1 Accounting Procedures

Notes for

Title IV Programs

CONTENTS
A. Case Study Overview 3
B. Title IV Programs: Impact on Accounting 4
1. Title IV Programs 4
2. Program Similarities 4
3. Program Differences 5
C. The Business Office and the Financial Aid Office:
A Partnership 6
1. Financial Aid Office Record-Keeping Functions 6
2. Business Office and Financial Aid Office Cooperative
Efforts 6
D. Accounting Structure: Chart of Accounts 7
1. Accounting System Requirements 7
2. Chart of Accounts 8
Case Study Exercise 1: Chart of Accounts 9
E. Internal Control: Checks and Balances 13
1. Separation of Functions 13
2. Trial Balance 14
3. Reconciliation of Cash 14
4. Reconciliation of Federal Funds 15
5. Monthly Direct Loan Reconciliations 16
6. Electronic Data Processing Controls 16
7. Other Checks and Balances 17
Case Study Exercise 2: Trial Balance 17
F. Linking the Institution’s Accounting System to Internal and
External Reporting Requirements 19
1. Internal Requests for Information 19
2. Linkages for External Reporting 19
Case Study Exercise 3: External Reporting 20

June 1999 Fiscal Officer Training • Participant’s Guide Session One — 1

 OBJECTIVES Notes
By the end of this session, you will be able to:
✦ describe the relationship between a school’s accounting system and
Title IV requirements,
✦ identify methods of internal control,
✦ discuss linking the school’s accounting system to internal and external
reporting requirements, and
✦ develop and analyze a chart of accounts.

RESOURCES
✦ The Blue Book, Chapter 5—Accounting Procedures for Title IV Programs
✦ Student Financial Aid Handbook
✦ Federal Regulations 34 CFR 668.163

A. CASE STUDY OVERVIEW

On page 3 of your Participant’s Guide you will find the case study about Knowledge
College. Spend a few minutes reading through it. As we move through this session
on accounting procedures, after information is presented, you will be asked to respond
to a related section of the case study.

2 — Session One Fiscal Officer Training • Participant’s Guide June 1999

 Notes
CASE STUDY KNOWLEDGE COLLEGE

Knowledge College is faced with a number of challenges and opportunities. The

school is converting to a new accounting software package. The existing chart of
accounts has not been systematically reviewed in a number of years, even though
accounts should be reviewed on an annual basis. New account numbers have been
assigned in a haphazard manner, and no accounts have ever been deleted.

The college is also installing an integrated data management system across

campus that will streamline processing student records in all offices. Concerns exist
about the separation of functions between the financial aid office and the business
office once this system goes online.

To make matters worse, accounting for Title IV funds never went smoothly with the old
system. This has resulted in a deteriorated working relationship between the business
office and the financial aid office. In fact, staff members in the two offices barely
speak.

The financial vice president has already issued an ultimatum: “Get these problems
fixed!”

Knowledge College participates in the Federal Pell Grant and FFEL Programs.
The college president now is considering applying for Federal Work-Study funds.
Questions keep coming, such as asking if a new program can be integrated into the
accounting system and how much an FWS program will cost the institution.

During the course of this session on accounting procedures, you will be applying what
you learn to help Knowledge College in meeting its challenges and solving its
problems. You will be assisting the school with the following:

✦ Cooperative efforts to support the accounting system

✦ Chart of accounts
✦ Separation of functions
✦ Trial balance
✦ Internal reporting
✦ External reporting

June 1999 Fiscal Officer Training • Participant’s Guide Session One — 3

B. TITLE IV PROGRAMS: IMPACT ON Notes
ACCOUNTING
1. Title IV Programs

Title IV Programs
w Federal Pell Grant Program
w Federal Supplemental Educational Opportunity
Grant (FSEOG) Program
w Federal Work-Study (FWS) Program
w Federal Perkins Loan Program
w William D. Ford Federal Direct Loan (Direct
Loan) Program
w Federal Family Education Loan (FFEL) Program
1

• Accounting is one of the important responsibilities of

schools participating in Title IV programs.
• The National Association of College and University
Business Officers (NACUBO) Web site is
www.nacubo.org.
• The National Association of Student Financial Aid
Administrators (NASFAA) Web site is www.nasfaa.org.

2. Program Similarities

Program Similarities

w Cash account to record receipts and disbursements

w Income accounts
w Expense accounts (except for FFEL)

4 — Session One Fiscal Officer Training • Participant’s Guide June 1999

3. Program Differences
Notes

Program Differences

Administrative Cost Allowance (ACA):

w For Federal Pell Grant—paid directly to school
and recorded as income and an expense.
w For campus-based programs—may be paid out of
program funds and recorded as an expense in the
chart of accounts.

Program Differences
(cont’d)

Matching Requirements:
w Federal Perkins Loan requires cash (institutional
capital contribution [ICC]).
w FSEOG and FWS allow cash or non-cash
contributions.
©Non-cash option must be accounted for as such.

June 1999 Fiscal Officer Training • Participant’s Guide Session One — 5

 Notes
Program Differences
(cont’d)

Institutional Responsibilities:
w Accounting for FFEL and Direct Loans involves
receiving and disbursing funds.
w Federal Perkins Loan accounting includes
transactions common to any loan program, plus
specific program requirements.

C. THE BUSINESS OFFICE AND THE

FINANCIAL AID OFFICE: A PARTNERSHIP
1. Financial Aid Office Record-Keeping Functions

Examples of Records
Usually Maintained by
Financial Aid Office
w Student’s application for financial aid,
w Loan applications/master promissory notes,
w Federal Perkins Loan promissory notes,
w Financial aid awards accepted or declined,
w Record of cumulative aid received by a student,
w Student eligibility documentation, and
w FISAP.
6

2. Business Office and Financial Aid Office

Cooperative Efforts
• Disbursing aid and generating student bills should be
coordinated.
• When preparing reports or lists for the other office, ask
how it would like the information sorted.

6 — Session One Fiscal Officer Training • Participant’s Guide June 1999

• When preparing a spreadsheet, total all columns.
Notes
• Hold a joint planning meeting before the FISAP due date
or before an audit or program review.
• Share correspondence.
• Invite representatives from the other office to attend a
staff meeting or training session; hold joint staff meetings
on occasion.
• Group Discussions: Knowledge College is converting to a
new accounting software package.
• Who should be involved in the conversion planning?
• What input documents will feed information into the
system?
• Who should have access to the various parts of the
system?

D. ACCOUNTING STRUCTURE: CHART OF

ACCOUNTS
1. Accounting System Requirements

Accounting System
Requirements

Accounting system must:

w meet internal and external information needs,
w meet ED’s minimum program and fiscal
requirements, and
w meet school’s external reporting requirements.

• The accounting system may be manual or automated.

Most schools, of course, use an automated system.

June 1999 Fiscal Officer Training • Participant’s Guide Session One — 7

2. Chart of Accounts
Notes

Chart of Accounts

The chart of accounts has two components:

w an account number, which follows a standard
account-code structure and
w a definition, by name, of the account code.

Chart of Accounts (cont’d)

Single first digit of account number is link to
financial statement:
1 - Asset Account
2 - Asset Reduction Account
3 - Liability Account
4 - Capital Account (or Program Balance)
5 - Capital Reduction Account
6 - Income Account (Revenue)
7 - Expense Account
9

• The account grouping for each Title IV program account

contains some or all of these financial statement elements.

8 — Session One Fiscal Officer Training • Participant’s Guide June 1999

 Notes

Title IV Account Groupings

Each program account grouping is:

w separate from other programs,
w separate from institutional operating accounts, and
w self-balancing.

10

• The sum of the ledger accounts with debit balances equals

the sum of accounts with credit balances.
• The Blue Book, Chapter 5, provides a detailed chart of
accounts for Title IV programs.

Case Study Exercise 1: Chart of Accounts

A chart of accounts exercise appears on pages 10 - 12.
Your task is to finish numbering the accounts for
Knowledge College and provide a description of several
new accounts.
Knowledge College receives Federal Pell Grant funds of
$100,000 and participates in the FFEL Program
($1,000,000 in student loan funds and $333 investment
income). The president of Knowledge College is
interested in initiating an FWS Program. The chart of
accounts needs to include account numbers and
descriptions for all these programs.
The answers appear on pages 22 - 24.

June 1999 Fiscal Officer Training • Participant’s Guide Session One — 9

 Notes
SUMMARY CHART OF ACCOUNTS EXERCISE

Federal Pell Grant Program

- 1 Cash, Federal Pell Grants
Debit this account for:
• Transfers from GAPS accounts
Credit this account for:
• Payments to students
• Recoveries from recipients

_ - _ Accounts Receivable, GAPS

Debit this account for:
• Awards disbursed to students
Credit this account for:
• Cash received from GAPS

6 - 1 Transfer from GAPS - Federal Pell Grants for Students

Debit this account for:
• Total amount of cash transferred from GAPS (fiscal year)
Credit this account for:
• Cash transferred from GAPS (current needs)

_ - _ Federal Reimbursement of Pell Grant ACA

Debit this account for:
• Total ACA funds transferred (fiscal year)
Credit this account for:
• ACA payments received

7 - 1 Student Grants Paid - Federal Pell Grant

Debit this account for:
• Grant payments to students
Credit this account for:
• Recoveries from recipients
• Total grant payments (fiscal year)

_ - _ ACA Paid to Institution

Debit this account for:
• ACA paid to institution
Credit this account for:
• Closing entry (fiscal year)

10 — Session One Fiscal Officer Training • Participant’s Guide June 1999

 Notes
SUMMARY CHART OF ACCOUNTS EXERCISE (CONT’D)

Federal Family Education Loan (FFEL) Program

1 - 1 Cash FFEL Account
Debit this account for:
• Cash received from lenders

_-_ Cash Returned to Lenders

Credit this account for:
• Cash returned to lenders

_-_ Cash Disbursed to Borrowers

Credit this account for:
• Cash disbursed to borrowers

_-_ Cash Interest Earnings

Debit this account for:
• Interest earned
Credit this account for:
• Interest earned - transferred to institution

3 - 1 FFEL Trust Account

Debit this account for:
• Funds disbursed to borrowers
Credit this account for:
• Funds received from lenders

_-_ Interest Earnings from Investment of FFEL Funds

Debit this account for:
• Cash earnings transferred to institution
Credit this account for:
• Interest earned

June 1999 Fiscal Officer Training • Participant’s Guide Session One — 11

 Notes
SUMMARY CHART OF ACCOUNTS EXERCISE (CONT’D)

Federal Work-Study Program

1 - 1 Cash, Federal Work-Study
Debit this account for:
• _____________________________________
Credit this account for:
• _____________________________________

_ - _ Accounts Receivable, Off-Campus Entities

Debit this account for:
• _____________________________________
Credit this account for:
• _____________________________________

3 - 1 Federal Income Taxes Withheld

_ - _ Social Security Taxes Withheld

_ - _ State Income Taxes Withheld

_ - _ Other Withholding
Debit this account for:
• _____________________________________
Credit this account for:
• _____________________________________

_ - _ Accrued Wages Payable

_ - _ Employer’s Payroll Taxes Payable

_ - _ Transfer from GAPS - Federal Work-Study

_ - _ Institution’s Cash Contribution

_ - _ Institution’s Non-Cash Contribution (Memo Account)

12 — Session One Fiscal Officer Training • Participant’s Guide June 1999

E. INTERNAL CONTROL: CHECKS AND Notes
BALANCES

Internal Control
A system of checks and balances should include, at a
minimum:
w separating authorizing and disbursing functions for
Title IV funds,
w taking a trial balance,
w reconciling cash between book and bank balances,
w reconciling federal funds between bank account
and federally reported cash balances, and
w performing electronic data processing controls. 11

1. Separation of Functions

Separation of Functions
Separation of functions is a fundamental control
concept:
w Financial aid office is responsible for authorizing
funds to be disbursed by awarding aid.
w Business office is responsible for disbursing aid
by applying funds to charges and/or delivering
funds to students.

12

• There should also be a separation of functions so that the

person who reconciles cash and reconciles federal funds
does not also receive cash or perform disbursement
functions.
• Group Discussion: Separation of Functions
• How are you dealing with the separation of functions
at your school?
• What advice can you give Knowledge College?

June 1999 Fiscal Officer Training • Participant’s Guide Session One — 13