Place classrooms before they were
used for classes. SFAP cites 34 C.F.R. § 600.5 (1991) in support of its conclusion.See footnote 2
That regulation requires that an educational institution receive state authorization for its
program; the elements of state authorization are not defined in the regulation.
Respondent urges that it has complied with the applicable regulations and that the students who attended classes at the Gaither Place site were eligible to receive Title IV assistance. Simon Cittone, who was the president and owner of respondent during the review period, states in a declaration attached to the respondent's brief that when the SFAP reviewers raised a question about state approval of the Gaither Place site, the respondent contacted the New Jersey Department of Education. He declares as follows: The state inspected the Gaither Place site on March 26, 1992. At the time of the inspection, respondent provided minimal information about the use and arrangements for the Gaither Place classrooms to the New Jersey Department of Education; that information included local health and safety approvals. The state official who inspected the premises spent five minutes reviewing the requested paperwork and approximately
ten minutes looking at the suite. The Cittone Institute was not required to obtain a separate state
certificate for the Gaither Place classrooms. The next annual state certificate, following the
inspection, that was issued, on October 1, 1992, to the respondent for its Mount Laurel campus,
did not separately list the auxiliary classrooms at Gaither Place.
Mr. Cittone states in his declaration that the Gaither Place classrooms are not a separate
educational location, that they are treated by respondent as part of the Mount Laurel campus, that
students are enrolled at the Mount Laurel campus, that no program of study has been offered in
its entirety at Gaither Place, that students take the majority of their classes at the Fellowship
Road, Mount Laurel facility, that the Gaither Place site is only 900 yards from the Mount Laurel
campus, that faculty members who teach at Gaither Place also teach at Mount Laurel, and that
when a student was enrolled at Mount Laurel it was not known whether he or she would take
classes at Gaither Place because those classrooms are used for overflow purposes.
He represented that no administrative activities were conducted at the Gaither Place classrooms. Mr. Cittone also points out that both Gaither Place suites met all relevant health and safety standards and were approved by the relevant agencies for state and local safety requirements before classes were held there. He represents that the classes held at Gaither Place were part of a program of study that had been fully approved by both the state and the Accrediting Council for Independent Colleges and Schools (ACICS).
Respondent points out that the ED regulations do not require institutions to establish eligibility
separate classroom locations that offer only a partial educational program in order to disburse
Title IV funds. Respondent points out that SFAP does not cite a regulation that requires the
State of New Jersey's or ACICS's approval of auxiliary classrooms. Moreover, respondent
that its Eligibility Notice for the Mount Laurel campus from ED does not limit the geographic
scope of Title IV eligibility. Respondent submitted as exhibits New Jersey Department of
Education certificates for the review period that approved the Mount Laurel campus educational
SFAP responds to respondent's
factual and legal arguments by pointing to ED's regulation that educational institutions must to
be legally authorized by the state to provide their educational
program. It maintains that the letters from the New Jersey Department of Education approving
the Gaither Place classrooms establish that the classes being offered there were unauthorized
before the New Jersey Department of Education inspected them. SFAP does not point to any ED
policy concern or regulation about auxiliary classrooms, or any regulation requiring the approval
of the State of New Jersey or ACICS.
Respondent has met its burden on Finding 2. Respondent's use of auxiliary classrooms at Gaither Place was not unauthorized within the meaning § 600.5 (a) (4). Respondent has demonstrated that its educational program was fully certified by the state during the review period and by the accrediting group ACICS. The letters from the New Jersey Department of Education approving the auxiliary classrooms do not state that its inspection or approval was necessary for respondent to maintain its certification. The record reflects that the respondent requested approval after
SFAP reviewers raised the issue. The approach of the New Jersey Department of Education to
the inspections was perfunctory. The state was aware that the classrooms were being used at the
time of the inspection in March 1992; nevertheless, the state did not even notify the respondent
about its approval until four months later, in July 1992. The State Department of Education
explains that it wasn't until it was reviewing its files that it realized that approval was never sent
for the auxiliary classroom space. The state correspondence does not state that the inspections
were required or that it affected the validity of respondent's certificate to operate the educational
program licensed to respondent in Mount Laurel.
Respondent has shown that an "educational program" was not being offered at the
classroom. The record supports respondent's claim that students from the certified site at
Fellowship Road, Mount Laurel, New Jersey were taking some classes in court reporting at
Gaither Place and that this occurred when respondent had insufficient classroom space at
Fellowship Road. The evidence is that a full program was not offered at Gaither Place but only
part of one. Students registered at the Fellowship Road campus and administrative activities
relating to Title IV were carried out there. Respondent's uncontradicted representation is that it
did not know when students registered which ones would attend class at Gaither Place. In the
past, SFAP has found that adding a new location to a school raises authorization questions under
the regulations (In the Matter of LeMoyne-Owen College, Dkt. No. 94-171-SA, U.S. Dept. of
Educ. (May 18, 1995) ), but this is not a case where a new educational program was instituted;
respondent, instead, established a suite of classrooms 900 yards from its Mount Laurel campus to
hold spillover classes in court reporting. For these reasons, Finding 2 is reversed.
When reviewers examined the system used by the respondent they found discrepancies. For example, while the respondent stated that it marked absences for students who were not present, that course was not followed in the case of student #14, who withdrew. For student #14 the last day of attendance (LDA) was 10/1/91 and withdrawal was made on 10/3/91. The attendance record card, however, did not indicate that the student was not present on 10/2/91. If respondent had recorded all absences, as it claimed, then it could be assumed that the student was present on 10/2/91 since that day was left blank. The reviewers also did not know how the LDA was
determined. Reviewers could not tell when student #24 was in class. They found that there were
many C's on four dates for that student. The legend indicated that C meant "closed".
reviewers were told by repondent's staff the C meant "cut." According to the
students who cut class are considered absent for the day. Discrepancies were found for students
29, 31 and 32. SFAP reviewers were told by respondent's staff that they do not rely on the
Student Attendance Record Card for accurate attendance information. They told the reviewers
that they call the departmental offices for attendance information.
The respondent's attendance cards also conflict with time sheets required to be kept by the Job
Training Partnership Act (JTPA). Reviewers found instances in which a JTPA student was
recorded as being in attendance on JTPA time sheets on days the attendance cards indicated that
the student was absent. The reviewers found cases where a student's attendance was recorded
before it could have been known whether the student was present or absent. Finding 3 states that
the respondent, because it is a clock-hour institution, had to maintain and establish an adequate
system for recording and retaining attendance history. Without such a system, SFAP stated, it
could not be determined whether the hours attended were sufficient for students to have received
second and subsequent financial aid disbursements. Respondent was required by SFAP to
the educational records (other than the student attendance cards which reviewers had found
unreliable) for all students who received Title IV funds during 1990/91 and 1991/92, and
determine the number of clock hours that students attended which could be documented by the
institution. Respondent was required to ascertain whether the documented clock hours attended
were sufficient for students to have received second and subsequent financial aid disbursements.
SFAP stated that the respondent was required pursuant to 34 C.F.R. § 668.14. (e) (1991) to
demonstrate the requisite level of administrative capability to participate in Title IV, HEA
programs. It needed to show that it had established and applied reasonable standards for
determining whether a student maintained satisfactory academic progress in the course of study.
The standards include a maximum time frame for completing the program, a schedule for
determining by increments whether the student has successfully completed an appropriate and
specified percentage of the work, and specific policies defining the effect of course incompletes
and withdrawals. SFAP urges that without attendance records, the requirements cannot be met.
In addition, SFAP points out that 34 C.F.R. § 668.23 (1991) requires that institutions
and maintain, on a current basis, records regarding the student's enrollment status at the
and whether the student is maintaining satisfactory academic progress.
Respondent's required file review resulted in institutional liability in the following amounts:
Federal Pell Grant $12,796, Federal SEOG $1,000, Federal Stafford Loan $66,930.66, Federal
SLS/PLUS loan $19,846.13.
Respondent disputes liability for the Federal Stafford Loan, Federal SLS/PLUS and the Federal SEOG because no regulation requires an institution to base time of disbursements on the number of instructional hours that students attended. It also disputes liability because some of the students who received second or subsequent disbursements before they had attended the requisite
number of instructional hours continued at The Cittone Institute for a sufficient number of
instructional hours to entitle them to the disbursements. Respondent argues that the funds
disbursed early were not overpayments. To support this contention respondent cites the student
listed in exhibit 12 to the Request for Review, who received a $1,200 Pell Grant and $200 SEOG
and completed her program. Respondent also maintains that $1,088 in Pell Grants represent
students who were on leave when the review was conducted, but eventually completed a
sufficient number of clock hours to warrant the disbursements. For the same reason, respondent
claims that the SEOG, Stafford, and SLS/PLUS liability should be reduced by $22,777.
SFAP argues that respondent's claim about the on leave or absent students is unsupported. SFAP
points out that respondent produced no evidence to document that any leave it permitted
complied with regulations, that the students completed their program within the maximum time
frame required by the regulations, that the claimed resumption of attendance pertained to the
same award year in which the improper disbursements were made, or that the students in
did not obtain additional financial aid for the studies they pursued after the period covered by the
program review. SFAP asserts that the action taken against the respondent is consistent with 34
C.F.R. § 668.24 (1991) which provides that a "lack of proper documentation"
is an appropriate
basis for requiring repayment of Title IV funds that cannot be shown to have been properly
Respondent responds that SFAP's requirement that it establish that the students were on leave or
absent when the review took place and resumed attendance at the appropriate time enlarges the
issues beyond those cited in the FPRD.
SFAP reviewers found that respondent did not have in place an accurate and consistent system
keeping track of students who were present. Under the regulations such a system is necessary in
order for respondent to determine when it should disburse Title IV funds no matter what the
program. As respondent points out in the declaration of Mr. Cittone, The Cittone Institute is a
clock hour institution where students are self-paced. They are not present for any set or
predetermined period of time, according to Mr. Cittone. Unless there is some accurate system
keeping track of their attendance, respondent cannot fulfill its disbursement obligations under the
Title IV regulations. Respondent has not met its burden by supplying reliable attendance records
to counter the unreliable attendance data which the reviewers found. Furthermore, respondent is
not correct in asserting that the SFAP has altered its findings or that it has now relied on
regulations to substantiate the violations cited in the FPRD. SFAP's argument is that
claim that disbursements made to students who were absent or on leave is unsubstantiated by
reliable records. That is exactly the finding made in the FPRD. While the FPRD does not cite
§ 668.24, there would have been no reason since it is in that section that ED has notified schools that they may have to repay funds which they cannot properly document. Respondent does not dispute the basic premise that it must have a reliable system for recording time and attendance. Respondent has failed to make that demonstration; Finding 3 is affirmed.
SFAP required the respondent to determine, using the academic year clock hours, whether the
Pell Grant students in the 1990/91 and 1991/92 award years eventually attained the hours
necessary to become eligible for the second or subsequent payment. Ineligible disbursements
were determined by SFAP to be institutional liabilities. Respondent was required to discontinue
the practice of making a second or subsequent disbursement of a Federal Pell Grant prior to a
student's completing the hours from the previous payment period. The FPRD cited 34 C.F.R
§ § 690.3, 690.75. 690.79 (1991).
Based on the respondent's file review, institutional liabilities were as follows: Federal Pell Grant
$42,137, Federal SEOG $1,983.50, Federal Stafford Loan $127,477.18, Federal PLUS/SLS
Respondent agrees that Pell Grant disbursements are to be made as outlined in the FPRD.
Respondent urges, however, that GSL loan proceeds are to be disbursed in two payments, the
second of which may take place only after one-half of the loan period has elapsed. The
regulations do not, it argues, require that an institution wait until a student has attended the
required number of clock hours for a previous period of enrollment before processing the loan
Respondent also urges that because 34 C.F.R. § 676.2 (1991) defines the first SEOG
period from the beginning to the midpoint of the academic year, with the remainder of the
academic year as the second payment period, the payment may be made to a student without
regard to the student's attendance. Respondent argues that 34 C.F.R. 676.16 (a) (3) gives the
institution the discretion to determine when within that payment period to disburse SEOG funds.
Respondent has attached to its filing a list of students it claims eventually completed their
programs, a list of SEOG disbursements that were less than $501 and therefore could be made in
a single payment, and a list of students whose liability is double counted.
SFAP argues that respondent has missed the point of the assessment of institutional liability for GSL and SEOG grants. SFAP points out that Appendix D to the FPRD was prepared by
respondent and lists funds it disbursed to students who were not actively pursuing the programs
for which aid had been approved.See footnote 3
SFAP notes that respondent does not maintain that the students in Appendix D were active
at the time of the disbursements were made. SFAP, citing 34
C.F.R. §§ 682.604 (d) and (e) and 668.7 (1992), urges that disbursements to
students that cease
attending on at least a half-time basis are prohibited. SFAP also urges that SEOG disbursements
cannot be made/retained by a school without regard for whether students have withdrawn or
dropped out. 34 C.F.R. §§ 668.22, 676.16 (e). SFAP asserts that even if the
students were on
leave of absence, respondent has not submitted evidence that authorized leave was in place.
When an institution is unable to show that leave was granted in compliance with the
of 34 C.F.R. § 668.605 (c), SFAP maintains, the institution is liable for GLS
disbursements. In the Matter of Kane Business Institute, Dkt. No. 94-70-SP, U. S. Dept. of Educ.
(Oct. 21, 1994) at 4.
Respondent has not submitted evidence to rebut the allegations made by SFAP in Finding 5.
While it has demonstrated that the regulations for timing second and subsequent disbursements
may vary from program to program, SFAP does not dispute that analysis. Instead, Finding 5
provides a list of students who received disbursements out of time, either because the student, in
the case of Pell Grants, had not completed enough clock hours or respondent was unable to
demonstrate that the student who was absent or on leave was eligible for Title IV funds, when he
or she was not in attendance. Respondent has not submitted reliable and probative evidence
demonstrating that the students were eligible for second or subsequent disbursements. In order
do so, respondent needed to show that the disbursements were made within the payment period
and/or that the leave was granted in compliance with the regulations. For these reasons, Finding
Respondent requests that the hearing officer direct SFAP to calculate the amount of under award in 1993-94 and offset that amount against the over award in 1992-93. Respondent maintains that § 490 (d) (7) of the Higher Education Amendments of 1992 permits an institution to offset Title IV funds to which it was entitled but did not receive against any Title IV funds owed. Respondent also claims that its SEOG authorization was $186,152 not $193,403, the amount
used to calculate the reduction in the authorization. Respondent represents that it reported the
wrong number on the FISAP. To substantiate its error in reporting, it submits the declaration of
Colleen Russo, who prepared the original filing, and supporting documentation. It urges that,
because of that clerical error, its authorization for 1992/93 should be increased by $7,251.
SFAP urges that respondent's offset argument is without support. SFAP maintains that the
statute provides reimbursement to institutions that have expended Federal financial assistance
funds on their students. It points out that respondent does not claim to have spent money on
student grants for which it was not reimbursed, but that it under-represented in its 1991-92
FISAP its need for campus based "fair share" funds. SFAP argues that the
deficiency, if any,
resulted from respondent's deficient record keeping. SFAP asserts that it is equitable to have the
respondent return overpayment of Title IV funds. SFAP, citing 20 U.S.C. § 1094 9 (c) (7),
that the offset statute only provides for reimbursement to institutions that actually expended
Federal financial assistance funds on their students. SFAP also disputes respondent's claim that
the incorrect authorization was used to report the reductions for 1992/93. It points to its Exhibit
4 which is the FISAP filed by the respondent with the Department on September 29, 1993. That
FISAP indicates that the respondent expended FSEOG funds in award year 1992/93 of
The offset issue raised by respondent was fully considered in In the Matter of Phillips Colleges,
Inc., Dkt. No. 93-39-SP, U.S. Dept. of Educ. (May 16, 1994). There it was held that an offset
can occur only where money was expended by the respondent for which it was not reimbursed.
Respondent has not made that showing. It does appear that respondent incorrectly reported the
amount of SEOG funds received in 1992/93. The correct amount was $186,152 and, therefore,
the $68,790 repayment should be reduced by $7,251. Finding 7 is affirmed, except as
2. Respondent has not submitted reliable attendance data for the students who received Title IV
funds that rebuts Finding 3; therefore, it has not met its burden. In addition, respondent has not
produced reliable records that establish that students who received second and subsequent
disbursements were eligible for such payments. Findings 3 and 5 are affirmed.
3. Respondent has not demonstrated that SFAP was in error in reducing respondent's
authorization of Title IV funds for the 1992/93 year. But the amount to be repaid should be
decreased by $7,251 because of the arithmetic error made by respondent in preparing the FISAP.
In all other respects, Finding 7 is affirmed.
4. Respondent must repay the sums assessed in the FPRD for all findings listed in the FPRD except Finding 2. The U.S. Department of Education should recalculate the amounts to be repaid
for Federal Stafford Student Loans and Federal SLS/PLUS Loans considering only the
institutional liability under Findings 3, 5, 8 and 10. In the computation, the Department should
eliminate the duplication in FPRD Exs. C and D. The amount to be repaid under Finding 7
should be reduced by $7,251 to $61,539. Nothing in this proceeding altered respondent's
for the $552.34 to be paid under Finding 4 and the $53.02 in interest and special allowance
identified in Finding 17.
Edward J. Kuhlmann
Administrative Law Judge
Date: March 22, 1996