Title IV Audit Guide Update and Its Impact on your Audit

Earlier this year, the Department of Education and the Office of Inspector General (OIG) published its new Title IV Audit Guide, Guide for Financial Statement Audits of Proprietary Schools and For Compliance Attestation Examination Engagements of Proprietary Schools and Third-Party Servicers Administering Title IV Programs (Guide). 

The last time the OIG published a new Guide was back in 2016, and the time before that was in 2000. With a shorter turnaround this time, there aren’t as many significant changes; however, the implemented updates will have an impact on audits effective for fiscal years beginning on or after January 1, 2023. Listed below are some of the changes implemented in the new Guide to be aware of:

• The compliance engagement has been changed from an audit to an examination-level attestation engagement. This means testing performed by auditors will now fall under the examination level and not the audit level of assurance. The testing will remain similar on your end, but you’ll notice a change in terminology used.
• Descriptions of general requirements contained in auditing or attestation standards were removed, though auditors are still required to comply with all applicable requirements.
• Clarification was added as to when the Guide can be used as a “safe harbor” and auditors’ responsibility for ensuring that the requirements subject to an audit are current and the attestation procedures are sufficient.
• The example 90/10 Revenue Percentage footnote was established as the required format, and more detail was added to the 90/10 footnote testing. Per section 487(a) of the Higher Education Act (HEA), proprietary schools must derive no less than 10% of their revenue from sources other than federal education assistance funds that are disbursed to or on behalf of a student to attend the school. The statutory change requires that schools count all federal education assistance funds as federal revenue in its 90/10 calculation. The final regulations also amend which non-federal funds can be counted when determining compliance with the 90/10 rule to align more closely with statutory intent. Click here to view our 90/10 webinar recording to learn more.
• A requirement to test the Financial Responsibility Supplemental Schedule was added, which includes the required in-relation-to reporting in the illustrative reports.
• Clarification was added on which students make up the total population of an institution. This allowed for sampling of universities of 25 or fewer students and added requirements to include students with certain attributes in the samples. For reference, in the 2016 Guide, if there were less than 25 students in either the attending/graduating and drop populations, all files had to be audited. The updated sampling methodology caps universities of 25 or less at 10 students.
• The minimum sampling requirements for third-party servicer engagements were expanded.
• The requirement for auditors to observe Financial Aid Administrators accessing and/or printing National Student Loan Data System and Common Origination and Disbursement system records was eliminated.
• Testing related to a school’s participation under the Zone Alternative was moved to its own compliance requirement, separate from Institutional Eligibility. Zone Alternative was a requirement under the Institutional Eligibility attribute and, although it is now a separate attribute, there is no new testing required.
• Compliance examination objectives and procedures were aligned, revised for clarity, added to address new compliance requirements, and removed for compliance requirements that no longer apply or may not have had a direct and material effect on the program.
• Footnotes on COVID-19 flexibility and waivers were added where testing is impacted.
• Illustrative reports for proprietary school engagements were updated, and illustrative reports for third-party servicer engagements were added.
• The information to be included in the School Information Sheet (previously referred to as the Auditor Information Sheet) and the Servicer Information Sheet was updated.
• The requirement for a Servicer Information Sheet in school report packages was removed.
• The requirements of the prior findings schedule were changed, so that it is now the responsibility of the auditee, rather than the auditor. The auditee (the school) now must prepare a Summary Schedule of Prior Findings to submit with every report to the Department of Education. In the schedule, the school should report the status of all findings in audits, examination engagements, and program reviews, as well as any findings reported in the prior year as unresolved.
• The required elements of a third-party servicer report package were clarified.