Federal Student Aid’s Oversight of Schools’ Compliance with the Incentive Compensation Ban

We found that FSA did not revise its enforcement procedures and guidance to ensure that they facilitated and did not hinder enforcement actions after the Department eliminated the incentive compensation safe harbors in 2010 and did not develop procedures and guidance instructing employees on how they should determine the appropriate enforcement action for incentive compensation violations. We also found that an internal memo from the then Deputy Secretary of Education issued to FSA in 2002 and the guidance and procedures FSA developed and implemented in response discouraged FSA employees from using all allowable enforcement actions at FSA’s disposal. We also concluded that FSA followed its established methods for tracking activities related to incentive compensation and adapted its methods for detecting incentive compensation ban violations; however, our review of 26 FSA program review files found that 23 contained insufficient evidence to show that institutional review specialists completed all the incentive compensation testing procedures that FSA’s program review manual required. Finally, we found that FSA did not properly resolve incentive compensation ban findings. Institutional review specialists and audit resolution specialists did not consult with FSA’s Administrative Actions and Appeals Service Group regarding final actions to resolve the one program review and four independent public accountant audits that identified violations of the incentive compensation ban from July 1, 2011, through September 17, 2013. Additionally, audit resolution specialists did not determine the merits of each violation by using a preliminary audit determination letter for findings in the four independent public accountant audit reports.