Draft Report

ED-OIG/A09E0015 Page 2 of 1

August 24, 2005

Control Number

ED-OIG/A09E0015

Mr. Todd S. Nelson

President and CEO

Apollo Group, Inc.

4615 East Elwood Street

Phoenix, AZ 85040

Dear Mr. Nelson:

This Final Audit Report, entitled University of Phoenix’s Processing of Student Financial Aid Disbursements for the Higher Education Act, Title IV Programs, presents the results of our audit. The purpose of the audit was to determine whether the University of Phoenix (UOP) has policies and procedures that provide reasonable assurance that the institution properly makes initial and subsequent disbursements to students enrolled in Title IV eligible programs. Our review generally covered disbursements to UOP students who received Title IV funds during the period September 1, 2002 through March 31, 2004. The Objective, Scope, and Methodology section of this report further explains the extent of audit coverage for each aspect of our review.

BACKGROUND

UOP, a wholly-owned subsidiary of the Apollo Group, Inc. (Apollo), is a private, for-profit institution of higher education offering associate, bachelor, master, and doctoral degrees and professional certificate programs. UOP has 55 campuses and 102 learning centers located in 33states, Puerto Rico, and Vancouver, British Columbia. Its educational programs are also offered worldwide via the Internet through University of Phoenix Online, a division of UOP. Apollo contracts with Affiliated Computer Services, Inc. (ACS), a third-party servicer, for the processing of financial aid for UOP’s students. UOP is accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools.

UOP uses a non-term academic calendar and measures the length of its educational programs in credit hours. Students, including students at UOP Online, generally enroll in an educational program that encompasses a series of fiveto six-week courses. Typically, the courses are taken one at a time, sequentially, over the length of the program.

Final Report

ED-OIG/A09E0015 Page 15 of 15

UOP is a participant in the U.S. Department of Education’s Distance Education Demonstration Program and participates in the Higher Education Act (HEA), Title IV Programs listed in the below table.

Title IV Funds Reported in Annual Audit Reports
Title IV Program / Students (a) / Title IV Funds
2003 / 2004 / 2003 / 2004
Federal Family Education Loan Program (FFEL) / 107,203 / 161,781 / $778,026,809 / $1,599,370,890
Federal Pell Grant Program (Pell Grant) / 27,908 / 50,939 / 60,920,063 / 142,434,388
Federal Supplemental Educational Opportunity Grant Program (FSEOG) / 3,393 / 7,381 / 1,173,602 / 2,311,921
Federal Perkins Loan Program / 225 / 255 / 629,439 / 511,349
Total Title IV Funds / $840,749,913 / $1,744,628,548
(a) Students may have received funds from more than one Title IV program.

UOP primarily uses three electronic interactive Apollo systems in processing student financial aid: the Student Record, Financial Aid, and Accounting systems.[1]

AUDIT RESULTS

Except for two areas, we concluded that UOP had policies and procedures that provide reasonable assurance that the institution properly makes initial and subsequent disbursements to students enrolled in Title IV eligible programs. We found that UOP used an automated process for checking eligibility prior to making Title IV disbursements that placed a hold on disbursements that failed the eligibility checks. We also found that the staff who reviewed disbursements that failed the eligibility checks generally made proper decisions regarding student eligibility for released disbursements. However, UOP’s policies and procedures did not ensure that 1)TitleIV disbursements were credited to student accounts for only allowable institutional charges and 2) students who received Title IV disbursements were enrolled in eligible programs.

Our conclusion on the adequacy of UOP’s policies and procedures is based on 1) our understanding of the system of internal control that existed during the audit period for making the initial and second Title IV disbursements in an academic year and 2) our evaluations and limited tests of selected data elements in Apollo’s systems that were related to determining student eligibility for the second disbursement. The projection of this evaluation of the system of internal control to future periods is subject to the risk that procedures may become inadequate because of changes in conditions, or that the degree of compliance with the procedures may deteriorate.

UOP did not concur with our finding and recommendations concerning UOP’spolicies and procedures for crediting Title IV disbursements to student accounts for institutional charges. UOP concurred with the other finding and recommendations presented in the report. The text of UOP’s comments is included as an attachment to the report.

FINDING NO. 1 – UOP Improperly Used Title IV Funds to Credit Student Accounts for PriorLearning Assessment Fees

Of the 197,230 students who received Title IV funds during the period September 1, 2002 through March 31, 2004, we identified 834 students for whom UOP had improperly used $319,338 in TitleIV funds to credit the student accounts for prior learning assessment fees.

UOP students may petition for an assessment of prior learning to meet the completion requirements for their educational program. A student may earn up to 30 prior learning credits for professional training (workshops, seminars, licenses, business and professional courses, and other institutionally-sponsored course work) and undergraduate students may earn up to 30 additional credits for verified college-level learning gained through experience (experiential learning).[2]

To initiate the assessment process, the student takes the following action—

·  Professional training. The student submits a completed Professional Training Portfolio to UOP’s Prior Learning Assessment Center (Center).

·  Experiential learning. The student enrolls in either UOP’s Experiential Learning course (GEN/110) or UOP’s Experiential Learning Essay Tutorial. The instruction provided helps students prepare the experiential course writing that will be evaluated for credit.

Then, the Center evaluates the student’s prior learning and awards academic credit, which is posted in the student’s academic transcript.

UOP’s school catalog for 2003-2004 states that the tuition for GEN/110 is based on the prevailing tuition rate for the major course work and that students will earn one credit upon successful completion of the course. The catalog contains the following information on assessment fees charged for the Center’s services—

When materials are complete, they are sent to the Prior Learning Assessment Center in Phoenix and a $90 submission fee is collected. The following evaluation and posting fees apply to credit awarded through Prior Learning Assessment—

·  $30.00 per credit for standardized evaluations, and items from the Apollo Quick ListTM.

·  $55.00 per credit for professional course work and training, and experiential learning essays.

·  Costs per credit for articulated course work and training may vary.

UOP’s fees for the evaluation and posting of credits awarded for prior learning are separate from tuition and fees related to the student’s educational program. Specifically, the catalog states—

Charges arising out of [assessment] services and the posting of credit awarded for prior learning are not included as part of the major curriculum fees and tuition.

Use of Title IV funds to pay the tuition cost for the GEN/110 course is appropriate since the course instruction was provided by UOP and the credit received for completing the course may be used to meet the minimum credits for completion of the student’s educational program. However, the materials submission fee and the fees for evaluation and posting of credit for prior learning are not institutional charges that can be paid with Title IV funds. These charges are not incurred by the student at the institution for educationally related activities delivered by the institution during the academic year or loan period. Thus, UOP should not have applied Title IV funds to student accounts for the fees.

The regulations at 34 C.F.R. § 668.164(d) state—

Crediting a student's account at the institution. (1) Without obtaining the student's or parent's authorization under Sec. 668.165, an institution may use title IV, HEA program funds to credit a student's account at the institution to satisfy current charges for--

(i) Tuition and fees;

(ii) Board, if the student contracts with the institution for board; and

(iii) Room, if the student contracts with the institution for room.

(2) After obtaining the appropriate authorization from a student or parent under Sec. 668.165, the institution may use title IV, HEA program funds to credit a student's account at the institution to satisfy--

(i) Current charges that are in addition to the charges described in paragraph (d)(1) of this section that were incurred by the student at the institution for educationally related activities;

* * * * *

(4) For purposes of this paragraph, current charges refers to charges assessed the student by the institution for--

(i) The current award year; or

(ii) The loan period for which an institution certified or originated a loan under the FFEL or Direct Loan programs.

The HEA § 472 defines the term “cost of attendance” for Title IV purposes. The definition includes the following explanation of “tuitions and fees”—

[T]uition and fees normally assessed a student carrying the same academic workload as determined by the institution . . . .

The fees for the evaluation and posting of credits awarded for prior learning are not included in the tuition and fees portion of the student’s cost of attendance. The fees are not normally assessed to students as part of their academic workload since the fees are only incurred if the student submits materials for assessment and the Center awards credits to the student. Only 834of the 197,230students in our audit universe were assessed prior learning fees, which were paid with Title IV funds. UOP acknowledged in its school catalog that the fees were not part of the tuition and fees for the student’s educational program (i.e., not included as part of the major curriculum fees and tuition). In addition, the fees were incurred by the student for the evaluation of activities that occurred at locations other than UOP and that may have taken place prior to the student’s enrollment. Thus, the fees were not charges that were incurred by the student at the institution for educationally related activities.

UOP’s written policies included prior learning assessment fees as an allowable use of TitleIV funds when the student has authorized UOP to apply financial aid funds to all open allowable charges.

If the student has authorized the University via the UOP FA Application (UOPFAA), [ACS] will apply funds as follows:

Other Open Charges – [ACS] will retain funds for other fees and charges that are discretionary educationally related expenses.

Other open charges include the following:

·  NSF fees

·  Assessment fees

·  Books, and other discretionary charges

The prior learning assessment fees paid with Title IV funds for the 834 students totaled $319,338.

Title IV Funds Credited to Student Accounts for

Prior Learning Assessment Fees

Title IV Program

/

Title IV Funds (a)

Unsubsidized FFEL

/

$196,916

Subsidized FFEL

/

72,019

Plus FFEL

/

1,400

Federal Pell Grant

/

45,653

Federal Perkins Loan

/

1,833

Supplemental Education Opportunity Grant

/

1,517

Total

/

$319,338

(a) Amounts reflect the portion of any Title IV disbursements made to students in our audit universe (i.e., students who received at least one Title IV disbursement during the period September 1, 2002 through March 31, 2004) that was shown in Apollo’s Accounting System (as of May 10, 2004) as being applied to student accounts for prior learning assessment fees.

Recommendations

We recommend that the Chief Operating Officer for Federal Student Aid require UOP to—

1.1  Revise its policy to exclude prior learning materials submission and assessment fees from the list of allowable uses for Title IV funds and place controls in the Financial Aid System to prevent the application of Title IV funds to the fees.

1.2  To the extent that UOP can locate the students for whom Title IV funds were used for PLAC, require UOP to return the $319,338 to the students. For those students UOP cannot locate, require UOP to return the funds to the Department or lenders as appropriate.

1.3  Require UOP to determine all students for whom Title IV funds were used for PLAC since the end of our audit period and require UOP to return the funds to the students it can locate. For those students UOP cannot locate, require UOP to return the funds to the Department or lenders as appropriate.

UOP Comments

UOP did not concur with the finding and recommendations. In its comments to the draft report, UOP provided additional details on its policies and procedures for PLAC and stated that the finding is contrary to Federal regulations and prior guidance published by the Department. To support its position, UOP stated—

·  Title 34 C.F.R. § 668.164(d)(2) plainly authorizes the payment of PLAC fees with Federal funds.

·  The disbursements were duly authorized because 1) UOP obtained required student or parent authorizations and 2) the PLAC fees were incurred by the student for educationally related activities.

·  The PLAC fees paid for educationally related activities. UOP stated that fees and charges for evaluating evidence of academic achievement and credit towards graduation could only be characterized as educationally related. UOP stated that the report, and the policies and procedures described in its response to the draft report, establish that the charges were incurred at UOP for activities performed by UOP personnel to advance the educational programs and objectives of enrolled students.

UOP disagreed with the report statement that the PLAC fees do not qualify as educationally related because they “were incurred by the student for the evaluation of activities that occurred at locations other than UOP and may have taken place prior to the student’s enrollment.” UOP stated that the auditors’ conclusion is incorrect because the PLAC fees paid for the process of assessing the prior learning activities and the fees do not cover the prior activities themselves.

·  The Department’s published guidance demonstrates that the auditors are incorrect in asserting that PLAC fees cannot be paid with Title IV funds. UOP cited the Secretary’s commentary that accompanied the issuance of proposed rules and final regulations on Title IV disbursements and a FSA Policy Interpretation and Guidance Bulletin on determining whether a charge is an institutional charge when calculating an institutional refund.