Why the New Requirements for Student Financial Assistance Cluster Compliance Audits?
Earlier this year, the Department of Education (ED) considered a proposal to require institutions of higher education to undergo annual compliance audits of the Student Financial Assistance (SFA) cluster in 2016. The proposal was not implemented for FY16 after numerous parties opposed the proposal for several reasons, including the questionable legal authority ED had to enact such a requirement. Under Single Audit Act Regulations, it is possible for an auditor to conclude that the SFA cluster qualifies as a low-risk program when certain conditions are met, and in such cases, the program would need to be audited only every three years. On August 5, 2016, however, ED issued an announcement based on its review of the Higher Education Act and Title IV that, in their interpretation, these regulations require annual submissions of an institution’s compliance audit of the administration of Title IV student aid programs. The result is the Student Financial Assistance Cluster will be required to be audited annually, regardless of whether the program could qualify as a low-risk program. ED plans to incorporate this requirement through additional guidance in the 2017 Compliance Supplement applicable to audits of fiscal years beginning after June 30, 2016.
The August 5 announcement from ED included a request that School Participation Divisions be notified if Title IV low-risk determination was made under OMB’s Uniform Guidance for FY16. This request was later further clarified by an AICPA notification through its Government Audit Quality Control Center. The AICPA notification reinforces the requirement for institutions to contact their School Participation Division when the SFA cluster will not be audited in FY16 because it is considered low-risk or is not needed to meet the percentage of coverage requirements under Uniform Guidance. School Participation Division staff will review the audit determination and risk criteria to ensure whether they are aware of anything that would cause them to disagree with the low-risk assessment for FY16. This communication with the School Participation Division is required for single audits are just starting, already underway or near completion.
The Impact on Your Institution
Until further guidance is issued, institutions may continue to provide Single Audit submissions that were prepared using the standards in place prior to Single Audit Act regulatory provisions published in the Federal Register on December 26, 2013. For additional information, please refer to the official ED announcement here.
We Can Help
The Higher Education Practice at Elliott Davis Decosimo is closely watching the movement toward requiring annual compliance audits requirements for the Student Financial Assistance Cluster and how the new guidance will impact the audit requirements for institutions. To discuss your specific questions or needs, contact your Elliott Davis Decosimo advisor or a member of our Higher Education Practice at email@example.com.