IN THE MATTER OF SOUTHERN VOCATIONAL COLLEGE,
Respondent.

Docket No. 90-41-ST

Appearances:    Linda Henderson, Esq., Tuskegee Institute, Alabama

        Carol Bengle, Esq., United States Department of Education, Washington, D.C.

Before    :    Judge Daniel R. Shell

    DECISION

    Background

    On July 17, 1990, the United States Department of Education (Education) issued a notice of intent to terminate the eligibility of the Southern Vocational College (Southern) of Tuskegee, Alabama, from participation in programs authorized under Title IV of the Higher Education Act.See footnote 1 1 The programs include: Pell Grant - 20 U.S.C. § 1070a; Perkins Loan - 20 U.S.C. § 1087aa; College Work Study - 42 U.S.C. § 2751, Supplemental Educational Opportunity Grant - 20 U.S.C. § 1070b, and the Guaranteed Student Loan Programs - 20 U.S.C. § 1071, 20 U.S.C. § 1078-2, and 20 U.S.C. § 1078-1.See footnote 2 2 Education also indicated an intention to fine Southern $500,000.

    Education notified Southern that its action is based upon the following twelve violations:

    1.     Failure to demonstrate administrative capability, in violation of 34 C.F.R. §§ 668.14 and 668.15 (l988).

    2.     Failure to properly account for Federal funds received, in violation of 34 C.F.R. §§ 675.19 (1988) and 690.81 (1985);

    3.    Failure to act-as a fiduciary, in violation of 34 C.F.R. § 668.82 (1987);

    4.    Failure to make timely refunds under the Guaranteed Student Loan Programs, in violation of 34 C.F.R. § 682.607 (1987);

    5.    Withholding student funds without proper authorization, in violation of 34 C.F.R. §§ 682.604(d)(ii) (1987), 690.78 (1988);

    6.    Retaining Pell Grant funds for students no longer enrolled at the institution, in some cases for several months after the student was no longer enrolled, in violation of 34 C.F.R. § 690.78 (1988);

    7.    Disbursing Pell Grant payments to students who have not completed the payment period for which they have previously received Pell Grant Funds, in violation of 34 C.F.R. § 690.75(a)(iii) (1985);

    8.    Charging students a fee for processing Pell Grants, in violation of 20 U.S.C. § 1094(a)(2) and 34 C.F.R. § 668.12(b)(2)(iii) (1988);

    9.    Failure to adopt and apply an adequate satisfactory progress policy, in violation of 34 C.F.R. §§ 668.14(e) (1988), 668.16(e) (1984), and 668.43(c)(2) (1987);

    10.    Failure to properly identify Federal funds accounts, in violation of 34 C.F.R. §§ 690.81(b) (1985), 674.19 (1981) (updated 1988), 675.19 (1981)(updated 1988), and 676.19 (1981)(updated 1988);

    11.    Permitting bank service fees to be paid from a Federal funds control account, in violation of 34 C.F.R. § 668.16 (1988)

    12.    Failure to obtain and keep current adequate fidelity bond coverage, in violation of 34 C.F.R. §§ 668.15(f) (1981), 668.13(g) (1988).See footnote 3 3

    To support the twelve allegations above, Education included in the notice the following program review reports: November 28, 1989See footnote 4 4 , December 14, 1987See footnote 5 5 , November 21, 1986See footnote 6 6 , February 3, 1986See footnote 7 7 and April 20, 1983.See footnote 8 8 The 1989 program review covered the award years 1987-88 and 1988-89. The December 1987 review was for the 1986-87 and 1987-88 award years. The November 1987 program review does not specifically state what award year was covered. The February 1986 program review examined the period of July 1, 1983 to June 30, 1985. Finally, the April 1983 review covered the period of July 1, 1980, to June 30, 1982. The notice states:

    The violations by Southern Vocational College were identified in a program review conducted by the Atlanta Regional Office of ED on July 17-21, 1989, the results of which were reported to the College on November 28, 1989. This program review is enclosed as Enclosure 1 to this notice and is incorporated by reference. Certain of the violations identified in this program review report are repeat violations, that is violations identical to or substantially the same as violations that occurred in previous years and that were identified in previous program reviews. Therefore, four earlier program reviews are also enclosed and are incorporated by reference.See footnote 9 9

    In a special oral argument hearing held November 29, 1991, counsel for Education was asked about the significance of the inclusion of Education exhibits A-2, A-3, A-4, and A-5, the December 1987, November 1986, February 1986, and April 1983 program reports. Counsel responded:

    [W]hat we're looking at is primarily repeat violations and that the earlier program reviews would be evidence the school has previously received notice that certain violations occurred and had been told to correct the violations . . . .[T]he program review process will ultimately result in either a closure or a final program review determination . . . So I think you [the judge] do have to look at the specific findings in the earlier program review and see that indeed they were cited and that notice was given as a matter of fact so that you can then say it's a repeat violation.See footnote 10 10

    Education counsel was asked: "Is a program review ever final? Is there any finality to the process?" Her response was: "I think at some point it would be within the judge's discretion
to say that's an unreasonable action on the part of the Department . . . ."See footnote 11 11 It is also significant that counsel for Education in a June 11, 1991, post-hearing brief commented further on the relevance of the previous years program reviews:

    At the conclusion of the program review process, OSFA (Office of Student Financial Assistance) issues a closure or a final determination letter. This letter notifies the institution of any financial liabilities that must be repaid. An institution dissatisfied with the final determination may appeal that determination and obtain a hearing on the record under 20 U.S.C. § 1094(b).

    OSFA's acceptance of corrective action or its closure of a review should not be confused with excusing the violations that occurred. The closure of a review simply means that all findings have been addressed and that any financial liabilities resulting from the liabilities have been identified. OSFA has the authority to and does frequently initiate limitation, suspension, or termination proceedings under 20 U.S.C. § 1094(c)(1)(d) and/or civil penalty (fine) proceedings under 20 U.S.C. § 1094(c)(2)(B)(i) before the program review process has run its course. (Emphasis added). In addition, OSFA has authority to and frequently does base these enforcement actions upon program review findings that have been closed.See footnote 12 12

    Education counsel provided no basis for the statement that OSFA has the authority to bring enforcement actions based upon a program review that has been closed.

    The parties stipulated that Education did not answer Southern's responses to the 1989 program review. Stipulation 58: "Prior to Ed's termination action of July 17, 1990, Ed had not written to SVC acknowledging receipt of, or otherwise correspond with SVC concerning, SVC's February 1990See footnote 13 13 and April 1990See footnote 14 14 responses to the 1989 program review." Mr. Ronald Lipton admitted that he had not seen either of the two responses prior to his recommendation to Molly Hockman to sign the termination letter which initiated this review.See footnote 15 15 In addition, Mr. Lipton said that a member of his staff prepared Education exhibit A, the July 17, 1990 letter from Education which initiated this action. He referred to the exhibit as follows: "This is a letter that was approved by a member of my staff. I approved the letter gave it to my supervisor Molly Hockman to sign, which she did. "See footnote 16 16

    Method of Discussion

    The allegations are divided into general violations and specific violations. The specific violations numbered 4 through 12 require the occurrence of a distinct set of circumstances. The first three violations are primarily based upon specific actions found in one of the violations numbered 4 through 12. The discussion begins with the findings four through twelve. The general violations, one through three, will be discussed later. To more fully understand the violations listed, Education stated the following in note 2 of the notice:

    The citations to the Code of Federal Regulations (CFR) used herein correspond to the volumes in which the Federal Register notices cited in the program review report were first published. The following sections of this notice, the references to the year of publication are not included in the CFR citations, except where necessary for clarity.

    After each of the twelve violations, the notice refers to the year "in which the Federal Register notices" were first published. For instance, finding one states: "Failure to demonstrate administrative capability, in violation of 34 C.F.R. 668.14 and 668.15 (1988)."See footnote 17 17 While the notice refers to the date a regulation was first published, it is noteworthy to state that the violations cited by Education are considered in light of the regulations in effect at the time of the alleged violation. In the Matter of Temple University, Docket No. 89-26-S, an Education final decision issued March 13, 1990, the Secretary ruled as to which regulations are to be applied in a dispute before the Department of Education. The Secretary held: "[T]he regulations in effect during the period in issue govern."See footnote 18 18

    This decision discusses each finding in three parts: section A. Statement of the Facts, section B. Regulatory Violation, and section C. Discussion and Finding.

Failure to make timely refunds under the Guaranteed Student Loan program - Finding four of the notice

    A.

    Finding four is based upon four factual situations: 1) the 1989 program review identification of the Love and Bryant cases, 2) the 1989 program review follow up identification of the [student name] circumstance, 3) the six refunds listed in stipulations 31, 32, 33, 35, 36, 37, and 38, and 4) the 1987 program review identification of [student name] and [student name] cases.

    First, the notice incorporated language from the 1989 program review: "A sub-sample of five student folders was reviewed to determine if refunds had been made on a timely basis." In two of the five cases, the refunds were not made within 30 days. Mentioned in the 1989 program review for the 1987-88 award year were [student name] and [student name]. In both stipulation 29 and the program review, specific facts were provided: 1) that the date of last attendance of student #1A, [student name], was 12-1-87 and 2) that a GSL refund of $1400 was made on 7-20-88. Stipulation 30 states that student #1B, [student name], last attended Southern on 12-1-87 and a GSL refund of $155 was made to him on 7-20-88.See footnote 19 19 Education admitted:

    [O]n this particular finding, . . . the parties . . . are prepared to stipulate that the 1989 program review sites (sic) two instances of untimely payment of refunds, and that both of those instances were part of a follow-up to the '87 . . . program review . . . .[T]he school was told to go back and look at all . . . records and identify any other examples of untimely payment of refunds . . . The two who are cited in the '89 program review were students whom the school had previously identified and paid . . . refunds to in response to the '87 review . . . . [W]e are prepared to stipulate that had the reviewers known of that fact when they were on site, they would not have cited them in the '89 report. . . .When the program reviewers went in and . . . picked out files to look to see if there were untimely refunds, they pulled up two files and found untimely refunds . . . . They didn't know that these were the very same files that in response to a prior review the school had already gone through and corrected. They wouldn't have said it is another violation . . . . They would have considered it part of the follow-up to the earlier program review . . . . So while it . . . wouldn't have been a basis for a finding in the '89 program review report, it would still be a basis for the termination action based on the 1987 program review and follow-up.See footnote 20 20

    Counsel for Southern asked Nancy Mapes, the author of the 1989 program review:

    [I]f you had known, at the time you were writing your program review report, that these two specific students had been refunded as part of the follow-up process from a prior program review, would you have made this finding number four? Nancy Mapes response was: "No"See footnote 21 21

    Second, as part of the 1989 program review, Education required Southern to review its 1987-88 and 1988-89 award year files to determine the timeliness of the refunds. Southern exhibit M, an unsigned letter dated September 5, 1990, from the President of the school, was submitted to Education as a final response to the November 28, 1989 program review finding number four. In the letter; Southern admitted that a review of their files revealed that in the 1987-88 and 1988-89 award years one student, Mary Adams, had not been paid a refund at the time of their review. Stipulation number 34 states: "On 9/5/89 SVC paid a $1750 GSL refund for Mary Adams, whose last day of attendance was 1/12/89 and whose refund was required to have been paid by 2/11/89." No additional evidence was introduced.

    Third, Education pointed to stipulations numbered 31, 32, 33, 35, 36, 37, and 38 as additional proof that Southern made untimely refunds.See footnote 22 22 Those stipulations establish six refunds paid on July 20, 1988, and one payment on September 5, 1989.See footnote 23 23 All payments were made more than 30 days after the students last date of attendance. The source of the information is not identified in the stipulations, but Southern exhibit M at 3 lists the same individual student loans.See footnote 24 24 In Southern exhibit M, Southern admitted that the seven students' refunds were not timely made. It also asserted that the seven GSL refunds were resolved with prior program review responses. Southern stated: "These students were refunded earlier and were considered in a previous program review which covered part of the same time, (some (sic) award years)."See footnote 25 25

    Fourth, Education relied on the December 1987 program review. The notice, in referring to the 1987 program review, states: "[T]he College was found not to have calculated or paid refunds due to the two students in the review sample who were due refunds."See footnote 26 26 The 1987 program review alleges no finding entitled "Untimely refunds under the Guaranteed Student Loan Program." The 1987 report, under the section entitled "Refund Policy Not Applied," however, identified two students, Diann Davis and Mary Ann Yancey, whom Southern failed to properly calculate a refund after the student's withdrawal in the fall of 1987.See footnote 27 27 Other than the statement in the 1987 program review finding, Education provided no information on the miscalculation of a refund in the Yancey case. Stipulation number 23 states that Diann Davis received from Southern $1050 in Pell Grant funds on about September 2, 1987. The stipulation further admits that the student was not eligible to receive the money based on the number of hours of training completed. There is no evidence of the receipt of the money being an untimely refund. Southern provided no information to support or to reject Education's assertions.

    B.

    The notice refers to untimely refunds in the 1989 and the 1987 program reviews. The school is charged with violating 34 C.F.R. § 682.607 (1987). Since the period at issue is 1987-88 and 1988-89, the appropriate Guaranteed Student Loan regulatory language found at 34 C.F.R. § 682.607(c), effective November 10, 1986, is applicable: "A school shall pay a refund that is due (1) Within 30 days after the date of the student's withdrawal from the school . . . or (2) in the case of a student who does not return to school at the expiration of an approved leave of absence . . . . within 30 days after the last day of that leave of absence."

    C.

    In order to prove a violation of 34 C.F.R. § 682.607, Education must show that Southern failed to pay Guaranteed Student Loan refunds within 30 days after a student's withdrawal from the school or within 30 days of the student's last day of a leave of absence. The facts, herein, present four separate fact situations.

    The first fact pattern originates from the 1989 program review. It only identified untimely refunds for [student name] and [student name]. Southern admitted in stipulations 29 and 30 to the truth of the untimely nature of the GSL refunds to [student name] and [student name], but asserted that they had resolved all problems with the 1987 program review. Education counsel admitted that the untimely nature of these two refunds had been reported and resolved in the 1987 program review. In fact, counsel stated: "[w]e are prepared to stipulate that had the reviewers known of that fact when they were on site, they would not have cited them in the "89 report."See footnote 28 28 Furthermore, counsel's assessment of the validity of a repeat violation of the "refund within 30 day" rule based upon the same facts and circumstances would be barred by the previous action taken in the 1987 program review. The untimely refunds to [student name] and [student name] could not become a repeat violation by the mere restatement of the same facts. It is especially significant in light of the fact that the school made an adjustment. Therefore, one cannot find that the 1989 [student name] and [student name] allegation are current examples of untimely refunds.

    Both Southern and Education admitted that the [student name] and [student name] situations were a part of the 1987 program review. Therefore, could the admission serve as a basis for finding four of the notice to terminate and fine, even though neither the notice to terminate and fine, nor the 1987 program review specifically cited Southern with untimely refunds to the two students? To answer this question, one must resolve three other matters. First, one must decide if the termination and fine action is limited-by a lapse of time between the occurrence of the facts and the charge by Education. Second, one must decide if a previously closed program review precludes Education's use of facts from a "closed" review as a basis for a current action. Third, one must decide if information received from an erroneously generated 1989 program review demand could be used to prove the same allegation or if the subsequently received information is poisoned by the faulty basis that originated the demand.

    The action to terminate and fine Southern is taken in accordance with the regulations under 34 C.F.R. § 668.86. Section 668.86 does not limit the actions of the institution to any specific time frame. The regulation only requires the Secretary to "identify the alleged violations which constitute the basis for the action." 34 C.F.R. § 668.86 (b)(i). There is no mention in the regulation of a time limit on the use of facts which form the basis of an action to terminate and fine. In addition, the regulation does not bar the action because the source of the facts arose in a "closed" program review. Education, unless it agrees otherwise, may use information from a "closed" program review to initiate and support an action to terminate and fine. .Here, there is no evidence of an agreement which would prevent Education from bringing the action. While an institution may expect some form of finality in a "closed" program review, the regulations do not so provide. Therefore, even though the 1987 program review was "closed," the regulation does not restrict Education's use of the facts from the 1987 program review to prove finding four of the notice to terminate and fine. Next, even though the notice relied upon the allegation in the 1989 program review which was admittedly charged in error as a duplicitous action, the improper action in the 1989 program review is not cause to require a denial of the existence of the fact that the parties have stipulated that Southern did cause an untimely refund to take place, even though the matter was resolved in an earlier program review. Therefore, one must find that Southern did cause an untimely refund to [student name] and [student name] based upon the facts in stipulation 29 and 30.

    The second set of fact" is based on Education's reference to the [student name]'s situation. Southern's indication, in its exhibit M, to [student name] not receiving a GSL refund at the time of their review must be taken in conjunction with stipulation 34. Stipulation number 34 states: "On 9/5/89 SVC paid a $1750 GSL refund for [student name], whose last day of attendance was 1/12/89 and whose refund was required to have been paid by 2/11/89." The statement is an admission by the institution of a late refund being made by the school to [student name]. Education provided no other evidence of an untimely refund to [student name]. Neither the notice to terminate and fine nor the 1989 program review report makes a reference to [student name]. The first time that [student name]'s name appears in the record is found in the September 5, 1990, Southern response-to the November 28, 1989, program review. The September response came approximately two months after the notice to terminate and fine the institution. It is also significant that Education admitted that it would not have instituted the finding had it been aware that the [student name] and [student name] situations were properly considered and closed in the 1987 program review. Therefore, the [student name] case would not necessarily have been discovered had the evidence not been received as a result of an improper action on the part of Education.

    Should Education be permitted to benefit from evidence improperly received? Should Education be permitted to make an allegation without foundation which permits it to embark on a fishing mission or to require an institution to engage in the additional program review expense without any specific proof of a charge? One must decide if the information received in a response to a flawed 1989 program review of the [student name] and [student name] allegation could be used as evidence of the [student name] untimely refund. Even though Education's method in the presentation of the evidence is awkward, it matters not. The evidence is jointly submitted and accepted. Furthermore, it is clear - Southern admits that it made an untimely GSL refund to [student name].

    The third fact pattern was presented by the parties on untimely refunds in the stipulations 31, 32, 33, 35, 36, 37, and 38. The stipulated facts are not part of the 1989 program review nor identified by Education as being part of another program review. However, Southern, in its exhibit M, submitted to Education on September 5, 1990, provides unrefuted evidence in its response to finding four that the seven students mentioned had been the subject of previous program reviews. This is not a new set of circumstances reported in the current notice. Like the [student name] case discussed above, these cases are reported by Southern to Education as a result of the 1989 program review response. Stipulation 31 concerning [student name] admits that a GSL refund was made late. Stipulation 32 admits that a GSL refund was made late to [student name]. Stipulation 33 admits that a GSL refund was made late to [student name]. The admissions concerning GSL refunds to [student name], [student name], and [student name] are jointly admitted for consideration by the parties. Each admission is proof that untimely GSL refunds were made to the three students. Stipulations 35 through 38 do not, however, identify what kind of refund was made. Education provides no other evidence concerning the type of student program for which a refund was paid. Therefore, it cannot be found that an untimely refund of a Guaranteed Student Loan was made to the students named in stipulations 35 through 38.

    The last factual circumstance identified that Education relied upon for untimely refunds is the 1987 program review. The circumstances do not provide support for untimely refunds. It identified two students, [student name] and [student name]. In [student name]'s case, Education relied upon the naked statement in the program review with no reference report or other supporting evidence. The statement in the program review is a mere allegation. Furthermore, the allegation here provided no additional information upon which Education bases its claim. Not only can Southern not adequately defend against an unsupported allegation, but the trier of the fact cannot examine the foundation used by the program reviewers to make their conclusions contained in the report. A mere allegation is insufficient to establish a fact. Therefore, the claim based upon the [student name] case fails for insufficient evidence.

    In the [student name] case, Education offered the evidence found in stipulation number 23: "SVC disbursed to [student name] on or about 9/2/87 $1050 in Pell Grant funds that he was not eligible to receive based on the number of hours of training completed." This stipulation does not support an untimely refund; it provides evidence of a premature Pell Grant. A premature Pell Grant, however, is not the allegation drawn in finding four. Finding four is a charge based upon untimely refunds under the Guaranteed Student Loan program. Education charged a violation of the wrong regulation. In short, the circumstances alleged in the 1987 program review fail to support a finding of untimely refunds.

    Except for the [student name] admission, the 1989 program review does not prove any new violations; however, Education was able to provide evidence of violations from its previously considered program reviews. The events presented by Southern provide, however, certain mitigating circumstance for the tribunal's consideration. The 1987 program review was closed. Southern exhibit W is a "Final Summary Letter" from Judith Brantley, Chief of the Atlanta Institutional Review Branch. Ms. Brantley stated:

    Your response dated September 28, 1988 to the November 30 - December 3, 1987 program review has been received and evaluated. I am pleased to report that the information furnished satisfactorily responded to the remaining open review findings . . . This review will be considered closed upon receipt by Mr. Pouncey of documentation evidencing payment of this liability.See footnote 29 29

    Lawrence Haygood Jr., on November 17, 1988, mailed a cashiers check to Mr. Pouncey for $565.35.See footnote 30 30 There is no evidence from Education to refute Southern's payment. One, therefore, concludes that the 1987 program review was closed. According to the words of Ms. Brantley, it became final "upon receipt by Mr. Pouncey of the documentation evidencing payment of this liability." There were no outstanding issues or violations. Whatever discrepancies that may have existed at the time of the 1987 program review were cured. If the school had not made a refund, a violation would have continued to provide the basis for a violation of the regulations. That was not the case, however, the school had, as part of the previous program review, complied with the action requested by Education. As a result, it remedied the violation.

    In conclusion, Education proved some elements of the charge of failure to make timely refunds under the Guaranteed Student Loan program. First, it is found that stipulations 29 and 30 admit that Southern made untimely GSL refunds to [student name] and [student name], even though both parties acknowledge that the two student files had been corrected before the 1989 program review was completed. Second, it is found that stipulation 34 admits Southern's GSL refund to [student name] in September 1989 was untimely, even though the basis for the 1989 program review demand was flawed by recharging the [student name] and [student name] situations after the 1987 program review closed the matters. Third, stipulations 31-33 and 35-38 contain Southern's admissions of untimely GSL refunds to [student name], [student name], and [student name]. Fourth, Education failed to show that the [student name] and [student name] cases were untimely refunds. There is no evidence in [student name]'s case of any kind to support the claim. The only evidence submitted in the [student name] cases tends to show a claim for premature Pell Grant payments. Education was not able to support any other allegations of untimely GSL refunds. In mitigation, with the exception of the [student name] admission, all of the untimely GSL refunds had been reported in prior program reviews and were finalized by "closed" reports.

    Withholding student funds without authorization - Finding Five of the notice

    A.

    Finding five of the notice states: "Institutions are not permitted to retain Pell Grant or campus-based program funds in excess of amounts currently due to the institution. "See footnote 31 31 It claims that "[i]n the 1989 program review, the reviewers found that the College had routinely credited awards to students' accounts in amounts exceeding unpaid charges owed to the college. The College was cited for the same violation in the 1987 program review."See footnote 32 32 The 1989 program review at finding nine provided the basis for finding five of the notice with the following:

    LISTING OF STUDENTS WITH RETAINED CREDIT BALANCES

        Title IV
        Program Causing                    Range of Outstanding
Student     Credit Balance    Credit Balance        Credit Balance

1        Pell, SEOG        10/27/88-01/04/89        $ 600.00 - $ 1075.00
                    04/03/89-06/26/89        $ 74.50 - $ 824.50
2        Pell            12/22/87-03/21/88        $ 26.22 - $ 1050.00
                    09/27/88-04/28/89        $ 40.42 - $ 940.42
3        Pell            07/01/88-04/02/89        $ 532.92 - $ 1289.92
5        Pell, SEOG        07/01/88-04/02/89        $ 724.50 - $ 1474.50
6        Pell, SEOG        04/21/88-07/25/88        $ 350.00 - $ 1050.00
                    09/27/88-02/15/89        $ 139.30 - $ 900.00
7        Pell, SEOG        05/09/88-06/25/89        $ 333.50 - $ 2083.50
9        Pell, SEOG        02/17/87-05/08/87        $ 100.00 - $ 275.00
10        Pell, SEOG        07/01/88-06/12/89        $ 279.82 - $ 1950.00
                    (continuously)
11        Pell, SEOG        09/28/88-06/28/89        $ 17.90 - $ 1057.10
12        Pell, SEOG        04/05/89-06/30/89        $ 4.73 - $ 799.35
14        Pell            09/27/88-04/28/89        $ 13.20 - $ 928.31

    Appendix A to Education exhibit A-1 at page 17 lists the students by name: #1 - [student name]; #2 - [student name]; #3 [student name]; #5 - [student name]; #6 - [student name]; #7 - [student name]; #9 - [student name]; #10 - [student name]; #11 [student name]; #12 - [student name] and #14 - [student name].

    Stipulation number 12 states: "SVC disbursed to [student name] on or about 12/28/87 $1050 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed." Stipulation number 13 states: "SVC disbursed to [student name] on or about 11/4/88 $1100 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed." Stipulation number 14 states: "SVC disbursed to [student name] on or about 12/28/87 $1050 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed." Stipulation number 15 states: "SVC disbursed to [student name] on or about 12/28/87 $1050 in Pell Grant funds that he was not eligible to receive based on the number of hours of training completed." Stipulation number 16 states: "SVC disbursed to [student name] on or about 11/4/88 $1100 in Pell Grant funds that he was not eligible to receive based on the number of hours of training completed."

    Stipulation 19 states: "SVC disbursed to [student name] on or about 12/28/87 $1050 in Pell Grant funds that she was not eligible to receive based on the number of hour of training completed." Stipulation number 20 and 21 state: "SVC disbursed to [student name] on or about 8/1/88 $1100 in Pell Grant funds that he was not eligible to receive based on the number of hours of training completed. . . SVC disbursed to [student name] on or about 10/26/88 $1100 in Pell Grant funds that he was not eligible to receive based on the number of hours of training completed." Stipulation number 24 states: "SVC disbursed to [student name] on or about 9/27/88 $1100 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed."

    As additional proof for finding five, Education relied on its exhibit A-2, the December 14, 1987 program review report. Education counsel in her November, 1991 argument at 35 referred to finding four of the 1987 program review to support the repeat violation charge:

    Finding: Credit balances Held Without Student Authorization.

    Federal regulations do not permit an institution to pay a student's Pell or Campus-based award by credit to the student's account in excess of amount currently due the institution, or to retain GSL proceeds in excess of such amounts, except that, in the case of the GSL Program, the student may request in writing that the institution retain such excess proceeds to assist the student in managing his/her loan funds for the remainder of the academic year. Southern Vocational College has routinely credited awards to student accounts without regard to whether, or to what extent, the student had unpaid charges due the institution.

    Nancy Mapes, the author of the 1989 program review, testified that the regulations require the student's authorization for an institution to hold the student's credit balances for either Pell Grants or campus-based program funds:

    [I]f they do retain credit balances, . . . the student must authorize the institution to hold these funds in writing . . . we did not find evidence that Southern Vocational had requested . . . these students who . . . retain credit balances . . . the student . . . can rescind his voluntary authorization at any time, and his credit balance needs to be given to him. . . .[A]n institution cannot retain monies for funds other than institutional costs. . . . [I]f they do retain credit balances then . . . the student must authorize the institution to hold these funds in writing . . . We did not find evidence that these students [for whom] they retained credit balances [provided] . . . any voluntary authorization . . . signed by the student, nor was . . . the student . . . aware that he [could] rescind this voluntary authorization at any time, and his credit balance . . . [could] be given to him . . . .[Section] 690.78, which deals with the Pell, says that the student must grant permission . . . for the institution to hold any additional funds other than those for tuition fees, room and board . . . . The Department has - - - although Pell Grant does not say specifically that it has to be in writing, the Department has interpreted that to mean that the student would grant his permission in writing.See footnote 33 33

    She was unable to recite where Education published its interpretation requiring the authorization to be placed in writing. Counsel for Southern asked Ronald Lipton, Chief of the Program Compliance Branch Division of Audit and Program Review, Office of Post Secondary Education of the U.S. Department of Education, where in 34 C.F.R. § 690.78 a requirement exists that mandates written authorization to hold credit balances. Mr. Lipton admitted that the regulation does not preclude a student's verbal authorization to retain credit balances.See footnote 34 34 The transcript notes:

    Counsel:     Okay. If, in fact, a student had verbally agreed for the school to retain their credit balances, then that would not be a violation of the regulation would it?

    Lipton:     It would not be a violation of the regulation . . . .See footnote 35 35

    The school's view of the facts on this finding was presented by Rovetta Watson and Lawrence Haygood Jr. Rovetta Watson, Southern's director of financial aid, testified as to the procedure employed by students to transfer Pell Grants or college work-study money into their school accounts. In an exchange that took place between Education counsel Sampson and Ms. Watson, Ms. Watson explained that credit balances occurred "[i]f there was more money on the account than was charged, then a credit balance would be carried." If the student was out of school, the balance was to be refunded to the student. If the student was still in school, Mr. Haygood or Mr. Davis would counsel the student on their balance. She stated that she was aware of the procedure because she was called upon, from time to time, to verify the balances and she heard the counselling. Specifically, she said:

    Q.    How is the counseling -- could you paraphrase what was said?

    A.    It is just a simple matter of, you know, going over a student's account, basically what they have been charged for this -- this is your outstanding charge for this particular quarter; this is what has been credited to your account; you have a balance of blah-blah-blah. . . .And a student . . . can request what is on the account. If they don't want to pay it -- if they don't want a deduction taken from their GSL account, none is taken. If I fill out their form and they decide: Well, I don't want to pay that right now -- they don't pay it because we can't arbitrarily just do that.

    Q.    I am not talking about the funds that are due the college; I am talking about the other funds. What is the student told regarding the funds that are not due to the college?

    A.    They are basically told they have a credit balance. I mean, I don't know how much blunter you can get than that: that you have excess funds on your account.

    Lawrence Haygood, President of Southern, provided additional information on the school's handling of credit balances:

    [A] credit balance occurs . . . when we have received more money or the student has paid more money than we have charged him at . . . a given point in time for that current period of attendance . . . We were holding the balances after meeting with the individual students . . . and we would talk with them. The student had the option to receive the money or hold a certain amount on account for payments of future periods of attendance on upcoming periods of attendance. . . . .[T]hey ask us to hold it on account for them and then give them the balance . . . Therefore, you, in fact, will have a credit balance if the student has not yet begun attendance for the next quarter. . . We had some written authorizations. We had just begun a process of obtaining written authorizations . . . however, we didn't have written authorizations for all students because we had just begun the process.See footnote 36 36

    After a previous program review, a sample authorization form was conceived by Southern.See footnote 37 37 Haygood explained that the bottom of the form had a place for retroactive acknowledgement of verbal authorization to hold a Title IV money balance. He referred to Southern exhibit CC. It is a seven page document which illustrates that at least seven of the eleven students listed in the chart at finding nine, shown above, signed a written authorization form permitting the school to retain credit balances. The exhibit is signed by student #2, [student name] - 4-4-90; student #5, [student name] - 3-21-90; student #6, [student name] - 3-20-90; student #7, [student name] - 4-4-90; student #10, [student name] - 9-26-88; student #11, [student name] - 3-21-90 and student #12, [student name] - 4-2-90. He admitted that the school still did not have written authorizations from all students because the school could not locate some former students.See footnote 38 38

    According to the testimony of the program reviewer, Philip Knight, Southern's April 1990 response informed him that the school had updated their files with authorization documents.See footnote 39 39 In February 1991, when he assisted in an unannounced follow-up review to the November 28, 1989 program review, he claimed that he requested copies of the authorization form (Southern exhibit J or CC). However, they were not made available to him.See footnote 40 40

    B.

    The notice claims that Southern withheld Pell Grant or campus based program funds in amounts exceeding unpaid charges owed to the College. The 1989 program review refers to the withholding of Title IV credit balances for eleven students during the 1987-88 and 1988-89 award years. The notice also refers to violations arising from the 1987 program review which covers the 1986-87 and 1987-88 award years. Education relied on 34 C.F.R. § 682.604 (d)(ii) (1987) and 690.78 (1988). 34 C.F.R. § 682.604 (d)(ii), effective November 10, 1986, states:

    The school may credit a registered student's account with only those loan proceeds covering costs of attendance owed to the school by the student for which substantially all of the school's students incurring those cost have been billed, and any additional loan proceeds that the student requests in writing that the school retain in order to assist the student in managing his or her loan funds for the remainder of the academic year.

    The regulation 34 C.F.R. § 690.78, effective October 10, 1987, states:

    (a)(1) The institution may pay a student directly by check or by crediting his or her institutional account.
    (2) Unless a student has agreed otherwise, the amount an institution may credit to a student's account may not exceed the amount the student is required to pay the institution for-
         (I) Tuition and fees;
        (ii) Board, if the student contracts with the institution for board; and
        (iii) Housing, if the student contracts with the institution for housing.
    (3) An institution may not require a student to grant permission to credit his or her account for the costs of other goods and services the institution provides to the student.
    (4) The institution shall notify the student of the amount he or she can expect to receive and how that amount will be paid.
    (b)(1) The institution may not make a payment to a student for a payment period until the student is registered for classes for that period.
    (2) The earliest an institution may directly pay a registered student is 10 days before the first day of classes of a payment period.
    (3) The earliest an institution may credit a registered student's account is three weeks before the first day of classes of a payment period.
    (c) The institution shall return to the Pell Grant account any funds paid to a student who, before the first day of classes
    (1) Officially or unofficially withdraws; or
    (2) Is expelled.
    (d)(1) If an institution intends to pay a student directly, it shall notify him or her before the payment is made when it will pay the Pell Grant award.
    (2) If a student does not pick up the check on time, the institution shall still pay the student if he or she requests payment within 15 days after the last date that his or her enrollment ends in that award year.
    (3) If the student has not picked up his or her payment at the end of the 15 day period, the institution may credit the student's account for any amount owed to the institution for the award year.
    (4) A student forfeits the right to receive the payment if he or she does not pick up a payment by the end of the 15 day period.
    (5) Notwithstanding paragraph (d)(4) of this section, the institution may, if it chooses, pay a student who did not pick up his or her payment, through the next payment period.

    20 U.S.C. 1070a(e) serves as the authority for the regulation 34 C.F.R. § 690.78:

    Payments under this section shall be make in accordance with regulations promulgated by the Secretary for such purpose, in such manner as will best accomplish the purpose of this section. Any disbursement allowed to be made by crediting the student's account shall be limited to tuition and fees and, in the case of institutionally owned housing, room and board. The student may elect to have the institution provide other such goods and services by crediting the student's accounts.

    C.

    Education's presentation of this finding is a puzzle. It makes several attempts before locating a path to its point. Much of the evidence presented focused on the matter of written authorization to hold credit balances and what Southern did to implement Education's demand to have written authorizations in the student files. The issue, however, is whether Southern withheld student funds. Education alleged violations of 34 C.F.R. § 682.604 (d) (ii) and 34 C.F.R. § 690.78. To prove the violations, Education claimed that: 1) Southern withheld funds without authorization in the GSL program, 2) a list of SEOG funded students establishes credit balances, 3) students must authorize in writing the institution's authority to hold credit balances, and 4) premature Pell Grant payments is withholding student funds without authorization.

    First, section 682.604 is found in subpart F - entitled "Requirements, Standards, and Payments for Participating schools in Guaranteed Student Loan (GSL) and PLUS programs." The facts presented in the stipulations, testimony, and program review report indicate that the funds in question are either Pell Grant or Supplemental Educational Opportunity Grant (SEOG) programs. Since the notice cites a violation of the GSL program and there is no evidence submitted concerning GSL students, there can be no violation of 34 C.F.R. § 682.604, a GSL program regulation.

    Second, Education cited in its notice only violations for the unauthorized withholding of GSL and Pell Grant fund money. Yet, the reference to the 1989 program review indicates that students numbered 1, 5, 6, 7, 9, 10, 11, and 12 received SEOG funds. A SEOG program violation is found in Part 676 of the Code of Federal Regulations. There is no citation to a SEOG regulation violation. In addition, Education provided no facts of SEOG violations other than the reference in the 1989 program review chart. The chart shown on page 12 of this decision lists eight students with both Pell and SEOG funds. The chart alone does not provide any method of determining if the range of credit balances is the result of Pell money or SEOG money. None of the stipulations provide any information on SEOG funds, nor is there testimony regarding SEOG funds. From only the evidence shown on the chart, it is insufficient to prove either a violation of withholding student funds from either Pell or SEOG credits balances. Since Education has not charged Southern with a SEOG violation, the SEOG statements in the chart are of no relevance to the violations.

    Third, Education failed to show that Southern violated 34 C.F.R. § 690.78 by arguing that the regulation requires written authorization to hold credit balances. Section (a)(2) states only that the student "agree otherwise." This is not a requirement to agree in writing to hold credit balances. Furthermore, the student authorization required is not permission to hold credit balances in the student's account; it is authorization to credit a student's account for " other such goods and services" to be provided by the institution. A discussion of this point will be more fully discussed in finding six below.

    Fourth, the only evidence of significance submitted to prove this finding centers on Pell Grant funds. The source of information is found in the program review reports and in the stipulations. The statements in the program review alone are insufficient to support Education's claim. The stipulations do, however, provide sufficient facts to discern that certain sums of money for various students came from Pell Grant funds. In the cases of [student name], [student name], [student name], [student name], [student name], and [student name], stipulations were submitted to support the statements in the chart shown in finding nine of the 1989 program review. [student name], [student name], [student name], [student name], [student name] and [student name] received money at different times for which they were not eligible based on the number of training hours completed. [student name] received $1050 on 12/28/87 and $1100 on 11/4/88 (Stipulations 12 and 13). [student name] received $1050 on 12/28/87 (Stipulation 19). [student name] received $1100 on 8/1/88 and $1100 on 10/26/88 (Stipulation 20 and 21). [student name] received $1100 on 9/27/88 (Stipulation 24). In each of the cases cited above, the money was received before the students acquired a sufficient number of completed training hours.

    Stipulations 17-18 ([student name]), 22 ([student name]), 23 ([student name]), 25 ([student name]), 26-27 ([student name]), and 28 ([student name]) are written in the same manner as stipulations 12, 13, 19, 20, 21, and 24. They recite that various students retained balances in the student's account based upon a receipt of funds prior to attaining the requisite number of training hours. The students mentioned in these stipulations are not individuals cited in the notice. The notice was never amended to include these students. The stipulations are, however, admitted by the parties as evidence of the truth of the statements. The stipulations admit that certain students received premature Pell Grant payments. All of the cases cited in the previous paragraph refer to Pell Grant funds and are alleged to be a violation of 34 C.F.R. § 690.78.

    Other students mentioned in the 1989 program review chart are [student name], [student name], [student name], [student name], and [student name]. But there is no additional evidence and no stipulations covering these students which show violations connected to these students. Therefore, Education failed to provide convincing evidence that the cases of [student name], [student name], [student name], [student name] and [student name] were subject to "retained credit balances."

    To analyze the facts and apply them to the regulation, one must look to the regulation for direction. Section 690.78 is entitled "Method of disbursement - by check or credit to a student's account." This section is found in Subpart G entitled "Administration of Grant Payments" of Pell Grant awards to students.See footnote 41 41 Sections.(a) and (b) of §690.78 permit the disbursement of Pell Grant funds to the student's accounts or directly to students. These sections do not address withholding student funds without proper authorization. The regulation at (a)(1) permits a credit to a student's account, but the credit may not exceed the amount the student is required to pay the school for tuition, board and housing. The institution may not credit the account of the student until three weeks before the first day of classes of a payment period. Section (c) of the regulation does discuss withholding funds or returning funds in three situations: 1) student withdrawal, 2) student expulsion, and 3) student's failure to pick up the request for direct payment within 15 days of enrollment. Parts (c) and (d) of the section consider returning or withholding funds from the Pell Grant account not from withholding funds from the student.

    The heading of this finding states: "Withholding Student Funds Without Proper Authorization."See footnote 42 42 Therefore, the important fact in this violation is the withholding of the funds. As stated earlier in this discussion, this finding is primarily based on the 1989 program review report. That report states: "Southern Vocational College has routinely credited awards to students' accounts without regard to whether or to what extent, the student had unpaid charges due to the institution."See footnote 43 43 The violation charged is withholding student funds, but the facts presented by Education to prove the charge do not show withholding funds. The facts demonstrate that the student accounts were paid. The only evidence submitted supports the proposition that certain students received Pell Grant money for which they were not eligible based upon the number of training hours completed. The regulation cited by Education is a regulation which describes the method of disbursement of funds, not the withholding of funds. The only portion of the regulation which refers to withholding or returning funds is specifically described as student withdrawal, expulsion, or failure to pick up Pell Grant funds. There is no evidence to show that an enrolled student withdrew, was expelled, or failed to request his/her Pell Grant within 15 days of enrollment.

    In summary, Education failed to prove violations of either 34 C.F.R. §§ 682.604(d)(ii) or 690.78. Section 682.604(d)(ii) applies to GSL funds. No evidence of GSL funds was presented to prove the violation of a GSL regulation. While the program review mentions SEOG funds, there is no citation of a SEOG violation. Education's argument that the institution must have written authorization to hold credit balances has no support in the regulations cited and will be discussed in detail in finding six below. The only credible facts submitted concern the premature payment of Pell Grants. There is no evidence to show that the school withheld Pell Grant funds. The only evidence shows that Southern credited students' accounts. Therefore, Education failed to prove that Southern either failed to credit or pay the students or withheld funds from the Pell Grant account.

    Retaining Pell Grant funds for students no longer enrolled Finding Six of the notice

    A.

    Education counsel stated that finding six is similar to the charge in finding number five. The only difference is that the students shown in the chart below were no longer enrolled in the school. Counsel stated: "[I]t showed a credit on their account that should have been returned to the lender if it was [G]uaranteed [S]tudent [L]oan money or to the program department."See footnote 44 44 Education counsel stated in her brief at 24 that: "the College also retained Pell Grant credit balances for students after they ceased attending the College. Stips. 42 through 45. . . . [A]n institution is not permitted to retain Pell Grant . . . funds in excess of the amounts currently due the institution." Later, counsel stated: "When a student ceased attending SVC, SVC was required to return any retained credit balance as a refund."See footnote 45 45 The notice states:

    In addition to retaining Pell Grant and campus-based funds in excess of the amount of unpaid charges due to the College for enrolled students, the College also retained Pell Grant credit balances for students after they ceased attending College. This practice also violates 34 C.F.R. § 690.78. ED cited the College for this violation in both the 1987 and the 1989 program review reports.See footnote 46 46

    The following portion of the 1989 program review at finding nine provided the basis for finding six of the notice:

    CREDIT BALANCES FOR NON-ENROLLED STUDENTS

                                        Outstanding Credit
                                        Balance as of the
Student    LDA         To Acct.    Program     Amount    Week 07/21/89
1C        12/13/88     07/01/88    Pell         $1100            $350
1D        03/15/89    02/21/89    Pell         650          275
1E        UNK         10/27/88     Pell          1075              676
1F        UNK         11/21/88     Pell          1100              50

    The students are identified in Appendix A on page 17 of Education exhibit A-1. Student 1C - [student name], student 1D [student name], student 1E - [student name], and student 1F [student name].

    Education's 1989 program review required the school to return the funds to the four students or to Education. After disbursing the funds, the institution was required to report the completion of the task. Education also mandated that Southern submit a plan to ensure that the school not hold credit balances without written authorization for non-enrolled students.See footnote 47 47 Stipulations 42 through 45 address this finding:

    42. SVC retained $350 in Pell Grant funds belonging to [student name] until 7/21/89.

    43. [student name]'s last day of attendance at SVC was 12/13/88.

    44. SVC retained $275 in Pell Grant funds belonging to [student name] until 7/21/89.

    45. [student name]'s last day of attendance at SVC was 2/21/89.

    Southern counsel admitted the [student name] and [student name] statements in stipulations 42 through 45 were true.See footnote 48 48 There was no evidence submitted by either party on the two remaining students, [student name] and [student name], shown in the chart above.

    The program reviewer testified that credit balances must be given by the students in writing. Ronald Lipton, Chief of the Program,Compliance Branch testified, however, that the student's authorization need not be in writing. The details of the testimony was set forth earlier in this decision at finding five above. Southern presented no evidence that it had either written or verbal authorization from the four students mentioned in the chart.

    The notice does not give reference to a specific finding in the 1987 program review to examine. The notice in finding four states: "In the December 14, 1987 program review report, the College was found not to have calculated or paid refunds due to the two students in the review sample who were due refunds."See footnote 49 49 Finding four of the notice is a charge of a GSL violation, but the facts of this charge relate to Pell Grant funds. The December 1987 program, under the finding entitled "Refund Policy Not Applied," refers to the failed calculation of the refunds to [student name] and [student name].

    The only suggestion of evidence is found in a letter to Nancy Mapes from the President of Southern. In a response written April 9, 1990, to finding nine, he writes:

We have reviewed the student ledgers and identified students for whom credit balances were held. We are issuing the credit balances to students where applicable and have obtained signatures of student for whom such balances were held. The institution as a practice currently no longer holds such balances for students. In the upcoming quarter, the institution will change to charging according to cost of program which will help to avoid credit balance accounts. The response to this finding will be completed with review and confirmation of resolution by the Certified Public Accountant.See footnote 50 50

    Southern counsel maintained that it had corrected the problems of retaining Pell Grant funds of attending students or students no longer enrolled after the December 14, 1987 program review.See footnote 51 51 To eliminate the problem of credit balances, Haygood indicated that they changed the system of billing.See footnote 52 52 He claimed that Mr. Pouncey of Education's Atlanta District office suggested, after Southern questioned him, that Southern change its method of assessing charges. Haygood claimed Pouncey's instruction was: "You may want to consider doing what other schools do: go to cost of program."See footnote 53 53 On cross examination Ms. Mapes admitted that if a student signed up for a 12 month program, the student is required to pay tuition for the program length agreed upon regardless of whether it is paid monthly, quarterly, weekly, or all up front.See footnote 54 54 No further evidence was submitted to support the 1987 charge of retaining Pell Grant funds of students no longer enrolled.

    Counsel for Education insisted, as she did in finding five of the notice above, that finding four of the December 14, 1987 program review verified that finding nine of the 1989 program review is a repeat violation. Therefore, finding six of this notice charges the school with the carrying credit balances without student authorization the same as the charge in finding five above. The testimony of Ronald Lipton, Rovetta Watson, Lawrence Haygood Jr.; and Philip Knight, discussed above in finding five, should be reviewed for its application to finding six.

    B.

    This finding relies on section 34 C.F.R. § 690.78 (1988) which is the same authority as finding five above.

    C.

    For Education to establish finding six, it must prove that a student is no longer enrolled at the school and that Southern retained Pell Grant funds of the students contrary to the provisions of 34 C.F.R. § 690.78. Education's two arguments must be rejected because: 1) it failed to provide sufficient evidence that Southern failed to refund monies in accordance with 34 C.F.R. § 690.78 and 2) it failed to show proof that the institution must have written authorization to hold credit balances. Refunds or a return of funds is specifically set forth in § 690.78(c): "[t]he institution shall return to the Pell Grant account any funds paid to a student who, before the first day of classes - (1) officially or unofficially withdraws or (2) is expelled." In § 690.78(d)(4), a third specific possibility is approved - if the student fails to pick up a direct payment within 15 days of enrollment a refund may be made.

    Counsel stated in her brief at 20: "Institutions are not permitted to retain Title IV, HEA program funds in excess of amounts currently due to the institution." Further, she said: "the college . . . retained Pell Grant credit balances for students after they ceased attending college. Stips., 42 through 45." Also, counsel argued that "When a student ceased attending SVC, SVC was required to return any retained credit balance as a refund."See footnote 55 55 Counsel, in her brief, at 26 states: "[R]efunds must be made in accordance with the refund policy."

    First, Education counsel argued that the chart listing nonenrolled students Sparks, Richardson, Denson and Stinson "showed a credit on their account that should have been returned to . . . the program department."See footnote 56 56 Here, the information available from the program reviewers' report contains allegations that four students withdrew on specific dates and Southern had credit balances. In the case of [student name], it was stipulated that she last attended on 12/13/88 and funds belonging to her were retained until 7/21/89. In the case of [student name], it was stipulated that his date of last attendance was 2/21/89 and funds belonging to him were retained until 7/21/89. Sufficient proof exists based upon the stipulations to show that [student name] and [student name] were former students who had Pell Grant funds carried in the student's account after the students left school. To establish retained Pell Grants funds for the non-enrollment of a former student, proof of the date of last attendance must be shown. There is no information available in the case of [student name] and [student name] as to dates of last attendance. Education's proof of the specific date that [student name] and [student name] withdrew or were expelled does not exist; therefore, the allegation citing [student name] and [student name] based upon 34 C.F.R. § 690.78(c) fails for insufficient proof of the element of the last day of attendance or other circumstances which would warrant a refund under the three conditions set out in sections (c) or (d).

    Furthermore, while it is true that the stipulations confirm that [student name] and [student name] were former students, proof of a violation of 34 C.F.R. § 690.78 (c), nevertheless, fails because there is no proof that the dates of last attendance for [student name] and [student name] occurred before the first day of classes. Return of funds to the Pell Grant account, under the regulation charged, requires student withdrawal or expulsion prior to the first day of classes. No evidence is presented upon which a finding may be made that the withdrawal from school occurred before the first day of class as required by section 690.78(c).See footnote 57 57 Additionally, there is no evidence to show that any of the students failed to pick up their funds after a direct payment request.

    Second, Education argued that Southern failed to obtain written authorization to retain credit balances. In fact, the program reviewer stated: "We did not find evidence that these students [for whom] they retained credit balances "provided] . . . any voluntary authorization . . . signed by the student . . . nor was . . ..the student . . . aware that he [could] rescind this voluntary authorization at any time, and his credit balance . . . [could] be-given to him."See footnote 58 58 Education counsel argued that Southern may not hold credit balances in excess of the amount of the currently due to the institution. Nevertheless, Education's argument that the school may not have a credit balance in the student's institutional account is inconsistent with the requirement to obtain written authorization to hold a credit balance. To argue that Southern must have written authorization to retain credit balances acknowledges that the school may have a credit balance.

    The testimony provided much information concerning credit balances in a student's account from Pell Grant funds. Southern's Rovetta Watson and Lawrence Haygood admitted that credit balances occurred. Mr. Haygood, stated that the school held balances after talking with the students. He said: "the student had the option to receive the money or hold a certain amount on account for payments of future periods of attendance . . . .See footnote 59 59 The program reviewer testified that section 690.78 requires written authorization from a student in order for the institution to hold student credit balances.See footnote 60 60 At another point in her testimony, she admitted that the regulation does not specifically state that permission to hold additional funds must be in writing. She said Education interpretated the regulation to require permission in writing, but she provided no authority to support her argument.See footnote 61 61

    In addition, the regulation allegedly violated is entitled the "method of disbursement of funds - by check or credit to a student's account." Section (a) (1) permits an institution to transfer Pell Grant account funds to a student's institutional account. Section (a) (2) limits the money that may be credited to the student's account to funds for tuition and fees, board and housing. The regulation and the United States Code state that the student may agree "otherwise." The regulation and code both state that a student may agree to do something, but there is no requirement that the agreement be a written agreement. The regulation merely states "unless a student agrees otherwise." "Otherwise," used by itself, requires further explanation. Therefore, one must look to the authority for the regulation. The regulation is based upon 20 U.S.C. § 1070a(2) which states:

    Any disbursement allowed to be made by crediting the student's account shall be limited to tuition and fees and, in the case of institutionally owned housing, room and board. The student may elect to have the institution provide other, such goods and services by crediting the student's account. (emphasis added)

    The section permits credit to a student's institutional account, but it does not state that a credit balance may or may not exist in the student's account. It merely permits the institution to credit a student's account. The regulation does say the amount of credit may not exceed the amount the student is required to pay for tuition, fees, board and housing or otherwise agreed goods or services. The only limitation in the regulation and U.S. Code limits the categories of disbursement allowances. "Otherwise", as used in the regulation at (a)(2), refers to the permission required to credit Pell Grant funds to a student's account for any educational expenses other than tuition fees, housing, room and board. The student agreement required by the regulation and the code permits an institution to credit "other such goods and services to the student's accounts." The authorization required is not authorization to retain credit balances. but permission to credit other goods and services. In addition, while it may be good business practice, neither the regulation nor the code require the agreement to be in writing.

    In summary, Southern is charged with a failure to refund sums to students who have withdrawn. A violation of 34 C.F.R. § 690.78(c) requires proof that the student's withdrawal took place before the first day of classes. Education failed to provide evidence of this element of the regulation. Furthermore, the program reviewer is not correct in stating that the regulation requires written authorization to hold credit balances. Section (a)(2) states only that the student "agree otherwise." This is not a requirement to agree in writing nor an agreement to hold credit balances. It is authorization to credit a student's account for "other such goods and services" to be provided by the institution.

Disbursing Pell Grant payments to students who have not completed the payment period for which they have previously received Pell Grant funds - Finding Seven of the notice

    A.

    The notice at finding seven states:

        Under 34 C.F.R. § 690.75(a)(6), an institution may not disburse second and subsequent Pell Grant payments to a student before the student has completed the clock hours the last previous Pell Grant was intended to cover. The College disbursed Pell Grants to students in violation of this requirement. ED cited the College for this violation in both the 1987 program review report and the 1989 program review report.See footnote 62 62

    To prove finding seven, Education relied upon the testimony of program reviewer, Nancy Mapes, the program review reports, the stipulations, and Education exhibits D and E. In the 1989 program review at finding three, Education named students that received additional Pell Grant payments without first completing the hours for which they had already been paid.See footnote 63 63 The chart below was extracted from the students' files by Ms. Mapes. She looked at the students' records to see how many hours they had attended as of a certain date, and then determined if the students had enough hours to justify the payments made. For the basis of her conclusions made in the 1989 program review, she sampled 26 student files. Nancy Mapes testified that finding three of the 1989 program review provided a random sample fairly selected:

    Finding three [premature disbursement of Pell Grant funds] included not only students that I had selected . . . randomly from their reimbursement requests, but also included the students who had been randomly selected from the listing provided by the institution of students who received Title IV monies . . . . They could not request Pell Grant funds because the student simply wasn't eligible. He had not moved over into the next Pell Grant payment period.See footnote 64 64

    Education counsel referred to finding three at page five of Education exhibit A-1 for Mapes' to justify her conclusions:

    Southern Vocational is a clock hour system. They defined their academic year as 900 clock hours. Within that academic year, they elected to have two payment periods. That means that the student would be paid from zero to 450 clock hours, and he would be paid from 451 to 900 clock hours . . . . We found that . . . Southern Vocational had requested Pell Grant payments for students who had not reached the next payment period for which they were entitled to receive Pell Grant monies. The student had not earned the hours.See footnote 65 65

    In particular, she reviewed the school's certification statements of the student hours completed.See footnote 66 66 She said:

    [I]f there was enough back-up documentation sent by Southern to determine that yes, the student did have the required number of hours, or no they didn't have the required number of hours, that particular adjustment was made to their . . . monthly cash request . . . .See footnote 67 67

    Education counsel Bengle gave the following explanation of the chart below:

    [The] [h]ours completed column tells you how many hours the student has as of the date that the payment was made and the hours needed time tells how many hours the student needed to have in order to get the payment that was being made. If you essentially compare those three columns and then look at the date the payment was made you'll see how many hours the student was short.See footnote 68 68

                    Date Hours
Student#    Amount    Payment #    Paid        Completed    As Of        Needed

1        $1050    2        10/22/87    350.25        12/25/87    451-900
        1100    4        10/27/88    1299.25        10/28/88    1351-1800
2        1050    2        12/22/87    360        12/25/87    451-900
3        1050    2        12/22/87    396.25        12/25/87    451.900
        1100    3        7/01/88        896.25        7/01/88        901-1350
        1100    4        10/26/88    1173.75        10/28/88    1351-1800
4        1050    2        12/20/87    355        12/25787    451-900
        1100    3        7/01/88        845.5        7/01/88        901-1350
5        1050    2        12/14/87    358.75        12/25/87    451-900
6        1100    3        9/27/88        896.5        9/30/88        901-1350
7        1100    2        7/01/88        385.5        7/01/88        901-1350
        1100    3        10/26/88    1066.75        10/28/88    1351-1800
8        1050    2        12/28/87    427.5        1/01/88        451-900
9        1100    3        10/26/88    622.5        10/28/88    901-1350
10        1050    2        12/25/87    342.5        12/25/87    451-900
        1100    4        9/27/88        1234.5        9/30/88        1351-1800
11        1050    2        12/25/87    371.25        12/25/87    451-900

    Education exhibit A-1 at 17 identifies the students reviewed in the 1989 program review: Year 1987-88: 1. [student name], 2. [student name], 3. [student name], 4. [student name], 5. [student name], 6. [student name], 7. [student name], 8. [student name], 10. [student name]. Year 1988-89: 9. [student name], 11. [student name]. Concerning the 1989 program review facts related to the chart above, the parties submitted the following stipulations to support or defend its position:

        12. SVC disbursed to [student name] on or about 12/28/87 $1,050 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed.

        13. SVC disbursed to [student name] on or about 11/4/88 $1,100 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed.

        14. SVC disbursed to [student name] on or about 12/28/87 $1,050 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed.

        15. SVC disbursed to [student name] on or about 12/28/87 $1,050 in Pell Grant funds that he was not eligible to receive based on the number of hours of training completed.

        16. SVC disbursed to [student name] on or about 11/4/88 1,100 in Pell Grant funds that he was not eligible to receive based on the number of hours of training completed.

        17. SVC disbursed to [student name] on or about 12/28/87 $1,050 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed.

        18. SVC disbursed to [student name] on or about 7/1/88 $1,100 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed.

        19. SVC disbursed to [student name] on or about 12/28/87 $1,050 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed.

        20. SVC disbursed to [student name] on or about 8/1/88 $1,100 in Pell Grant funds that he was not eligible to receive based on the number of hours of training completed.

        21. SVC disbursed to [student name] on or about 10/26/88 $1,100 in Pell Grant funds that he was not eligible to receive based on the number of hours of training completed.

        22. SVC disbursed to [student name] on or about 12/28/87 $1,050 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed.

        24. SVC disbursed to [student name] on or about 9/27/88 $1,100 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed.

    The 1989 program review required Southern to comply with the regulations by executing certain actions. The institution was required to review the student files to determine if premature payments were made to students during the period January 26, 1988, through the end of the 1989 award year. Any student who subsequently completed the required hours was not to be listed. A format was described and repayment instructions were given. Finally, the college was to insure a future system of prevention of the practice .See footnote 69 69

    Education also relied on information contained in the 1987 program review. The 1987 program review at finding one sets forth Education's claim that premature payments of Pell Grants were made during that review:

    Prior to 7/1/87, the institution's academic year was 1248 hours and its payment period was 624 hours. Effective 7/1/87 the academic year was changed to 900 hours, and the payment period to 450 hours. Within the sample group, four students who received Pell payments prior to 7/1/87 received additional payments after that date, without having first completed the hours for which they had already been paid. These students are:

    Name        Amount     PMT.#     DATE PAID HRS.COMPL.    AS OF

    Diann Davis    $1,050    2        08/26/87    627        10/01/87
    Sylvia Harris    1,050        3        09/23/87    1,028        11/13/87
    Stella Macon-    1,050        2        08/25/87    454        08/25/87
    Stella Macon    1,050        3        10/22/87    602        11/06/87
    Brenda Reese    1,050        3        08/26/87    625        10/27/87

    Because [student name] and [student name] subsequently completed the hours necessary to qualify for their last payment, no action is necessary on these two students.

    The institution must review all students who received payments both before and after 7/1/87, identifying in the above format all students who received 1987-88 award year payments but who had not completed the number of hours for which they had previously been paid. Students who subsequently met the required number of hours need not be listed. The date used for the last column should be the current date, which may be the date of response to this report.See footnote 70 70

    The following are stipulations to support or defend the respective positions concerning the 1987 program review:

        23. SVC disbursed to [student name] on or about 9/2/87 $1,050 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed.

        25. SVC disbursed to [student name] on or about 9/29/87 $1,050 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed.

        26. SVC disbursed to [student name] on or about 9/2/87 $1,050 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed.

        27. SVC disbursed to [student name] on or about 10/22/87 $1,050 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed.

        28. SVC disbursed to [student name] on or about 9/2/87 $1,050 in Pell Grant funds that she was not eligible to receive based on the number of hours of training completed.

    A comparison of the students identified in the two charts above to stipulations 12 through 28 indicate agreement to all of the entries, except the following five entries: [student name] (#3) fourth payment, [student name] (#6) third payment, [student name] (#9) third payment, [student name] (#10) second payment, and [student name] (#11) second payment. Concerning the 1989 chart above, other than the testimony of the program reviewers no additional Education evidence is presented to document the allegations of the five entries made but not covered by the stipulations. In the five cases mentioned here, Southern neither provided a specific admission of a payment irregularity, nor submitted evidence to contradict the assertions of irregularity made by Education.

    Education counsel proposed that Education exhibits D and E are the two documents that prove Southern's repeated requests for premature unearned Pell grant payments. Education exhibits D and E do not indicate that they were issued as a part of the 1987 or 1989 program reviews. They are separate actions independent of the program reviews relied upon in this notice. To explain the significance of Education exhibits D and E, counsel stated:

    We were relying on cash requests that had been submitted at that time and I believe monthly request forms called PMF 270 . . . We're also relying on information of the school's cash on hand which could have been derived from either the PMF 270 forms or actually looking at the school's accounts.See footnote 71 71

    Education exhibit D attempts to clarify the dates Southern was placed on the reimbursement system of payment.See footnote 72 72 Exhibit D, the letter dated March 8, 1990, from Judith Brantley, Chief of the Atlanta Institutional Review Branch, gave instructions as to how the school was to receive payments. The letter initiated, without specific factual reference, the transfer of the school to the "reimbursement request" system of payment. The letter recites: "We have taken this action because the Cash Advance Request System your institution was previously on has been discontinued by the Department."See footnote 73 73 The exhibit provided, however, no facts concerning premature payment of Pell Grants.See footnote 74 74 Education counsel further asserted:

    E is a letter basically telling Mr. Haygood that in response to receiving cash requests from him, the Department had found that the requests aren't actually accurate and it states that the amount that they had requested is $36,004 in excess of the amount of expenditures that they've documented. . . .There is nothing other than the letter and the testimony on that point.See footnote 75 75

    Education's exhibit E is a September 1988 letter from William Pouncey, a former Atlanta Regional Education institutional review specialist. He advised the school it had insufficient evidentiary documentation for many of the accounts of the 1986-87 award year and denied the claims. The denial of the claims, in turn, caused excessive funds drawn for the 1986-87 award year. Education exhibit E restated the demand for a "reimbursement requested" basis of payment. The requirements for payment, however, changed from executive certification to a more specific request. Education, through Pouncey's letter, required documentation on each student in the following manner: 1) copy of student aid report, 2) clock hours in student's education program, 3) clock hours completed to date, 4) copy of complete student account ledger, showing that the reimbursement amount requested had been posted to each student's account.See footnote 76 76 Exhibit E, dated September 9, 1988, refers to a "history of not being able to account for all Title IV funds" and a repayment agreement that predated the 1982 delinquent audit report.See footnote 77 77 Education in its brief states:

    Even after its receipt of this letter [Ed. Ex. E.], however, SVC continued to make false claims for reimbursement based on its projections of what it hoped to earn in the future. E.g., stips. 13, 16, 21, and 24 all involved students for whom SVC claimed and disbursed funds for which the students were not eligible at the time the funds were claimed and disbursed. It is important to note also that SVC did not ultimately earn all of the funds it falsely claimed based on its projections. Ed. Ex. E at 2.See footnote 78 78

    Other than the program review reports, exhibits D and E, Education counsel said: "I don't think we have any other written documents in evidence."See footnote 79 79 Education, however, called Carolyn Boykin and James Sturdivant to testify in an effort to show that the school received excess cash due to the premature payment of Pell Grants. Their testimony is general in nature and does not specifically describe the method of receipt of the excess cash by premature payment. Nevertheless, Education, in its November 1991 summary of the finding, indicated its reliance upon these two witnesses to prove finding seven.

    Carolyn Boykin, an accountant for Education, testified as to Southern's cash accountability, its debt to Education, and the school's cash reporting problem. She claimed that as early as 1984 she began to give special attention to Southern. As a result of her reconciliations, she recalled the excess cash in the school's account totaled between $700,000 and $900,000. She did not arrange any repayment plan with the school, but claimed that Education and Southern agreed that there was excess cash in Southern's possession. Therefore, a note was signed by the parties which permitted the school to continue operations.See footnote 80 80 At the time of her testimony in March 1991, she claimed that the school still owed between $600,000 and $700,000. She provided no specific documentation to support any of her allegations. On cross examination, she admitted that Southern's only cash accountability problem was the note which is being offset.See footnote 81 81

    James Sturdivant, an accountant for Education's loans and accounts receivable branch, testified that he is familiar with the Southern accounts receivable. He worked to negotiate the note for Education. The original agreement was made in 1985 and was subsequently modified to $1,000,490.See footnote 82 82 He said: "It provided for the College to return monies that were excess cash drawn down out of a payment system and to pay it back over a number of years . . . .See footnote 83 83 He said that the terms set monthly payments of $10,676 and should be paid off in November 1996. The current balance at the time of the hearing was $629,272.47. According to his records,- the school is not in default. "They have been paying each month . . . [W]here they found that they were running into a problem, they usually came to us, and we would do something to suspend payments or make an arrangement whereby it would not be in default."See footnote 84 84

    Southern claimed it understood the system and the problems presented by this finding. It offered an explanation of the school's actions. Rovetta Watson, Southern's financial aid director, recalled that at the 1989 program review exit interview the topic of premature Pell payments was discussed. She explained that a clock hour system school must submit payment requests every so many hours.See footnote 85 85 Ms. Watson was asked: "Do you have any knowledge as to what was causing the premature payment of Pell Grants?" She explained:

    We submitted on . . . projected hours that the student should complete within a particular time frame. Basically, at that particular time, our requests were taking a very long time to be processed, so in some instances, the student wants the money [which] had been received, [and the student] had actually met the hour requirements. We were not receiving funds in time enough to pay students in terms of college work-study, so we would . . . submit on projected hours . . . [based on an estimate of what the student would have completed by that time. ]See footnote 86 86

    She explained that an overpayment results if the student does not meet his or her hours. She further said that she assumed that there would be no problem, as long as the student gained the required hours. She admitted being informed of the impermissibility of projecting hours, but she indicated that the school has remedied the problem by ceasing the practice of projecting hours.See footnote 87 87 Southern counsel concedes that the payments to the students identified were based on projected hours.See footnote 88 88 Southern counsel further admitted that Ms. Mapes' computation set out in the chart above cannot be contradicted by any of the -Southern exhibits. She stated that stipulations 12 through 28 do not dispute that on a certain date they had completed a certain number of hours and that premature payments were made.See footnote 89 89 She further stated in mitigation that all students completed their hours. She argued that it is not a violation of the regulations to request a payment based upon the assumption that by the time the money gets to the school, the student would have completed the hours.See footnote 90 90

    Mr. Haygood tendered an explanation as to why the premature Pell payments were made.

He said:

    What had occurred was that we were having difficulty in having our requests processed by the Office of Education in what we considered a timely fashion. . . . We ran into the problem with the -- particularly the regional office delaying, for some reason, those requests or not acting on them in a timely fashion which means that our students were being paid considerably late. . . . Students thought that we had the money and were holding it and not disbursing it to them. . . . The explanations that we attempted to give during the exit conference were very limited and were not - - - and I can't say were well received. They were limited in terms of giving us time to even discuss it, and if we discussed something, there was no response - - very little or no response given back regarding that.See footnote 91 91

    Southern counsel argued that Education made inconsistent statements concerning the type of reimbursement system imposed upon Southern. Southern maintained that Southern exhibits V and W adequately satisfy Education's demands for corrective action found in Education's exhibit E. Southern's exhibit V is partially in response to the school's placement on a "reimbursement requested" basis. Exhibit V makes a general comment on the premature payment of Pell Grants. Southern made general statements of the school's policy and that the school has made significant progress to reduce the overexpenditure. No specific details are evidenced in the letter which shed light on the premature payments of Pell Grants.See footnote 92 92

    Exhibit W is a final summary letter from Judith Brantley to the president of Southern. The letter states that Southern's exhibit V satisfactorily responded to the December 1987 program review. Brantley stated: "This review will be considered closed upon receipt by Mr. Pouncey of documentation evidencing payment of this liability. Your check for $565.35 should be made to the U.S. Department of Education . . . ."See footnote 93 93 There is no testimony or other evidence to show the school failed to pay the $565.35 and close the 1987 program review.

    B.

    The notice claims that Southern's premature payment of Pell Grant payments is a violation of 34 C.F.R. § 690.75 (a)(6)(1985). This section, effective March 15, 1985, states:

    For each payment period, an institution may pay a Pell Grant to an eligible student only after it has been determined that the financial aid transcript requirements of 34 C.F.R. Part 668 have been met, and the student ---

        Has completed [the] required clock hours for which be or she has been paid a Pell Grant.

    The notice states that the College violated this regulation in "both the 1987 program review report and the 1989 program review report." In as much as the award years in question include the 1986-87, 1987-88, and 1988-89, it is necessary to look at the regulations to determine if the regulation quoted, above, was effective from 1986 through 1989.

    On November 19, 1986, the regulation was changed. Section 690.75(a)(6) became 690.75(a)(5). The wording of the two subsections (6) and (5) are the same. After another amendment on November 28, 1986, however, 34 C.F.R. § 690.75 (a) eliminated subsection (5) and no identical subsection remained. Subsection (5) was changed to subsection (3) and restated: "Has completed required clock hours for which he or she has been paid a Pell Grant, if the student is enrolled in an eligible program that is measured in clock hours." The wording of subsection (3) continued through the 1989 award year.

    In order to establish a violation of 34 C.F.R. § 690.75(a) (6), Education must show that a Pell Grant payment was made to a student for a future payment period prior to the student's completion of the current payment period. Education must show that the school had more than one payment period. Here, the payment periods are not contested. Southern operated as a clock hour system school. The first period covered the clock hours zero to 450. The second period covered 451 to 900 clock hours. Each succeeding period is calculated upon each additional 450 hours. To show that the payments were prematurely made, Education's program reviewer, Ms. Mapes, examined the institution's Pell Grants records. She specifically looked at the student payment date and compared it to the number of hours the student had completed during the current term. After Ms. Mapes sampled various student files and found problems in eleven files, she summarized her findings in a chart found in Education exhibit A-1 at 5. The chart identified the student, the amount of payment made, the payment period, the hours completed in the current payment period, and the required hours for entry into the next payment period. Nine of the students mentioned are named in award year 1987-88 records and two are named in the 1988-89 records.

    Southern's financial aid director acknowledged that premature Pell payments were being made. She neither specifically admitted nor provided any defense to the details related to the students cited in the chart above. She explained why premature payments were made. She said that the requests for Pell funds were being made based upon the projected hours that the school believed the student should complete by a particular time frame. Southern's counsel admitted that the premature Pell payments resulted from projecting hours. In mitigation, she maintained that all students completed the hours for the prior pay period. Also in mitigation, Mr. Haygood testified that the school was having difficulty with Education making payments to them in a timely fashion.

    One must look at the 1989 program review at finding three in conjunction with the stipulations in order to understand the premature payments.See footnote 94 94 The summary, without some verification or other supporting data, is insufficient to establish proof of the truth of the violation concerning these three students.

As additional support for a violation of disbursing Pell Grant funds before a student completes his/her current payment period, Education offered information from the 1987 program review. Four students are identified on a 1987 program review chart - [student name], [student name], [student name] and [student name]. The 1987 program review excused two of the students charged with receiving premature Pell payment. Since the two students, [student name] and [student name], subsequently completed the hours necessary, Southern was required to take no action in these two students' cases. Stipulation 23 verified that [student name] received her second Pell payment prematurely. Stipulation 28 verifies that [student name] received a premature Pell payment. One student, [student name], is shown by stipulations 26 and 27 to have received premature payments of $1050 for her second and third payment periods. Stipulation number 25 verified that [student name] received $1050 as a premature Pell payment for her third payment period. There are minor differences-in the dates on the chart and the dates in the stipulations, but those differences are not relevant inasmuch as the stipulations admitted to the premature payments.

    Finally, Southern exhibit W satisfactorily concludes the 1987 program review. Clearly, the exhibit is evidence that an Education official with authority represented that payment of $565.35 would close the 1987 program review. The school produced reliable evidence in its exhibit W at 4 of a canceled check for the sum requested. As Education counsel stated, the information contained in the prior program reviews is to be considered by the judge to determine if the current program review finding is a repeat finding.See footnote 95 95 Here, there is sufficient evidence to support the 1989 program review finding that Southern disbursed premature Pell Grant payments to students. Furthermore, it is found that the 1987 program review information is proof that a repeat premature Pell Grant payment violation occurred.

    Next, Education discussed at length its exhibits D and E to prove premature Pell Grant payments. These exhibits provide no evidence of premature Pell payments. These exhibits only provide proof that Southern was placed on a "reimbursement request" system of payment. Education also relied upon Carolyn Boykin and James Sturdivant to support this finding, but their testimony was only general in nature and did not provide any convincing evidence of the specifics of this finding.

    In summary, it is found that premature Pell Grant payments were made on twelve occasions to eight students: [student name] for her second and fourth payments; [student name] for her second payment; [student name] for his second and fourth payments; [student name] for her second and third payments; [student name] for her second payment; [student name] for his second and third payment; [student name] for her second payment, and [student name] for her fourth payment. Education presented insufficient evidence to prove that any of the other students shown on the 1989 program review chart were paid premature Pell Grant payments. There is, however, sufficient evidence presented from the 1987 program review to support the 1989 premature Pell Grant payment as a repeat violation. In mitigation, there is sufficient information provided from the stipulations to show that [student name] completed payment periods one and two; [student name] completed payment periods two and three; [student name] completed payment period one, and [student name] completed payment period one. Education in its 1987 program review acknowledged that in the cases of [student name] and [student name] no action was required by Southern after the students had completed the current pay period. By implication, Education treated these situations as if a mitigating circumstance occurred by the student actually completing the current payment period.

    Charging students a fee for processing Pell Grants Finding Eight of the notice

    A.
    Finding eight of the notice is based on the 1989 program review report. The 1989 program reviewer found:

    The institution credited student's accounts with a $7.00 "Pell Grant Processing Fee." Public Law 99-498 states that an institution may not charge students a fee for processing or handling any application, form or data required to determine the student's eligibility for assistance or the amount of such assistance. The following students are charged a processing fee: Students #1 - [student name], #5 - [student name], #8 [student name], and #19 - [student name].See footnote 96 96

    A review of the student files by Ms. Mapes identified a line item of $7.00 on the student ledger cards. The notation marked CSS, she explained, represents the initials of College Scholarship Service, a company used as a "need analysis servicer." It appeared to her that Southern was charging a student for the processing of a Pell Grant fund application. Mapes, on direct examination said:

    [T]hey were using Title IV monies to pay this seven dollar fee. And according to the public law, you can't use Title IV money . . . for this purpose. So what I asked them to do was [to] go back and review their files and either give me evidence that . . . the institution had paid this seven dollar fee to a third party or that the seven dollars had been credited back to the student's account. The student is the one who needs to pay for this or the institution can pay for it out of institutional monies but it can't be paid for out of Title IV monies.See footnote 97 97

    Later on redirect examination, Ms. Mapes gave the following explanation of the charge:

    [W]hen Title IV money came in and was shown as a credit on the ledger card, the amount of the charges and the amount of the Title IV monies, this fee was included in the reduction . . . So I had to assume that it was being paid with Title IV money . . . . It appeared that on the ledger card what Southern Vocational was doing was charging the student a fee for the CSS.See footnote 98 98

    On cross examination, Ms. Mapes explained: "Title IV monies are given to the Student for educational expenses. And that is what they are to be used for." Later, referring to 20 U.S.C. &