UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
In the Matter
DEAN'S WESTSIDE BEAUTY
Appearances: Glen Bogart, Higher Education Compliance
Consulting, Birmingham, Alabama, for Dean's Westside Beauty College.
Denise Morelli, Esq. and Russell B.
Wolff, Esq., Office of the General Counsel,
United States Department of Education, Washington, D.C., for Student Financial
Before: Judge Richard F. O'Hair
SFAP initiated this termination proceeding against Dean's following an unannounced program review of Dean's administration of Title IV programs for award years 1991-92, 1992-93, and 1993-94, which was conducted January 25-28, 1994. At that time, review specialists from the Institutional Review Branch of ED's San Francisco Regional Office interviewed key personnel and examined Dean's student files, institutional records, forms, policies and procedures. The findings in the May 11, 1994, program review report which serve as the basis for this proceeding include the following program violations: improperly maintaining excess cash; making untimely
refunds or failure to make refunds; failing to ensure students demonstrate the ability to benefit;
failing to document independent status determinations; and disbursing federal funds to ineligible
At the inception of the hearing, Dean's acknowledged it ceased
operation as of April 28,
1995, and, therefore, conceded that a termination of its eligibility was appropriate. However, it
emphasized that its primary goal in this proceeding was to contest the proposed fines
recommended by SFAP. On this topic, Dean's argued that fines were not appropriate in this
instance because of the absence of any evidence of fraud on its part, and referred to In re
Fischer Technical Institute, Dkt. No. 92-141-ST, U.S. Dep't of Educ. (March 16, 1995) for
authority for its position. In Fischer, ED initiated proceedings to terminate and fine the
institution because of a large number of refunds owed to students and lenders. The tribunal
found that Fischer should be
terminated, but explained that because of the severe nature of a termination, a fine was not
appropriate in that case since the amount of the proposed fines, $91,000, was only $1,500 more
than the total amount of the late-paid refunds. Additionally, at the time of the decision, Fischer
had repaid all funds due the students and lenders. Based upon these facts, the tribunal found a
fine was clearly unwarranted. In my view Fischer imposes no limits on any tribunal in
reaching a decision as to whether a fine is appropriate in a given proceeding. It does serve to
a decision regarding the appropriateness of a fine is unique to each proceeding and such a
will be made on the merits of each individual case.
On January 25, 1994, program reviewers examined a sample of 32
student files for the
three relevant award years. The program reviewers were sufficiently concerned about the
and seriousness of the program violations they discovered that they immediately recommended
Dean's be transferred to the reimbursement system of payment. This recommendation was
adopted on February 22, 1994. Dean's submitted a request for reimbursement on December 5,
1994, but because the ED personnel who processed the request found what they believed to be
alterations and inconsistencies in the documentation Dean's submitted, the request was denied.
This situation, combined with the serious, unrebutted findings of the program review, indicated
ED there were continued weaknesses in Dean's administration of the Title IV programs which
were sufficient to warrant the initiation of these termination proceedings.
Institutions which participate in Title IV programs must abide by
certain statutory and
regulatory standards of administrative capability which are found in 34 C.F.R. § 668.16.
institutions are also bound by certain fiduciary responsibilities which subject them to the highest
standard of care and diligence in administering the program and accounting for Title IV funds
receive. 34 C.F.R. §§ 668.82(a), (b). If an institution fails to meet either of these
has the authority to terminate it from further participation in the Title IV programs. 34 C.F.R.
§§ 668. 82(c), 668.86(a). In addition to termination, an institution may be fined up
to $25,000 as
punishment for each of its violations of the Title IV program requirements. 34 C.F.R. §
The several factors which must be considered in the process of determining the appropriate
amount of the fine
include the gravity of the violation, whether these violations represent repeat findings, and the size
of the institution. 34 C.F.R. § 668.92(a).
During the program review, Dean's monthly bank statements were
examined and the
reviewers concentrated on the dates of receipt of Title IV funds and the dates those funds were
disbursed to student accounts. The program review report found that, through the process of
requesting and depositing more Title IV funds than were disbursed during the three days
following its deposit, Dean's had maintained excess cash during every month of the three award
years examined. The program review report concludes Dean's maintained an excess of an
average of $19,000 per month for the award years in question. This amount was the product of a
formula used by ED at the time of the program review to quantify excess cash, but use of that
formula has since been abandoned.See footnote 1
Regardless of the formula utilized, I have examined the bank records, and I find that
Dean's maintained excess federal cash during the three award years
reviewed, a practice in violation of ED regulations, policy and case law.
account. I find that Dean's was not adequately diligent in its monitoring of these students who
withdrew from the program and, therefore, did not comply with its fiduciary responsibilities to
make appropriate, timely refunds to seven students and to make any refund to student 21.
The program review report identified two students, 2 and 11, who
were admitted to
Dean's without evidence of their eligibility regarding their satisfactorily passing ability to benefit
tests or proof of receipt of high school diplomas. At the hearing, the parties stipulated to the fact
that student 2 was administered an ability to benefit test, but the student did not earn a passing
score on the test. They also stipulated that student 11 was admitted without having a high school
diploma, its equivalency or being administered an ability to benefit test. SFAP also presented
testimony and exhibits which proved student 31 had no high school diploma, received no
equivalency, and there was no evidence she had been administered an ability to benefit test.
While examining Dean's December 1994 request for
reimbursement, the reviewers
discovered nine more student files (students 3R, 5R, 6R, 9R, 21R, 22R, and 33R) containing
evidence of a combination of inconsistent statements regarding student eligibility, copies of
documents which appeared as though they had been altered, and purported affidavits which
on their face, not worthy of belief. The letter of notification for this termination and fine
proceeding included the irregularities in these nine additional files as further evidence of
misconduct. They are summarized as follows.
Student 3R - the enrollment questionnaire indicates the student is a
graduate, but there is also a mark on the form suggesting the passing of the GED.
The institution's certificate of acceptance concludes the student has a high school
diploma and attached to this is an unsworn statement from the student which
explains that the diploma was issued by a school in a foreign country and the
student is unable to obtain a copy of the diploma. There is a notary stamp and
signature at the bottom of this unsworn statement, but there is none of the usual
language explaining that the signer appeared before the notary to sign the
document. An SFAP witness explained that this unsworn student statement was
first submitted to ED without the notary's stamp and signature, but returned to
Dean's as being unacceptable. Dean's later returned the same statement, but with
the addition of the notary stamp and signature.
Student 5R - the file documents show this student was admitted as a high school
graduate. There is a copy of a foreign diploma in the file, but this is followed by a
statement from the student explaining her diploma was issued in a foreign country
and she cannot obtain a copy of it. Prior to the hearing, an ED employee showed
this student a copy of the purported high school diploma from her student file at
Dean's; however, she did not recognize it as being her diploma because it
contained neither the name nor street address of her school.
Student 6R - the certificate of admission indicates the student is a
graduate, but she was also administered an ability to benefit test. If she were a
high school graduate, it would have been unnecessary to administer her this test.
On the enrollment questionnaire, she indicated she completed the 12th grade, but
did not mark the form to show she was a high school graduate. There are also
marks on the form which suggest that at one time a lower grade level had been
annotated as the highest level completed and then erased and changed to reflect
completion of the 12th grade. When completing the front page of the ability to
benefit test front page, she indicated she had completed only 9 years of education.
Student 9R - on the enrollment questionnaire, the student indicated
completed the 12th grade, but then marked the box indicating she had neither a
high school diploma nor a GED. On her certificate of admission she indicated she
was a high school graduate. The same notary who signed many other student files
signed an unsworn statement from this student which explained that her diploma
was located in a foreign country and she could not obtain a copy of it. There is no
evidence the student was administered an ability to benefit test.
Student 21R - the certificate of admission is dated October 5, 1993
and it indicates
the student is a high school graduate; however, there is a mark on the form
suggesting the student was administered an ability to benefit exam. There is an
unsworn statement from the student explaining that he cannot obtain a copy of his
foreign high school diploma. Later in the file there is a copy and a translation of
his diploma which was prepared more than two years later, on January 5, 1995.
Interestingly, the translation is notarized by the same person who "notarized" the
other unsworn student statements. On this occasion, however, the traditional
language regarding the fact the signer (translator) personally appeared before the
notary is included at the bottom of this translation.
Student 22R - the student noted on the enrollment questionnaire she completed the 12th grade, but she did not check the block on the form to show she is a high school graduate. The certificate of admission reports she is a graduate. There are two accompanying preprinted statements from the student on which she explains that her diploma is located in a foreign country and cannot be obtained. One of these is signed by the same notary as the others; the second is not "notarized." Additionally, one of these forms shows her graduation date as "10-9-92" and the
other shows "9/1991."
Student 33R - The student indicated on the enrollment application
completed the 12th grade and is a high school graduate, and the certificate of
admission agrees with that. The enrollment application appears to have been
altered in that information has been deleted, or "whited out", in the section
designated to contain information regarding the administration of an ability to
benefit test. The student signed an unsworn statement explaining his diploma is
located in a foreign country and he is unable to obtain a copy of it. This statement
was "notarized" by the same notary as the others.
None of these students testified at the hearing to help eliminate the
in their files. The conclusion which I have reached for each of these student files (students 31,
3R, 5R, 6R, 9R, 21R, 22R, and 33R) is that Dean's has not satisfied its obligation of coming
forward with credible evidence that the students in question were eligible for Federal student
financial aid. Each file contains at least one item of conflicting data which should have been
resolved before Dean's awarded these students student aid. There is no authority for requiring an
institution to obtain properly notarized statements from a student which explain why the student
cannot obtain a copy of his or her high school diploma. Nevertheless, such a sworn statement
would have been persuasive to me in light of the existing conflicts in each of the student files. It
possible these were eligible students, but one cannot ascertain this with any certainty by
the documentation in the files. For this reason, I find that none of the students listed above had
sufficient, unambiguous information in their files to support a finding that these students had a
high school diploma, its equivalent, or had earned passing scores on an ability to benefit test.
These eight students, plus students 2 and 11 who were the subject of a stipulation between the
parties, were ineligible for Federal student financial aid, and it was an error for Dean's to have
disbursed such funds to them.
(1) is 24 years of age or older by December 31 of the award
(2) is an orphan or ward of the court or was a ward of the court
individual reached the age of 18;
(3) is a veteran of the Armed Forces of the United States [as
(4) is a graduate or professional student;
(5) is a married individual;
(6) has legal dependents other than a spouse; or
(7) is a student for whom a financial aid administrator makes a
determination of independence by reason of other unusual circumstances.
20 U.S.C. §1087vv(d).
If a student does not meet any of the first six criteria listed above,
then a student can
qualify as independent only if that person can provide the institution with other evidence which
supports a conclusion of independence. This process is called a "Dependency Override" and the
verification materials submitted by the student must be documented in the student's file to such a
degree that any reviewer can examine this information and easily determine the facts the
institution relied on in this evaluation process. For students 6 and 23, Dean's approved a
Dependency Override which awarded the students an independent status. However, there are no
unambiguous statements or documents from sources outside the students' families which support
a finding of an independent status. I find that Dean's failed to secure evidence which adequately
and convincingly supports Dean's Dependency Override for these two students and, therefore, it
was an error for Dean's to have awarded an independent status to these students for student aid
Student 2 - the alien registration card from the INS which
documented that the
student was lawfully in the United States expired a month before her enrollment.
Student 8 - the alien registration card from the INS contains a birth
date which is
different than that on the student's drivers license and other enrollment forms in
her student file. There is no explanation for this inconsistency elsewhere in the file.
Student 15 - the electronic student aid report indicates the student is
States citizen, whereas the enrollment questionnaire indicates she is a permanent
resident. There is no explanation for this inconsistency.
Student 22 - the electronic student aid report indicates the student is an "eligible
non-citizen" and lists the student's alien registration number; however, there is no
INS document in the file to corroborate this conclusion.
Dean's defended itself on this issue by presenting documentary
evidence which it asserts
confirms that all four students were eligible non-citizens. To obtain these confirmations, Dean's
submitted separate Document Verification Requests to the INS for three of the students in 1994
and a verification request for the fourth one in 1995. In each case, the INS responded within
several weeks by verifying the residency status of the four students. Unfortunately, this
documentation was several years too late in each instance because the students enrolled in
and received Title IV funds between two and three years before these INS verifications were
received. These documents speak only to the residency status of each student at the time the
Document Verification Request was submitted to INS, not to the time the Title IV funds were
disbursed. Accordingly, I find these students were not eligible to receive Title IV funds upon
their enrollment because of the absence of proper, timely INS verification of their alien
Following Mr. Gardner's testimony, SFAP presented copies of approximately 17 ability to benefit tests it obtained at the time of the program review. SFAP alleged that either these documents were not copies of the original tests or that someone had made alterations to the dates of the tests, the scores, and/or the signatures of the test administrator. Respondent then offered the originals of these tests into evidence. Of those 17 tests, it was obvious to me that the dates
placed on 11 of these test score sheets which supposedly reflect the date on which they were
administered, had been changed. Respondent's Exhibits 16, 17, 18, 19, 22, 23, 25, 26, 27, 28,
and 29. I found most of the changes involved the erasure of the originally entered date and the
insertion of the change; however, on two of them, typewriter correction tape was used to cover
the original date and a substitute date was entered atop the correction tape. I suspect the persons
who made the changes did not believe the original tests would be seen by ED personnel, but
expected that only copies of them would be examined, because the copies do not readily reflect
the changes which were made. One possible reason for changing these dates was to conceal the
fact the tests were being administered after the students had been admitted and begun classes.
the 11 tests with obvious date alterations, eight of them (Respondent's Exhibits 16, 17, 19, 22,
23, 26, 27, and 29), were definitely administered anywhere from three or four days to three
months after the student was enrolled in classes. It is less clear to me why the test dates for the
remaining three were changed. Nevertheless, these 11 students were not eligible beneficiaries of
the federal student financial aid they received.
Mr. Gardner acknowledged that his wife recently informed him she
had seen several of the
employees of one of the student aid servicers use a "white-out" correction paint on some of her
student files while that group was assembling a reimbursement package for Dean's. According
her husband, Mrs. Gardner did not ask these employees to mask or alter any documents and did
not inquire to find out precisely what was being done to them.
conform to the evidence elicited during the hearing; SFAP also increased the recommended
amount of the fine per violation for the ability to benefit violations contained in the letter of
notification. There was no increase in the fine which was specifically premised on evidence of
ability to benefit test misconduct which was submitted during SFAP's rebuttal of Dean's defense.
SFAP computed the revised fine as follows:
8 instances @ $3,500 28,000
2 instances @ $2,000 4,000
5 instances @ $3,000 15,000
Ability to benefit tests
8See footnote 2 2 instances @ $25,000See footnote 3 3 200,000
I believe a fine is an appropriate accompaniment to the termination
of Dean's eligibility,
but I do not share SFAP's views as to what they believe is an appropriate amount. In arriving at
this opinion, I have concluded Dean's was exceedingly naive and complacent about adherence to
the relevant statutes and regulations. Furthermore, Dean's was placed on notice of similar
deficiencies which transpired during the previous owner's watch and for which Dean's
management should have been particularly cautious in its administration of these federal
to preclude against repeat violations. With regard to Dean's alterations to the dates on 11 ability
to benefit tests, I have concluded they were deliberate attempts to disguise the improper
admission of its students prior to testing. This evidence, however, was presented only to rebut
Dean's denial of engaging in any fraudulent acts, and only goes to my opinion of Dean's overall
administration of the Title IV program. I have not assessed a specific fine for any of those 11
violations. In addition to that SFAP rebuttal evidence, I have also taken into consideration the
size of the institution.
Accordingly, in addition to being terminated, I find that a fine in the amount of $42,200 is appropriate. This amount adequately punishes Dean's for its misconduct and will serve as an
effective deterrent for similar misconduct by other institutions. Using the categories set out
above, my computation is as follows:
cash $ 2,500
8 instances @ $350 2,800
2 instances @ $200 400
5 instances @ $300 1,500
Ability to benefit exams
10 instances @ $3,500 35,000
. On the basis of the foregoing, it is hereby ORDERED that the
eligibility of the Dean's Westside Beauty College to participate in the student financial assistance
under Title IV of the Higher Education Act of 1965 be terminated and that it be fined
Judge Richard F. O'Hair
Dated: November 8, 1995
On November 8, 1995, a copy of the attached initial decision was sent by certified mail, return
receipt requested to the following:
Higher Education Compliance Consulting
1210 Twentieth St. South, Suite 200
Birmingham, AL 35205
Denise Morelli, Esq.
Russell B. Wolff, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110