Office of Post Secondary Education

Off. of Postsecondary Educ., Education

§ 668.23

(ii) For a student who did not provide
notification of his of her withdrawal to
the institution, the date that the institution becomes aware that the student
ceased attendance;
(iii) For a student who does not return from an approved leave of absence, the earlier of the date of the end
of the leave of absence or the date the
student notifies the institution that he
or she will not be returning to the institution; or
(iv) For a student whose rescission is
negated under paragraph (c)(2)(i)(B) of
this section, the date the institution
becomes aware that the student did
not, or will not, complete the payment
period or period of enrollment.
(v) For a student who takes a leave of
absence that is not approved in accordance with paragraph (d) of this section,
the date that the student begins the
leave of absence.
(4) A ‘‘recipient of title IV grant or
loan assistance’’ is a student for whom
the requirements of § 668.164(g)(2) have
been met.

dures contained in the audit guides developed by and available from the Department of Education’s Office of Inspector General. A third-party servicer
is defined under § 668.2 and 34 CFR
682.200.
(4) Submission deadline. Except as provided by the Single Audit Act, Chapter
75 of title 31, United States Code, an institution must submit annually to the
Secretary its compliance audit and its
audited financial statements no later
than six months after the last day of
the institution’s fiscal year.
(5) Audit submission requirements. In
general, the Secretary considers the
compliance audit and audited financial
statement submission requirements of
this section to be satisfied by an audit
conducted in accordance with the Office of Management and Budget Circular A–133, ‘‘Audits of Institutions of
Higher Education and Other Nonprofit
Organizations’’; Office of Management
and Budget Circular A–128, ‘‘Audits of
State and Local Governments’’, or the
audit guides developed by and available
from the Department of Education’s
Inspector General, whichever is applicable to the entity, and provided that
the Federal student aid functions performed by that entity are covered in
the submission. (Both OMB circulars
are available by calling OMB’s Publication Office at (202) 395–7332, or they can
be obtained in electronic form on the
OMB
Home
Page
(http://
www.whitehouse.gov).
(b) Compliance audits for institutions.
(1) An institution’s compliance audit
must cover, on a fiscal year basis, all
title IV, HEA program transactions,
and must cover all of those transactions that have occurred since the
period covered by the institution’s last
compliance audit.
(2) The compliance audit required
under this section must be conducted
in accordance with—
(i) The general standards and the
standards for compliance audits contained in the U.S. General Accounting
Office’s (GAO’s) Government Auditing
Standards. (This publication is available from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402); and

(Approved by the Office of Management and
Budget under control number 1845–0022)
(Authority: 20 U.S.C. 1091b)
[64 FR 59038, Nov. 1, 1999]

§ 668.23 Compliance audits and audited financial statements.
(a) General. (1) Independent auditor.
For purposes of this section, the term
‘‘independent auditor’’ refers to an
independent certified public accountant or a government auditor. To conduct an audit under this section, a government auditor must meet the Government Auditing Standards qualification and independence standards, including standards related to organizational independence.
(2) Institutions. An institution that
participates in any title IV, HEA program must at least annually have an
independent auditor conduct a compliance audit of its administration of that
program and an audit of the institution’s general purpose financial statements.
(3) Third-party servicers. Except as
provided under this part or 34 CFR part
682, with regard to complying with the
provisions under this section a thirdparty servicer must follow the proce-

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§ 668.23

34 CFR Ch. VI (7–1–01 Edition)

(ii) Procedures for audits contained
in audit guides developed by, and available from, the Department of Education’s Office of Inspector General.
(3) The Secretary may require an institution to provide a copy of its compliance audit report to guaranty agencies or eligible lenders under the FFEL
programs, State agencies, the Secretary of Veterans Affairs, or nationally recognized accrediting agencies.
(c) Compliance audits for third-party
servicers. (1) A third-party servicer that
administers title IV, HEA programs for
institutions does not have to have a
compliance audit performed if—
(i) The servicer contracts with only
one institution; and
(ii) The audit of that institution’s administration of the title IV, HEA programs involves every aspect of the
servicer’s administration of that program for that institution.
(2) A third-party servicer that contracts with more than one participating institution may submit a compliance audit report that covers the
servicer’s administration of the title
IV, HEA programs for all institutions
with which the servicer contracts.
(3) A third-party servicer must submit annually to the Secretary its compliance audit no later than six months
after the last day of the servicer’s fiscal year.
(4) The Secretary may require a
third-party servicer to provide a copy
of its compliance audit report to guaranty agencies or eligible lenders under
the FFEL programs, State agencies,
the Secretary of Veterans Affairs, or
nationally recognized accrediting agencies.
(d) Audited financial statements. (1)
General. To enable the Secretary to
make a determination of financial responsibility, an institution must, to
the extent requested by the Secretary,
submit to the Secretary a set of financial statements for its latest complete
fiscal year, as well as any other documentation the Secretary deems necessary to make that determination. Financial statements submitted to the
Secretary must be prepared on an accrual basis in accordance with generally accepted accounting principles,
and audited by an independent auditor
in accordance with generally accepted

government auditing standards, and
other guidance contained in the Office
of Management and Budget Circular A–
133, ‘‘Audits of Institutions of Higher
Education and Other Nonprofit Organizations’’; Office of Management and
Budget Circular A–128, ‘‘Audits of
State and Local Governments’’; or in
audit guides developed by, and available from, the Department of Education’s Office of Inspector General ,
whichever is applicable. As part of
these financial statements, the institution must include a detailed description of related entities based on the
definition of a related entity as set
forth in the Statement of Financial Accounting Standards (SFAS) 57. The disclosure requirements under this provision extend beyond those of SFAS 57 to
include all related parties and a level
of detail that would enable to Secretary to readily identify the related
party. Such information may include,
but is not limited to, the name, location and a description of the related
entity including the nature and
amount of any transactions between
the related party and the institution,
financial or otherwise, regardless of
when they occurred.
(2) Submission of additional financial
statements. To the extent requested by
the Secretary in determining whether
an institution is financially responsible, the Secretary may also require
the submission of audited consolidated
financial statements, audited full consolidating financial statements, audited combined financial statements or
the audited financial statements of one
or more related parties that have the
ability, either individually or collectively, to significantly influence or
control the institution, as determined
by the Secretary.
(3) Audited financial statements for foreign institutions. A foreign institution
must submit—
(i) Audited financial statements prepared in accordance with the generally
accepted accounting principles of the
institution’s home country, if the institution received less than $500,000
U.S. in title IV, HEA program funds
during its most recently completed fiscal year; or
(ii) Audited financial statements
translated to meet the requirements of

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Off. of Postsecondary Educ., Education

§ 668.23

paragraph (d) of this section, if the institution received $500,000 U.S. or more
in title IV, HEA program funds during
its most recently completed fiscal
year.
(4) Disclosure of title IV HEA program
revenue. A proprietary institution must
disclose in a footnote to its financial
statement audit the percentage of its
revenues derived from the title IV,
HEA program funds that the institution received during the fiscal year
covered by that audit. The revenue percentage must be calculated in accordance with § 600.5(d).
(5) Audited financial statements for
third-party servicers. A third-party
servicer that enters into a contract
with a lender or guaranty agency to
administer any aspect of the lender’s
or guaranty agency’s programs, as provided under 34 CFR part 682, must submit annually an audited financial
statement. This financial statement
must be prepared on an accrual basis in
accordance with generally accepted accounting principles, and audited by an
independent auditor in accordance with
generally accepted government auditing standards and other guidance contained in audit guides issued by the Department of Education’s Office of Inspector General.
(e) Access to records. (1) An institution
or a third-party servicer that has a
compliance or financial statement
audit conducted under this section
must—
(i) Give the Secretary and the Inspector General access to records or other
documents necessary to review that
audit, including the right to obtain
copies of those records or documents;
and
(ii) Require an individual or firm
conducting the audit to give the Secretary and the Inspector General access to records, audit work papers, or
other documents necessary to review
that audit, including the right to obtain copies of those records, work papers, or documents.
(2) An institution must give the Secretary and the Inspector General access to records or other documents necessary
to
review
a
third-party
servicer’s compliance or financial
statement audit, including the right to

obtain copies of those records or documents.
(f) Determination of liabilities. (1)
Based on the audit finding and the institution’s or third-party servicer’s response, the Secretary determines the
amount of liability, if any, owed by the
institution or servicer and instructs
the institution or servicer as to the
manner of repayment.
(2) If the Secretary determines that a
third-party servicer owes a liability for
its administration of an institution’s
title IV, HEA programs, the servicer
must notify each institution under
whose contract the servicer owes a liability of that determination. The
servicer must also notify every institution that contracts with the servicer
for the same service that the Secretary
determined that a liability was owed.
(g) Repayments. (1) An institution or
third-party servicer that must repay
funds under the procedures in this section shall repay those funds at the direction of the Secretary within 45 days
of the date of the Secretary’s notification, unless—
(i) The institution or servicer files an
appeal under the procedures established in subpart H of this part; or
(ii) The Secretary permits a longer
repayment period.
(2) Notwithstanding paragraphs (f)
and (g)(1) of this section—
(i) If an institution or third-party
servicer has posted surety or has provided a third-party guarantee and the
Secretary questions expenditures or
compliance with applicable requirements and identifies liabilities, then
the Secretary may determine that deferring recourse to the surety or guarantee is not appropriate because—
(A) The need to provide relief to students or borrowers affected by the act
or omission giving rise to the liability
outweighs the importance of deferring
collection action until completion of
available appeal proceedings; or
(B) The terms of the surety or guarantee do not provide complete assurance that recourse to that protection
will be fully available through the
completion of available appeal proceedings; or
(ii) The Secretary may use administrative offset pursuant to 34 CFR part

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§ 668.24

34 CFR Ch. VI (7–1–01 Edition)

30 to collect the funds owed under the
procedures of this section.
(3) If, under the proceedings in subpart H, liabilities asserted in the Secretary’s notification, under paragraph
(e)(1) of this section, to the institution
or third-party servicer are upheld, the
institution or third-party servicer
must repay those funds at the direction
of the Secretary within 30 days of the
final decision under subpart H of this
part unless—
(i) The Secretary permits a longer repayment period; or
(ii) The Secretary determines that
earlier collection action is appropriate
pursuant to paragraph (g)(2) of this section.
(4) An institution is held responsible
for any liability owed by the institution’s third-party servicer for a violation incurred in servicing any aspect of
that institution’s participation in the
title IV, HEA programs and remains responsible for that amount until that
amount is repaid in full.
(Approved by the Office of Management and
Budget under control number 1840–0697)
(Authority: 20 U.S.C. 1088, 1094, 1099c, 1141,
and section 4 of Pub. L. 95–452, 92 Stat. 1101–
1109)
[61 FR 60569, Nov. 29, 1996, as amended at 62
FR 27128, May 16, 1997; 62 FR 62876, Nov. 25,
1997]

§ 668.24 Record retention and examinations.
(a) Program records. An institution
shall establish and maintain, on a current basis, any application for title IV,
HEA program funds and program
records that document—
(1) Its eligibility to participate in the
title IV, HEA programs;
(2) The eligibility of its educational
programs for title IV, HEA program
funds;
(3) Its administration of the title IV,
HEA programs in accordance with all
applicable requirements;
(4) Its financial responsibility, as
specified in this part;
(5) Information included in any application for title IV, HEA program funds;
and
(6) Its disbursement and delivery of
title IV, HEA program funds.
(b) Fiscal records. (1) An institution
shall account for the receipt and ex-

penditure of title IV, HEA program
funds in accordance with generally accepted accounting principles.
(2) An institution shall establish and
maintain on a current basis—
(i) Financial records that reflect each
HEA, title IV program transaction; and
(ii) General ledger control accounts
and related subsidiary accounts that
identify each title IV, HEA program
transaction and separate those transactions from all other institutional financial activity.
(c) Required records. (1) The records
that an institution must maintain in
order to comply with the provisions of
this section include but are not limited
to—
(i) The Student Aid Report (SAR) or
Institutional
Student
Information
Record (ISIR) used to determine eligibility for title IV, HEA program funds;
(ii) Application data submitted to the
Secretary, lender, or guaranty agency
by the institution on behalf of the student or parent;
(iii) Documentation of each student’s
or parent borrower’s eligibility for title
IV, HEA program funds;
(iv) Documentation relating to each
student’s or parent borrower’s receipt
of title IV, HEA program funds, including but not limited to documentation
of—
(A) The amount of the grant, loan, or
FWS award; its payment period; its
loan period, if appropriate; and the calculations used to determine the
amount of the grant, loan, or FWS
award;
(B) The date and amount of each disbursement or delivery of grant or loan
funds, and the date and amount of each
payment of FWS wages;
(C) The amount, date, and basis of
the institution’s calculation of any refunds or overpayments due to or on behalf of the student, or the treatment of
title IV, HEA program funds when a
student withdraws; and
(D) The payment of any overpayment
or the return of any title IV, HEA program funds to the title IV, HEA program fund, a lender, or the Secretary,
as appropriate;
(v) Documentation of and information collected at any initial or exit
loan counseling required by applicable
program regulations;

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