Quality in Student Financial Aid Programs A New Approach (1993) / Chapter Skim
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F Alternative Approaches to Audit and Program Review for Student Financial Aid Programs
F Alternative Approaches to Audit and Program Review for Student Financial Aid Programs
Pages 225-242
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From page 225... ...
Control of the student financial aid programs at these types of institutions also involves audits, but such audits are beyond the scope of this paper.
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From page 226... ...
INDEPENDENT AUDITS In addition to being subject to program review, the Higher Education Act of 1965, as amended by P.L. 99-498, required educational institutions participating in student financial aid programs to have an independent audit at least every two years.2 The purpose of the independent audits is to help program managers in the Department of Education meet their stewardship responsibilities.
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From page 227... ...
. Using the second method the auditor renders an opinion only on the Modified Statement of Cash Receipts and Disbursements for student financial aid programs.
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. With few exceptions the audits are required annually.7 The objectives of the single audit are the same as those set out in the Higher Education Act for independent audits of student financial aid programs.
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The department also had general oversight responsibility for 1,758 of the A-128 audits.9 Other federal agencies had cognizance or general oversight responsibility for 727 of the audits.l° To illustrate the variation in coverage of student financial aid programs in A-128 audits, coverage of public institutions in the A-128 audit of the state of Texas is presented in a subsequent section of this report. Approach Three A-133 In 1990 the Office of Management and Budget issued Circular A-133 to implement the single audit concept for nonprofit organizations, particularly institutions of higher education (Office of Management and Budget, 1990a)
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Guidance for audit procedures under this approach is provided in the Compliance Supplement for Single Audits of Educational Institutions and Other Nonprofit Organizations (Office of Management and Budget, 19911. Procedures for determining whether the institution meets the objectives of reliable financial information and adequacy of internal controls are similar to those in the "audit guide" and A-128 approaches because integrative approaches are most likely taken for these parts of the audit under those approaches.l2 The greatest difference is in the compliance portion of the audit, where compliance is considered across individual programs with respect to (1)
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Inherent risk is the likelihood that the financial statement innately will contain a material error, assuming there are no related internal control structure policies or procedures. Control risk is the likelihood that the internal control structure policies and procedures would not prevent or detect a material error.
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Unlike reliability of financial information, the ultimate goal of the compliance portion of the independent audit is not the verification of the implied assertion that the student financial aid program is in compliance or that the noncompliance rate is less than "x" percent, but actual minimizing of noncompliance. Certainly an annual, or biannual, audit can influence the extent of compliance through the effect the expectation of an audit has on auditees.
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The objectives of the audit are an opinion on the statewide financial statements and statewide schedule of federal financial assistance, a report on internal controls, and an opinion on compliance with specific requirements applicable to each major federal financial assistance program. In terms of the compliance objectives, 43 major federal programs must be audited; 2 student financial aid programs (Guaranteed Student Loans and Pell Grant programs)
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This represents a departure from the "safe harbor" approach suggested by Compliance Supplement for Single Audits of State and Local Governments (Office of Management and Budget, 1990b) ; it follows instead the risk approach suggested in SAS 68 (paragraphs 6373~.~7 The model used to make this determination consists of two main components: (1)
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They then modify the recommended sample size given by the model for the respective locations by the location's proportional share of total program expenditures. Other Title IV programs, such as the Perkins loan and Supplemental Educational Opportunity Grants programs, are treated in the Texas single audit as nonmajor programs.
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. If, for example, the state of Texas elected to exclude its institutions of higher education from the statewide audit and cover them under the A133 or audit-guide approach, significant additional audit resources would be required because of the change in what constitutes a major program and the loss of economies of scale in moving from verifying a single set of assertions about one large population to verifying multiple assertion sets.20 For example, under an A-133 audit, all student financial aid programs at each location would be covered, because under this approach the individual programs are combined and covered as a whole.
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revealed that they regard the student financial aid programs as very high risk in their own audit plans and intend to devote considerable resources to auditing compliance despite the coverage in the statewide audit. Further, even though the Texas single audit incorporated a risk-based approach, it did so only within location.
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The position paper goes on to note that while major programs are given thorough and consistent audit coverage, nonmajor programs are not. In fact, there is no assurance that they will be given any audit coverage.
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This type of approach is already in use at some institutions with student financial aid programs. Under the "sample certification" requirement in the Department of Education's Institutional Quality Control Pilot Project, a "third party," such as an institutional auditor external to the financial aid office, certifies that the sample has been drawn according to procedure (U.S.
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From page 240... ...
The goal of such risk models is to provide an assessment of the risk at each audit location (i.e., program administrative unity. For example, in applying this to student financial aid programs, the risk of noncompliance of each program at each administrative site would be assessed using a model such as the one developed for the Texas single audit.23 Audit resources are then assigned to locations with the highest risk.
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From page 241... ...
New York: American Institute of Certified Public Accountants. 1992b Compliance and Internal Control Reporting for Student Financial Assistance Programs Using Service Organizations.
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From page 242... ...
U.S. Department of Education 1990 Audit Guide: Audits of Student Financial Assistance Programs.
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