CCST 2012 Annual Conference
W H O ’ S K N O C K I N G A N D A R E Y O U P R E PA R E D T O
ANSWER THE DOOR?
I G I N V E S T I G AT I O N S A N D P R O G R A M R E V I E W S
R E L AT E D T O I N C E N T I V E C O M P E N S AT I O N ,
M I S R E P R E S E N TAT I O N , A N D S T U D E N T O U T C O M E S
O C TO B E R 11 , 2 0 1 2
STEVEN M. GOMBOS, ESQUIRE
C H A R L E S P. E L L I O T T C P A , C F E
BACKGROUND AND SCOPE
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 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
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 EXTERNAL CAUSES
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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
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INCENTIVE COMPENSATION
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 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
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 What you already knew: Admissions Reps are Covered.
Covered Activities
Exempt Activities
Activities that are ALWAYS subject to the
ban on incentive compensation
Activities not subject to the ban on incentive
compensation include the following, unless
the activities of the employee or entity also
involve a covered activity.
Recruitment activities, including:
Marketing Activities, including:
Targeted information dissemination to
individuals;
Solicitations to individuals;
Contacting potential enrollment applicants;
aiding students in filling out enrollment
application information
Broad information dissemination;
Advertising programs that disseminate
information to groups of potential students;
Collecting contact information;
Screening pre-enrollment information to
determine whether a prospective student
meets the requirements that an institution
has established for enrollment in an
academic program;
Determining whether an enrollment application
is materially complete, as long as the
enrollment decision remains with the
institution
INCENTIVE COMPENSATION
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 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
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Policy decisions related to the manner in which recruitment,
enrollment, or financial aid will be pursued or provided = exempt
activity.
INCENTIVE COMPENSATION
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 How can an institution implement a compliant
compensation plan for Admissions?
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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.
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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
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“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
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 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
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 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
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 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
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 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
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“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
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 The definition is extremely broad and can describe
“innocent” conduct of the institution.
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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:
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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
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Misrepresentations Related to the Nature of an Educational Program can involve
(among other things):
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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
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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
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Misrepresentations Related to the Nature of Employability of
Graduates can involve:
 Institution’s relationship with any organization, employment agency, or other
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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:
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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
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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
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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
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 Admissions Representative
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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:
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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?
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 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:
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Are the members of the SMT covered employees?
Is this profit sharing plan permitted?
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 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:
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Can AA use this information to decide to terminate a
covered employee?
MISREPRESENTATION:
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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?
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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?
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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
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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
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 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
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 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.