Transparency of Proprietary Schools’ Financial Statement Data for Federal Student Aid Programmatic Decisionmaking

Our audit concluded that the required financial statements submitted to the Department by proprietary schools generally do not include transparent information about the schools’ use of Title IV funds sufficient to allow FSA to make informed decisions about program effectiveness. Our review of the FY 2010 audited financial statements for 521 proprietary schools found that the financial statements did not provide transparent information because the presentation of instruction and marketing expenses was not consistent across schools. As a result, the data were generally not useful to FSA in identifying how schools spent Title IV funds, nor were they useful in making meaningful comparisons of financial information across schools participating in the Title IV programs. As a result, the audited financial statements are generally not useful to the Department, a major financer of postsecondary education for this sector, in evaluating schools and the Title IV programs. Based on our findings, we recommended that FSA work with Congress to obtain statutory authority to establish uniform account classification rules and procedures for all postsecondary schools, including proprietary schools, create a standard chart of accounts for use by schools that includes expense classifications that clearly define the types of costs to be recorded under each expense account, and determine what detailed financial statement information would provide the necessary insight into the operations of schools participating in the Title IV programs and develop common reporting requirements for that information.