Philander Smith must repay $477,029 to feds

Philander Smith College in Little Rock violated an array of federal student aid requirements, improperly keeping nearly half a million dollars during the fiscal year ending June 30, 2004, according to an audit by the U. S. Department of Education’s Office of Inspector General.

The inspector general’s report recommended that the U. S. Education Department order the college be put on a reimbursement pay plan to return $ 477, 029 to the federal government. The college has accepted responsibility for $ 430, 078 but disagrees with the inspector general’s findings as to the exact amount it owes.

“The positive thing about an audit — particularly when you have a new team in — is that it gives you a complete picture as to where you are when you got there,” Walter Kimbrough, president of the 585-student historically black college since December 2004, said Monday.

“We look at it as a sort of playbook that says if we do these things, it will strengthen our institution.”

Philander Smith’s students can continue to be eligible for federal loans and grants.

But the long-term outcome for the college was unknown Monday. The inspector general recommends that Philander Smith continue to receive federal aid, but also asks the Education Department to consider sanctions against the college. These could range from a fine to termination of participation in federal student aid programs.

Kimbrough said Monday he and the Education Department are already working together. He estimated the college has already returned about $ 100, 000 to the federal government.

The decision to accept or reject any of the inspector general’s recommendations is now up to Theresa S. Shaw, the chief operating officer of the department’s Federal Student Aid Office. When contacted Monday, the department declined to offer any further details other than the report.

Kimbrough said the college would be able to reimburse the government. The college has a total budget of about $ 9. 5 million, he said.

The federal audit examined Philander Smith’s finances from July 1, 2003, through June 30, 2004. Investigators said, among other things, Philander Smith:

Did not maintain proper accounting of Perkins loans. The federal government designates the low-interest loans for students with “exceptional” financial need. Students occasionally made payments to the college’s business office. But officials did not always alert the U. S. Education Department’s central loan database, so some borrowers were not credited for their payments. Because of Philander Smith’s lack of detailed records, the audit could not determine how many borrowers were affected. Distributed $ 289, 861 in federal aid to 64 students who earned zero credit hours in a semester, and therefore should have had their aid halted under federal rules. Failed to return $ 19, 090 for 10 students who later withdrew. The college also did not have a way to identify students who didn’t follow official withdrawal procedures, and as a result, kept an additional $ 127, 265 for 88 students who simply stopped attending classes.

Neglected to complete required verification of certain information on five of 20 students randomly selected by the inspector general. Under federal rules, an institution is not supposed to distribute aid without verifying such information as the recipient’s gross income, income tax payments, household size and the number of household members enrolled in college. The inspector general recommends the college return $ 35, 222 to the federal government for those five students — $ 862 of that also went to a student who quit going to classes.

Other funds the inspector general recommended Philander Smith be required to reimburse included credit balances from unused scholarship funds and accumulated interest on a direct loan program for which the college did not keep proper records.

The audit also said that “based on the significance of these findings,” the total $ 11. 4 million in Education Department funds that Philander Smith disbursed in fiscal 2004 “might be at risk for similar misuse.”

Kimbrough, who previously had served as a college administrator in Georgia and Virginia, started work as Philander Smith’s president in December 2004, months after the period audited. He learned the audit would take place in 2005.

Trudie Kibbe Reed, Philander Smith’s president at the time, is now president of Bethune-Cookman College, a historically black campus in Daytona Beach, Fla.

By e-mail, she said the college’s financial aid office historically has had high turn-over because of low salaries. During fiscal 2003, she said the inspector general’s regional office in Dallas first informed her that the college had failed to return aid for students who had withdrawn.

At the office’s recommendation, she said she hired a new director of financial aid, who left six months later. Reed also hired a full-time consultant to liquidate the college’s Perkins loan program, which she said was in 80 percent default in 1998.

“When I left in 2004, it was my understanding from the consultant that all problems were either cleared up, or in the process,” Reed said.

Since arriving at Philander Smith, Kimbrough has hired a new director of financial aid. He said the majority of staff members in the college’s financial aid office also have been hired since 2005.

Under the inspector general’s recommendation, the college has phased out its direct loan program.

He said the college also introduced a system for tracking students who receive federal aid, so if they withdraw or fail their classes, their aid can be returned to the federal government.

“We think that this is [the inspector general’s ] duty to make sure that their programs are managed effectively,” Kimbrough said. “We look forward to showing [the inspector general’s office ] and our stakeholders in the college that we can manage the program effectively.”