Operational internal controls is the plan of organization, including the coordinating methods and measures adopted, to safeguard the school’s assets, check the accuracy and reliability of data, promote operational efficiency and encourage adherence to prescribed policies. The definition is a mouthful, but it provides the operational checkpoint requirements, because a portion of the school’s responsibility in meeting the standards of administrative capability is to administer Title IV aid with adequate checks and balances in its system of internal controls. 34 CFR 668.16(c)(1)

When auditors conduct program reviews, we look for checks and balances: how the schools’ processes and procedures safeguard the program from fraud and abuse, promote integrity of reporting and encourage compliance with the regulations that govern Title IV HEA programs.

Generally, when schools think of internal controls, the most obvious area is the separation of functions between authorization of payments and delivery of funds. However, there are many other areas of financial aid administration in which this principle of checks and balances can be applied: loan certification, loan counseling, return of Title IV funds, student status reporting, verification and many others. Some systems are developed with built-in controls but for some of the less automated functions, there may very well be some areas of vulnerability.

Think for a moment of your processing. Is there any piece of it that is exclusively performed by someone whose work isn’t double-checked by another individual or process? Is there an automated process that isn’t periodically reviewed? Or is there an automatic reporting function that should be double-checked by a real person once in a while?

When citing schools for areas of non-compliance, the auditing agency’s most common required action is for the school to revise or enhance its procedures to include a system of internal controls. If your school were given that directive, how would you respond? A proactive self-assessment now will benefit you in the long run.

Start your assessment by examining your processes to determine if there are any areas of weakness or vulnerability to regulatory compliance. Then, develop a step to double-check or verify the processing to make sure everything runs smoothly and without a hitch. This can be as simple as having a designated employee review the work of another and establishing a sign-off process. In a demanding work environment, this may seem like a major undertaking, yet it’s actually very simple and effective and will contribute greatly to ensuring optimal regulatory compliance.

The ins and outs of internal controls involve assessment, developing control steps, communicating those steps to the appropriate staff, and monitoring the effectiveness of your process. If you implement these controls into your financial aid administration or confirm that they are firmly in place, then you’re well on your way to smooth sailing in the world of financial aid administration and regulatory compliance.