Higher Education
Information on Incentive Compensation Violations Substantiated by the U.S. Department of Education Gao ID: GAO-10-370R February 23, 2010In 1992, Congress banned schools participating in federal student aid programs from paying commissions, bonuses, or other incentive payments to individuals based on their success in enrolling students or securing financial aid for them. Congress instituted this incentive compensation ban to eliminate abusive recruiting practices in which schools enrolled unqualified students who then received federal student aid funds. In 2002, the U.S. Department of Education (Education) issued regulations--commonly referred to as "safe harbors"--that allowed for 12 activities or payment arrangements that schools could use without violating the ban against incentive compensation. As of January 2010, Education was reviewing these safe harbor regulations as part of a negotiated rule making process to maintain or improve federal student aid programs. The Higher Education Opportunity Act (HEOA) mandated that GAO conduct a study on Education's enforcement of the incentive compensation ban in light of the safe harbors and report on the number of violations substantiated by the Secretary of Education since 1998, the nature of these violations, and the names of the institutions involved. As agreed with Congressional offices, this report provides information on violations of the incentive compensation ban substantiated by the Secretary since 1998.
We found that between 1998 and 2009 Education substantiated incentive compensation violations at 32 schools. Of the 32 schools with substantiated violations, 17 schools were found to have violated the ban in the 5 years before final safe harbor regulations were published on November 1, 2002, and 15 schools were found to have violated the ban in the 7 years afterward. Many of the violations involved payments by schools to their staff in the form of bonuses or commissions for successfully enrolling students in the school, while a smaller number involved payments to third party contractors or noncash rewards to staff for successfully enrolling students. In addition to finding violations at 32 schools, Education entered into settlement agreements with 22 other schools. Education does not have data on the total number of school reviews and audits initiated by the Secretary and outside auditors for potential violations of the incentive compensation ban during the time period we reviewed. For this reason, it is unknown whether the total number of reviews and audits conducted each year has changed over the course of this time period and what percentage of these cases have resulted in substantiated violations.
GAO-10-370R, Higher Education: Information on Incentive Compensation Violations Substantiated by the U.S. Department of Education
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[Note: On March 12, 2010, GAO revised this product to correct
information published on pages 2, 4-6, and 10-13 related to the dates
in which Education substantiated an incentive compensation violation
at certain schools, and the number of schools with violations
confirmed before and after the publication of safe harbor regulations.]
GAO-10-370R:
United States Government Accountability Office:
Washington, DC 20548:
February 23, 2010:
The Honorable Tom Harkin:
Chairman:
The Honorable Michael B. Enzi:
Ranking Member:
Committee on Health, Education, Labor, and Pensions:
United States Senate:
The Honorable George Miller:
Chairman:
The Honorable John P. Kline:
Ranking Member:
Committee on Education and Labor:
House of Representatives:
Subject: Higher Education: Information on Incentive Compensation
Violations Substantiated by the U.S. Department of Education:
In 1992, Congress banned schools participating in federal student aid
programs from paying commissions, bonuses, or other incentive payments
to individuals based on their success in enrolling students or
securing financial aid for them.[Footnote 1] Congress instituted this
incentive compensation ban to eliminate abusive recruiting practices
in which schools enrolled unqualified students who then received
federal student aid funds. In 2002, the U.S. Department of Education
(Education) issued regulations--commonly referred to as "safe
harbors"--that allowed for 12 activities or payment arrangements that
schools could use without violating the ban against incentive
compensation. As of January 2010, Education was reviewing these safe
harbor regulations as part of a negotiated rule making process to
maintain or improve federal student aid programs.
The Higher Education Opportunity Act (HEOA) mandated that GAO conduct
a study on Education's enforcement of the incentive compensation ban
in light of the safe harbors and report on the number of violations
substantiated by the Secretary of Education since 1998, the nature of
these violations, and the names of the institutions involved.[Footnote
2] As agreed with your offices, this report provides information on
violations of the incentive compensation ban substantiated by the
Secretary since 1998. We will provide additional information on
Education's enforcement of the incentive compensation ban in a
subsequent report.
This report is based on our analysis of Education data, program
reviews, and audit reports related to the incentive compensation ban
from January 1998 through December 2009. As required by the mandate,
our analysis examines incentive compensation cases initiated and
substantiated by the Secretary of Education since 1998. For the
purposes of our report, we defined cases initiated during this time
period as program reviews begun by Education's staff or any outside
audit report received by Education for eventual resolution on or after
January 1, 1998[Footnote 3]. We defined substantiated violations during
this period as those cases in which a violation of the incentive
compensation ban was noted in an Education final determination letter
by December 10, 2009, the most recent information available at the time
of our review.[Footnote 4] We also limited our analysis to violations
found at schools located in the United States.[Footnote 5] Education
maintains a database of incentive compensation findings and gave us
data on schools within the above time period. We assessed the
reliability of those data elements needed for our study by (1)
examining the data; (2) comparing the data to available program
reviews, audit reports, and final determination letters; and (3)
interviewing Education officials. Based on this assessment, we
determined the number of schools as reported in Education's database
that had violations identified and substantiated since 1998. We
determined that the data on violations at these schools are
sufficiently reliable for the purposes of this report. In addition to
our data analysis, we reviewed relevant laws and regulations, and
conducted interviews with officials from Education, Education's Office
of the Inspector General, and various higher education associations.
While this report provides data on violations substantiated by
Education, it does not examine the penalties associated with these
violations or assess the overall impact of the safe harbor regulations
on Education's efforts to enforce the incentive compensation ban.
We conducted our work from December 2009 through February 2010, in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings.
In summary, we found that between 1998 and 2009 Education reported
substantiating incentive compensation violations at 32 schools. Of the
32 schools with substantiated violations, 18 schools were found to have
violated the ban in the 5 years before final safe harbor regulations
were published on November 1, 2002, and 14 schools were found to have
violated the ban in the 7 years afterward. Many of the violations
involved payments by schools to their staff in the form of bonuses or
commissions for successfully enrolling students in the school, while a
smaller number involved payments to third party contractors or noncash
rewards to staff for successfully enrolling students. In addition to
finding violations at 32 schools, Education entered into settlement
agreements with 22 other schools. Education does not have data on the
total number of school reviews and audits initiated by the Secretary
and outside auditors for potential violations of the incentive
compensation ban during the time period we reviewed.[Footnote 6] For
this reason, it is unknown whether the total number of reviews and
audits conducted each year has changed over the course of this time
period and what percentage of these cases have resulted in
substantiated violations.
Background:
U.S. Department of Education and the Incentive Compensation Ban:
Education is responsible for overseeing federal student aid programs
authorized under Title IV of the Higher Education Act of 1965, as
amended.[Footnote 7] In this role, it is responsible for enforcing the
statutory ban against incentive compensation which prohibits schools
that receive Title IV student aid funds from providing "...any
commission, bonus, or other incentive payment based directly or
indirectly on success in securing enrollments or financial aid to any
persons or entities engaged in any student recruiting or admission
activities or in making decisions regarding the award of student
financial assistance..."[Footnote 8] The ban applies to all schools,
including proprietary (also known as private for-profit), public, and
private nonprofit schools.
Safe Harbor Regulations:
On November 1, 2002, Education published regulations-commonly referred
to as the safe harbor regulations-that allowed for 12 activities or
payment arrangements that schools could use without violating the
statutory prohibition against incentive compensation.[Footnote 9]
These arrangements include: (1) adjustments to employee compensation
that are not based "solely" on the number of students recruited,
admitted, enrolled, or awarded financial aid; (2) compensation to
recruiters who enroll students in nontitle IV eligible programs; (3)
compensation for contracts with employers to provide training; (4)
profit-sharing bonus plans; (5) compensation based upon program
completion by students; (6) compensation for pre-enrollment activities;
(7) compensation for managerial and supervisory employees; (8) token
gifts; (9) profit distributions; (10) compensation for Internet-based
activities; (11) compensation to third parties for nonrecruitment
activities; and (12) compensation to third parties for recruitment
activities. For more detailed information on the 12 safe harbors, see
enclosure I. When Education published the regulations in November 2002,
the agency applied the safe harbors to both ongoing and new reviews and
audits.[Footnote 10]
Program Reviews and Audits:
Education department employees conduct program reviews of schools to
monitor compliance with federal laws and regulations. The reviewers
examine school records, interview institution staff and students, and
review relevant student information, among other things. Program
reviews can be conducted on-site at the institution or off-site, in
which case institutions are asked to submit copies of selected records
to officials at Education. In addition to program reviews conducted by
Education employees, independent auditors conduct annual compliance
audits of schools, and Education's Office of the Inspector General
staff conduct their own audits and provide information and referrals to
Education.[Footnote 11] Education is required to resolve program
deficiencies identified in both program reviews and audit reports and
may impose penalties on schools found in violation.[Footnote 12] As
part of the resolution process, Education generally sends a program
review or audit determination letter to the school describing the
violations found and any corrective actions the school must take to
address the finding. In addition, at any point during this process,
Education may also choose to resolve a case through a settlement
agreement, which often finalizes the case without an acknowledgment of
wrongdoing.
Between 1998 and 2009, Education Substantiated 32 Incentive
Compensation Violations, but the Total Number of Schools Examined for
Potential Violations Is Unknown:
Between 1998 and 2009, Education found that 32 schools had violated the
incentive compensation ban, but the total number of incentive
compensation reviews and audits conducted over this time period is
unknown.[Footnote 13] Prior to the implementation of safe harbor
regulations in 2002, 18 schools were found to have incentive
compensation violations over a period of 5 years. After the
implementation of safe harbor regulations, 14 schools were found to
have violations over a period of 7 years. Although our data analysis
presents information on incentive compensation violations
substantiated by Education, it does not reflect the total number of
schools for which reviews and audits were initiated by Education and
outside auditors for potential violations of the incentive compensation
ban because this data is not collected by Education. Consequently, it
is unknown whether the number of incentive compensation cases changed
over the course of the time period reviewed and what percentage of
these cases resulted in substantiated violations.
Figure 1 shows the number of schools with incentive compensation
violations substantiated by Education from 1998 through 2009. Many of
the violations involved payments by schools to their staff in the form
of bonuses or commissions for successfully enrolling students in the
school, while a smaller number involved payments to third party
contractors or noncash rewards to staff for successfully enrolling
students. For more detailed information on the nature of the
violations, as well as the names of the schools, see enclosure II.
Figure 1: Number of Schools with Incentive Compensation Violations
Substantiated and Reported by Education from 1998 through 2009:
[Refer to PDF for image: vertical bar graph]
Year: 1998;
Number of schools found in violation, Audit: 2.
Year: 1999;
Number of schools found in violation, Program review: 2;
Number of schools found in violation, Audit: 3.
Year: 2000;
Number of schools found in violation, Program review: 1;
Number of schools found in violation, Audit: 3.
Year: 2001;
Number of schools found in violation, Audit: 3.
Year: 2002;
Number of schools found in violation, Audit: 3.
November 1, 2002: Safe Harbor Regulations Published.
Year: 2003;
Number of schools found in violation, Program review: 5.
Year: 2004;
Number of schools found in violation, Program review: 3.
Year: 2005;
Number of schools found in violation, Audit: 2.
Year: 2006;
None.
Year: 2007;
Number of schools found in violation, Audit: 1.
Year: 2008;
Number of schools found in violation, Audit: 1.
Year: 2009;
Number of schools found in violation, Audit: 3.
Source: GAO analysis of Education data, program reviews, audit
reports, and final determination letters.
Notes:
[A] As required by the mandate, our analysis focuses on schools where
violations of the incentive compensation ban were identified and
substantiated by Education since 1998.
[B] Final safe harbor regulations were published on Nov. 1, 2002, and
were applied to both ongoing and new reviews and audits at that time.
The safe harbors were not applied retroactively to closed reviews and
audits that had final determinations prior to Nov. 1, 2002.
[C] Education did not find any schools in violation of the incentive
compensation ban in November or December of 2002, or in 2006.
[D] The one school that had three separate violations is listed once
under 1998 because all three violations were substantiated in that
year.
[End of figure]
Education data also provide information on the type of schools that
have violated the incentive compensation ban. From 1998 through 2009,
proprietary schools had more substantiated violations than other types
of schools. In total, 19 proprietary schools, 12 private nonprofit
schools, and 1 public school had substantiated incentive compensation
violations.[Footnote 14]
In addition to the 32 schools with substantiated violations between
1998 and 2009, 27 schools were identified by Education data, program
reviews, Office of Inspector General audits, or independent audits as
having potential violations of the incentive compensation ban during
this time period. While Education is currently reviewing a few of these
cases, in the others Education either found no incentive compensation
violations or reached settlement agreements with the schools.
As of December 2009, three schools under review had not yet received a
final decision or a determination letter from Education.[Footnote 15]
Two other schools identified as having potential violations were found
by Education to have not violated the ban.[Footnote 16] At the first
school, Education found that it was not a violation of the incentive
compensation ban for teachers to receive commissions for students
completing certain parts of the program. At the second school,
Education found that commissions paid to a third-party representative
based on the number of students submitting information cards following
an informational presentation was not a violation of the incentive
compensation ban.
Additionally, Education entered into settlement agreements with 22
schools.[Footnote 17] Many of the settlement cases involved incentive
payments made to school employees based on the number of students
enrolled. Generally, these settlements state that the agreements do not
constitute an admission or acknowledgment of noncompliance or
wrongdoing by either the institution or Education.
Agency Comments:
We provided a draft of this report to the Department of Education for
review and comment. Education did not provide formal comments on this
report, but did provide some technical comments that we incorporated,
as appropriate.
We are sending copies of this report to appropriate congressional
committees and the Secretary of Education. In addition, the report will
be available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov]. If you or your staff have any questions about
this report, please contact me at (206) 287-4820 or iritanik@gao.gov.
Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. GAO staff who
made major contributions to this report are listed in enclosure III.
Sincerely yours,
Signed by:
Katherine M. Iritani, Acting Director:
Education, Workforce, and Income Security Issues:
Enclosures - 3:
[End of section]
Enclosure I: Department of Education (Education) Safe Harbor
Regulations:
The Safe Harbor regulations, found at 34 C.F.R. § 668.14(b)(22)(ii)
provide that the activities and arrangements schools may carry out
without violating the incentive compensation ban include, but are not
limited to, the following activities and arrangements:
(1) The payment of fixed compensation, such as a fixed annual salary or
a fixed hourly wage, as long as that compensation is not adjusted up or
down more than twice during any 12-month period, and any adjustment is
not based solely on the number of students recruited, admitted,
enrolled, or awarded financial aid. For this purpose, an increase in
fixed compensation resulting from a cost of living increase that is
paid to all or substantially all full-time employees is not considered
an adjustment.
(2) Compensation to recruiters based upon their recruitment of students
who enroll only in programs that are not eligible for Title IV, HEA
program funds.
(3) Compensation to recruiters who arrange contracts between the
institution and an employer under which the employer's employees enroll
in the institution, and the employer pays, directly or by
reimbursement, 50 percent or more of the tuition and fees charged to
its employees; provided that the compensation is not based upon the
number of employees who enroll in the institution, or the revenue they
generate, and the recruiters have no contact with the employees.
(4) Compensation paid as part of a profit-sharing or bonus plan, as
long as those payments are substantially the same amount or the same
percentage of salary or wages, and made to all or substantially all of
the institution's full-time professional and administrative staff. Such
payments can be limited to all, or substantially all, of the full-time
employees at one or more organizational level at the institution,
except that an organizational level may not consist predominantly of
recruiters, admissions staff, or financial aid staff.
(5) Compensation that is based upon students successfully completing
their educational programs, or one academic year of their educational
programs, whichever is shorter. For this purpose, successful completion
of an academic year means that the student has earned at least 24
semester or trimester credit hours or 36 quarter credit hours, or has
successfully completed at least 900 clock hours of instruction at the
institution.
(6) Compensation paid to employees who perform clerical "pre-
enrollment" activities, such as answering telephone calls, referring
inquiries, or distributing institutional materials.
(7) Compensation to managerial or supervisory employees who do not
directly manage or supervise employees who are directly involved in
recruiting or admissions activities, or the awarding of Title IV, HEA
program funds.
(8) The awarding of token gifts to the institution's students or
alumni, provided that the gifts are not in the form of money, no more
than one gift is provided annually to an individual, and the cost of
the gift is not more than $100.
(9) Profit distributions are proportionately based upon an individual's
ownership interest in the institution.
(10) Compensation paid for Internet-based recruitment and admission
activities that provide information about the institution to
prospective students, refer prospective students to the institution, or
permit prospective students to apply for admission online.
(11) Payments to third parties, including tuition-sharing arrangements,
that deliver various services to the institution, provided that none of
the services involve recruiting or admission activities, or the
awarding of Title IV, HEA program funds.
(12) Payments to third parties, including tuition-sharing arrangements,
that deliver various services to the institution, even if one of the
services involves recruiting or admission activities or the awarding of
Title IV, HEA program funds, provided that the individuals performing
the recruitment or admission activities, or the awarding of Title IV,
HEA program funds, are not compensated in a manner that would be
impermissible under paragraph (b)(22) of this section. [Section (b)(22)
prohibits the payment of any commission, bonus, or other incentive
payment based directly or indirectly upon success in securing
enrollments or financial aid to any person or entity engaged in any
student recruiting or admission activities or in making decisions
regarding the awarding of Title IV, HEA program funds].
[End of section]
Enclosure II: List of Violations Substantiated and Reported by the
Department of
Education (Education):
Table 1: Violations Substantiated and Reported by Education:
Date substantiated: 10/28/1998;
School name: Euro Hair School;
Location: Corpus Christi, Tex.;
Review method: Audit;
Description of violation: The school paid its director incentive
payments.
Date substantiated: 11/18/1998;
School name: Professional Hair Design Academy[A];
Location: Greenville, S.C.;
Review method: Audit;
Description of violation: Documentation describing the specific nature
of the incentive compensation violation was not available.
Date substantiated: 1/7/1999;
School name: Huntington Institute;
Location: Norwich, Conn.;
Review method: Audit;
Description of violation: The school paid the Director of Admissions
bonuses totaling $5,799, based on potential student leads.
Date substantiated: 2/17/1999;
School name: The Hair Design School;
Location: Jacksonville, Fla.;
Review method: Audit;
Description of violation: Documentation describing the specific nature
of the incentive compensation violation was not available.
Date substantiated: 4/2/1999;
School name: Graceland College;
Location: Lamoni, Iowa;
Review method: Program review;
Description of violation: The school paid a third party contractor
commission payments equivalent to a percentage of the students'
tuition (60 percent at initial enrollment and 40 percent at re-
enrollment). The payments totaled nearly $6 million.
Date substantiated: 4/19/1999;
School name: Johnson & Wales University;
Location: Providence, R.I.;
Review method: Program review;
Description of violation: The school was paying its admissions
personnel commissions or bonuses based on their success in securing
enrollments.
Date substantiated: 9/9/1999;
School name: Culver-Stockton College;
Location: Canton, Mo.;
Review method: Audit;
Description of violation: The school awarded bonus payments totaling
$2,575 to two admissions counselors for achieving a targeted number of
enrollments.
Date substantiated: 11/8/1999;
School name: Liceo de Arte, Disenos y Comercio;
Location: Caguas, P.R.;
Review method: Audit;
Description of violation: The school paid its enrollment officers car
allowances based on their success in securing enrollments. The car
allowance amount was directly related to the number of enrollments
secured by the enrollment officer.
Date substantiated: 11/12/1999;
School name: Sunstate Academy of Hair Design[B];
Location: Sarasota, Fla.;
Review method: Audit;
Description of violation: The school paid nearly $2,000 in commission
payments related to student recruitment.
Date substantiated: 5/24/2000;
School name: Rochester College;
Location: Rochester Hills, Mich.;
Review method: Audit;
Description of violation: The school gave incentive payments to its
admissions representatives based on recruiting performance.
Date substantiated: 10/4/2000;
School name: Nielsen Electronics Institute;
Location: Charleston, S.C.;
Review method: Audit;
Description of violation: The school paid a bonus to one recruiter.
Date substantiated: 12/8/2000;
School name: Computer Learning Centers[C];
Location: Alexandria, Va.;
Review method: Program review;
Description of violation: The school assigned annual salary ranges
based on the average number of students a recruiter enrolled per month
and increased employees' salaries if they achieved a target number of
enrollments during an evaluation period.
Date substantiated: 3/23/2001;
School name: Cheryl Fell's School of Business;
Location: Niagara Falls, N.Y.;
Review method: Audit;
Description of violation: The school paid a total of $200 in referral
fees to three students for enrolling other students.
Date substantiated: 7/30/2001;
School name: Precision Technical Institute;
Location: Sacramento, Calif.;
Review method: Audit;
Description of violation: The school paid an employee $2,975, based
directly on success in securing enrollments.
Date substantiated: 8/3/2001;
School name: CC's Cosmetology College;
Location: Tulsa, Okla.;
Review method: Audit;
Description of violation: The school paid commissions to staff based
on the number of students enrolled.
Date substantiated: 1/28/2002;
School name: National Aviation Academy of Mississippi;
Location: Clearwater, Fla.;
Review method: Audit;
Description of violation: The school paid referral fees to third
parties, totaling $3,000.
Date substantiated: 9/13/2002;
School name: Averett University;
Location: Danville, Va.;
Review method: Audit;
Description of violation: The school had an arrangement to share
revenue with a third party, based on the number of students who
enrolled in a study group program.
Date substantiated: 10/22/2002;
School name: Texas Careers;
Location: San Antonio, Tex.;
Review method: Audit;
Description of violation: The Laredo campus of this school provided
payments to 128 students for the referral of other students to the
campus. The campus paid a total of $3,225 in referral bonuses over a 2-
year period.
Date substantiated: 2/13/2003;
School name: High-Tech Institute[D,E];
Location: Phoenix, Ariz.;
Review method: Program review;
Description of violation: The compensation program of High-Tech
Holdings' (the school's parent company) telemarketing department
provided bonuses to those engaged in student recruiting activities
based on success in securing enrollments.
Date substantiated: 2/13/2003;
School name: The Bryman School of Arizona[D,F];
Location: Phoenix, Ariz.;
Review method: Program review;
Description of violation: The compensation program of High-Tech
Holdings' (the school's parent company) telemarketing department
provided bonuses to those engaged in student recruiting activities
based on success in securing enrollments.
Date substantiated: 7/2/2003;
School name: Newbury College;
Location: Brookline, Mass.;
Review method: Program review;
Description of violation: Documentation describing the specific nature
of the incentive compensation violation was not available.
Date substantiated: 8/14/2003;
School name: Pittsburgh Beauty Academy;
Location: Pittsburgh, Pa.;
Review method: Program review;
Description of violation: The school awarded commission payments to
employees based on success in securing the enrollment of students who
were eligible for Title IV program funds.
Date substantiated: 8/21/2003;
School name: Ohio Valley College[G];
Location: Vienna, W.Va.;
Review method: Program review;
Description of violation: The school paid a total of $3,000 in bonuses
to admissions staff over a 2-year period for meeting or exceeding
recruitment goals.
Date substantiated: 3/19/2004;
School name: Hays Academy of Hair Design;
Location: Hays, Kans.;
Review method: Program review;
Description of violation: The school paid a total of $100 to an
employee for the recruitment of one student.
Date substantiated: 3/22/2004;
School name: California Recording Institute;
Location: San Francisco, Calif.;
Review method: Program review;
Description of violation: The school paid a total of $2,445 in bonuses
to an individual for successfully securing enrollments.
Date substantiated: 10/19/2004;
School name: Erie Institute of Technology[H];
Location: Erie, Pa.;
Review method: Program review;
Description of violation: The school had an incentive program which
provided $300 cash payments to admissions representatives if the
school reached its enrollment goal. The program also provided $100
gift certificates to individual admissions representatives for
reaching individual recruitment targets, and $25 gift certificates to
individual admissions representatives for each application they
secured above their individual recruitment target. In addition, the
school rewarded staff with social outings for achieving recruitment
goals.
Date substantiated: 3/18/2005;
School name: Concordia College;
Location: Selma, Ala.;
Review method: Audit;
Description of violation: The school paid a total of $25,263 in
incentive payments to 4 counselors for the recruitment of 95 students.
Date substantiated: 6/2/2005;
School name: Lipscomb University;
Location: Nashville, Tenn.;
Review method: Audit;
Description of violation: The school paid bonuses totaling $62,500 to
admissions staff based on team and territorial goals.
Date substantiated: 5/4/2007;
School name: Mount Olive College;
Location: Mount Olive, N.C.;
Review method: Audit;
Description of violation: The school had an employee incentive plan
worth approximately $5,000 for securing enrollments.
Date substantiated: 11/20/2008;
School name: New York Institute of Technology;
Location: Old Westbury, N.Y.;
Review method: Audit;
Description of violation: Admissions advisors at the school's online
division received compensation above and beyond their normal
compensation based on the number of students enrolled.
Date substantiated: 4/17/2009;
School name: Colegio Biblico Pentecostal de Puerto Rico[I];
Location: St. Just, Trujillo Alto, P.R.;
Review method: Audit;
Description of violation: Documentation describing the specific
nature of the incentive compensation violation was not available.
Date substantiated: 10/2/2009;
School name: Denmark Technical College;
Location: Denmark, S.C.;
Review method: Audit;
Description of violation: The school paid bonuses totaling $52,500 to
17 employees based on their recruitment of approximately 137 students.
In addition, the school paid $22,750 to 10 executive council members
and other faculty and staff who facilitated a recruitment program that
exceeded recruitment goals.
Source: GAO analysis of Education data, program reviews, audit reports,
and final determination letters:
Note: The data on incentive compensation violations come from an
Education database on schools with incentive compensation violations.
For most of the schools, Education provided additional documentation,
such as program reviews, audit reports, or final determination letters
describing both the violations and the dates they were substantiated.
For four of the schools (Colegio Biblico Pentecostal de Puerto Rico,
Euro Hair School, Lipscomb University, and Newbury College) Education
had more limited documentation and was able to provide supplemental
information describing either the violations or the substantiation
dates. In the case of two schools (Professional Hair Design Academy and
The Hair Design School), Education was not able to provide additional
documents to supplement the database information.
[A] Professional Hair Design Academy had three incentive compensation
violations found during 3 separate audit years. However, all three
violations were substantiated on Nov. 18, 1998.
[B] Sunstate Academy of Hair Design is currently Meridian Career
Institute.
[C] The following Computer Learning Center locations were cited in the
Final Program Review decision: Alexandria, Va.; Anaheim, Calif.; Cherry
Hill, N.J.; Chicago, Ill.; Garland, Tex.; Houston, Tex.; Hurst, Tex.;
Laurel, Md.; Los Angeles, Calif.; Lowell, Mass.; Madison Heights,
Mich.; Manassas, Va.; Marietta, Ga.; Paramus, N.J.; Philadelphia, Pa.
(branch campus); Philadelphia, Pa. (main campus); Pittsburgh, Pa.;
Plymouth Meeting, Pa.; San Francisco, Calif.; San Jose, Calif.;
Schaumberg, Ill.; Somerville, Mass.; and South Plainfield, N.J.
[D] High-Tech Holdings, Inc. owns and operates two schools: High-Tech
Institute (currently Anthem College) and the Bryman School. Incentive
compensation violations were identified at each of these schools
through a corporate-wide program review. However, Education issued
separate final program review determination letters and catalogued the
violations separately in their database.
[E] The following High-Tech Institute (currently Anthem College)
locations were cited in the Final Program Review decision: Phoenix,
Ariz.; Sacramento, Calif.; Brooklyn Center, Minn.; Nashville, Tenn.;
and Marietta, Ga.
[F] The following Bryman School locations were cited in the Final
Program Review decision: Phoenix, Ariz.; Aurora, Colo.; Orlando, Fla.;
Irving, Tex.; and Las Vegas, Nev.
[G] Ohio Valley College is currently Ohio Valley University.
[H] The incentive compensation program at Erie Institute of Technology
was also implemented at Toni and Guy Cosmetology and Great Lakes
Institute of Technology, both located in Erie, Pa.
[I] Colegio Biblico Pentecostal de Puerto Rico is currently Theological
University of the Caribbean.
[End of table]
[End of section]
Enclosure III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Katherine M. Iritani, (206) 287-4820 or iritanik@gao.gov.
Staff Acknowledgments:
In addition to the contact named above, the following staff members
made important contributions to this report: Melissa Emrey-Arras,
Assistant Director; Claudine Pauselli, Analyst-in-Charge; Colleen
Moffatt; and Kris Nguyen. Also, Jean McSween provided guidance on the
study's data analysis; Jessica Botsford provided legal advice; Mae
Liles assisted with report graphics; Susan Aschoff provided writing
assistance; and Ronni Schwartz and Kim Siegal verified our findings.
[End of section]
Footnotes:
[1] Schools participate in federal student aid programs under Title IV
of the Higher Education Act of 1965 (HEA), as amended. The ban on
incentive payments was added to the HEA by the Higher Education
Amendments of 1992, Pub. L. No. 102-325, § 490.
[2] Section 1124 of the Higher Education Opportunity Act, Pub. L. No.
110-315, Aug. 14, 2008.
[3] Throughout this report, we use the terms initiated and identified
interchangeably.
[4] For the purposes of this report, we refer to violations
substantiated by the Secretary as violations found or substantiated by
Education, using the words found and substantiated interchangeably.
[5] In addition to violations by U.S. schools of the incentive
compensation ban, Education data also noted two separate incentive
compensation violations at one foreign school. Foreign schools approved
by Education can administer and disburse funds for federal student aid
programs to U.S. citizens and certain noncitizens, such as permanent
residents, eligible for Federal Family Education Loans and enrolled in
a certificate or degree program at that school. Both of the violations
identified at the foreign school were substantiated by Education.
[6] For the purposes of our report, we focused on the total efforts to
monitor compliance with the incentive compensation ban. While Education
notes that approximately 5,000 audits have been conducted at schools
each year and these audits have checked for incentive compensation
violations, Education does not have data on how many program reviews
examining incentive compensation issues have been conducted each year.
As a result, data on the combined number of program reviews and audits
initiated for potential incentive compensation violations since 1998
are not available.
[7] 20 U.S.C. § 1001 et seq.
[8] 20 U.S.C. § 1094(a)(20). The ban does not apply to the recruitment
of foreign students residing in foreign countries who are not eligible
to receive federal student aid from the U.S. government.
[9] 67 Fed. Reg. 67048.
[10] Although these regulations were published with an effective date
of July 1, 2003, as required by section 482(c) of the HEA (20 U.S.C. §
1089(c)), the Secretary of Education used her authority under section
482(c)(2)(A) of the HEA (20 U.S.C. § 1089(c)(2)(A)) to allow
institutions to implement the regulations as of Nov. 1, 2002. In a memo
dated Nov. 19, 2002, Education officials stated that the safe harbor
regulations should be applied to ongoing cases. Education did not apply
the safe harbor regulations retroactively to closed audits and reviews
that had final determinations prior to Nov. 1, 2002.
[11] Institutions that receive Title IV funds must submit an annual
audit to Education. A certified independent auditor must prepare the
audit.
[12] In certain circumstances, Education may fine a school or suspend,
limit, or terminate a school's participation in Title IV programs.
[13] One of the 32 schools had three separate incentive compensation
violations. All of the other schools had one substantiated incentive
compensation violation. In addition, 4 of the 32 schools had multiple
campus locations where incentive compensation violations were also
substantiated by Education.
[14] Education data show that prior to the publication of safe harbors,
13 proprietary schools and 5 private nonprofit schools had
substantiated incentive compensation violations. After the publication
of safe harbors, 6 proprietary schools, 7 private nonprofit schools,
and 1 public school had substantiated violations.
[15] These cases without a final decision involve two private nonprofit
schools and one public school.
[16] Education did not find incentive compensation violations at two
proprietary schools. Education made these determinations in 2000 and
2007.
[17] While there were 22 schools that entered into settlement
agreements, 1 school had 2 separate settlements, bringing the total
number of settlements to 23. Of the 23 settlements, 1 took place prior
to the publication of safe harbors, and 22 took place afterward. The
settlements involved 3 proprietary schools and 19 private nonprofit
schools.
[End of section]
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