UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
In the Matter
LONG BEACH COLLEGE OF
Appearances: D.N. Ward, Esq., Huntington Beach, California, for
Edmund J. Trepacz, II, Esq., Office
of the General Counsel, U.S. Department of
Education, Washington, D.C., for the
Student Financial Assistance Programs.
Before: Frank K. Krueger, Jr.
As part of the final program review determination, SFAP cited
Respondent for its failure
to conduct a close-out audit and for its failure to provide SFAP with institutional audits for
award years 1988-89 through 1992-93. SFAP also found a number of other program violations
and missing records. On the basis of Respondent's failure to do the close-out audit and the
unavailability of certain information necessary to determine whether expenditures were proper,
SFAP assessed liability against Respondent for the entire period covered by the program review,
award years 1990-91 through 1992-93, for a total of $13,194,828.
As discussed below, SFAP's determination that Respondent is
liable for all Federal
student aid disbursements made since the 1990-91 award year through the 1992-93 award year is
affirmed, since Respondent has not performed any institutional audit for any of those years and
has not done the required close-out audit.
In order to participate in the Federal student financial aid programs, the Respondent was required to enter into a Program Participation Agreement whereby it agreed to comply with the regulations governing the student aid programs. Under 34 C.F.R. § 668.23(c) (1990) of those regulations, the institution was required to submit to ED periodic audits accounting for all student assistance funds released by the institution during the period of the audit. Audits were required to be conducted at least every two years. Id. Under 34 C.F.R. § 668.25(c) (1993), when an institution ceases to provide educational services, or otherwise loses its eligibility to participate in the program, it must submit a close-out audit to SFAP within ninety days after the school ceases operation. Since Respondent did not submit any audits for the 1990-91 through 1992-93 award years, the close out-audit for Respondent should have covered that entire period.See footnote 1 1 Because the Respondent has never had a close-out audit performed, SFAP is unable to determine whether the Federal funds expended by Respondent during this period were properly spent. Under the prevailing legal precedent Respondent is liable for all Federal assistance expended during this period. See In re Macomb Community College, Docket No. 91-80-SP, U.S. Dept. of Education (May 5, 1993); In re National Broadcasting School, Docket No. 94-98-SP, U.S.
Dept. of Education (December 12, 1994); In re Lehigh Technical School, Docket No. 94-193- SP , U.S. Dept. of Education (March 17, 1995); In re Cosmetology College, Docket No. 94-96-
SP (August 23, 1995); cf. Montgomery County, Maryland v. Department of Labor, 757
F.2d 1510 (4th Cir. 1985).
II. Ability to Benefit Test.
SFAP found that Respondent was in violation of 34 C.F.R.
§ 668.7(b) and 20 U.S.C.
§ 1091(d), which require that a student admitted to a participating institution who does not have a high school diploma or its equivalent must pass an independently administered test which measures the student's ability to benefit from the program for which the student is seeking Federal financial aid. In fulfilling this requirement, Respondent used the Wonderlic Scholastic Level Exam. SFAP determined that Respondent passed three students with scores of 17, 17, and 16, respectively, when the passing score recommended by the publisher was 18. SFAP also determined that for six students it was unable to verify that the test was independently administered. On the bases of these findings, SFAP concluded that Respondent should do a full- file review of all students admitted on the basis of ability-to-benefit tests to determine which additional students were admitted without passing grades, or whose tests were not documented as being independently administered.
In response, Respondent contends that the publisher of the
Wonderlic test determined that
the passing grade for the course in question -- computer technology -- was 15, rather that 18, and
submitted a letter from the publisher which in fact states that 15 is the appropriate passing score.
(Respondent's Exhibit 2.) SFAP rejects this justification since it was not submitted with
empirical evidence. Although the letter is not accompanied by any empirical data, it does state
that the test score was arrived at using procedures approved by ED. In response to the
conclusion that it could not be determined whether the Wonderlic test was being independently
adminitered, Respondent submitted weekly logs signed by independent test administrators who
were certified by the publisher as qualified to administer the test. The logs are certifications for
students administered tests during 1991 and 1992. (See Respndent's Exhibit 1.) SFAP
never specifically responded to this information, except to contend that it is "unsatisfactory."
brief, p. 8.)
Based on the evidence presented by the Respondent, I find that
Respondent has fullfilled
its burden of persuasion that it was in compliance with 34 C.F.R. § 668.7(b) and 20 U.S.C.
§ 1091(d). The evidence demonstates that Respondent's students were given independently administered ability-to-benefit tests, and were being scored on those tests in accordance with the criteria specified by the publisher. There was no statutory or regulatory requirement that the publisher's recommended criteria be supported by empirical data before it could be used by the Respondent.
III. Missing Documentation and Other SFAP Findings.
SFAP found that Respondent was unable to provide a number of documents necessary for it to determine whether Federal funds were expended consistent with all appropriate program
requirements. The missing documents included school catalogs, bank statements, expenditure
ledgers, and correspondence between Respondent and ED concerning its default rates. Based in
part on the fact that Respondent was unable to produce certain documents, SFAP made a number
of specific findings concerning clock hour/quarter hour conversions, Perkins Loan deposits and
procedures, incorrect calculations of expected family contributions, untimely student refunds,
inadequate accounting practices and reconciliation procedures, and conflicting information in
student files. In response, Respondent submitted a number of exhibits which it claims prove that
it was in compliance with all program requirements. Many of these exhibits are not responded to
by SFAP. On the basis of the present record I am unable to intelligently make any type of
findings or conclusions, except to note that most, if not all, of these issues could have been
resolved by a close-out audit. In light of Respondent's total liability for the entire program
period, based on its failure to submit a close-out audit or any intervening audits, it is unnecessary
for me to make any findings or conclusions with respect to these additional problem areas.
2. Respondent ceased operation in June 1993, but never submitted
to ED a close-out
audit, or otherwise made any accounting of expenditures made by it under the Federal student
aid programs since before the 1990-91 award year.
3. Respondent is in violation of 34 C.F.R. §§ 668.23
and 668.25, which required that
Respondent submit to ED periodic audit reports concerning its expenditures under the Federal
student aid programs, and that Respondent submit to ED a close-out audit within 90 days from
the date that Respondent ceased operations. As a result of these failures, ED is unable to
determine whether expenditures made by the Respondent under the Federal student aid programs
since the 1990-91 award year were proper.
4. Respondent has a liability for all expenditures made during the review period since, without the required audits, SFAP is unable to determine whether expenditures made by the Respondent under the Federal student aid programs were proper. During this period, Respondent paid out a total of $2,284,370 in Pell Grants, $480,021 in Supplemental Educational Opportunity Grants (SEOG), $467,976 in Perkins Loans, and $32,015 in Federal Work Study funds for which it is liable to reimburse ED. In addition, Respondent must reimburse ED $1,344,879 in special allowances and interest payments made by ED during the review period. Respondent is also liable to buy back from lenders the outstanding balances on all Stafford Loans, Supplemental Loans for Students (SLS), and Parents Loans to Undergraduate Students
(PLUS).See footnote 2
5. Respondent properly administered its ability-to-benefit
program in full compliance with 34 C.F.R. § 668.7(b) and 20 U.S.C. § 1091(d).
FURTHER ORDERED, that Respondent satisfy its liability for
Stafford Loans, SLS
loans, and PLUS loans during the review period by purchasing the loans from present holders of
those loans, including ED and the guarantee agency, or reimburse ED for actual or estimated
losses resulting from defaults on those loans.
Date: August 30, 1995
Edmund J. Trepacz, II, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Ave., S.W.
Washington, D.C. 20202-2110