DHE did not effectively manage the financial operations of the Foster Child Grant Program, Foster Child Tuition Waiver and Fee Assistance Program, and NIL Program. The specific problems were as follows:
- DHE did not routinely reconcile the financial information in its records for the Foster Child Grant Program, Foster Child Tuition Waiver and Fee Assistance Program, and NIL Program to the information in the Massachusetts Management Accounting and Reporting System (MMARS), the official accounting records of the Office of the State Comptroller (OSC). Without a timely, adequate, and effective reconciliation process, there is inadequate assurance that the grant and scholarship balances reported in MMARS are accurate.
- Although the NIL Program is for student-loan activity only, DHE incorrectly charged $3,028,536 of transactions associated with other state scholarships and grants to the NIL Program for fiscal years 2013 through 2016. It overcharged $2,429,433 in fiscal year 2013, $276,691 in fiscal year 2014, and $969,088 in fiscal year 2015. In fiscal year 2016, it did not charge $646,676 of transactions that should have been charged to the NIL Program.
- DHE exceeded the $775,000 annual limit on administration fees that can be allocated to the NIL Program. Specifically, it charged an additional $1,524,825 to the NIL Trust Fund for fiscal years 2013 through 2016 as follows: $288,830 in fiscal year 2013, $303,951 in fiscal year 2014, $726,278 in fiscal year 2015, and $205,766 in fiscal year 2016.
- MASSAid is the information system used by the Office of Student Financial Assistance (OSFA) to administer all 35 state-funded financial aid programs and the NIL Program. DHE charged the full annual cost of the MASSAid system to the NIL Trust Fund as follows: $450,475 in fiscal year 2013, $440,818 in fiscal year 2014, $414,000 in fiscal year 2015, and $395,219 in fiscal year 2016. This money should have been allocated among all programs.
According to OSC’s Internal Control Guide (dated June 2015), all state agencies need to have detective and monitoring controls. These controls include, but are not limited to, regular management and supervisory reviews and reconciliations of accounts to MMARS.
Section 9 of Chapter 15A of the Massachusetts General Laws requires that money received in repayment in DHE’s NIL Program be retained in the fund to provide future NILs and administer the program without further appropriations, “provided, however, that not more than $775,000 of the monies shall be expended annually for the administration of the program.”
Reasons for Noncompliance
DHE has not established any policies or procedures that require its staff members to perform periodic reconciliations of its accounting records to MMARS. Further, DHE has not established any monitoring controls to ensure that financial transactions in these programs are accurately recorded and compliant with established rules and regulations.
DHE management told us that they believe that some of these problems were the result of the staff turnover that occurred in the department during the audit period. OSFA uses a customized software solution (MASSAid) for eligibility determinations and disbursements to student recipients at public and private higher-education institutions throughout the Commonwealth. DHE’s Department of Administration and Finance uses MMARS to process expenditures and cash receipts. DHE informed us that MASSAid does not have an interface with MMARS, so reconciling awards to expenditures and refunds requires significant manual processing.
DHE’s management also informed us that the additional administrative costs of MASSAid were the primary reason for the NIL Trust Fund overrun. Specifically, the overrun was primarily attributed to the fact that information technology (IT) support costs had been shifted from DHE to a central IT department under the Executive Office of Education (EOE) in an effort to consolidate IT management and support functions across the executive branch.
- DHE should develop a formal fund balance reconciliation process comprising DHE’s MASSAid system and MMARS to ensure the accuracy of the fund balances. This would include developing and implementing monitoring controls to ensure compliance with the requirements of OSC and the General Laws.
- DHE should make the necessary correcting adjustments to properly reclassify the MASSAid system costs to DHE’s department budget or transfer the costs to EOE’s IT budget.
The Department substantially agrees with this finding; however, the Department has taken several corrective actions both prior to and after the initiation of the audit by instituting detective and preventive controls to mitigate identified risks in connection with the fiscal activities that support the administration of student financial aid programs.
Specifically, in December 2017 the Department promulgated a fiscal reconciliation policy, along with implementation procedures, that now governs the end-to-end workflow of the administration of student financial aid payments and refunds. The scope of the policy includes: the process for establishing and approving annual budget allocations for each respective financial aid program; outlining the interim steps to maintain proper accounting of program balances and projected expenses and refunds; and the reconciliation of accounts at the end of each accounting period. The Department also established a lockbox to facilitate the processing of refunds, ensuring greater accuracy and timeliness of revenue transactions, and segregating key fiscal duties. These changes are incorporated by reference in the Department’s revised and updated Internal Control Plan, which also includes monitoring controls.
In early 2017, the Department conducted an internal assessment of its financial aid software contract (MASSAid) and determined that both the software and the Department’s internal business processes in managing financial aid and interfacing with the public warranted review to help identify ways to achieve cost efficiencies, improve administration and enhance service delivery. In December 2017 the Department engaged the services of an outside consulting firm to conduct a comprehensive business process review (BPR) of its financial aid delivery system. The purpose of the BPR was to assess and improve the operational effectiveness of student financial aid administration, including the fiscal activities that support this important function. The BPR has resulted in both process improvements and a collaborative effort with the Executive Office of Education Information Technology unit and the Office of the Comptroller to institute a batch processing protocol that will facilitate system-to-system transaction processing, reducing processing times and minimizing the risk of human error.
Prior to the initiation of the audit—and as early as January and February of 2016—the Department also took several specific corrective actions to address the noted discrepancies involving scholarship charges to the No-Interest Loan account. In 2016, newly hired fiscal staff became aware of certain accounting transactions that required expenditure corrections to align funding sources with the appropriate and corresponding cost objectives. These transactions were limited by the availability of funding in FY2016 since the prior fiscal years were closed out and retroactive adjustments were only permissible for certain transactions. Since then, there have been no such discrepancies at the close of the fiscal year, which is due to newly instituted procedures to conduct monthly account reconciliations.
It bears noting that these expenditures accrued to the benefit of students, and that no student was denied financial aid as a result of accounting errors. While the Department acknowledges its responsibility in the misclassification of certain transactions, these charges represent less than 0.7% of the total financial aid administered over that timeframe.
Finally, in response to the audit finding regarding excess administrative expenditures from the NIL account to support the costs of the MASSAid software system, the Department is pleased to report that the Governor’s Fiscal 2019 Budget Recommendation, filed in January 2018, included funding to cover the cost of the Department’s state financial aid software system within the budget of the Executive Office of Education’s Information Technology line item. The proposed shift in funding is codified in both the House and Senate versions of the budget. This funding will help ensure that NIL spending remains within statutory limits and that program administration costs are reclassified and allocated proportionately.
As noted above, DHE exceeded the legislatively mandated annual limit of $775,000 on administration fees that it could allocate to the NIL Program, charging an additional $1,524,825 to the NIL Trust Fund for fiscal years 2013 through 2016. Further, DHE incorrectly charged $3,028,536 of transactions associated with other state scholarships and grants to the NIL Program for fiscal years 2013 through 2016. Finally, DHE inappropriately charged the full annual cost of the MASSAid system to the NIL Trust Fund. Although these funds may have been spent on items that benefited all students, the money in the trust fund was intended to benefit a specific group of students in need of financial aid, and DHE should make sure that it is used for this purpose.
Based on its response, DHE has taken measures to address our concern in this area.
|Date published:||August 29, 2018|