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

Approximately 30% of students who submit a FAFSA are selected by the U.S. Department of Education for a process called Verification.  In most cases, applicants are selected by the U.S. Department of Education. However, an institution may also select a student.

At some schools almost all students are selected for verification, but this doesn’t mean there’s an error. It means the students wanting or receiving federal aid were selected for verification of certain information. Students selected for verification are notified on what is known as a Student Aid Report (SAR), which is generated from the Department of Education after a FAFSA is submitted.  Typically, students are also notified by the institution and additional documentation and/or substantiation may be required in order to complete the financial aid application. 

When a student is selected for verification, institutions typically compare information from the student’s FAFSA with student/parent financial aid documentation and, possibly, related tax documents.  Institutions maintain the right to make inquiries about this information when verification requirements occur.  Differences between application information and substantiation may require further research, which may delay the financial aid process significantly. This, in turn, could delay the much needed financial aid for students for current and upcoming terms.

An institution should focus on the quality of their processes of verification, but there might be the slight, one-off instance where a student/parent is not responding in a timely, positive or professional manner. This could be an indication of misrepresentation. Note that students must provide complete and accurate information on all application forms. Misrepresentation or the falsification of information and/or statements on application forms for federal financial aid is a violation of law and can be considered a criminal offense subject to penalties under the U.S. Criminal Code.

Financial aid personnel are pulled in many directions, especially during enrollment periods. It’s often not easy to ensure everyone is following organizational policies and procedures completely while getting the job done compliantly. That leaves room for error, but at the end of the day, the institution is ultimately responsible for compliance.

According to the U.S. Department of Education audit findings related to verification violations include:

- Verification documentation missing/incomplete
- Income tax transcripts missing
- Untaxed income not verified
- Interim disbursement rules not followed
- Conflicting data not resolved

When verification issues arise, financial aid personnel need to investigate the differences between FAFSA data and supporting documentation, which can be a time consuming process.

Verification Documentation Missing/Incomplete

When it comes to missing and/or incomplete verification documentation, a focused checklist and well developed institution policies and procedures can help. A complete set of refined policies and procedures helps to define, regulate and inform how you and your organization operates, but they must be systematically updated, reinforced and enforced. Keep in mind, a well defined set of desk procedures is nice to have, too, with built-in instructions and checklists to help safeguard against instances of possible noncompliance. It might not be a bad idea to include a verification checklist in each student file that could have evidence of supervisory review and approval. Policies and procedures, as well as desk procedures, need to be periodically updated to ensure everyone is working with the latest, greatest version.

Income Tax Transcripts Missing/Untaxed Income Not Verified

One way to help with income tax transcripts missing and/or untaxed income not verified is the use of the IRS Data Retrieval tool. This system is known be fairly accurate and efficient. This tool, available to students and parents, allows the FAFSA to use your IRS records to complete the income and tax information. The IRS Data Retrieval process is a safe and secure way to save time and minimize the possibilities of discrepancies when completing the FAFSA.

Interim Disbursement Rules Not Followed and Conflicting Data Not Resolved

At times, an institution may exercise an allowable tolerance in evaluating verification issues. An institution may also make an interim disbursement to a student for whom it has no conflicting information before it completes verification. However, in these instances, the institution would typically be responsible for possible misjudgments it makes and may be liable if verification is not resolved or if a resulting overpayment is not paid back by the student.

Again, solid checklists and institutional policies and procedures can minimize instances of noncompliance. Supervisory review and approval as well as a file monitoring system can help, too.

Another option to help minimize the possibility of audit and/or program review findings, which applies to most of the findings noted above, is outsourcing the verification process. Currently, this is not a popular trend and I wouldn’t rush into this option too hastily.  You need to consider the direction the Department of Education is heading with respect to reporting requirements surrounding third party service providers.

From an audit standpoint, findings are not always accepted so fondly by management and financial aid personnel. In my opinion, it’s better to discover or learn about possible compliance deviations early, which will help prevent small errors escalating into big, expensive, time-consuming problems in the future. Consider all possible solutions to the problem and then make the best reasonable and feasible choice.

Remember to consider the following to minimize audit and/or program review findings:

- Regularly monitor your verification process
- Perform internal quality control file reviews
- Maintain a policy of supervisory review and approval of verification files
- Maintain focused continuing education and training programs for staff
- Frequently reference and monitor:The Federal Student Aid Handbook, Application & Verification Guide, Chapter 4
- The FSA Coach, module B205 (http://fsatraining.info)
- Consider FSA Assessments tools
- Maintain policies and procedures as well as desk procedures
-Use well developed and focused checklists

If you need assistance with your institution’s verification process or other accounting, auditing or consulting issues related to your institution of higher learning contact me at [email protected] or call 714.990.1040.

Topics: Institutions of Higher Learning, Verification