Reimbursement & Heightened Cash Monitoring Payment Methods

By Luke Hoey, CFAA | December 8, 2016

By Luke Hoey

Schools that have been placed on the reimbursement payment method or one of the heightened cash monitoring (HCM) payment methods should be mindful of a few recently amended regulations pertaining to cash management – which are set to take effect on July 1, 2016. The first and most notable change is that a school which receives Title IV funds under one of these payment methods will now have to show that it paid any credit balances due to students and parents in order for the Department of Education to approve their request for reimbursement. Consequently, the provision for obtaining a student or parent’s authorization to hold a credit balance is being revoked. The Department contends that because an institution is placed on reimbursement or heightened cash monitoring for material financial or compliance issues that, in their eyes, the institution has “jeopardized or compromised their fiduciary duties under the Title IV programs and should not be allowed to handle or maintain Title IV funds any longer than needed and for no purpose other than making timely disbursements to students and parents” (Federal Register/Vol. 80, No. 210, Pg. 67177). This is an unfortunate generalization for the Department to make, as we have worked with numerous schools that have the administrative capability to comply with the current credit balance regulations despite having been assigned to heightened cash monitoring.

Although these regulations will apply uniformly to all schools that are on the reimbursement or HCM payment methods, there is still a distinction between HCM1 and HCM2 in terms of the documentation that must accompany a school’s request for funds. As with the reimbursement payment method, a school that is subject to HCM2 will have to send documentation showing that it paid credit balances along with its request for reimbursement, whereas schools on HCM1 will just have to maintain this documentation internally. You should also note that these regulations apply only to Title IV credit balances, which occur whenever the amount of Title IV funds credited to a student’s account for a payment period exceeds the amount of charges associated with that payment period. So, if a student has $10,000 in charges and $12,000 in financial aid ($3,000 of which is a state grant), the extra $2,000 of financial aid would not constitute a Title IV credit balance. However, for the additional time it would take your staff to determine, student-by-student, whether a credit balance is a Title IV credit balance, depending on the volume of students at your institution, it may be more beneficial to pay all credit balances as soon as they are generated so that you may draw down federal funds as soon as possible. Consider what would be best for your institution’s cash flow: to hold non-Title IV credit balances, or to potentially draw down federal funds more quickly.

For more information on the new cash management regulations, refer to the “Program Integrity and Improvement” final rule published in the Federal Register on October 30, 2015. The Department presented this information at last year’s FSA Training Conference, and also via a webinar in early February. Recordings of those presentations are available here.

Volume 3, Issue 2
Spring 2016

Need help?

Schedule an appointment with one of our industry experts.