REPORT DIGEST NORTHEASTERN ILLINOIS UNIVERSITY FINANCIAL, COMPLIANCE AND SINGLE AUDIT For the Year Ended June 30, 2012 Release Date: February 28, 2013 Summary of Findings: Total this audit: 12 Total last audit: 9 Repeated from last audit: 5 State of Illinois, Office of the Auditor General WILLIAM G. HOLLAND, AUDITOR GENERAL To obtain a copy of the Report contact: Office of the Auditor General, Iles Park Plaza, 740 E. Ash Street, Springfield, IL 62703 (217) 782-6046 or TTY (888) 261-2887 This Report Digest and Full Report are also available on the worldwide web at www.auditor.illinois.gov SYNOPSIS • The University did not properly identify all students who withdrew from the University and did not determine or return the unearned portion of Title IV aid provided to all students who withdrew from the University. This resulted in inaccuracies in the amounts reported in the financial statements and noncompliance with federal regulations. • The University did not prepare an accurate Schedule of Expenditures of Federal Awards. • The University did not reconcile its cash balance for the Federal Direct Loan Program on a monthly basis. • The University awarded student financial aid to students at an unapproved location. • The University made some Federal cash draws in excess of amounts paid out for program purposes. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS FAILURE TO IDENTIFY AND REFUND TITLE IV AID IN A TIMELY MANNER The University did not properly identify all students who withdrew from the University. The University also did not determine or return the unearned portion of Title IV aid provided to all students who withdrew from the University. This resulted in inaccuracies in the amounts reported in the financial statements and noncompliance with Federal Regulations. In our testing of unofficial withdrawal determinations over students receiving Title IV aid and who failed to receive a passing grade in any of their classes (473 students), we noted that 18 students, should have been considered to have unofficially withdrawn from the University, but for which the University had not made this determination. In response to our testing and inquiries, the University identified $26,157 in unearned Title IV aid which should have been refunded to the U.S. Department of Education (ED) and for which the University has recourse against the students for payment. The Federal Government requires that an institution have a procedure for determining whether a Title IV aid recipient who began attendance during a period completed the period or should be treated as a withdrawal. If a student who began attendance and has not officially withdrawn fails to earn a passing grade in at least one course offered over an entire period, the institution must assume, for Title IV purposes, that the student has unofficially withdrawn, unless the institution can document that the student completed the period. Furthermore, we noted that the University does not have adequate procedures in place to determine if a student began attendance in a payment period. This determination is necessary to correctly calculate the refundable amount of Title IV aid. Specifically, if an institution cannot document that a student began attendance in any class during the payment period, all Title IV grant or loan assistance provided to the student is considered unearned and should be refunded. In addition, we tested the calculation of unearned Title IV funds for 40 students who withdrew from the University. We noted that one student’s refund was not calculated correctly resulting in a $211 over-refund to ED. Furthermore, we noted that one student’s return of Title IV funds was not refunded within the required 45 day time period. (Finding 1, Pages 15-17) This finding was first reported in 2010. We recommended the University implement procedures to ensure that refunds are processed timely and accurately in order to facilitate accurate financial reporting and to be in compliance with federal regulations. University officials agreed with the finding and recommendation. (For the previous University response, see Digest footnote #1) IMPROVEMENTS NEEDED IN PREPARATION OF THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS The University did not prepare an accurate Schedule of Expenditures of Federal Awards (SEFA). The University provided the auditors its “final” SEFA on September 18, 2012. In our testing of the accuracy of the SEFA, we noted that the University had not identified Federal programs included in the research and development cluster. (Finding 2, Pages 18-19) We recommended the University improve its controls over financial reporting so that it can prepare an accurate SEFA. University officials agreed with the finding and recommendation. NEED TO PERFORM DIRECT LOAN CASH SUMMARY RECONCILIATION The University did not reconcile its cash balance for the Federal Direct Loan Program on a monthly basis. We requested monthly reconciliations of the University’s Direct Loan records to the ending cash balance on the School Account Statements (SAS) provided by the Common Origination and Disbursement (COD) System. Although the University was able to provide evidence that it had separately analyzed components of the SAS, the University could not provide us with a documented reconciliation of the cash balance to University records. (Finding 5, Pages 24-25). The Department of Education’s “Direct Loan School Guide”, Chapter 6, Reconciliation, requires that the University reconcile the ending cash balance on the SAS with its internal records on a monthly basis, ensuring that any discrepancies are resolved, and documents any reason for a positive or negative balance. (Finding 5, Pages 24-25) We recommended the University review its procedures to ensure that the ending cash balance per the Direct Loan Cash Summary is being reconciled on a monthly basis. University officials agreed with the finding and recommendation. FINANCIAL AID MADE TO STUDENTS AT AN UNAPPROVED LOCATION The University awarded student financial aid to students at an unapproved location. Through our testing of the United States Department of Education School Participation Management Division, Eligibility and Certification Approval Report, we noted that one location in which a student can complete more than 50% of a degree program and receive student financial aid, was not approved by the Department of Education. (Finding 6, Page 26) We recommended the University review its procedures to ensure that approval for required locations is obtained prior to the disbursement of Title IV funds. University officials agreed with the finding and recommendation. NEED TO IMPROVE CASH MANAGEMENT PRACTICES The University made some Federal cash draws in excess of amounts paid out for program purposes. Based on our testing of 21 federal funding draws for programs on the reimbursement funding method, we noted that the University received federal funds in excess of amounts paid out for program purposes at the time of the draw request. The excess draws over the amounts already paid out for program purposes follow: • TRIO Cluster -- $398,190 • Gear Up -- $1,270,648 • Higher Education - Institutional Aid -- $337,854 The excess draw downs were corrected by the University in the month following the draws. (Finding 10, pages 32-33) We recommended the University review its procedures to ensure compliance with cash management regulations. University officials agreed with the finding and recommendation. OTHER FINDINGS The remaining findings are reportedly being given attention by the University. We will review the University’s progress toward implementation of our recommendations in our next audit. AUDITORS’ OPINION Our auditors state the University financial statements as of June 30, 2012 and for the year then ended, are fairly presented in all material respects. WILLIAM G. HOLLAND Auditor General WGH:TLK:rt SPECIAL ASSISTANT AUDITORS CliftonLarsonAllen were our special assistant auditors. DIGEST FOOTNOTE #1 FAILURE TO IDENTIFY AND REFUND TITLE IV AID IN A TIMELY MANNER – Previous University Response - The University concurs with this recommendation.