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Business Officer Magazine
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Capitol Report

Coverage of legislation and regulatory activity that affects higher education

ED Proposed Rules Will Have Broad Impact

The Department of Education issued proposed regulations on June 18 addressing a wide variety of student financial aid rules related to “program integrity.” Unlike most ED rulemakings in recent years, these changes are not driven by new legislation but by the department’s observations and concerns about current regulations in practice.

A few of the proposals—the definition of “gainful employment” and the prohibition on incentive compensation, for instance—are controversial and have received considerable attention in the press. While these areas are primarily seen as affecting the for-profit sector, nonprofit and public institutions of higher education are generally held to the same standards and may feel the impact as well.

Three of the issues are of particular interest to the business office.

  • Timely disbursement of Title IV aid. ED is concerned that institutions delay aid disbursements too far into the payment period, making it difficult for students to pay for necessities such as books and supplies.
  • Return of Title IV funds (R2T4) for modular programs. ED’s proposed solution to perceived abuses in application of the R2T4 rules—in instances when students withdraw from term-based programs with modules—may affect all programs and require R2T4 calculations for more students.
  • Definition of “required to take attendance” for R2T4. A potential broadening of the rules, requiring institutions to use partial attendance records in determining for R2T4 calculations a student’s last day of attendance, could complicate the process for a number of institutions.

NACUBO participated last winter on a formal negotiated rulemaking committee that considered the package of changes, but the group failed to reach agreement on 5 of the 14 issues under discussion. Because of the long delay in publishing the proposed rule, the comment period is short (45 days). NACUBO members are urged to check the NACUBO Web site for updates on the rulemaking, share any concerns with NACUBO, and submit comments to ED by August 2.

NACUBO CONTACT Anne Gross, vice president, regulatory affairs, 202.861.2544

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IRS Releases Interim Report on Compliance Project

An interim report issued by the Internal Revenue Service presents initial data from IRS questionnaires that went out to 400 colleges and universities in October 2008. The IRS has followed up with audits at more than 30 of those institutions. The report summarizes data collected from institutions on unrelated business income, endowment management and investment activities, executive compensation, and governance.

The IRS divided responding institutions into three broad categories based on size: small, with 5,000 or fewer full-time 
equivalent (FTE) students; medium, with 5,001 to 14,999 FTEs; and large, with 15,000 or more FTEs. For many questions, the report further distinguishes between private and public institutions.

Key findings in the summary of data include:

  • Less than half (48 percent) of small colleges and universities reported that they had never filed a Form 990-T, compared with 29 percent for medium and 4 percent for large institutions.
  • Generally, the percentage of colleges and universities that indicated engaging in an activity was much higher than the percentage of organizations that reported including that activity on their Form 990-T. 
  • For endowments, the average and median target spending rates reported by each size category was consistent—ranging from 4.7 percent to 5.0 percent. 
  • The majority of colleges and universities reported that their endowment funds included foreign investments. 
  • More than 80 percent of institutions reported having conflict-of-interest policies covering members of the governing body and executive management. 
  • Many organizations also reported conflict-of-interest policies for full-time faculty (ranging from 58 percent to 100 percent). 
  • More than half of the private institutions reported using a procedure to satisfy the rebuttable presumption process for at least one of the six highest-paid officials. 
  • At large institutions, the highest-paid employee other than an officer, director, trustee, or key employee was most often an athletics coach. 
  • Seventy-six percent of small colleges and universities reported making their audited financial statements available to the public, while 91 percent of medium institutions and nearly all (97 percent) of the large college and universities reported doing so.

The report summarized the responses for most of the questions, and noted areas of further analysis and inquiry. Those areas include matching up information reported on the questionnaire with other filings by the institution, such as the Form 990-T. The final report, unlikely to be published this year, will include further analysis as well as information gleaned from the college and university audits conducted as part of the project.

RESOURCE LINK Access the IRS Interim Report.
NACUBO CONTACT Mary M. Bachinger, director, tax policy, 202.861.2581

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