On October 31, 2023, the Department of Education published final regulations that impact financial responsibility, administrative capability, certification procedures, and “ability to benefit” programs for institutions of higher education that participate in Title IV of the Higher Education Act.
These new rules are designed to protect students and taxpayers by strengthening the Department of Education’s oversight and monitoring of colleges and universities.
The final regulations include new disclosure requirements for related-party transactions within the institution’s audited financial statements. The new disclosure requirements extend beyond the requirements of Accounting Standards Codification (ASC) 850, Related Party Disclosures, and require the related party’s name, location, and description, along with the amount and nature of any transactions between the related parties and the institution. Transactions cannot be aggregated and must be disclosed individually, regardless of the amount, and there is currently no threshold for amounts to be considered de minimis or insignificant.
Per the original ruling and fact sheet released by the Department of Education, these new regulations go into effect on July 1, 2024; however, it had been unclear which financial statement periods the new requirements would apply to. On May 17, 2023, the Department of Education published a series of Frequently Asked Questions that begin to address some common issues. They clarified that the requirements for the new related-party disclosures apply to any financial statements submitted to the Department of Education on or after July 1, 2024, regardless of when the institution’s fiscal year begins or ends.
This means that the expanded related-party disclosures will need to be included within an institution’s fiscal year 2023-2024 financial statements. In order to prepare for these new requirements, institutions should review conflict-of-interest policies, begin gathering the data that will be needed to create this new disclosure, and make sure that the necessary parties at your institution are aware of the new rules. In addition, institutions should develop a strategy for communicating these changes to key stakeholders and informing them that some of their activity may be included in the new reporting.
Reach out to the higher education advisory team at Schneider Downs for guidance as your institution prepares to navigate these new requirements.
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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.
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