Steve_Bastardi-resized.jpgThis is the seventh in a series of 10 blog posts related to the Top 10 Audit Findings of the U.S. Department of Education.

One of the top 10 audit findings, according to the U.S. Department of Education, includes student credit balance deficiencies. Indicated causes include:

 - Credit balances not released to students within 14 days,
- No process in place to determine when a credit balance has been created,
- Non-compliant authorization to hold Title IV credit balances, and
- Credit balances not released by the end of loan period or award year.

Credit balances can occur in many ways and may be the result of payments from not only Title IV program funds, but also personal funds, private loans, and institutional grants. Also, as you are aware, credit balances may be related to and affected by changes in a student's enrollment status that might affect federal or other aid eligibility. Technically, a Title IV credit balance typically occurs whenever your school credits Title IV program funds to a student’s account and the total amount of those funds exceeds the student’s allowable charges.

Credit balance not released to student within 14 days

What do you do if you have a Title IV credit balance? If a credit balance occurs in a student’s account, you must pay the credit balance directly to the student or parent as soon as possible but no later than 14 days after:

- The date the balance occurred on the student’s account, if the balance occurred after the first day of class of a payment period; or
- The first day of classes of the payment period if the credit balance occurred on or before the first day of class of that payment period.

Remember that time frames for disbursing to a student’s account, directly to the student or to the parent, are different than those for paying Title IV credit balances to the student or parent. It is the responsibility of the institution to pay, or otherwise make available, any Title IV credit balance within the 14-day time frame. Federal regulations also require that an institution document in some way a student’s activity with respect to attendance/enrollment status in order to determine eligibility for a refund of a credit balance.

No process in place to determine when credit balance has been created

Another area where credit balance deficiency findings occur is internal processes. Specifically, the Department of Education found that some deficiencies were a result of institutions not having an adequate process in place to determine when a credit balance is created.  According to 34 CFR 668.24 (a), an institution shall establish and maintain, on a current basis, any application for Title IV Funds, and maintain program records that document the requirements of the Department (including disbursement and delivery of Title IV program funds). Institutions should maintain accounting and internal control systems that identify and monitor activities of funds of each Title IV, HEA program in which the institution participates. Systems should maintain readily available documentation relating to each student’s or parent borrower’s receipt of Title IV, HEA program funds, including but not limited to documentation of award amounts, payment periods, loan period, and the calculations used to determine award amounts. Overall, procedures and controls to identify and release credit balances in a timely manner are crucial.

Non-compliant authorization to hold Title IV credit balances

Authorization to hold Title IV credit balances can be another tricky area and appears to cause some of the findings related to credit balance deficiencies.  SFA Handbook states that schools must obtain authorization from a student (or parent borrower) before your school can hold an FSA credit balance. There are some nuances in this area connected to PLUS, so be careful. Some schools, if failing to meet financial responsibility standards, might be prohibited from holding credit balances entirely. To be in compliance, all documented elements of an authorization to hold an FSA credit balance must be conspicuous and include various elements. Authorization to hold credit balance examples can be found in the SFA Handbook, Volume 4 – Processing Aid and Managing FSA Funds.

Credit balances not released by end of loan period or award year

Institutions also need to be cognizant of activities connected to “end of loan period” or “award year.” According to the Department of Education, this is another area of concern as it is another area of common findings connected to credit balance deficiencies. According to 34 CFR 668.165(b)(5)(iii), notwithstanding any authorization obtained by the school, the school must provide the student with any remaining FSA credit balance resulting from FSA loan funds by the end of the loan period and any other FSA program credit balances by the end of the last payment period in the award year for which the funds were awarded. This area needs to be on your compliance radar.

In conclusion, here are a few generalized process improvement tips to keep in mind:

- Create a specific job, and assign an appropriate person to the task of refund processor.
- Regularly monitor the refund process to ensure that it conforms to compliance requirements.
- Enhance existing or create reports to track credit balances and flag exceptions.
- Enhance your policies and procedures to include specific guidelines for monitoring credit balances, and to address identifying and releasing credit balances timely.
- Focused continuing education for staff.
- Application of checklists and practice aids available through the Department and SFA Handbook.

References for your reading pleasure

If you need assistance with managing your student credit balance deficiencies or other accounting, auditing or consulting issues related to your institution of higher learning contact me at sbastardi@frazerllp.com or call 714.990.1040.

Topics: Institutions of Higher Learning, Title IV Funds, Student Credit Balance Deficiencies