Preparing for Financial Responsibility Rule Changes

Effective July 1, 2024, the U.S. Department of Education will mandate additional disclosures for higher education institutions in order to determine financial responsibility, specifically regarding transactions with related parties.

The definition of related parties mirrors the definitions in FASB 850 – Related-Party Disclosures, so this includes not only the members of the board of your institution, but also members of management and can include other entities established by donors and others. Under the current rule, the Department of Education notes that this disclosure should include any related-party transactions, so there is not a de minimis threshold.

What should you start to do now to prepare for this change?

1. Review and strengthen your conflict-of-interest policy. If you had established any types of thresholds that transactions were de minimis before, those will need to be removed.
2. Evaluate who within the institution is completing the conflict-of-interest disclosures and determine if this population of individuals needs to be revisited.
3. Train those who are processing transactions on who is deemed to be a related party and develop a list of known related parties and ensure that list is regularly updated.
4. Evaluate your ability to capture transactions with related parties with your existing system. Do you need to develop additional reports to access the additional data you are seeking to capture?
5. Evaluate the level of detail you are capturing when establishing new vendors and determine if changes are needed to identify potential related parties.
6. Evaluate the different sources of your revenues and cash receipts (tuition, contributions, etc.) and evaluate if there is a way to identify related parties within those transactions.
7. Perform some basic analytics comparing the amounts, volume of transactions and number of related parties year over year, looking for trends that require further investigation or follow-up.
8. Ensure the information that you are disclosing in the financial statements matches the Form 990 disclosures in Schedule R and other schedules.
9. Ensure that significant transactions captured in other key documents (i.e., board minutes, key contracts, donation agreements, etc.) are flagged to be analyzed and verify they are included in the detailed reports.
10. Designate someone as responsible for capturing this information and designate someone to review who will challenge any assumptions, discrepancies and who has the knowledge of what they would expect to see captured based upon their knowledge of the relationships around the institution.
11. Lastly, maintain a master record and include the narrative of how you determined the completeness of the information you captured.

As you prepare to evaluate these transactions, we are here to help in navigating these rules and ensuring your initiation can comply with these new requirements.

About Schneider Downs Higher Education Services

The Schneider Downs Higher Education industry group is a dedicated team of experienced professionals specializing in serving institutions from high schools to universities. Our experience in audit and assurance, tax advisory, technology and data and more allow our professionals to stay ahead of the latest trends, developments and challenges within the education sector and provide timely and practical solutions to our clients.

To learn more, visit our Higher Education Industry Group page.