UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
In the Matter of
Docket No. 97-54-SP
GANAYE ACADEMY OF COSMETOLOGY,
As a result of the on-site review, SFAP determined that Ganaye was in violation of a
number of Title IV regulations. SFAP found that Ganaye lacked administrative capability
(Finding # 1), failed to properly administer its ability-to-benefit program (Finding # 2), had
incomplete attendance records (Finding # 3), had inconsistent information in student files
(Finding # 4), incorrectly calculated refunds (Finding # 5), did not make refunds to its Title IV
account (Finding # 6), made late refunds into its Title IV account (Finding # 7), had invalid
Electronic Student Aid Reports (Finding # 8), did not properly perform verifications (Finding
# 9), maintained excessive cash balances (Finding # 10), had inadequate placement records
(Finding # 11), had an inadequate audit trail (Finding # 12), had incomplete or missing financial
aid transcripts (Finding # 13), failed to maintain Title IV student records for five years (Finding
# 14), and did not timely withdraw students (Finding # 15). As a result of these findings, Ganaye was placed on a reimbursement method of payment, required to perform a number of full-file reviews to ensure that all regulatory violations were discovered, and to have the full-file reviews certified by an independent auditor.
The program review report was issued on August 30, 1996. Despite a number of
extensions granted to Ganaye over the next six months, the school failed to fully respond to the
individual determinations made by SFAP and to provide SFAP with the requested file reviews
and certification. As a result of Ganaye's unresponsiveness, on March 20, 1997, SFAP issued its
final program review determination in which it concluded, in the absence of an appropriate
response from the school to its program review report, that it was unable to determine the precise
dollar liability for each of the deficiencies noted, and assessed a liability for all student assistance
awarded during award years from 1993/94 to the date of the final program review determination.
The total liability assessed was $390,333 in Pell and Supplemental Educational Opportunity
grants. SFAP subsequently reduced this liability determination to $358,401 to exclude the
1996/97 award year which was not included in the on-site program review. See ED Exhibit 1 to
SFAP's brief dated August 28, 1997. SFAP again reduced its liability determination to
$352,409.19 to reflect a payment made to the Department by Ganaye of $5,991.81 to cover
student # 12 under SFAP's Finding # 2.See footnote 22
In response to my briefing schedule, Ganaye finally responded to the individual SFAP
determinations and provided the required full-file reviews on July 14, 1997. SFAP objected to
the proffered exhibits on the basis that they were not certified by an independent auditor. As part
of its so-called response brief, Ganaye submitted additional exhibits, including an auditor's
certification. SFAP continued to object to the auditor's certification because it was based on a
letter from the school to the auditor providing representations by the school concerning the
full-file reviews which was not attached to the auditor's certification. In response to my order for
additional information, the letter of representation was filed on December 22, 1997. SFAP also
objected to the auditor's certification because the auditor only identified $3,159 in audit
liabilities, while the total liabilities identified by the SFAP program review report, based on its
limited sample, was more than $39,000. However, as discussed below, some of the SFAP
findings are not valid and the auditor's certification does not cover all of the SFAP findings.
Although a number of SFAP's findings are insignificant or wrong, and I question the
appropriateness of requiring full-file reviews based on some of the findings, I empathize with
SFAP's apparent frustration in getting the Respondent to adequately respond to its
determinations. When a school agrees to participate in the Title IV programs, as a fiduciary it
should be prepared to justify all expenditures and to fully document those expenditures within a
reasonable time after receiving a request from SFAP. The time provided by SFAP was entirely
reasonable. Nevertheless, once Ganaye finally responded to those findings, albeit after the
appeal was initiated, it became appropriate to deal with the substance of the responses. See
Puerto Rico Professional College, Docket No. 95-144-SP, U.S. Dept. of Educ. (Order of
Remand, June 28, 1996) (Case remanded by Secretary to administrative judge to consider close-
out audit not submitted until appeal was filed with Secretary). Had Ganaye promptly responded
to SFAP's findings, perhaps many, if not all, would have been resolved without resort to this
administrative proceeding with substantial savings of time and money to both the school and the
Department of Education.
The difficulty inherent in reviewing detailed audit findings was compounded in this case
by the fact that Ganaye's counsel made no effort to explain the school's exhibits and responses,
but simply passed them through to me to understand. As noted recently by Judge Canellos, the
burden of proof never lies with the fact-finder .... [A]n institution that fails to show how its
exhibits establish its burden of proof acts at its own peril. Clark Atlanta University, Docket No.
93-106-SP, U.S. Dept. of Educ. (Decision on Remand II, Dec. 22, 1997), p. 3. Similarly, SFAP
balked at reviewing Ganaye's exhibits and responses and simply took the position that the
school, in light of its inadequate explanations, owed the Department all of the school's Title IV
expenditures for the three award years in question. The final program review determination,
which is the subject of this administrative proceeding, required Ganaye to respond to the
individual SFAP determinations and to submit full-file reviews certified by a CPA. Ganaye
responded to the individual determinations and submitted full-file reviews certified by a CPA. If
SFAP believes that the full-file reviews are substantively inadequate, it should take up the
inadequacies directly with the school since I have made no effort to question the substantive
findings of the CPA and make no legal or factual findings concerning the accuracy of the full-file
As noted below, I find in part for SFAP and in part for Ganaye.
Based on findings 2 through 7 discussed below, SFAP determined that Ganaye lacked
administrative capability and demanded a return of all Title IV assistance awarded during the
period covered by the program review. Although lack of administrative capability is a factor in
determining whether an institution should be terminated from participation in the Title IV
programs as part of a proceeding initiated by SFAP under 34 C.F.R. Part 668, Subpart G, such a
determination does not support a demand for a return of all Title IV funds under a program
review proceeding under 34 C.F.R. Part 668, Subpart H. In a Subpart H proceeding, SFAP is
only entitled to recover losses directly attributed to the institution's improper expenditure of Title
IV funds. See discussion and cases cited in Liberty Academy of Business, Docket No. 96-132-
SP, U.S. Dept. of Educ. (Interim Decision and Order, Dec. 8, 1997), p. 2, n. 1.
Finding #2: Ability to Benefit (ATB) Testing Requirements Not Met.
Under the Title IV regulations, a student admitted to a participating institution who does
not have a high school diploma or the equivalent must pass an independently administered test
which measure the student's ability to benefit from the program for which the student is seeking
the Federal financial aid. 34 C.F.R. § 668.32(e) (1997) and 20 U.S.C. § 1091(d) (1992). To
satisfy this requirement, Ganaye used the Wonderlic Scholastic Level Exam. SFAP found a
number of specific problems with Ganaye's administration of this requirement.
A. Ineligible Charges.
Ganaye uses the Wonderlic Exam for both an ATB test as well as an admissions test.
SFAP found that the school charges a fee to prospective students taking the exam for ATB
purposes, while perspective students taking the exam for admissions purposes are not charged.
According to the program review report (ED Response 2, attached to SFAP response brief dated
November 3, 1997, pp. 9-10) and the final program review determination (p. 6), this is a
violation of Federal regulations. There are no Federal regulations cited and the quoted material
simply states that a school cannot charge a student a fee for processing or handling an application
for Federal financial assistance. Ganaye justifies its position by stating that ATB students must
pay for the Wonderlic Exam because it is administered by a proctor not affiliated with the school,
whereas students with high school diplomas or equivalent are given the test by a school
employee. See Ganaye Academy of Cosmetology Program Review Finding #1, submitted with
Respondent's initial brief, p. 2.
As noted above, SFAP cites no regulation which specifically proscribes a school from
charging students for their ATB tests. The language quoted by SFAP in its final program review
determination does not provide a citation, and itself does not specifically state that a school
cannot charge students for ATB tests. The language simply provides that a school may not
charge a fee for the processing of an application, form, or data requirement to determine a
student's eligibility for Title IV aid. The school is not charging students a fee for the processing
of their Title IV applications, but appears to be collecting a fee to pay the independent tester to
administer the examination. I find nothing improper with this practice.
B. Invalid ATB Tests _ 6 students.
Student # 5
SFAP determined that there was confusing information in the student's file in that he
appears to have graduated from high school in Vietnam and yet was given the Wonderlic Exam
by the independent test administrator; in addition, his name does not appear on the appropriate
Wonderlic Quarterly Report. The school responds by stating that the student was admitted as a
high school graduate and was only given the Wonderlic Exam to fulfill the ATB requirement
because of delay in securing the high school diploma from Vietnam. The school attaches to its
brief a copy of what it represents to be the high school diploma for this student. I find that the
student was properly admitted as a high school graduate and that, even if the student was not a
high school graduate, the student was properly admitted under the ATB requirements in that the
Wonderlic Exam was given by an independent test administrator. As noted above for student
# 3, there is no requirement that students admitted under ATB requirements appear on Wonderlic Quarterly Reports.
Student # 15
SFAP found that the student's Enrollment Questionnaire indicated that the student was
not a high school graduate, but had a GED certificate; however, the GED certificate was not in
the student's file and the Federal assistance application for this student did not reflect GED
status. The student also took the Wonderlic Exam administered by the independent test
administrator, but the student does not appear on the appropriate Wonderlic Quarterly Report.
The student does appear on a later Quarterly Report. In light of this confusion, SFAP determined
that it could not tell if this student was properly admitted. The school responded by stating that,
because of two enrollments by this student, the student took the Wonderlic Exam two times, both
times under the independent test administrator. I find that student # 15 was properly admitted.
The fact that the student does not appear on the Wonderlic Quarterly Report is, again, of no
significance in determining whether the ATB requirements have been meet.
Student # 16
SFAP found that the Institutional Certification of Admission form indicated that the
Wonderlic Exam for this student was administered by the independent test administrator on
4/2/95. However, the certification signed by the independent test administrator is dated 4/1/95.
The Wonderlic Quarterly Report indicates that the test was taken on 1/1/95. The school responds
by stating that the Institutional Certification of Admission form was filled out incorrectly by the
school. The school does not respond to SFAP's point concerning the date appearing on the
Wonderlic Quarterly Report. The test itself is dated 4/1/95. I find that this student was properly
administered the ATB test. The inconsistent dates appearing on the various forms do not show
that the test was not properly administered. Since the Wonderlic Quarterly Report is, apparently,
prepared by Wonderlic and not the school (see supra note 3), it is more likely that Wonderlic,
and not the school, was responsible for the erroneous date appearing in the report.
Student # 18
SFAP found that this student took the Wonderlic Exam on 6/25/95, and that the
certification was signed and dated by the independent test administrator. SFAP rejected the test,
however, simply because it did not appear on the Wonderlic Quarterly Report. The school
responds that it does not know why the student did not appear on the Quarterly Report. Again,
although there is nothing in the record concerning the nature and purpose of the Quarterly
Report, it is my understanding that the Report is prepared by Wonderlic and is not under the
control of the school. In addition, the report has nothing to do with whether the test was
independently administered. On the basis of the record before me, I find that the ATB
requirements were met for this student.
C. Altered ATB Test _ 1 student.
D. Requirement for Full File Review and Other Documentation.
Because of SFAP's determinations discussed above, it required Ganaye to conduct a full-
file review of all students admitted under the ATB requirement and have the review certified by
an independent CPA. As noted, the school never complied with this requirement until it
submitted the results of its review as a spread sheet attached to its initial brief submitted to me on
July 14, 1997. SFAP's primary objection to the full-file review was that it was not certified by
an independent CPA. As noted earlier, the school did eventually have all of the full-file reviews
certified by a CPA.
In addition, SFAP noted that it required Ganaye to prove that all of its ATB tests were
independently administered which it has never done. However, in light of the somewhat petty
violations identified by the SFAP finding, I question the appropriateness of requiring Ganaye
to do a full-file review of its ATB students and requiring it to prove that the tests were
independently administered in the absence of any evidence that they were not independently
administered. In any event, the school eventually did substantially everything requested by SFAP
except to prove that all of its ATB tests were independently administered
On the basis of Ganaye's full-file review, the CPA determined that the school owed the
Department $378 under Finding # 2. Although I am unable to determine exactly why Ganaye
owes the Department $378, I accept the CPA's representation to that effect and assess liability
for $378 for failure by the school to fully comply with ATB requirements.
Finding # 3: Inaccurate and Incomplete Attendance Records _ 6 Students.
The corrected attendance record is illegible and, even if it were legible, one cannot tell
from that record alone whether Title IV funds were properly disbursed. Since the Respondent
bears the burden of proving that the funds questioned by SFAP were proper, I find that the
$4,089 in Pell funds awarded to this student were improperly awarded and must be returned to
Student # 22
SFAP determined that the student's attendance record shows attendance from 11/7/95
through 3/29/96. On 4/9/96 the school certified on the Institutional Authorization for Payment
form that on 4/9/96 the student completed 468 hours. The school contends that the student
completed 468 hours at 2 PM on 4/9/96, and attached a copy of the student's daily time card.
Although the original submission was illegible, pursuant to my order, the school submitted a
legible copy which appears to add up to 491 hours on 4/9/98. SFAP never rebutted this
submission by Ganaye, and the attendance record relied on by SFAP is not in the record. Thus, I
find that Ganaye has demonstrated that the funds awarded to this student were proper.
Student # 24
SFAP determined that the student's attendance record reflected attendance from 8/25/95
through 3/30/96. On 4/9/96 the school certified on the Institutional Authorization for Payment
form that on 4/9/96 the student completed 884 hours. The school contends that at the beginning
of 4/9/96 the student completed 873.75 hours and that the daily attendance record was
recalculated and revised, but that, in any case, the student completed more than the 450 hours
required for the Pell grant in question. The attached daily attendance record appears to add up to
873.75 hours, but it is undated. SFAP's contention appears to be that the student stopped
attending on 3/30/96; the school, in response to my order for a legible copy of the record attached
to its brief, submitted a record which indicates that this student attended Ganaye until 2/15/97,
rather than 3/30/96 as alleged by SFAP. Since I am unable to determine upon which record
SFAP relied, and the records submitted by Ganaye are not rebutted by SFAP, I find that Ganaye
has met its burden of proof concerning this student.
Student # 27
SFAP determined that Ganaye represented that this student completed 51 hours before
dropping out of the program. The school's attendance records indicate, however, that the student
actually attended 52 hours. The school responded by noting that a refund calculation based on 51
hours, rather than 52 hours, actually favors the student by $5.00. I agree that this discrepancy is
trivial and results in no liability on the part of the school.
Student # 28
SFAP determined that there were discrepancies of up to 40 hours among the student's
daily attendance record, the daily record of applied effort, and the number of hours certified by
the school on the Institutional Authorization for Payment form completed on 4/9/96. The school
notes that the attendance referred to in the finding covers the payment period of 451-900 hours,
and that the student reached the required number of hours for the payment in question by any
calculation. I agree with Ganaye. The discrepancies involved appear to be immaterial to whether
the student was properly awarded Title IV funds, although they do indicate sloppy record keeping
by the school.
Student # 37
SFAP determined that the school calculated its refund to this student based on the student
having completed 142 hours when the student dropped out of the program, and yet its attendance
records indicate that the student only completed 40 hours. The attendance record relied on by
SFAP is not part of the record. The school responds by stating that the student in fact completed
142 hours , and attaches a copy of what appears to be an attendance record that indicates a
cumulative attendance by this student of 142 hours on May 5, 1994. Since Ganaye's exhibit
remains unchallenged, I find that there is no liability for this student.
Because of the alleged inaccurate attendance records for these six students, SFAP
directed Ganaye to conduct a full-file review of all of its Title IV students from the 1993/94
award year through the date of the school's response to the program review report and to present
the results of such review in a prescribed spread-sheet format and have the results certified by an
independent CPA. Ganaye appears to have fully complied with this requirement.
Finding # 4: Inconsistent Information in Student Files _ 15 Students.
Students # 6 and # 25
SFAP determined that these students, although enrolled in the cosmetology program,
were provided information concerning the school's manicuring program and that it was not clear
in which program the students were enrolled. With respect to student # 6, the school states that
the information concerning manicuring was given to the student during orientation. The school
does not state why the student was given this information. Based on the school's responses for
other students, presumably the student either expressed an interest in manicuring or the school
explains all of its programs to its students during orientation. While the school's response is
cryptic, I do not see the significance of the SFAP finding. Thus, I find that the school has no
liability for these two students.
Student # 3
Again, because the file for this student contained information concerning the school's
manicuring program, SFAP found that the student's file contained conflicting information on
which program the student was enrolled even though the student was clearly enrolled in the
cosmetology program. The school responded by stating the student may have expressed an
interest in manicuring. Again, I have difficulty in appreciating the significance, if any, of the
SFAP also found that the attendance record for this student reflected attendance up to
September 30, 1995, completing 1600.5 hours, but that the student's daily record reflects
completion of 1600 hours on July 20, 1995. The school submitted the student's attendance
record which appears to show that the student completed 1600.5 hours on September 29, 1995,
although the date at the top of the form indicates completion on April 28, 1995. The school also
submitted a Record of Completion which indicates that this student completed the Cosmetology
Program on September 30, 1995. Although the attendance record has the wrong completion date,
that appears to be an error, and the student completed the program at the end of September.
Thus, there is no institutional liability for this student based on the SFAP finding.
Student # 28
SFAP again found that this student's file contained conflicting information concerning
enrollment even though the student was enrolled in the cosmetology program because the file
contained an information sheet providing information on the school's manicuring program. Here
the school responds by stating that students are provided information during orientation
concerning all of the school's programs, including the manicuring program. Again, I find no
merit to SFAP's finding.
SFAP also found that the student's application did not reflect the correct family income
and did not take into account the family's Individual Retirement Account. The school responded
by revising its calculation which demonstrated that the amount of the student's eligibility did not
change as a result of the recalculation. I accept the school's recalculation and find no liability for
Student # 4
SFAP found inconsistent information in the student's file which reflected more income
than reported by the student. As a result of this finding, Ganaye recalculated the refund and
determined that it owed an additional refund to the Pell account which remains unpaid in the
amount of $1,088. This liability is covered by the $6,376.51 liability assessed below under
Findings # 5. # 6, and # 7 concerning refunds.
SFAP found that the year of the student's GED certificate on the Electronic Student Aid
Report (ESAR) was 1967, while the date on the GED itself was 6/7/78. In response, Ganaye
states that [t]he GED is attached and shows that the student was not admitted as an ATB
student. This response is, of course, incongruous. I do not see the significance of SFAP's
finding, however, which simply indicates that someone put the wrong date on the ESAR.
Students # 8 and # 26
The files for these students reflected family incomes so low that SFAP determined that the school should have resolved the unlikely possibility that families could live on such incomes.
The school responded by stating that, during the period in question, the families were living in
Vietnam, presumably where people can survive with little income. I find the school's
explanation plausible and find that the school has no liability for these students based on the
Student # 24
SFAP found that the ESAR reflected a family income so low that the school failed to
resolve the unlikely possibility that a family of four could live off of such a modest income. The
school responded by noting that the family lived in Vietnam during the period in question.
Again, I find the explanation plausible.
The reviewer also found that the ESAR reflected four in the household and two in
college, whereas the verification worksheet reflected three in the household and two in college.
The school responded by noting that the verification reflected two in the household attending
school, both the student and the mother. I fail to see the significance of either SFAP's or the
school's point. I find that the school has no liability for this student based on the SFAP
Students # 12 , # 15, # 19, and # 29.
SFAP found that the school did not use the correct incomes in calculating the Title IV
assistance since the school did not include the Earned Income Tax Credits received by these
families. For student # 19, SFAP determined that the school also failed to use the student's
income in the calculation. The school responded by recalculating the assistance and
demonstrating that the Earned Income Tax Credits, and, for student # 19, the income, were so
modest as to not effect the amount of student assistance to which the students were entitled. I
find the school's explanation satisfactory. There is no institutional liability for these students
based on the SFAP determination.
Student # 16
Again, SFAP took issue with the school's calculation of this student's Title IV assistance
since it did not include the student's parents' Earned Income Tax Credit in the family's income.
Again the school recalculated the Title IV assistance using the Earned Income Tax Credit and
demonstrated the student's eligibility remained unchanged. .
In addition, the reviewer found that the student's file indicated a last date of attendance of
10/19/95, but the Servicer indicated a last date of attendance of 10/1/95. In addition, on 10/5/95,
the school received a Pell disbursement of $936 for this student and certified that the student
completed 551.75 hours. According to the attendance record in the student's file, the student had
been attending sporadically since about 7/7/95 to 10/19/95 and had only completed 541.25 hours.
The school responded by noting that the student was entitled to a second disbursement on August
18, 1995. The student became ill on or about July 7, 1995, but did not withdraw from school
until October 19, 1995. The school does not address the question of why it certified that the
student completed 551.75 hours, rather than 541.25 hours, and why its servicer reflected a
withdrawal date different from that in Ganaye's records. From the documentation provided, I
cannot tell whether the school was entitled to the disbursement it received for this student on
10/5/95. Since the school has the burden of proof, it must return that disbursement to the
Student # 22
The reviewer found that the ESAR did not reflect AFDE payments and Earned Income
Tax Credit. The school recalculated the Pell award using the modest AFDE payments and the
Earned Income Tax Credit and demonstrated that the Pell award would not change using these
SFAP also found that the ESAR reflected a gross income of $1,242 , most of which was
derived from business income. The reviewer determined that the school should have recognized
the possibility of a private business owned by the student and should have placed a value on the
business. The school never responded to this allegation. SFAP cites no authority for its position,
and, given the modest amount of the income in question, it is unlikely that any business owned
by the student which derived such a small gross income could be of much value. I find the SFAP
SFAP found that the Federal assistance application reflected a household of four with two
in college, whereas the ESAR reflected a household of four with three in college. SFAP makes
no attempt to demonstrate that this difference is of any significance. The school responded by
stating that its award calculation was done on the basis of only the student attending college. I
find that there is no institutional liability for this student based on the SFAP finding.
Student # 27
The student's Title IV application does not reflect AFDE benefits received by the
student's parents. The school responds by stating that the amount of the AFDE benefits was
obtained by the school after the student completed the Federal application and demonstrated that
the additional income does not alter the amount of assistance for which this student was
qualified. I find that there is no institutional liability for this student based on the SFAP finding.
Findings # 5, # 6 and # 7: Refund Calculations Incorrect (5 students), Unpaid Refunds (9 Students), and Late Refunds (11 Students).
The reviewer made a number of determinations concerning refunds, most of which the school agreed with when it finally got around to responding to the SFAP allegations. As a result of the large number of refund problems, SFAP required the school to do a full file review of all of its students entitled to refunds and submit the results of its review in spread-sheet format and have the results certified by an independent CPA. According to the school's own calculations, it owes the Department $5,991.81 in corrected, additional or late refunds. In addition, Ganaye only submitted the front of the refund check for $24.70 for Student # 31; thus, I cannot determine whether the check was actually negotiated. Finally, the refund due for Thuy N. Le was for $586, yet the refund check submitted for this refund is only for $226; thus the school owes a balance of $360. The school's total liability for these three findings is $6,376.51.
Finding # 8: Valid Student Aid Reports and Electronic Student Aid Reports Not Secured _
Student # 2
SFAP found that the1993/94 ESAR was not dated. It is of little insignificance that the
ESAR was not dated. Since SFAP does not challenge the accuracy of the information in the
ESAR, there is no liability based on this finding.
Student # 5
SFAP found that the 1993/94 ESAR was missing from the file. In response, the school
has included the missing ESAR.
Student # 8
SFAP found that the ESAR was not signed by the student's husband. In addition, the
reviewer found that the ESAR was selected for verification and the verification worksheet
showed a three person family while the ESAR showed only two persons. The school responded
by noting that the husband did sign the Federal funding application and that the ESAR was not
selected for verification, but that the school apparently was using a verification worksheet to
verify the income of the student while she was living in Vietnam. The school's explanation is
plausible and any inaccuracies in the file information would not affect the amount of the
Student # 10
The ESAR was not dated by either the student or spouse and the ESAR contains the
wrong social security number. The school responds that a corrected ESAR in the file, which it
attaches to its response, is dated by both the student and spouse and was in the file when
reviewed by SFAP. The school admits that the social security number is not correct, but states
that it used the number provided by the student on the original application for Federal aid. I find
the school's explanation for the missing dates on the ESAR acceptable. Concerning the wrong
social security number, it appears the first number of the social security number on the student's
application, which was handwritten, is a 6" but was misinterpreted when transposed to the
ESAR as a 0". This appears to be an honest mistake of little significance.
Student # 12
SFAP found that the ESAR was signed on March 3,1996, when the student returned to
school to withdraw. The school responded by stating that the student was in attendance on
March 3, 1996, and withdrew on March 5, 1996. The school attaches the student attendance
record which appears to show that the student was in fact in attendance on March 3, 1996.
Student # 43
SFAP found that the school processed an award based on an ESAR which was rejected.
The school contends that the award in question was processed based on an earlier ESAR which
was not rejected. I find the school's response acceptable.
Finding # 9: Verification Not Documented/Incomplete _ 4 Students.
Student # 2
SFAP found that the school failed to complete the verification for this student by not
securing the second page of her parents' Income Tax Return. In addition, SFAP found that the
income reported on the ESAR ($16,120) differed from that reflected on the student's mother's
W-2 Wage and Tax Statement ($15,764). The school states in response that the amount of
income reported on the ESAR was more than that reported on the W-2 forms for the parents, so
there would not be any change in eligibility. Since the school secured the W-2 forms for the
parents, and the income adds up to slightly less than that reported on the ESAR, the income of
the parents appears to have been verified. The fact that the signature page of the Income Tax
Return was not secured is of little significance.
Student # 7
SFAP found that the Federal student aid application reflected five people in the student's
household, including her boyfriend, and that from the documentation in the file it cannot be
determined whether the boyfriend is a true dependent. SFAP also found a discrepancy between
the household income indicated on the application and ESAR and on the tax return. The school
responded by simply stating that there is no evidence to void the claim the students [sic]
boyfriend was a dependant. The school does not address the discrepancy between the income
claimed on the application and the ESAR and the tax return, but for reason not clear does admit a
liability of $1,030 for this student. Since the school has the burden of proof, I resolve this
finding against the school and assess a liability of $1,150 against the school, which was the Pell
grant given to this student.
Student # 12
The student's income did not reflect the family's Earned Income Tax Credit (this same
allegation was made under SFAP Finding # 4). Therefore, the verification of the student's
income was not complete. The school responds by noting that inclusion of the Earn Income Tax
Credit would not affect the amount of funds awarded to this student. I find that there is no school
liability for this student based on the SFAP finding.
Student # 28
The reviewer found a discrepancy between the income level claimed on the Federal aid
application and ESAR and the income tax return. Therefore, the verification was not done. The
school responded by noting that the difference in income was the student's Earned Income Tax
Credit, and when included in the calculation it did not affect the amount of the grant awarded to
this student. I find the school's response acceptable; there is no institutional liability for this
student based on the SFAP finding.
Finding # 10: Excess Cash Balances Maintained.
SFAP determined that Ganaye drew down cash in excess of its immediate needs for the
award years covered by the audit. The regulations provide that an institution cannot draw down
funds in excess of its needs for any given three-day period. The Program Review Report claimed
that balances of between approximately $1,000 and $22,000 were maintained by Ganaye over
this period. The school's response to this charge is simply a statement that the school does not
even request cash until after it is due to be paid. The full-file reviews and the CPA certification
does not address this finding. Since the school's response is somewhat unintelligible and
unresponsive, and the school bears the burden of proof, I find in favor of SFAP on this finding.
The school owes the Department the imputed interest on the excess cash, for a liability of
$484.06. See Interest Calculation Worksheet for Excess Cash, submitted by SFAP on December
17, 1997, pursuant to my Order for Additional Documents and Information issued on November
Finding # 11: Job Placement Records Inadequate.
SFAP determined that Ganaye was not maintaining adequate job placement records and was providing students with inadequate information. This finding is based on the form entitled How Students Are Doing, which the school states was distributed to its students during orientation. SFAP takes exception to the form in that it provides employment statistics for 1991 rather than more current data. SFAP claims the use of old employment data is a violation of 34 C.F.R. § 668.14(b)(10) (1994), which provides that where a school advertises job placement rates as a means of attracting students to enroll, it will make available to prospective students the most recent available data concerning employment, graduation, and other information necessary to substantiate the truthfulness of the advertisement. There is little merit to this allegation.
Although the form does give information concerning placement and graduation rates, it was
apparently distributed during orientation, after students presumably already enrolled, and not
used as an advertisement to attract prospective students.
Finding # 12: Audit Trail Inadequate -- 10 students.
Because of inadequate audit trails, SFAP questioned whether refund calculations for ten
students were correct. In response, the school attached payment ledgers and the completed
refund calculation for each of the students and attached, where appropriate, canceled checks for
refunds due and paid. SFAP required the school to reconcile its payment records with the
Servicer's tuition account records to ensure accurate refund calculations for all of its Title IV
students and to submit the reconciliation in spread sheet format. The school submitted this
information as part of its initial brief. Thus, this finding is satisfied.
Finding # 13: Financial Aid Transcripts (FATs) Missing -- 2 students.
SFAP concluded that the school failed to request FATs for two students. Attached to its
initial brief, the school submitted the FATs in question. It is not clear from the school's response
whether the FATs were in the possession of the school at the time of the review, or obtained
subsequently by the school. At any rate, this finding is satisfied. However, I have reached no
conclusion on whether the students in question were entitled to financial assistance from Ganaye
in light of these FATs, and they should be examined by SFAP in this regard.
Finding # 14: Title IV Records Not Maintained for Five Years -- 3 students.
During the on-site visit by SFAP, Ganaye was unable to produce records for three
students. Based on these three missing files, SFAP found that the school failed to maintain
student records for five years as required by the regulations. Since the school never responded to
the program review report, in its final program review determination, SFAP assessed a liability
for all Title IV funds awarded during the period covered by the program review.
According to the program review report, during the on-site review the school's owner
indicated to the reviewer that some student records were at another beauty school owned by her.
The exhibits attached to the school's initial brief are statements that [t]he records are present at
the school. No attempt is made by the school to explain why the records were not available to
the reviewer, or even whether it agrees with SFAP that the records were not available at the time
of the review. Since the school bears the burden of proof and has not produced the records in
question or provided any satisfactory explanation as to why the records were missing, I find that
the school must return the Title IV funds awarded to these three students to the Department.
Student # 31 was awarded a Pell grant of $2,400 and a Supplemental Educational Opportunity
grant of $189 for the 1993/94 award year. The school contends that it paid a refund of $24.70 for
this student. Although the school could not properly document that it actually paid this refund, it
must be deducted from the liability covered under Finding # 14, as it is covered under Findings
# 5, # 6, and # 7, supra, pp. 12-13. Student # 32 was awarded a Pell grant of $1,150 for the
1993/94 award year, but the school paid a refund of $466; thus, the school owes a balance of
$684 for this student. Student # 35 received a Pell grant of $2,329 for the 1994/95 award year,
but the school paid a refund of $553; thus, the school owes a balance of $1,776 for this student.
Finding # 15: Students Not Withdrawn Timely _ 4 Students.
Student # 12
SFAP determined that this student stopped attending class on November 4, 1995, when it
appears that she went on medical leave. The medical certificate in the file indicated that the
student would be out of school until February 11, 1996, but it could not be determined whether
the student ever returned to school. On March 3, 1996, a Pell grant of $1,170 was distributed for
this student, which also appears to be the student's last date of attendance according to the
withdrawal form. It appears, according to SFAP, that the student never returned to school, but
the school represented that he did return in order to receive the Pell grant. The school responds
by stating that the time card and the record of withdrawal indicates that the student was in school
as of March 3, 1996. Although the withdrawal form does indicate that the last date of attendance
was 3/3/96 (although the year appears to be altered), and that the date of withdrawal was 3/5/96, I
am unable to determine from the attendance record when the student returned from the leave of
absence or wether the student was actually in school on 3/3/95. Thus, the school has not meet its
burden of demonstrating the Pell grant questioned by SFAP was properly awarded and the school
must return the grant to the Department.
Students # 33 and # 34
SFAP found that the school allowed these students to go on leaves of absence during the
1994/95 award year when leaves of absence were no longer available and that the students should
have been withdrawn from the school earlier. The school responds by stating that it agrees that
the students should have been withdrawn earlier, but that the refund recalculation shows that no
refund is due. However, the school attaches no backup documentation in support of its
statement. Thus, I find that the school has not demonstrated that the funds awarded to these
students were proper and is liable to the Department for all Federal assistance awarded to these
students during the 1994/95 school year. Student # 33 received a Pell grant $1,150. Student # 34
was awarded a Pell grant of $1,080 and a Supplemental Educational Opportunity grant of $500.
Finding # 2 . . . . . . . . . . . . . . . $378.00
Finding # 3 . . . . . . . . . . . . . . .$4,089.00
Finding # 4 . . . . . . . . . . . . . . . $936.00
Findings # 5, # 6, and # 7. . . . $6,376.51
Finding # 9 . . . . . . . . . . . . . . .$1,150.00
Finding # 10 . . . . . . . . . . . . . . $ 484.00
Finding # 14 . . . . . . . . . .. . . . $5,024.30
Finding # 15 . . . . . . . . . . . . . $7,390.00
Frank K. Krueger, Jr.
Date: February 4, 1998
A copy of the attached initial decision was sent by certified mail, return receipt requested
to the following:
Kelly J. Andrews, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110