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Student Defense Commends SEC Action Against College Auditor Misconduct

Student Defense issued a statement regarding the Securities and Exchange Commission’s action against two former KPMG auditors for improper professional conduct during an audit of the College of New Rochelle. According to the SEC, the school, which is now defunct, had sought to defraud investors by creating false records and overstating the college’s assets. The SEC and the U.S. Attorney’s Office for the Southern District of New York had previously taken action against the school’s controller, who was sentenced to three years in prison for his role in the scheme. Closures of colleges and universities can impose significant financial costs on the federal government, stemming from the discharge of student loan balances as well as other expenses.

Student Defense Vice President and Chief Counsel Dan Zibel:
“Auditors play a key role in ensuring the accuracy of college’s financial statements and compliance with Title IV requirements. The Office of Federal Student Aid should follow the SEC’s example and directly oversee the external auditors responsible for certifying schools’ compliance with Title IV financial responsibility standards. We know from the Government Accountability Office that 77% of compliance audits over a recent eleven-year period were conducted in a failing or deficient manner, and this case underscores the possible consequences of this poor performance.”

As part of its 100 Day Docket initiative, Student Defense published a set of policy recommendations in December 2020 that included a detailed look at how gaps in the Department’s oversight mechanisms have allowed predatory institutions to evade accountability, contributing to systemic harms to students and communities of color. Among the many recommendations, Student Defense called on the Department to increase oversight the auditing firms that provide the only annual check on Title IV compliance by institutions of higher education. The paper also identifies underused authorities to investigate wrongdoing and hold bad actors accountable for breaking the law such as the Department’s subpoena power and administrative enforcement proceedings.

“Protection and the Unseen: Protecting Students and Promoting Accountability Through Underused Authorities in the Higher Education Act” is available here.

Tags   100 Day Docket