	Background

To participate in federal student aid programs, postsecondary schools  must be 1) certified by Education as eligible to participate in federal  student aid programs, 2) accredited by a recognized accrediting agency—  generally nongovernmental, nonprofit entities—and 3) authorized by the  state in which the school is physically located. The OIG is required to assess  the quality of school compliance audits and selects a sample to review  each year. General Certification Process

When a school first applies to be certified to administer federal student  aid, FSA will either approve the school for provisional certification— generally for 1 year—or deny certification (see fig. According to FSA procedures, FSA uses provisional certification for initial,  or first time, applicants, as well as schools that are applying for  recertification. Education Evaluates a Variety of Information during the Certification Process and Approves Most Schools Education Reviews Information from Multiple Sources to Assess a School’s Capability to Administer Federal Student Aid

Education’s FSA regional staff draw information from a variety of sources  during the certification process to assess a school’s capability to  administer federal student aid. If FSA regional staff find that  a school is having difficulties administering federal student aid, FSA  procedures direct regional staff to assist schools by providing  clarification and guidance on federal student aid policies,  recommending additional training for school officials, and helping  schools develop a plan to track and report on their corrective actions,  among other things. Generally, compliance audits are  required to be conducted annually by an independent auditor, and  submitted with the school’s audited financial statements. Most Schools Are Provisionally or Fully Certified to Receive Federal Student Aid

From calendar years 2006 through 2017, FSA approved most schools  applying for certification to receive federal student aid, according to  Education data. For more information on 2006-2017 school  certification outcomes by year, see appendix I.
FSA regional staff responsible for reviewing school applications told us  that schools are denied initial certification for issues such as a lack of  accreditation, not offering eligible programs for federal student aid, or not  meeting other statutory eligibility requirements. Education data also show that most schools remain in provisional status  the first time they are recertified—62 percent from 2006 to 2017. Compliance Audits Are Key to Certification Process and Education Has Taken Steps to Address Audit Quality

We found that FSA generally relies on compliance audits as the only  annual on-site review to determine how schools applying for  recertification administer federal student aid. The  OIG has found quality problems in some of the compliance audits it  selects—based on auditor and school risk factors—for its annual quality  control reviews. Because the OIG selects higher risk audits to review, its  reviews are more likely to detect problems, and OIG officials said they  cannot make any conclusions about the overall prevalence of quality  problems in compliance audits. However, our analysis of OIG quality  review data found that of the 739 compliance audits reviewed by the OIG  from fiscal years 2006 through 2017, the OIG passed 23 percent (173)  and failed 59 percent (436). FSA and the OIG recently have taken steps to address audit quality and  the information available to FSA staff when making certification decisions. The 2016 revisions first  applied to audits for fiscal years beginning after June 30, 2016, and  FSA began receiving those audits at the end of 2017. FSA and OIG efforts to address audit quality could help ensure that  compliance audits provide accurate and reliable information on school  administrative capability for Education’s recertification decisions. Education’s Office of Inspector General provided technical comments,  which we considered and incorporated as appropriate. Education did not  provide other comments on the report.
Why GAO Did This Study

Education provided over $122 billion in grants, loans and work study funds to help students pay for college at about 6,000 schools in fiscal year 2017. Education is responsible for certifying that these schools are eligible for and capable of properly administering federal student aid funds. Schools are required to submit an annual compliance audit that provides information on schools' administrative capability, which Education considers in its school certification decisions. GAO was asked to review Education's process for certifying schools to receive federal student aid.
This report examines (1) how Education certifies schools to administer federal student aid and how frequently schools are approved and denied certification; and (2) the role of compliance audits in the certification process and what, if any, steps Education has taken to address the quality of the audit information. GAO analyzed data on school certification outcomes for calendar years 2006-2017 (when GAO determined data were most reliable); reviewed data and reports summarizing Education's reviews of compliance audit quality for fiscal years 2006-2017; reviewed a non-generalizable sample of 21 school certification decisions from fiscal years 2015 and 2016, selected for a mix of decisions, school characteristics, and geographic regions; examined relevant federal laws, regulations, policy manuals and guidance; and interviewed Education officials.

What GAO Found

The Department of Education (Education) is responsible for evaluating a variety of information to determine whether a postsecondary school should be certified to administer federal student aid programs, and agency data show that it approves most schools that apply. Education procedures instruct regional office staff to review school policies, financial statements, and compliance audits prepared by independent auditors, among other things. Education can certify schools to participate in federal student aid programs for up to 6 years, or it can provisionally certify them for less time if it determines that increased oversight is needed—for example, when a school applies for certification for the first time or when it has met some but not all requirements to be fully certified. In calendar years 2006 through 2017, Education fully or provisionally approved most schools applying for initial or recertification to receive federal student aid (see figure).
Note: Schools applying for certification for the first time and approved are placed in provisional certification.
In deciding whether to certify schools, Education particularly relies on compliance audits for direct information about how well schools are administering federal student aid, and Education's offices of Federal Student Aid and Inspector General have taken steps to address audit quality. The Inspector General annually selects a sample of compliance audits for quality reviews based on risk factors, such as auditors previously cited for errors. In fiscal years 2006 through 2017, 59 percent of the 739 selected audits received failing scores. Audits that fail must be corrected; if not, the school generally must repay federal student aid covered by the audit. Because higher risk audits are selected for review, Inspector General officials said they cannot assess the overall prevalence of quality problems in compliance audits. These two Education offices have taken steps to improve audit quality. For example, the Inspector General offered additional training to auditors on its revised 2016 audit guide and provided guidance to schools on hiring an auditor, while Federal Student Aid created a working group to strengthen its procedures for addressing poor quality compliance audits. Education's efforts to address audit quality could help ensure that these audits provide reliable information for school certification decisions.

What GAO Recommends

GAO is not making recommendations in this report.