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
Fundacion Educativa Ana G. Mendez, Inc. (Fundacion), of Rio Piedras, Puerto Rico, operates
three degree-granting institutions in Puerto Rico. These institutions are licensed by the Council
of Higher Education of Puerto Rico (PRCHE), accredited the Middle States Association of
Colleges and Secondary Schools (Middle States), and eligible to participate in the student
financial assistance programs which are 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.
On November 18, 1993, the Acting Chief, Audit Resolution Branch, Institutional Monitoring Division, Office of Student Financial Assistance Programs (SFAP) of the U.S. Department of Education (ED) issued a final audit determination (FAD) to Fundacion. Fundacion appealed the adverse findings of the FAD. On December 15, 1995, I issued a decision in which I found that Fundacion had disbursed federal funds to students attending unauthorized programs at remote sites. Further, I ordered Fundacion to return $1,712,540, to ED. The Secretary certified the decision as the Final Decision of the Department on April 11, 1996. Fundacion appealed to the U. S. District Court for the District of Puerto Rico which, on September 30, 1997, remanded the case to the Secretary for further consideration. After the remand by the District Court, the Secretary, in turn, remanded this matter to me for adjudication.
Although a number of arguments were addressed in my initial decision, I found that the crucial
issue was whether the training given at Fundacion's remote Programa Servicios Educativos
Especiales (PROSEE) sites could be funded under Title IV. In that regard, Fundacion had the
burden of showing that the students in issue attended an eligible program, otherwise, it would be
required to repay all the Title IV funds which were disbursed to those students. See 34 C.F.R.
§ 600.10 (c)(2) (1993). Earlier in the process, SFAP had agreed to accept, if otherwise eligible,
the eligibility of those PROSEE programs which Fundacion could show were both accredited by
Middle States and licensed by PRCHE. In my initial decision, I found that the accreditation
requirement had been met, however, I found that there was a failure of licensure. Specifically,
although each of the three Fundacion schools was licensed, such license did not extend to the
In reaching that conclusion, I considered that PRCHE was never apprised of the full extent of the
PROSEE program, PRCHE questioned the adequacy of the training given at some of the sites
when they became aware of them and eventually directed that Fundacion close all but ten of the
sites. Separately, I also found that the evidence of record indicated that some Fundacion sites
issued degrees or certificates, however, it did not establish which of them did so -- this was
crucial since Fundacion was required to file an application with ED to establish the eligibility of
each such site, and this clearly was not done. 34 C.F.R. §600.32 (1993). It was abundantly clear
that, in so far as any site which offered certificates or degrees was concerned, Fundacion failed to
satisfy one of the conditions of eligibility, the submission of an appropriate application to ED.See footnote 11
Consequently, any such site was an ineligible location and programs at those particular sites were
not eligible for Title IV purposes. Further, since Fundacion failed to provide evidence as to
which of their sites fit into that category, or more appropriately which did not, I concluded that,
based on the record before me, they all did. As a consequence of each of the above conclusions,
I found that Fundacion had not met its burden of showing that the $1,712,540 in issue was
disbursed to eligible students in an eligible program and, therefore, must be repaid.
The District Court's remand was on a narrow issue, i.e. was PRCHE's retroactive licensing of
PROSEE sites effective so as to satisfy the Title IV requirement that a program must be legally
authorized to qualify as an eligible program. After a continued dialogue between Fundacion and
PRCHE, which included litigation, PRCHE issued certificates which approved the PROSEE sites
with a condition that most would not operate thereafter. In its review of that issue, The District
Court determined that:
As a general premise, it is well established that in subpart H -- audit and program review --
proceedings, the institution has the burden of proof. 34 C.F.R. § 668.116(d). Consequently, to
sustain its burden in this particular matter, Fundacion must establish, by a preponderance of the
evidence, that the Title IV funds in issue were lawfully disbursed. In this context, Fundacion is
required to prove that the PROSEE programs at its various sites were eligible programs. For the
same two separate and distinct reasons, I find, as I did in my initial decision, that Fundacion has
failed to meet that burden. First, in the context of Title IV and its implementing regulations, the
PROSEE programs were not legally authorized. Inherent in that finding is my conclusion that
the Secretary is not bound absolutely by the apparent decision of PRCHE, and is free to, if not
absolutely obliged to, review that issue under the federal practices and procedures which are
attendant to Title IV.
As part of the federal government's obligation to safeguard federal student financial assistance
funds, a tri-partite gatekeeping system has been established. The participants in this gatekeeping
function include: accrediting agencies which have been approved by the Secretary to be the judge
of the quality of the content of education programs; state licensing bodies which oversee the
legal existence of educational programs within their respective states; and ED which has the
overall responsibility to scrutinize the compliance with federal law of all Title IV participants.
Although accrediting agencies and state licensing bodies are, indeed, independent entities, they
do not operate in a vacuum in so far as Title IV issues are concerned -- Congress has delegated to
the Secretary the final and ultimate authority to determine whether or not compliance with Title
IV is achieved. In a previous decision, the Secretary determined that when an accrediting agency
failed to comply with Title IV in making an accreditation decision, he could overturn the
accreditation decision in so far as it impacted on Title IV. See generally, In re Webster Career
College, Inc., Docket No. 91-39-SP, U.S. Dep't of Educ. (Decision of the Secretary, July 23,
1993). To put this issue in context, it seems abundantly clear that a state agency, in addition to
its secondary role of aiding the federal government with its oversight functions in the Title IV
program, acts primarily to safeguard the parochial interests of its various citizens.See footnote 22 Given this
situation, it is clearly the Secretary who is ultimately charged with responsibility to protect the
federal interest. Consequently, I find that a decision by a state agency relative to a licensing
issue should be treated similarly to a decision by an accrediting agency when they each deal with
Title IV matters -- each type of decision is subject to being overridden by the truly responsible
official, the Secretary. When I review the question of whether the PROSEE sites were legally
authorized, I find that they clearly were not.
In reaching my determination of whether the PROSEE sites were legally authorized for the
purposes of participation in Title IV, no in-depth legal analysis is necessary; what is required is
the application of commonsense. In that vein, first, my review of the record fails to reveal any
indication that, during any of the periods during which the PROSEE sites operated, PRCHE ever
indicated that the sites met its standards. It was only after-the-fact and as part of an overall
settlement agreement, and in a site closing planSee footnote 33 that PRCHE issued its so-called licenses.
PRCHE's reason for its actions in this regard are only known to it. It seems , however, that the
more probable one is that the agency wished to protect the students from any possible adverse
ramifications of a declaration that the programs were not authorized. It would defy credulity to
extrapolate from PRCHE's action, in the context of its sequence and timing, that the PROSEE
sites were, in reality, legally authorized to offer the programs that they did. These sites were not
authorized when Fundacion's three main campuses were certified, and they were not authorized
when the Title IV aid was disbursed.
To support its thesis that the PROSEE sites were legally authorized by the retroactive action of
PRCHE, Fundacion refers to a number of ED decisions.See footnote 44 Some of these deal with accreditation
decisions, while others deal with licensure decisions. The plain fact is that in all these decisions,
whether they tangentially involve licensure or accreditation, there were determinations made by
the responsible agency that: the institution was currently qualified, it was qualified on the date to
which approval was made retroactive, and it would appear it would continue to be qualified in
the forseable future. Given the marked difference between those cited cases and the subject one,
I find that all the of cases cited by the Respondent are inapposite. Accordingly, I find that
PRCHE's retroactive licensing of the PROSEE sites has no effect on my determination that
Fundacion's PROSEE locations were ineligible to participate in Title IV during the period in
Separately, I find that Fundacion failed to apply to ED for approval to offer degree or certificate
programs at its remote PROSEE sites, as required. As I found in my initial decision, Fundacion
applied for certification of the eligibility of the main campus of its component schools, omitting
mention of any of the PROSEE sites. This was an apparent attempt to keep the operations at all
those sites screened from scrutiny by the various oversight agencies. From the record, it appears
Fundacion had good cause to suspect that any such scrutiny would lead to a disapproval of the
satellite sites. The failure to include the PROSEE sites which issued degrees or certificates in its
applications for Title IV eligibility resulted in those sites being ineligible. Since Fundacion did
not offer evidence that indicated which of its sites issued such degrees or certificates, I can only
conclude that all the sites were ineligible.
Fundacion Educativa Ana G. Mendez failed to meet its burden of proof in establishing that the
students attending the PROSEE sites were participating in an eligible program. Consequently, it
must return $1,712,540 in Title IV funds, as misspent. On the basis of the foregoing, it is hereby
ORDERED that Fundacion Educativa Ana G. Mendez pay to the U.S. Department of Education
the sum of $1,712,540.
Ernest C. Canellos, Chief Judge
Dated: July 16, 1998
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
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036-6802
Sarah L. Wanner, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110