U.S. Department of Education: Three Types of Institutional Monitoring
The U.S. Department of Education (ED) may place an institution on monitoring to provide additional oversight of the management of federal funds and to help the institution stay in compliance. Reasons for monitoring include, but are not limited to, the following:
- Financial responsibility ratios (composite score below 1.5, failing 90/10 revenue percentage)
- Federal funds compliance findings on the most recent program review or annual student financial aid audit
- Late or missing annual audit submissions
- Accreditation issues, outstanding liabilities, denial of re-certifications and/or concern around the institution’s administrative capabilities
There are three levels of monitoring an institution may be placed on:
- Heightened Cash Monitoring 1 (HCM1): When an institution is placed on HCM1, the institution must post federal fund disbursements to eligible students’ ledger cards before submitting disbursement records to the Common Origination and Disbursement (COD) System. The institution must continue to comply with timely credit balance and refund repayments using the institution’s funds until the federal funds are received. This process takes approximately three days to receive or draw down the funds from ED. Additionally, while on HCM1, the institution is required to notify ED within 10 days for all equity disbursements, including advances to related parties.
- Heightened Cash Monitoring 2 (HCM2): When an institution is placed on HCM2, the institution must post federal fund disbursements to eligible students’ ledger cards and then submit a payment request to be reviewed by an ED analyst. The analyst will select a sample to review disbursement documentation. Only after the analyst reviews and approves the batch will the federal funds be available to be drawn down. If the analyst discovers an error in the sample, the entire batch will be rejected and resubmission will be required. Payment requests can only be made every 30 days. The institution must continue to comply with timely credit balance and refund repayments using the institution’s funds until the federal funds are received.
- Reimbursement Payment Method: The reimbursement payment method is similar to HCM2, except the ED analyst will review the documentation for all students and parents included in the payment request, not just a sample. If the analyst discovers an error, the entire batch will be rejected, and resubmission will be required. Payment requests can only be made every 30 days. The institution must continue to comply with timely credit balance and refund repayments using the institution’s funds until the federal funds are received.
If your institution is assigned additional monitoring by ED, contact our experts today for additional guidance.
Special thanks to SST Senior Audit Manager Aaron Lohman and SST Compliance Manager Karen Eilert for providing the content for this post. For additional support, contact Aaron and Karen directly.
