Audit shows ‘significant deficiencies’ in QU’s financial recordkeeping

Cat Murphy, Associate News Editor

Quinnipiac University may have to buy out several students’ loans after repeatedly mishandling federal student loan documentation, according to the university’s annual independent financial audit.

Released in January 2023, the university’s fiscal year 2021-22 audit report identified “significant deficiencies” in its internal management of major federal loan programs.

Independent auditing firm Marcum LLP found that Quinnipiac officials were “unable to produce original promissory notes” for several students in loan repayment.

Promissory notes are binding legal documents in which a borrower promises to repay a loan, according to the Department of Education. Without a promissory note, institutions can neither prove that a student agreed to pay back their loan nor enforce the loan.

In effect, a paperwork mishap on an institution’s behalf can make student loans unenforceable.

Federal regulations therefore require institutions to “keep the original promissory notes and repayment schedules until the loans are satisfied.”

Alternatively, institutions must maintain copies of promissory notes if it cannot maintain the original note. Notes must also be kept in a “locked, fireproof container” and made accessible only to authorized personnel, per federal law.

It is unclear if Quinnipiac officials followed these procedures.

“The university does not comment on (inquiries) related to university finances,” wrote John Pettit III, associate director of public relations, in a statement to the Chronicle on Feb. 24.

Per the audit, university officials could not locate at least six students’ loan notes.

The FY 2021-22 audit report states that a “breakdown of controls” caused university officials to discard or misplace original promissory notes during “departmental reorganizations” and “office moves.”

Each of the six missing promissory notes originated between 1992 and 2011 and pertained to the Federal Perkins Loan Program, a since-ended, need-based federal loan program, according to the most recent audit.

In 2019, the Department of Education began mandating colleges and universities to transfer to the U.S. government all Perkins loans that had not been repaid in at least two years. In doing so, the institution gives up its rights to collect payments on the loan, according to the Department of Education.

However, an institution cannot reassign loans without the original promissory notes.

Accordingly, Quinnipiac officials cannot comply with the federal mandate if they cannot locate the students’ missing loan notes, per the audit.

“Failure to maintain the original promissory notes puts the University at risk that the loans will not be accepted when assigned,” the auditor wrote. “We recommend strengthening controls around promissory notes and ongoing review of loan documents for federal loan recipients.”

Notably, the university’s FY 2020-21 financial audit identified the same internal control deficiency.

Marcum LLP found in 2021 that Quinnipiac officials were unable to produce original promissory notes for three of 25 students in federal loan repayment under the Perkins Loan Program. The original notes dated back to 1990, 1992 and 1995, according to the report.

The university issued a corrective action plan at the time to address the deficiencies identified in the FY 2020-21 report.

The corrective action plan included a commitment to reviewing all remaining student loan records. The plan also stated that the university was “on track” to collect and digitize its historic loan records by the June 30, 2022, federal compliance deadline.

However, the university’s nearly identical 2022 corrective action plan indicated a June 30, 2023, compliance deadline for the same action. The auditor noted in the report that the recordkeeping failure “recurred in the current fiscal year as the corrective actions were not timely implemented.”

Pettit declined to comment on why university officials were unable to meet the original deadline.

The university’s Department of Management and Office of Financial Aid “identified all loans that are missing original promissory notes” after reviewing all remaining student loans notes yet to be assigned, according to the 2022 corrective action plan.

The plan also noted that university officials had provided “alternative documents supporting the existence of these loans” to the proper authorities and were awaiting the outcome of an appeals process.

“Any loans that are not accepted during this appeals process will be purchased by the University at the conclusion of the assignment process, which is planned to be completed by June 30, 2023,” the university’s corrective action plan states.

Pettit declined to comment on both the alternative documents or potential cost for the university of the loan purchases.

It is unclear if the university’s review process identified any other missing promissory notes not already included in the FY 2020-21 and FY 2021-22 audit reports.

The deficiencies in Quinnipiac’s financial recordkeeping procedures in FY 2020-21 and FY 2021-22 were among several significant weaknesses identified in the university’s finances since 2019.

Lindsey Komson

The most recent audit also revealed several major decreases in the university’s finances, many of them attributable to changes in the stock market.

The endowment, which was valued at nearly $785 million in FY 2020-21, suffered a $111 million decrease in FY 2021-22. The 14% decrease was due in large part to a $105 million loss on investments, according to the report.

Likewise, the university’s net tuition revenue decreased by 7.5% between FY 2020-21 and FY 2021-22. The $19.7 million decline in tuition revenue in FY 2021-22 brought Quinnipiac’s net tuition profit below $250 million the first time since FY 2014-15.

The audit also revealed that the university paid an undisclosed employee over $2 million in predefined pension and postretire-ment benefits in FY 2021-22.

Prior audit reports obtained by the Chronicle revealed that the same unnamed employee entered the multimillion-dollar pension agreement with the university at least eight years ago. The audits seem to indicate that the undisclosed employee entered retirement during or after FY 2017-18, which ended on June 30, 2018.

University officials have repeatedly declined to name the former employee.