Little Progress on Incentive Comp

Education Department's inspector general concludes that agency has not sufficiently adapted policies and procedures to enforce 2010 rules restricting pay to recruiters based on enrollment.

March 27, 2015

WASHINGTON -- The U.S. Education Department's Federal Student Aid office has done too little to carry out regulatory changes adopted five years ago to crack down on colleges' use of incentive compensation to reward employees, the department's inspector general said in a highly critical audit this week.

The Obama administration issued rules on incentive compensation in 2010 as part of a broader package of "program integrity" regulations aimed at limiting fraud and abuse in federal financial aid programs. The incentive compensation rules, which were motivated in part by a pair of Government Accountability Office reports, were designed to undo changes made in 2002 that gave institutions a dozen "safe harbors" that allowed recruiters to be paid without violating the federal law banning incentive compensation.

The 2010 regulatory changes, the inspector general's office said in the audit dated Tuesday, gave the department "an excellent opportunity to revise its enforcement policies and practices" regarding incentive compensation.

But the department has by and large not seized on that opportunity, the audit asserts.

The Federal Student Aid office has not revised its procedures and policies to enable appropriate enforcement of the incentive compensation ban. The office has continued to be generally guided by a 2002 memorandum that restricted the department to using fines to enforce the incentive compensation ban, rather than more aggressive penalties such as limiting an institution's participation in federal student aid programs.

"Without strong procedures and guidance, F.S.A. cannot ensure appropriate and consistent enforcement actions against schools that violate the incentive compensation ban, and fines will likely continue to be the predominant enforcement action that F.S.A. uses to punish violators of the incentive compensation ban," the audit stated.

The audit said that the department adapted its methods for tracking and detecting violations of incentive compensation laws and rules, in line with the 2010 regulatory changes. But a review by the inspector general found that department investigators did not, in most cases, carry out all of the recommended tests for identifying incentive compensation rules. 

"When institutional review specialists do not complete all the incentive compensation testing procedures required by the program review manual, F.S.A. cannot make an informed decision about a school’s compliance with the incentive compensation regulations and is less likely to detect an incentive compensation violation," the inspector general's audit said.

The audit also concluded that the Federal Student Aid office did not do enough to ascertain the veracity of potential incentive compensation violations identified in program reviews and audits, failing to nail down enough details to reach conclusions.


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