ED Announces Final Rules for Title IV Funds at Foreign Institutions
November 3, 2010
For foreign institutions receiving Title IV funds, very little has changed between the proposed rules that the Department of Education (ED) released in July and the final rules released November 1. Now, the maximum amount of Title IV funds that non-profit institutions may receive annually without having to submit annual U.S. generally accepted accounting principles (GAAP) financial statements is $10,000,000. This is an increase from the proposed $5,000.000.
There are still four thresholds, though, that determine what types of financial statements foreign institutions need to submit to ED, and how often they need to do so. These thresholds are based on the amount of Title IV funds an institution receives annually.
- Less than $500,000: Submissions are waived, unless the institution is still in its initial Title IV provisional period. If the institution is within the provisional period, it is required to submit audited financial statements using accepted accounting principles of the institution's home country.
- $500,000-$3,000,000: These institutions are allowed to submit audited financial statements using accepted accounting principles of the home country in lieu of financial statements prepared using U.S. GAAP.
- $3,000,000-$10,000,000: Institutions that receive between three and five million dollars in Title IV funds are required to submit audited financial statements once every three years using accepted accounting principles of the home country and U.S. GAAP. For the remaining two years in the period, the institution can submit audited financial statements using the home country's accepted accounting principles.
- More than $10,000,000 (or any for-profit institution): These institutions are required to submit, yearly, audited financial statements using U.S. GAAP and accepted accounting principles of the institution's home country.
For compliance audits, the rules divide institutions into two groups, those receiving less than $500,000 and those receiving more than $500,000 in Title IV funds.
Institutions receiving less than $500,000 are required to submit compliance audits under an alternative compliance audit protocol performed in accordance with the audit guide from ED's Office of Inspector General. An alternative compliance audit is "not required to express an opinion of the reliability of the institution's assertions concerning the institution's compliance with the requirements." The alternative audit is performed "as an agreed-upon procedures attestation engagement," whereas the standard audit is performed as an examination-level engagement. Submissions are required annually, although in certain circumstances an institution could submit a compliance audit annually for two years, and then, if permitted by ED, could subsequently submit a cumulative three-year audit. Institutions that wish to submit cumulative, three-year compliance audits will have to, according to the regulations, "be fully certified, have timely submitted and had accepted compliance audits for two consecutive fiscal years, and have no history of late submissions since then."
Institutions receiving $500,000 or more in Title IV funds are required to submit annual compliance audits using the standard audit procedures for foreign institutions, as exists under current rules. An institution filing a standard compliance audit for the first time as a result of receiving more than $500,000 in Title IV funds must also submit any alternative audits for preceding years that were prepared under the rules for institutions receiving less than $500,000.
The regulations expect foreign public institutions to meet the financial responsibility requirements in a manner similar to domestic public institutions. An institution will be considered financially responsible if it:
- notifies ED that it is designated as a public institution by the country, and
- provides documentation from an official of that country or government entity confirming that the institution is a public institution and is backed by the full faith and credit of the country or other government entity.
If the institution does not meet the new requirements, it will have to demonstrate financial responsibility under the general requirements of financial responsibility, including the application of the equity ratio, primary reserve ratio, and net income ratio. The full faith and credit provision provides an alternate method of meeting the financial responsibility standards, but does not excuse the institution from submitting the required audited financial statements.
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