CCST 2012 Annual Conference Who’s Knocking and are you prepared to answer the door? IG INVESTIGATIONS AND PROGRAM REVIEWS RELATED TO INCENTIVE COMPENSATION, misrepresentation, and student outcomes October 11, 2012 Steven M. gombos, esquire Charles p. elliottcpa, cfe
BACKGROUND AND SCOPE • Current Administration • Regulatory Changes • Rulemaking • FCA cases • Data to support positions • Regulators • DOE • OIG • DOJ • State Attorney General • Accrediting Commissions
REASONS FOR PROGRAM REVIEWS AND INVESTIGATIONS • EXTERNAL CAUSES • STUDENT COMPLAINTS • FORMER EMPLOYEE COMPLAINTS • REPORT OF EMBEZZLEMENT OR SUSPECTED CRIMINAL ACTIVITY • SERIOUS DEFICIENCIES REPORTED IN ANNUAL COMPLIANCE OR FINANCIAL AUDITS • SERIOUS DEFICIENCIES REPORTED BY STATE LICENSING AGENCIES OR ACCREDITING AGENCIES • REFERRAL FROM CASE MANAGEMENT • CHANGE IN AUDITORS • DOE PROGRAM REVIEW • LAPSE OF TIME • TITLE IV – GROWTH • COMPLAINTS
Incentive Compensation Rule prevents payment of “any commission, bonus, or other incentive payment based in any part, directly or indirectly, upon success in securing enrolment, or the award of financial aid”. Any person engaged in any student recruitment or admissions activity is a covered person under the rule. Commission, bonus, or other incentive payment = money or something of value, other than a fixed salary or wages, paid to or given to a person or entity for services rendered. Prior “safe harbors” have been eliminated.
Incentive Compensation What you already knew: Admissions Reps are Covered.
Incentive Compensation • Also covered: any higher level employee with responsibility for recruitment or admissions of students. • Director of Admissions • Senior Management (V.P. of Admissions, Campus Directors/Presidents, etc.) depending on the nature of their activities • Policy decisions related to the manner in which recruitment, enrollment, or financial aid will be pursued or provided = exempt activity.
Incentive Compensation • How can an institution implement a compliant compensation plan for Admissions? • Under the rule, institutions are still permitted to make make merit-based adjustments to employee compensation provided that such adjustments are not based in any part, directly or indirectly, upon success in securing enrollments. • Standard evaluative factors: job knowledge, professionalism, analytic ability, initiative in work improvement, clarity in communications, use & understanding of technology, accuracy, thoroughness, dependability, punctuality, adaptability, peer rankings, student evaluations, and interpersonal relations. • Two salary adjustments in a 12 month period is prima facie evidence of a violation.
Incentive Compensation “The Department has been repeatedly advised by institutional employees that these other qualitative factors are not really considered when compensation decisions are made, and that they are identified only to create the appearance of title IV compliance. It is clear from this information that institutions are making actual compensation decisions based exclusively on the numbers of students enrolled.” 75 FR 66873. “To be sure, any enforcement action by the Department will require examination of the relevant documents and evidence” – Government’s brief on appeal, APSCU v Arne Duncan.
Incentive Compensation Establishing a compliant compensation plan is only half the battle. You must apply the plan consistently to all admissions employees and you must carefully document the basis of all your compensation decisions. Monitor and review the salary review process while it is ongoing. Regularly analyze the results from your salary reviews.
Incentive Compensation • Additional ideas to consider: • Employer contributions to profit sharing plans such as 401(k) plans which are made to individuals on a basis that is neutral with respect to the role the recipient plays in student recruitment • Employee benefits plans offered to all employees on a basis that is neutral with respect to the role the recipient plays in student recruitment • Compensation adjustments based upon seniority
MISREPRESENTATION 34 CFR 668 Subpart F prohibits institutions from making a “substantial misrepresentation” about the nature of its educational program, financial charges, employability of graduates, or relationship with ED.
MISREPRESENTATION • The regulation provides for a variety of sanctions: • Revocation of school’s PPA • Limitations on school’s participation in Title IV • Denial of participation applications made on behalf of the school • Fine or Termination actions
MISREPRESENTATION “Any false, erroneous or misleading statement an eligible institution, one of its representatives, or any ineligible institution, organization, or person with whom the eligible institution has an agreement to provide educational programs, or to provide marketing, advertising, recruiting or admissions services makes directly or indirectly to a student, prospective student or any member of the public, or to an accrediting agency, to a State agency, or to the Secretary. A misleading statement includes any statement that has the likelihood or tendency to deceive or confuse. A statement is any communication made in writing, visually, orally, or through other means. Misrepresentation includes the dissemination of a student endorsement or testimonial that a student gives either under duress or because the institution required the student to make such an endorsement or testimonial to participate in a program.” 34 C.F.R. § 668.71(c).
MISREPRESENTATION • The definition is extremely broad and can describe “innocent” conduct of the institution. • Can include statements that are inaccurate or confusing but does not require that the speaker intended to make a misrepresentation. • The definition of prospective student is also broadened, for the purposes of the misrepresentation regulation: • Prospective student: “Any individual who has contacted an eligible institution for the purpose of requesting information about enrolling in the institution or who has been contacted directly by the institution through advertising about enrolling at the institution.
MISREPRESENTATION Misrepresentations Related to the Nature of an Educational Program can involve (among other things): Accreditation (Type, Nature, Status) Transferability of credits Whether successful completion of course qualifies student for union membership, licensure or certification, or meets conditions generally needed to secure employment in the occupation Requirements for completion of the program (including grounds for terminating enrollment). Availability, frequency, and appropriateness of courses and programs to employment objectives Nature, age, and availability of training devices or equipment Availability of part-time employment or other forms of financial assistance Nature and availability of any tutorial or other supplementary assistance needed before, during or after course completion Nature or extent of any prerequisites for enrollment in any course Subject matter, content of course of study, or any other fact related to the credential awarded upon completion of course of study Whether academic, professional, or occupational degree conferred has been authorized by appropriate State agency Matters required to be disclosed under 34 C.F.R. 668.42 (Financial Aid) & 668.43 (School Information)
MISREPRESENTATION Misrepresentations Related to the Nature of Financial Charges can involve: Offers of scholarships Whether particular charge is customary charge Cost of program and refund policy Availability or nature of financial assistance Duty to repay loans regardless of whether student completes program or obtains employment Student’s right to reject financial aid or other assistance or whether student must apply for particular type of aid
MISREPRESENTATION Misrepresentations Related to the Nature of Employability of Graduates can involve: • Institution’s relationship with any organization, employment agency, or other agency providing authorized training leading directly to employment • Institution’s plans to maintain placement services for graduates or otherwise assist in obtaining employment • Institution’s knowledge about current or likely future conditions, compensation, or employment opportunities in industry • Whether employment is being offered by institution or that a talent hunt/contest is being conducted • Government job statistics in relation to potential placement • Other requirements generally needed to be employed: • commercial driving licenses • license to carry firearms • failing to disclose factors that would prevent applicant from qualifying for such requirements, such as existing prior criminal record or preexisting medical conditions
MISREPRESENTATION Misrepresentations Related to the Nature of the Relationship with ED can involve: Statements made by school or third-party describing School’s educational content or programs in a manner suggesting approval or endorsement by ED.
CASE HYPOTHETICAL Background School terminates three employees who have voiced concerns and complaints for about two years regarding student ability, compensation, and various accreditation issues. [School size, branches/locations, policy/procedure issues, Campus Director, corporate controls, internal audits/compliance program, specifics of complaints, and HR issues].
ADMISSIONS • Admissions Representative • School institutes a performance evaluation system rating admissions reps on criteria such as professionalism, punctuality, job knowledge, proficiency with contact management system, and number of calls made and number of interview appointments made. Each criteria is assigned a point value and admissions reps are given a percentage increase in pay based on a sliding scale. • Issues: • Does the plan use appropriate evaluative factors? • When asked for documentation as to how School ranked employees on the criteria, School explains that they did not keep records to support each employee’s score. Does this present a compliance issue?
School develops a plan to compensate its senior management team (SMT) which includes CEO, VP of Operations, CFO, director of marketing, director of admissions, director of education, and director of financial aid. The plan will provide each member of the SMT a bonus if the School increases its EBITDA more than 5% over the prior fiscal year. • Questions: • Are the members of the SMT covered employees? • Is this profit sharing plan permitted?
Campus Director has been suffering from lower than expected enrollment. Campus Director orders the director of admissions to rank its 5 admissions reps by number of enrollments to-date and fire the two reps with the fewest number of enrollments. • Question: • Can AA use this information to decide to terminate a covered employee?
Misrepresentation: P.S. asks if he can get a bachelor’s degree at Institution. A.R. replies that Institution does not offer bachelor’s degree programs right now, but since Institution is accredited P.S. is able to transfer credits to another Institution that is accredited by the same accrediting body if he wants to continue progressing toward a 4 year degree. Is A.R.’s statement about the transfer of credits false? Does accreditation guarantee acceptance of transfer credits between institutions?
P.S. asks A.R. if it will be necessary to get a loan to cover P.S.’s educational costs. A.R. replies, “That depends, if you can get a scholarship or a grant, you might not need a loan. If you get a loan but later decide that Institution is not for you, you will be able to leave school before you finish your program, because Institution has a refund policy and you will not have to pay your loans back.” Is A.R. making a misleading statement to P.S. about the Institution’s refund policy? Does any institution have a refund policy as generous as the one A.R. describes?
School must report placement data to an accrediting commission as well as the State Department of Education. School’s placement rate when calculated by the accrediting commission is 72%. However, when School completes the calculation according to the State’s methodology, placement rate is 95%. School print and radio ads regularly mention that 95% of students are employed after graduation, but don’t provide more detail. In addition, Admissions Representatives highlight “95% placement” as an important factor prospective students should consider. What potential regulatory problems might School face under this scenario?
COUNSEL FOR TERMINATED EMPLOYEES School receives a demand from attorney for three terminated employees. Attorney claims discrimination and federal/state whistleblower status. Issues – how do you interact, issues related to settlement, compare prior complaints, and consider “unknown” or possible actions.
STUDENT OUTCOMES OIG agents appear at main campus. They want to interview the Campus Director, admissions director, and placement director. Issues – initial response, causes, any prior notice, former employees, disgruntled employees, student complaints, internal communications, and outside counsel.
Disclaimers The views expressed in this presentation and its accompanying materials are those of the speaker, and do not necessarily reflect those of CCST. The contents of this presentation and its accompanying materials do not constitute legal or regulatory advice. No one should act or refrain from acting on the basis of this presentation without seeking individualized, professional counsel as appropriate.