IN THE MATTER OF NATIONAL Docket No. 94-98-SP
BROADCASTING SCHOOL, Student Financial
Respondent. Assistance Proceeding
J. Trepacz, II, Esq., Office of the General Counsel, for the Office
of Student Financial Assistance Programs, United States Department of
Before: Judge Richard F. O'Hair
National Broadcasting School (NBS) is a proprietary trade school
that participated in
various student financial assistance programs authorized under Title IV of the Higher Education
Act of 1965, as amended (Title IV). These programs are administered by the Office of Student
Financial Assistance Programs (SFAP), U.S. Department of Education (ED). On April 15, 1994,
SFAP issued a Final Program Review Determination letter (FPRD) that identified numerous
findings of non-compliance regarding NBS's administration of Title IV student assistance
programs. Additionally, the FPRD noted that on April 6, 1993, NBS lost its eligibility to
participate in Title IV programs, an event that required NBS to procure a closeout audit of all
student financial aid program funds it had received subsequent to the institution's last audit.
SFAP conducted a program review of NBS from July 7 - 10, 1992, following which the reviewers documented 20 findings of non-compliance with applicable federal regulations in a program review report dated February 25, 1993. NBS was invited to review and respond to this report but did not do so; therefore, on April 15, 1994, the FPRD was sent to NBS. This letter documented 18 findings, plus the failure of NBS to conduct a closeout audit. The FPRD explained that because the institution did not respond to the program review, all applicable Title IV funds which the institution had received since its last accepted and resolved audit (June 30, 1990) were determined to be institutional liabilities. In addition, liability for the same funds was supported by the institution's failure to conduct a closeout audit. The FPRD concluded with a demand for institutional liabilities of $4,519,819, which represents the amount of Title IV funds the school received, or had access to, following the last received and accepted audit, which was
for the period beginning July 1, 1990, and ending with NBS's loss of eligibility on April 6, 1993.
This liability is composed of $979,662 owed to ED and $3,540,257 owed to the holders of
student loan notes.
NBS filed a timely written request for an administrative hearing
pursuant to the provisions
of 34 C.F.R. Part 668, subpart H, on May 10, 1994. NBS simultaneously requested ED to
reimburse it for funds it maintains are due the institution because of NBS previously having been
placed on a system of reimbursement.See footnote 1
Both parties have filed submissions to this tribunal in response to the Order Governing
Although NBS has acknowledged its understanding that the
decision to transfer NBS to
the reimbursement system of payment is not an appealable issue, NBS has done so, nonetheless.
Almost exclusively, NBS has devoted its many submissions to this tribunal to the subject of its
reimbursement status and the perceived negative financial repercussions of that status. More
specifically, NBS alleges that ED continues to owe funds to NBS for previous payments the
institution made to, and on behalf of, its former students. NBS contends that it made these
payments in good faith, expecting to be reimbursed by ED at a later time, but that this has not
occurred. NBS maintains that because of this deficit, it had to cease all operations and thereafter
was financially unable to procure the closeout audit which serves as one of the two bases for this
pending administrative liability.
An institution that requests a review of an FPRD has the burden of proving that questioned or disallowed expenditures of Title IV funds were proper and that the institution complied with program requirements.See footnote 2 2 ED, as a federal instrumentality, has been tasked with the statutory responsibility to dispense and oversee the expenditure of federal student assistance funds to ensure that institutions perform their roles in accordance with the appropriate regulations. One of the means of ensuring compliance is the conduct of periodic program reviews of these institutions. If a program review uncovers findings of noncompliance with federal regulations, it is incumbent upon the institution to either refute these findings or reimburse ED the amount of the allegedly improperly disbursed funds. Another means of ensuring compliance is the conduct of a closeout audit by the institution when it closes. The closeout audit provides the same manner of program review to the institution's final expenditure of funds. In both circumstances, program reviews and closeout audits, only the institution has at its disposal the files and other records to justify every dollar of federal funds it expended. Therefore, if ED questions any of these
expenditures through program reviews or, if the institution ceases to exist, it is the institution
which has the burden of coming forward with justifications/audits which evidence the propriety
its expenditures. In the absence of such, the institution should be prepared to reimburse ED for
the amounts properly allocated to the finding(s) of noncompliance. ED would be seriously
shirking its own fiduciary responsibilities were it not to oversee the expenditure of these federal
education funds in this manner.
By virtue of NBS's failure to defend its operational procedures by
responding to the
program review or submitting substantive responses to the FPRD currently before this tribunal, it
has failed to meet its burden of proving that its expenditures were proper or that NBS had
complied with all program requirements. I find the FPRD is fully supportable and, without
rebuttal by the institution, must be affirmed in whole. Having done so, ED suggests that I find
institutional liability for all Title IV funds received during the period covered by the program
review: July 1, 1990 to June 30, 1992. For the reasons stated below, that finding is unnecessary
because of my finding with regard to the absence of a closeout audit.
The failure of NBS to complete a closeout audit in compliance with
34 C.F.R. § 668.25 is
what I rely upon to create the basis for institutional liability. Although this liability has the same
inception period as the FPRD, in that it begins on July 1, 1990, with the period of the two year
program, it continues until the institution's loss of eligibility, April 6, 1993. ED argues that
departmental policy provides that the failure to submit a closeout audit authorizes an assessment
of a liability equal to the amount of Title IV funds the institution received following the last
approved audit and cites Montgomery County Maryland v. Department of Labor, 757
F.2d 1510, 1513 (4th Cir. 1985), as authority for this institutional liability. That case, however,
is not directly
applicable here. In Montgomery County, the Fourth Circuit stated that the pertinent
statute expressly provided for the repayment of grant funds if a recipient failed to comply with
provision of the statute. SFAP has not cited any similar language in the statutes or regulations
governing Subpart H proceedings, nor is the tribunal aware of any.
I have found authority in our own decisions to support the recovery
of funds from NBS
for its failure to properly document, pursuant to a closeout audit, the Title IV funds it expended.
In In re Macomb Community College, Dkt. No. 91-80-SP, U.S. Dep't of Educ. (May 5,
1993), the administrative law judge held that the failure to properly document Title IV funds
(by failing to comply with certain recordkeeping requirements) authorizes SFAP to recover those
funds from an institution in a Subpart H proceeding.
Accordingly, I find NBS is liable for all Title IV funds it received,
or had access to,
between July 1, 1990, and April 6, 1993, and NBS is ordered to repay ED the amount of
$979,562 and to repay the lenders of federal student loans the amount of $3,540,257.
ORDERED, that National Broadcasting School refund to the
Department of Education $979,562 and refund to the lenders of federal student loans $3,540,257.
Judge Richard F. O'Hair
Issued: December 12, 1994
S E R V I C E
A copy of the attached initial
decision was sent by CERTIFIED MAIL, RETURN RECEIPT REQUESTED to the
3678 Nicole Street
Las Vegas, NV 89120-2225
Edmund J. Trepacz, II, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110