May 31, 2010

By Bill Jaynes
The Kaselehlie Press

Kosrae, FSM-Kosrae State Public Auditors indicated in an audit released this month that according to Kosrae State Law, the State Scholarship Program was mismanaged between 2005 and 2009.

The audit implied that in an effort to give as many Kosrae students as possible a scholarship grant or loan, the Board gave money to students who were not qualified for financial assistance because of lower than required grade point averages (GPA).

GPA's are figured on a four point scale where A is 4.0 and a failing grade is a 0.0 on the scale. A GPA is the average of all grades earned during applicable academic study.

Auditors also concluded that due to the minimal effort of the Administrator and the Board there was no evidence that anyone knows exactly how much money is owed on the student loans that have been issued.

The portion of the code that governs the scholarship code hasn't changed since before the beginning of the program.

Funds for the program come from the Kosrae Department of Education. Director Paul Hadik said that student loan payments received by the State are booked to Kosrae's General Fund rather than to the Department of Education or to its scholarship program.

"There hasn't been a Scholarship Board in several years," Hadik said. The Governor has not nominated anyone to sit on that board. "It's been just one guy doing all the work."

Alokoa Joab Sigrah is the Administrator for the Scholarship Program. He said in his response to the audit that former Governor Sigrah instructed the Board to change its GPA standards in order to pro-vide scholarships and loans to as many Kosrae students as possible and to bring the GPA requirements into line with the US Pell grant requirements. Alokoa Sig-rah said that he was instructed to reduce the GPA requirements for student loans from 2.5 to 2.0.

He admitted that the Board failed to up-date the Scholarship Rules and Regulations based on that instruction.

Hadik said that since he has been director no student loans have been issued but that his department gives as much money as possible in the form of scholarship grants to students who enter the High School advanced program and complete it successfully.

He said that scholarship laws should be changed. "The scholarship rules may have worked years ago but they don't work now."

But the laws dealing with scholarships and loans for Kosrae students haven't changed and the audit performed by the Kosrae State Public Auditor was performed with the existing laws as a basis for their findings.

The background information on the audit says that from the semester that began in the Fall of 2004 through the semester that began in the Spring of 2008, 327 students received financial assistance in the form of scholarship grants or loans for a total of approximately $1,084,000. A later footnote says that 594 students received scholarship awards. All of the figures in the audit seem to indicate that the footnote is correct rather than the background information.

Part of the function of the board is to determine that applicants meet the requirements of the scholarship program.

The law says that a successful applicant must be from Kosrae and must be a citizen of the Federated States of Micronesia. Applicants must show and prove a financial need for a scholarship. They must have been accepted for enrollment at an institution of higher learning or if they are already attending college they must be in good academic standing and must be carrying a full academic work load. The applicant must have a cumulative GPA of 2.5 or higher.

The audit report said that the Scholarship Program has not been effective to document approvals of awards and that as a result the auditors could not deter-mine whether awards were approved by the Scholarship Board.

Sigrah told auditors that the board approvals should be documented in the minutes of the meetings that were held but given "reasonable time," he was not able to produce the minutes. The amount of "reasonable time" was not specified in the audit.

The auditor sampled 247 scholarship awards for a total of nearly $530,000. Of awards sampled, 31 percent of the awards were called into question.

58 of the scholarships were given to students who didn't meet GPA requirements. 27 of the awards did not have the required transcript to show the cumulative GPA for the students awarded scholarship money.

Auditors found that there were no documents showing that the selected recipients had been approved by the Scholar-ship Board before funds were disbursed. However, financial aid applications approved by Financial Aid Officers of academic institutions where a student was planning to attend or where a student was already attending, were on file.

Auditors noted that "The Scholarship Program has not been effective to ensure compliance with the provisions of Scholarship, grant and loan regulations."

They said that 51 percent of loan awards issued had no promissory notes to legally secure the loans.

The Scholarship Board was not able to ensure that adequate funds are collected and made available to qualified recipients. It said that the Scholarship Administrator was not able to maintain ledgers of repayments and outstanding balances of loan awards.

The Office of the Attorney General told the auditors that no cases had been referred to them by the Scholarship Pro-gram arising from non-payments of scholarship awards.

The board or the administrator cannot determine the total amount due to them from the inception of the program to date. This is just as true for awardees who have made no payments as it is for those who have made payments for many years through salary reductions or by other means. No one seems to know how much is owed if anything.

While the auditor said that the intention of the law was to provide for a revolving fund that would go back into the program, Director Hadik said that all payments have been going into Kosrae's General Fund and that as far as he knew, none of it was being returned to the program itself.

"A rough estimate yearly collection of loan award repayments only ranged from $2000 to $4000 which is very minimal compared to the annual loan awards of more than $100,000," the audit said. A footnote explained how the figure was derived. It was based on a "grossed up" average amount on one pay period collection from 2005-2010. It was not clear what the term "grossed up" means.

In another audit exception the auditor pointed out that scholarship money awarded did not meet the financial needs of students based on the Application for Kosrae Student Scholarship, grant or loan. The audit listed 10 examples that auditors claimed were typical of grant awards from the Scholarship program. Auditors provided no criteria for the selections they cited as examples in the audit.

The 10 anonymous applicants on the sample list selected by the auditors rep-resented over $58,000 in scholarship requests. From that amount the scholarship program awarded the students a total of $27,000, or just over 47 percent of the amount for which the students applied.

Students on the sample list who applied for scholarships to the College of Micronesia National Campus were awarded the smallest amount both in terms of total money awarded and in terms of percent-age of the amount requested. Of $8400 requested by one freshman and two sophomore applicants, only $1300, just under 16 percent of the amount for which they applied, was awarded to students attending COM-FSM, an average of just over $433 per student who applied.

One student on the list applied as a fresh-man at the University of Hawaii in Hilo. That student requested $11,398 and was granted $4500 (39 percent).

In terms of percentages granted, the two students who applied to Palau Community College fared the best of the four schools listed on the audit report. The two applicants, one a freshman and the there a sophomore, applied for a total f $3172 and received $1800 (nearly 57 percent) to attend Palau Community College. Each student was awarded $900.

Auditors chose to list four applications for freshmen at Chaminade University, a private Catholic school in Honolulu. Those students fared better than the rest on the list in terms of cash awarded. Total grant applications for that college totaled $35,516 (amounts ranged from $3604 to $15,000 per student). The Scholarship Program awarded those four students a total of $19,860, nearly 56 percent of the amount for which they had applied and an average of $4965 per student.

The highest award for a student to attend Chaminade was for $6200. Two students applied for $8456. One received $5000 and the other received $5160. One Chaminade student who applied for $3604 received $3500.

The auditors asked the scholarship administrator why so many students received amounts significantly less than that for which they had applied. They were told that most of the applicants overstated their financial needs. The Scholarship program reduced award amounts to an amount that they deemed "reasonable."

Auditors took exception to the fact that "there were no modifications or notes to the application (on) how the amount they deem(ed) reasonable was arrived."

Auditors noted that most of the applications they chose to list as examples had already been approved by the Financial Aid Officers of the institutions to which the applicant had already applied. "The approval of the Financial Aid Officer constitutes verification as to the accuracy of the information in the form which can also be deemed that the amount applied for is already reasonable," the audit said. They asked the rhetorical question, "What will happen if the amount initially applied for was already reasonable and the scholarship management always reduces the amount for reasons that remain undocumented?"

Auditors didn't ask the rhetorical question, "Do Financial Aid Officers for colleges have a vested interest that might motivate them to ask for more money than a student needs from any one funding source in order to obtain enough money from all funding sources for any student to attend their particular college."

111 student award recipients did not have adequate health insurance coverage which is required under the Scholarship regulations in order to avoid the possibility that recipient health problems will financially burden students who received money from the program.

As a final audit exception, auditors noted that Kosrae state law requires the Board to submit to the Governor and the Speaker, twice a year reports including all sources and amounts of funding or income; all scholarships awarded; all office related expenses and expenditures; and a list of all current and past scholar ship recipients, the scholarship amount awarded, the school they attend or have attended and past dues balances.

Despite the lack of a fully constituted board, nominated by the Governor and confirmed by the Legislature, the administrator provided four reports to the auditor which did not include the sources and amounts of funding, office related expenses and past due balances for loan recipients.

Directly quoted from the auditor's re-port: "If adequate information has been included in the regular reports being submitted to the leaders of the state specifically the recipients past due balances, the leaders could have recommended to the Scholarship Board to take the next step to collect outstanding balance arising from award so that it can be made available to new students for funding in attending college or university…"

Alokoa Sigrah, said in his response that the board must revisit the Scholarship Rules and Regulations and make necessary changes. He also said that the Board will hire a full time staff member to assist the Administrator.

Director Hadik said that he doesn't think that US Compact Funds that currently provide the majority of funds for the Department of Education will be allowed to be used for scholarship funds for very much longer.