The U.S. Department of Education’s Office of Inspector released a new guide for independent auditors evaluating Title IV Federal Student Aid compliance by proprietary (for-profit) colleges and universities. The guide places several audit categories under standards more akin to the Federal Student Aid program review process than to traditional independent audits. Could non-profits be next?

Institutions of higher education must hire independent auditors to review certain aspects of their aid programs every year. Under pressure to scrutinize proprietary institutions given recent closures of—and misconduct allegations against—some proprietary schools, the Department appears to be turning to independent audits to fill the spaces between limited Department resources for reviewing Federal Student Aid compliance through its own audits and program reviews.

The new guide, the first in more than 15 years, asks for heightened verification of Federal Student Aid compliance. It calls for “a compliance audit of proprietary schools, not an examination-level attestation engagement relative to the school’s management’s assertions about compliance,” and makes additional procedures mandatory, as stated in a Dear Colleague Letter on the new guide. The guide also provides enhanced rules on evaluating third-party entities that assist institutions with financial aid functions. (Third-party entities have been the subject of other additional guidance from the Department in recent weeks.)

What this means to you

Proprietary institutions should ensure that their auditors are applying the new independent audit rules using personnel qualified to perform a deeper Title IV compliance analysis. Both proprietary and non-profit institutions should consider taking this opportunity to cross-check their Federal Student Aid compliance to cut-off issues that could lead to audit complications down the road.