UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
In the Matters of Docket Nos. 96-140-SP
MIDLAND CAREER INSTITUTE,
On March 17, 1993, the Accrediting Council for Continuing Education and Training (ACCET)
revoked MCI's accreditation for the Chicago campus. This action was followed by the Indiana
Commission on Proprietary Education's revocation of MCI's accreditation for the Hammond
campus on March 23, 1993. Both campuses closed in April 1993 and, as a consequence, MCI
was no longer eligible to participate in Title IV programs.See footnote 11 On April 20, 1993, SFAP notified
MCI that certain procedures were mandated when an institution closes, including submission of a
close-out audit. 34 C.F.R. § 668.25.
Coincidentally, earlier on-site program reviews were conducted by staff from ED's Region V
between August 31, 1992, and September 11, 1992, simultaneously at both the Hammond and
Chicago campuses. At the Hammond campus, the SFAP reviewers found numerous violations
such as: improper admissions procedures, incomplete attendance records, failure to monitor
students' academic progress, late refund payments, incorrectly calculated refunds, and improper
Pell Grant disbursements. Similar violations were discovered at the Chicago campus. The two
FPRDs incorporated the findings of the on-site program reviews.
As an initial observation, an institution which requests a review of an FPRD has the burden of proving that questioned expenditures were proper and that the institution complied with Title IV program requirements. 34 C.F.R. § 668.116(d)(1) and (2). I find that MCI failed to sustain its burden in this proceeding. I will examine each area of alleged non-compliance, seriatim:
It has been well established by this tribunal that in the absence of a close-out audit, the school is
liable for all Title IV funds received since the last audit was submitted if the school cannot,
otherwise account for its expenditure of Title IV funds. See, e.g., In re Magic Touch Beauty
Institute, Dkt. No. 97-161-SP, U.S. Dept. of Educ. (July 2, 1998); In re Interamerican Business
College, Dkt. No. 96-20-SP, U.S. Dept. of Educ. (May 28, 1997); In re Belzer Yeshiva, Dkt. No.
95-55-SP, U.S. Dept. of Educ. (June 19, 1996); In re Long Beach College of Business, Dkt. No.
94-78-SP, U.S. Dept. of Educ. (August 30, 1995); In re Calvinade Beauty Academy, Dkt. No. 93-
151-SA, U.S. Dept. of Educ. (March 21, 1995); and In re National Broadcasting School, Dkt.
No. 94-98-SP, (December 12, 1994). The last audit MCI submitted was for the award year
ending June 30, 1991. Since that time, MCI has not accounted for its expenditure of Title IV
funds by coming forward with any probative evidence demonstrating that the institution
complied with Title IV in its disbursal of Title IV funds. Therefore, I find that MCI is liable for
all Title IV funds disbursed from June 30, 1991, through the school's closing date.
Regardless of the claimed difficulties MCI encountered in submitting a close out audit, the
school cannot rely on these to shield it from its regulatory violation. See In re Interamerican
Business College, Dkt. No. 96-20-SP, U.S. Dept. of Educ. (May 28, 1997). MCI has a fiduciary
obligation to submit a close-out audit and thereby properly account for disbursed Title IV funds.
Section 668.82(b). In addition, pursuant to 34 C.F.R. § 668.23, institutions are required to have
an independent auditor conduct compliance and financial audits every two years. I find that
MCI's contention that OIG's investigation satisfies the audit requirement is unpersuasive. SFAP
assessed a liability for its estimated actual loss for the failure to submit a close-out audit at
$2,920,013, however, that amount was subsumed in the total recovery sought by SFAP.
SFAP also alleges that the three-week trial offer which allowed students to conditionally register,
provided they received Title IV funds, violates the student eligibility requirement, as outlined in
34 C.F.R. § 668.7(a)(I).See footnote 22 MCI responds by stating that the trial offer was questioned by
reviewers during the Program Review, but was immediately changed to omit any financial
obligation on the part of the student.
In addition to the above cited violations, the FPRDs allege that MCI's academic progress reports,
on which student Federal Pell Grant awards are based, were inconsistent with other sources of
the same information such as attendance reports documented by the instructors. Consequently,
SFAP claims that MCI granted students academic credit for incomplete course work and/or
SFAP also cites 34 C.F.R. § 668.8(a)(2)(iv), which requires that to be eligible to receive Title IV
funds, a proprietary institution must provide at least a six month training program aimed at
preparing students for gainful employment in a recognized occupation. In order to fulfill this
requirement, an institution that measures academic progress with quarter credit hours must have
a program consisting of at least 24 credit hours. 34 C.F.R. § 600.2. MCI fails to satisfy this
requirement because it graduated students with less than 24 credit hours. MCI is liable to return
all the federal student financial assistance funds disbursed to students enrolled in that program
even though it truly, though erroneously, believes that its educational program comports with
these requirements. 34 C.F.R. § 600.10(c)(2). Both MCI's failure to demonstrate that it
maintained accurate academic records under 34 C.F.R. § 668.7(a) and (c), as well as its
inappropriate certificate and degree awards to ineligible students renders MCI an institution
administratively incapable of properly disbursing Title IV funds. SFAP requested that MCI
perform a full file review to determine the exact amount which would quantify exactly this
finding, however, that was not done. In the absence of such review, SFAP had no choice other
than assessing liability for these violations in the amount of $3,662,635, the total Title IV aid
disbursed for the 1990-91 award year.
In short, the findings contained in the FPRD demonstrate a prima facie showing that MCI has
not complied with Title IV program requirements. MCI has not sustained its burden of proof and
I therefore uphold SFAP's calculation of liability in the amount of $6,220,447.
Chief Judge Ernest C. Canellos
Dated: July 30, 1998
A copy of the attached initial decision was sent certified mail, return receipt requested to the
Mr. Alan P. Frost, President
Midland Career Institute, Inc.
8488 Hillsborough Avenue, Box 310
Tampa, Florida 33615
Kelly J. Andrews, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110