UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
In the Matter
of Docket No. 94-30-SA
FUNDACION EDUCATIVA ANA G. MENDEZ, Student
Financial Assistance Proceeding
Appearances: Leslie H. Wiesenfelder, Esq., and Sherry Mastrostefano, Esq., of Dow, Lohnes and Albertson, Washington, D. C., for Fundacion Educativa Ana G. Mendez.
Sarah L. Wanner, Esq., Office of the
General Counsel, United States Department
of Education, Washington, D.C., for Student Financial Assistance Programs.
Before: Judge Ernest C. Canellos
Fundacion Educativa Ana G. Mendez, Inc. (Fundacion), is a private non profit educational institution incorporated in the Commonwealth of Puerto Rico. It operates three degree granting institutions, the Universidad Metropolitana (UMET), Colegio Universitario del Este (formerly Puerto Rico Junior College) (PRJC), and Universidad del Turabo (Turabo). These institutions are separately licensed by the Council of Higher Education of Puerto Rico (PRCHE) and they are accredited by the Middle States Association of Colleges and Secondary Schools (Middle States). Each of these schools participates in the Pell Grant, the College Work Study, the Supplemental Educational Opportunity Grant, and the Perkins and Stafford Loan programs, authorized under Title IV of the Higher Education Act of 1965, as amended, (Title IV), 20 U.S.C. § 1070 et seq. and 42 U.S.C. § 2751 et seq.
November 18, 1993, the Acting Chief, Audit Resolution Branch, Institutional Monitoring
Branch, Office of Student Financial Assistance Programs (SFAP) of the U.S.
Department of Education (Department) issued a final audit resolution determination (FARD) to
Fundacion. The FARD was based upon a final audit report, dated May 27, 1992, which was
issued by the Department's Office of Inspector General (IG). Field work was carried out by IG
auditors at the three schools between April 1991 and August 1991, and examined Fundacion's
administration of the student financial assistance programs authorized under Title IV for the
period July 1, 1989, to June 30, 1991. On January 10, 1994, Fundacion timely appealed the two
adverse findings of the FARD and requested a hearing. After briefs were filed by both parties,
an oral argument was held on March 22, 1995.
The audit report, FARD, and request for hearing all involve the
same two findings. First,
Fundacion is alleged to have operated the Programa Servicios Educativos Especiales (PROSEE)
program at ineligible off-campus sites, resulting in those programs being ineligible to participate
in the Title IV programs. For this violation, the audit report recommended the return of
$27,100,673 (the total amount of Title IV funds awarded to students in this program from its
inception) to the Department; however, upon review of additional information, SFAP reduced its
claim to $1,712,540.See footnote 1
Second, UMET offered a televised series of courses, known as the External University
Education System (SEDUE), which allegedly were ineligible to participate
in Title IV programs because they did not lead to a degree or certificate, as required. The audit
report determined that $209,996 in Pell Grants were improperly provided to students in that
program during the two award years under review. In addition, the audit report estimated that
$578,000 in Pell Grants were erroneously awarded between 1986-1989, making the total demand
for this finding $787,996. The FARD adopted the total figure as its
As to the first issue, SFAP alleges that Fundacion operated PROSEE programs through its institutions at approximately sixty remote sites throughout Puerto Rico beginning in 1982. Fundacion claimed that the PROSEE courses were the same as those offered at the main campuses, the faculty was equally qualified, the academic calendar was the same, and all administrative functions were carried out at the main campus. In 1985, UMET, PRJC, and Turabo each filed an ED Form 1059, Request for Institutional Eligibility for Programs, with the Department as a prerequisite to becoming eligible to participate in the Title IV student financial assistance programs. In each of these applications, the institutions listed as their address only the post office box, city, and zip code of its main campus. Although many of the PROSEE sites were in existence at that time, they were not identified in any way. Section 5b of ED Form 1059 requested that if the institution offered programs at any other location, that location should be listed. The institutions each entered the notation "N/A" to that question on their respective applications. In reliance on the information contained in the requests, SFAP issued eligibility letters to each institution.See footnote 2 2 These formatted eligibility letters provided:
In 1988, the Department promulgated 34 C.F.R. § 600.10(b)(3),See footnote 3
which provided that:
Fundacion's defense against the finding relative to the PROSEE
sites is based on three
arguments. First, prior to the implementation of 34 C.F.R. § 600.10(b)(3), there was no
authoritative requirement that an institution notify the Department of new branches or seek
permission for their establishment.See footnote 4
Second, even after that date, the requirement cited above only applied to new sites, thereby
grand-fathering their PROSEE sites because they predated the
regulation. Third, although not conceding that such a requirement exists, each and every
PROSEE site was accredited by Middle States and licensed by PRCHE and, therefore, each was
acceptable under the criteria established by the IG and adopted by the FARD.
In their respective briefs, the parties initially dispute the meaning of
the word "new" in
§ 600.10(b)(3). Fundacion claims the word implies that the section applies only to sites
after the implementation date of the regulation while SFAP argues that the clear import of the
word is that the regulation applies to all sites, including those created after the date of the
respective eligibility designation.See footnote 5
After reviewing the regulation in question, I find that, when read in context, the rule
enunciated therein applies to any locations which were established
without notice to the Department.
This issue is also affected by two separate pronouncements of the
SFAP annually issues and distributes a Student Financial Aid Handbook (Handbook) to all
participants in the Title IV programs. Page 2-19 of the 1985-86 edition of the Handbook
Fundacion argues that the Handbook is not a properly promulgated regulation and, therefore, it
cannot be used as the basis for the demand of return of Title IV funds. Alternatively, even if this
provision is applicable, it is contrasted and modified by a July 29, 1991, letter from SFAP's
Director, Division of Eligibility and Certification to Fundacion's counsel which provided that
although an institution was required to notify the Department whenever there was a change in
locations of the institution, there was no requirement that the institution file an application and
secure the Department's permission if the additional location did not offer a complete program
(one leading to a degree, vocational certificate or other recognized educational credential).See footnote 7
The essence of that argument is that even though the letter postdates the event in question,
truly confirms SFAP's practice during the period in issue and is, therefore, probative. Despite
this argument, I note that the audit report indicates that some of the PROSEE sites offered
Bachelor and Associate degrees, yet Fundacion neither rebuts such an assertion nor offers any
explanation why such a program should be considered, nonetheless, as eligible.
In that connection, SFAP apparently requested no additional
information and asked no
questions regarding the PROSEE sites, when those sites were included in Fundacion's 1991
applications for recertification -- the Department routinely issued eligibility notices to
Fundacion's three institutions. Fundacion claims that the clear import of these factors is that it
was not required to file an application to establish eligibility of the PROSEE sites -- at most, it
was only required to notify the Department of the sites. Further, since the Department took no
action when it was eventually notified of the existence of the sites, and did not even inquire
them, any possible error in not so notifying the Department is, at most, a harmless one.See footnote 8
Contrariwise, SFAP argues that notification is an important step in its oversight of the Title
programs, and that such notice could have generated a timely inquiry into the appropriateness of
funding such sites. In a retort, Fundacion argues that regardless of SFAP's protestations to the
contrary, their normal practice is not to inquire into the status of sites when they receive notice
Upon review of the facts of this case, I find that Fundacion erred in
not notifying SFAP
of the PROSEE sites when its institutions sought eligibility in 1985. Although Fundacion argues
that there was no authority requiring such action, it is clear that they were on notice that such
information was required. It is also abundantly clear that SFAP was well within its authority to
request such information so that it could make an informed judgement as to eligibility.
Fundacion's protestations that it did not know that the information was requested or that the
Department waived the request for it is, at best, disingenuous. Fundacion's argument that it was
not required to inform SFAP of the PROSEE sites in 1988 because they were preexisting is,
likewise, dubious. Having determined that Fundacion erred in not reporting, I must determine
what, if any, adverse action should result. I have previously held that failure to notify the
Department of certain required information may be deemed only a technical violation if it
appears clear that the Department would have taken no adverse action against the institution
based on that information. See In re Mary Holmes College, Docket No. 94-32-SP, U. S.
Dep't of Educ. (March 30, 1995)(certified by Secretary's Decision, September 18, 1995).
There, I held that if a violation is deemed to be only technical in nature, it is one which does not
absent other aggravating circumstances, the extreme remedy of declaring the program to be
Here I reach the same conclusion. The record of this proceeding is
reasonably clear -
SFAP took no action when it was belatedly notified by Fundacion that they were providing
training at remote sites. Consequently, I find that the failure to notify the Secretary of the
existence of the remote sites is a technical violation, as the term is described above.See footnote 9
This determination does not end my evaluation of the eligibility of the remote sites
question. The real
issue -- was the training given at these remote sites authorized to be funded under Title IV -- is
still before me irrespective of the notice issue. In that regard, Fundacion has the burden of
showing that the students in question were eligible and that they were attending an eligible
program at an eligible institution. For purposes of this dispute, SFAP has agreed to accept as
eligible those PROSEE programs which Fundacion could show were both accredited by Middle
States and licensed by PRCHE. In so far as accreditation is concerned, Middle States has
indicated that they consider the institutions as entire units for accreditation purposes, including
their respective sites, even though they admit that they were not fully aware of the sites and
visited any of them. The record reveals, however, that PRCHE apparently was never apprised of
the full extent of the PROSEE program and that they questioned the adequacy of the training
given at some of the sites. Eventually, PRCHE caused Fundacion to close all but ten of those
sites. As indicated above, another problem is that Fundacion did not establish which of these
sites issued degrees or certificates. It must be recognized that Fundacion was required to file an
application to establish the eligibility of each such site which then was required to be approved
by the Department. My review of the record in this case reveals that Fundacion has not met its
burden of showing that the $1,712,540 in issue was provided to students in a program which
qualifies under the above criteria. As a consequence, I find that Fundacion owes that amount for
finding No. 1.
As to the second finding, SFAP alleges that Fundacion, through
UMET, awarded federal
Pell Grant program funds to students who were not enrolled in an eligible program, in violation
of 34 C.F.R. § 668.7(a)(1). Specifically, these students were enrolled in a series of
courses known as the SEDUE program, which was not eligible for Pell Grant funding because it
did not lead to the awarding of a degree or certificate. The courses offered included: Basic
Spanish 101, 102; English 101, 102; Humanities 101, 102; Social Science 101, 102, and
Bilingual Education Courses consisting of the cultures of the United States and Puerto Rico.
Unlike other students at UMET who are enrolled in an undergraduate degree program, the
SEDUE students were enrolled solely in SEDUE and were not required to declare a departmental
affiliation or major.
Fundacion asserts that SEDUE is not a separate program but,
rather, is merely an
educational delivery system utilizing telecommunications. Further: each of the students was
enrolled in UMET; each of the SEDUE courses is credible to any degree conferred by UMET;
each SEDUE student was required to matriculate and attend classes at the main campus and to
declare a major in their second semester; some students at the main campus were enrolled in
SEDUE courses; and, it was merely for an internal administrative convenience that SEDUE
students were separately listed and coded as such.
Evidence of record indicates that when UMET became aware that
its coding of SEDUE
students was a cause for concern, it altered its record system. Although insisting that it was not
required to do so by statute or regulation, it began requiring each SEDUE student to declare a
major upon enrollment and then double-coding them in their computer system. These two
actions apparently obviate SFAP's concern regarding the SEDUE students and would appear to
remove the question of those students' eligibility to participate in Title IV programs. Nothing
essential has changed. Such an artificial distinction, as that raised by SFAP's position on this
issue exemplifies the concept of "form over substance." This should not result in the loss of
Title IV eligibility! Consequently, I find that Fundacion has met its burden of proof that the
students attending the SEDUE program were students of UMET and that they were eligible to
participate in the Pell Grant Program.
1. Fundacion Educativa Ana G. Mendez has failed to meet its
burden of proof in
establishing that the students attending PROSEE sites were participating in an eligible program.
As a consequence, it must return $1,712,540 to the Department of Education.
2. Fundacion Educativa Ana G. Mendez has met its burden of
proving that students
taking SEDUE courses were enrolled in an eligible program.
Judge Ernest C. Canellos
Dated: December 15, 1995
A copy of the attached initial decision was sent by certified mail, return receipt requested to the
Leslie H. Wiesenfelder, Esq.
Sherry Mastrostefano, Esq.
Dow, Lohnes and Albertson
1255 Twenty-Third Street
Washington, D.C. 20037
Sarah L. Wanner, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110