Colleges and universities rely on federal and state financial aid programs to make higher education accessible. With that support comes strict oversight. One of the most effective ways to demonstrate compliance and strengthen trust with regulators, auditors, and students is through a Financial Aid Agreed-Upon Procedures (AUP) engagement.
This article explains what financial aid AUPs are, how they apply in higher education, and answers the questions institutions are asking now.
What is a Financial Aid Agreed-Upon Procedures engagement?
An AUP engagement is a service performed by a certified public accountant (CPA). The CPA and the institution agree in advance on specific procedures to be performed. For financial aid, these procedures focus on how Title IV and other funds are awarded, disbursed, and reported.
Unlike an audit, the CPA does not provide an opinion. Instead, the report presents factual results of the procedures. This allows the university to identify compliance gaps, correct issues, and demonstrate accountability to the Department of Education, accrediting bodies, and students.
Why higher education institutions use Financial Aid AUPs
Although annual audits are required for institutions participating in federal student aid, many colleges and universities choose to go further with AUPs in financial aid. Key reasons include:
- Federal or accreditor requirements: Certain circumstances may require additional testing beyond the audit.
- Targeted compliance assurance: An AUP can focus on specific aid programs, such as Pell Grants or Federal Work-Study, without expanding to all financial aid operations. The AUP can also focus on specific compliance requirements outside those required by the OMB Uniform Guidance audit.
- Risk management: Institutions that have experienced findings in past compliance audits often use AUPs to validate improvements.
- Transparency and governance: Boards and leadership teams want independent checks to confirm aid dollars are administered in compliance with regulations.
Examples of procedures in a Financial Aid AUP
The scope is tailored to the institution, but procedures can include:
- Reviewing underlying documentation used for return of Title IV (R2T4) calculations for withdrawn students.
- Verifying attendance monitoring policy and processes and disbursement documentation to confirm funds are properly disbursed and reconciled.
- Checking dependency override and professional judgement process and documentation.
- Reviewing consumer information, crime awareness, and other required policies to determine adherence the Department of Education requirements.
Preparing for a Financial Aid AUP
Colleges and universities can prepare by:
- Defining the scope – Decide which aid programs or compliance areas should be tested.
- Gathering documentation – Collect award letters, student files, R2T4 worksheets, reconciliations, and other reports.
- Reviewing internal controls – Ensure approvals, segregation of duties, and monitoring systems are in place.
- Communicating with stakeholders – Explain to financial aid staff, leadership, and auditors what the AUP involves and what it does not (no opinion is issued).
- Collaborating with the CPA – Confirm in advance which documents and records will be tested.
Benefits for higher education institutions
- Demonstrates accountability in handling federal and state aid.
- Reduces risk by addressing compliance issues before annual audits or program reviews.
- Builds confidence with boards, accreditors, and students.
- Provides flexibility to focus on areas of highest concern or regulatory pressure.
Questions and Answers about Financial Aid AUPs
What is the difference between a financial aid AUP and a compliance audit?
A compliance audit covers required elements of financial aid administration and results in an opinion. An AUP is narrower, focusing only on procedures chosen in advance. The CPA reports factual results rather than drawing overall conclusions.
Are financial aid AUPs required for colleges and universities?
They are not universally required. However, certain funding agreements, audit findings, or accreditor recommendations may lead an institution to request one. Some boards also commission AUPs for additional assurance.
What areas of financial aid are usually tested in an AUP?
Common areas include student eligibility, R2T4 documentation, disbursement timing and support, policy element confirmation, and reconciliation of federal aid.
How should a university prepare for a financial aid AUP?
Gather documentation for the programs being tested, review internal controls, and clearly define the scope with your CPA. Preparation reduces the time and cost of the engagement.
Will the results of an AUP affect our annual audit or program review?
Possibly, findings relevant to the annual audit or program review may be noted and could lead to additional questions in the audit or during a federal program review. The advantage is that issues can be addressed earlier.
How much does a financial aid AUP cost compared to a full audit?
Cost depends on the number and type of procedures tested. A focused AUP is generally less expensive than a full audit but provides targeted assurance in high-risk areas.
Who decides what procedures are performed?
The institution and the CPA agree together. Leadership identifies priority areas, and the CPA helps design procedures that provide useful and reliable results.
Final Takeaway
Financial Aid Agreed-Upon Procedures are not mandatory for every college or university, but they are an effective tool for strengthening compliance and reducing risk. Whether prompted by audit history, board oversight, or a desire for transparency, an AUP can help ensure aid dollars are managed responsibly and in line with federal requirements.
Ready to Take the Next Step?
If your institution is considering a financial aid AUP, our team can help you design the right scope, prepare your documentation, and complete the engagement efficiently. Contact us today to learn how an AUP can support compliance, accountability, and peace of mind in your financial aid office.
