This is the tenth in a series of 10 blog posts related to the Top 10 Audit Findings of the U.S. Department of Education.

Untimely and/or incorrect reporting of G5 expenditures is the tenth item from a list of audit findings in order of number of deficiencies found.

Regulatory background

G5, formerly known as GAPS, is a delivery system used by Federal Student Aid (FSA) that supports program award and payment (drawdown) administration. It is a component of EDCAPS, U.S. Department of Education’s (ED’s) integrated financial processing system, managed and administered by the Department’s Office of the Chief Information Officer (OCIO), and communicates with the Common Origination and Disbursement (COD) system through the Financial Management System (FMS).

There are basically two ways of receiving FSA from the ED including the advance payment method and what is known as the heightened cash monitoring method. For various reasons, the Department of Education may place institutions on a Heightened Cash Monitoring (HCM) payment method to provide additional oversight of cash management.

There are two levels of HCM:

• 1. Heightened Cash Monitoring 1 (HCM1): After a school makes disbursements to students from institutional funds and submits disbursement records to the COD, it draws down FSA funds through G5 to cover those disbursements in the same way as a school on the Advance Payment Method.

• 2. Heightened Cash Monitoring 2 (HCM2): A school placed on HCM2 no longer receives funds under the Advance Payment Method. After a school on HCM2 makes disbursements to students from its own institutional funds, a reimbursement request must be submitted for those funds to the ED.

Discrepancies between disbursement dates

Defining the disbursement date can be confusing. Generally, according to the FSA Handbook, the disbursement date is the date funds are credited to a student account, or the date the check is made available to the borrower. The date made available typically means the date the check is given to the student, or the date the school initiates an electronic funds transfer (EFT) to a bank account designated by a student or parent borrower.

There are other regulatory deadlines and monitoring timelines connected to the date of disbursement, so it is important to clearly define and document the date of disbursement. To clarify this point, the FSA Handbook offers some examples. For instance, you must disburse an FSA credit balance to a student no later than 14 days of the date it was created or no later than 14 days after the first day of class. You must notify a student of a loan disbursement within a time frame related to the date of that disbursement. The date of disbursement also determines when the student becomes an FSA recipient and has the rights and responsibilities of an FSA recipient.

ED recommends that schools make disbursements as soon as administratively feasible but no later than three business days after receiving funds from the Department. The disbursements may be credited to the student’s account or made directly to the student or parent. Also, a disbursement made for a particular payment period must be in direct relation to the actual cost incurred by the student for that payment period.

When using school funds in place of FSA funds, there are situations where the FSA disbursement is considered to have taken place on the earliest day that the student could have received FSA funds rather than the actual disbursement date.

Discrepancies between drawdown dates

Just as there can be confusion with defining disbursement dates, defining the drawdown date can be a little tricky, as well. According to the FSA Handbook, a drawdown is a school’s request for and subsequent transmission of funds to the school through G5. A drawdown occurs when a school (or COD) initiates a request for funds through G5, and the funds are transmitted from the U.S. Department of the Treasury to the school’s bank account (also known as cash receipt). It’s important for a school to determine the amount of funds it needs before it transmits a request to G5 - amounts requested must be limited to amounts needed for immediate disbursements. Also, schools must substantiate drawdown amounts with actual disbursements. A school’s access to additional funding may be restricted if drawdowns are not substantiated in a timely manner.

In conclusion, G5 is a great system but all systems have parameters. The ED does, too; they are connected to critical timing parameters. We need to work within those parameters – in this case they are related to timing issues and discrepancies. Unfortunately, these types of deficiencies have an effect on real students, financial aid offices, business offices, and bursar’s offices. But, from an opportunistic standpoint, consider the following ideas related to enhancing your systems:

• - Increase internal controls associated with drawdown of funds.
  - Review information flow between departments and streamline, as necessary.
  - Focused training for staff involved and students.
  - Initiate self-audit/review procedures, and monitor.
  - Stay up to date on requirements specified in FSA Handbook and Dear Colleague Letters.
  - Update policies and procedures in accordance with compliance requirements.
  - Consider information available in the FSA Financial Aid Toolkit at financialaidtoolkit.ed.gov.
  - Consider assistance available in FSA Coach.

If you need assistance with your G5 expenditures reporting 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.