by Callie Clark
Revisions in the new Audit Guide for proprietary schools and Title IV third party services that was released on September 27, 2016 are officially in effect (effective for fiscal years beginning after June 30, 2016). One audit area that may potentially impact an institution is the audit requirements for Bonuses, Commissions, and Other Incentive Payments. As stated in the audit guide, “a school agrees in its Program Participation Agreement that it will not provide any commission, bonus, or other incentive payment based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid, to any person or entity who is engaged in any student recruitment or admission activity, or in making decisions regarding the award of Title IV, HEA program funds.”
Historically, we have identified the financial aid and admissions employees and then performed audit procedures to verify that a sample of these individuals had not received a bonus, commission, or other incentive payments based on the success in securing enrollment or the award of financial aid. These audit procedures included reviewing payroll records, inquiring as to bonus plans, and employee interviews. The requirements under the new audit guide expands this scope to also include “entities that the school relies on 1) to recruit, admit, and/or enroll its students, or 2) to award Title IV funds. Where a school has contracted for recruiting, admissions, enrollment, and/or the award of Title IV funds, the auditor should perform the required audit procedures at the contractor.” Thus, our audit procedures are extended to the third-party contractors of the institution, if applicable.
To prepare for your upcoming audit, if you contract with an outside entity to provide recruiting services and / or the awarding of Title IV funds, we recommend the following steps.
- Ensure that you have a good understanding of the contract/agreement between your institution and the third-party contractor. We will request copies of these contracts/agreements as part of our audit, so please have them available, and if possible, provide them in advance so that we can determine if, based on the agreement, audit procedures will need to be conducted at the third-party contractor.
- If it is determined that audit procedures need to be performed at the third-party contractor based on the services that they provide to your institution, please obtain a contact person and notify the third-party contractor to indicate that we may be contacting them.
If we are unable to obtain access to the records and employees of the third-party contractor to perform the required audit steps, the audit guide states that “the auditor should report a scope limitation and that the auditor could not determine whether the institution was in compliance with the ban on incentive compensation due to the scope limitation.”
Communication with your auditor in advance of the audit will help in determining what audit procedures will be required based on the type of agreement that your institution has with the third-party contractor (recruiter, lead generator, Title IV servicer, etc.), and that if, based on your agreement, the auditor will have to perform audit procedures related to the third-party contractor.