Exhibit 99.4
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NELNET
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Compliance Audits (Attestation Engagements) for Lenders and
Lender Servicers Participating in the Federal Family Education Loan Program
Year Ended December 31, 2005
NELNET
TABLE OF CONTENTS
PAGE
Independent Accountants' Report 1
Report on Management's Assertions on Compliance with Specified Federal
Family Education Loan Program Requirements 3
APPENDIX
A Background 6
B Listing of Lenders Covered by Compliance Attestation 7
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Nelnet, Inc.:
We have examined management's assertions, included in its representation letter
dated January 25, 2006 that Nelnet, Inc. (Nelnet) complied with the following
compliance requirements specified in the Audit Guide, COMPLIANCE AUDITS
(ATTESTATION ENGAGEMENTS) FOR LENDERS AND LENDER SERVICERS PARTICIPATING IN THE
FEDERAL FAMILY EDUCATION LOAN PROGRAM (the Guide), issued by the U.S. Department
of Education, Office of the Inspector General, dated December 1996, relative to
Xxxxxx's administration of the Federal Family Education Loan Program on behalf
of its lender clients during the year ended December 31:
o Support for LaRS
o Loan Documentation
o Calculation of Loan Origination Fees
o Interest Benefits--Eligibility, Proper Rate and Proper Calculations
o Special Allowance Payments--Eligibility and Proper Calculation of
Average Daily Balances
o Accurate Loan Principal Balances
o Reporting of Sales, Purchases and Transfers
o Recording of Student Status Changes
o Payment Processing
o Due Diligence in Collecting Federal Family Education Loan Program Loans
o Timely Filing of Claims
o Curing Due Diligence/Timely Filing Violations
We also have examined management's assertion that Nelnet maintained effective
internal control over compliance with the aforementioned compliance requirements
as of December 31, 2005 based upon criteria established in INTERNAL
CONTROL--INTEGRATED FRAMEWORK issued by the Committee of Sponsoring
Organizations of the Xxxxxxxx Commission.
Management is responsible for Nelnet's compliance with, and for maintaining
effective internal control over compliance with, those requirements. Our
responsibility is to express an opinion on management's assertions based on our
examination.
Our examination was conducted in accordance with attestation standards
established by the American Institute of Certified Public Accountants,
GOVERNMENT AUDITING STANDARDS, issued by the Comptroller General of the United
States, and the Guide and, accordingly, included examining, on a test basis,
evidence about Nelnet's compliance with those requirements, obtaining an
understanding of the internal control over compliance with the specified
compliance requirements, testing, and evaluating the design and operating
effectiveness of the internal control, and performing such other procedures as
we considered necessary in the circumstances. We believe that our examination
provides a reasonable basis for our opinion. Our examination does not provide a
legal determination on Nelnet's compliance with specified requirements.
Because of inherent limitations in any internal control, errors or fraud may
occur and not be detected. Also, projections of any evaluation of the internal
control over compliance with the specified requirements to future periods are
subject to the risk that internal control over compliance may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies and procedures may deteriorate.
In our opinion, management's assertions that Xxxxxx complied with the
aforementioned compliance requirements for the year ended December 31, 2005 is
fairly stated, in all material respects. Also in our opinion, management's
assertion that Nelnet maintained effective internal control over compliance with
the aforementioned compliance requirements as of December 31, 2005, is fairly
stated, in all material respects, based upon criteria established in INTERNAL
CONTROL-INTEGRATED FRAMEWORK issued by the Committee of Sponsoring Organizations
of the Xxxxxxxx Commission.
This report is intended solely for the information and use of the Board of
Directors and management of Nelnet, the specified lenders, and the U.S.
Department of Education, and is not intended to be and should not be used by
anyone other than these specified parties.
/S/ KPMG LLP
Lincoln, Nebraska
January 25, 2006
2
REPORT ON MANAGEMENT'S ASSERTIONS ON COMPLIANCE WITH SPECIFIED
FEDERAL FAMILY EDUCATION LOAN PROGRAM REQUIREMENTS
We, as members of Nelnet, Inc. (Nelnet) are responsible for complying with the
requirements of the Federal Family Education Loan (FFEL) Program. We are
responsible for and we have established and maintained an effective internal
control structure over FFEL Program requirements. We have performed an
evaluation of Nelnet's compliance with the following requirements of the FFEL
Program during the year ended December 31, 2005. Based on this evaluation, we
assert that during the year ended December 31, 2005, Xxxxxx has materially
complied with the FFEL Program requirements below relative to those services
provided to our clients.
o The loan information (loan types, interest rate, beginning and ending
principal loan balances), and loan status (past due, in grace, in deferment)
reported in Parts I, II, III, IV, and V of either the LaRS prepared by
Xxxxxx and submitted to ED on behalf of our lender clients or the billing
information prepared by Xxxxxx and submitted to our lender clients during
the year ended December 31, 2005 agrees with Nelnet's summary records/ledger
and as of December 31, 2005, Nelnet had effective internal control over
compliance with the requirements that such information be in agreement.
o Nelnet supported loans reported in either the LaRS prepared by Xxxxxx and
submitted to ED on behalf of our lender clients or the billing information
prepared by Xxxxxx and submitted to our lender clients during the year ended
December 31, 2005 with--and as of December 31, 2005, Nelnet had effective
internal control over compliance requirements for supporting loans
with--loan records that include all applicable documents listed in Section
II, Compliance Requirements 2, of the Audit Guide that our lender clients
have contracted with Nelnet to store.
o During the year ended December 31, 2005, Xxxxxx completely reported,
classified and computed, in accordance with LaRS instructions--and as of
December 31, 2005, Nelnet had effective internal control over compliance
with LaRS instructions for classifying and computing--the loan origination
information reported in Part I in either the LaRS prepared by Xxxxxx and
submitted to ED on behalf of our lender clients or the billing information
prepared by Xxxxxx and submitted to our lender clients.
Although Nelnet prepared LaRS billing information for our lender clients,
each individual lender client will have to make their own assertion
regarding compliance with requirements for payment to ED of origination fees
in excess of interest and special allowance.
o Loans included in Part II of either the LaRS prepared by Xxxxxx and
submitted to ED on behalf of our lender clients or the billing information
prepared by Xxxxxx and submitted to our lender clients during the year
ended December 31, 2005 were--and as of December 31, 2005, Nelnet had
effective internal control over compliance with requirements that loans are
(1) in a status eligible for interest benefits. (2) assigned the correct
interest rate in accordance with Section 427A(a)-(i) of the HEA, as
amended, and (3) classified in the correct interest rate category in
accordance with LaRS instructions. Ending principal amounts, average daily
balances, and interest amounts were calculated in accordance with--and as
of December 31, 2005, Nelnet had effective internal controls over
compliance with requirements for calculation in accordance with--the LaRS
instructions.
3
o Loans included in Part III of either the LaRS prepared by Xxxxxx and
submitted to ED on behalf of our lender clients or the billing information
prepared by Xxxxxx and submitted to our lender clients during the year
ended December 31, 2005 were--and as of December 31, 2005, Nelnet had
effective internal control over compliance with requirements that loans
are--(1) in a status eligible for special allowance and (2) properly
categorized on the LaRS in accordance with the LaRS instructions. Ending
principal balances, average daily balances, and adjustments for differences
in average daily balances were calculated in accordance with--and as of
December 31, 2005, Nelnet had effective internal controls over compliance
with requirements for calculation in accordance with--the LaRS
instructions.
o In Parts IV and V of the LaRS prepared by Xxxxxx and submitted to ED on
behalf of our lender clients or the billing information prepared by Xxxxxx
and submitted to our lender clients during the year ended December 31, 2005,
Nelnet properly classified and accurately reported--and as of December 31,
2005, Nelnet had effective internal control over compliance with
requirements to properly classify and report--loan principal balances in
accordance with the LaRS instructions and included all outstanding loans
(except those for which the guaranty was voided are not included in Part
VI.)
o Loan purchases and sales made on behalf of our lender clients during the
year ended December 31, 2005 were recorded by Xxxxxx in accordance
with--and as of December 31, 2005, Nelnet had effective internal control
over compliance for recording loan purchases/sales in accordance with
applicable loan purchase/sale instructions provided to Nelnet by their
lender clients with respect to the start/end date of eligibility for
interest, special allowance and responsibility for payment of loan
origination fees. During the year ended December 31, 2005, Xxxxxx recorded
completely and accurately in the servicer's loan servicing systems--and as
of December 31, 2005, Nelnet had effective internal control over compliance
with requirements to record completely and accurately in the servicer's
loan servicing systems--all applicable LaRS loan data for loans
transferred, including beginning balances.
Although Nelnet prepared LaRS billing information for our lender clients,
each individual lender client will have to make their own assertion
regarding compliance with requirements for payment to ED of origination fees
in excess of interest and special allowance.
o Upon receipt of Student Status Confirmation Reports or other notification of
change information for loans serviced during the year ended December 31,
2005, Nelnet accurately updated--and as of December 31, 2005, Nelnet had
effective internal control over compliance with requirements to accurately
update--loan records for changes to student status, including conversion to
repayment status in accordance with 34 CFR 682.401(b)(20) and 34 CFR
682.209, respectively.
o For loans serviced during the year ended December 31, 2005, Nelnet: (a)
calculated--and as of December 31, 2005, Nelnet had effective internal
control over compliance with requirements to calculate--interest and
principal in accordance with 34 CFR 682.304 and (b) applied--and as of
December 31, 2005, Nelnet had effective internal control over compliance
with requirements to apply (i) loan payments effective with the day of
receipt and (ii) prepayments in accordance with 34 CFR 682.209 or the
documented specific request of the borrower.
o For loans serviced during the year ended December 31, 2005, Xxxxxx complied
with--and as of December 31, 2005, Nelnet had effective internal control
over compliance with--the due diligence requirements for collection of
delinquent loans, including the requirements for skip-tracing or pre-claims
assistance set forth in 34 CFR 682.411 (c)-(m).
4
o For loans serviced during the year ended December 31, 2005, Nelnet complied
with--and as of December 31, 2005, Nelnet had effective internal control
over compliance with--deadlines for timely filing of claims with the
guaranty agency concerning death, disability, false certification, closed
schools, or bankruptcy contained in 34 CFR 682.402(b), (c), (d), (e), (f)
and (g) for default claims contained in 34 CFR 682.406(a)(5). For loans
serviced during the year ended December 31, 2005, Nelnet accurately
categorized--and as of December 31, 2005, Nelnet had effective internal
control over compliance with requirements for accurately
categorizing--amounts pertaining to claims in the LaRS.
o For loans with timely-filing violations or due diligence violations that
were cured during the year ended December 31, 2005, Nelnet documented that
it performed--and, as of December 31, 2005, Nelnet had effective internal
control over compliance with requirements to perform--cure procedures
required by 34 CFR 682 Appendix D (Bulletin 88-G-138). For loans on which a
cure was required but that were not cured during the year ended December
31, 2005, Nelnet properly categorized--and, as of December 31, 2005, Nelnet
had effective internal control over compliance with the requirements to
properly categorize the loans in the LaRS prepared and submitted to ED on
behalf of our lender clients or the billing information prepared by Xxxxxx
and submitted to our lender clients.
Very truly yours,
Nelnet, Inc.
/s/ Xxxx Xxxxxx /s/ Xxxxx Xxxxxx
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Xxxx Xxxxxx Xxxxx Xxxxxx
Chairman and Co-CEO Chief Financial Officer
5
APPENDIX A
NELNET, INC.
Background
December 31, 2005
The Higher Education Act of 1965 (HEA), as amended, requires each lender, as
defined in Section 428(b)(1)(U) of the HEA, participating in the Federal Family
Education Loan (FFEL) Program to obtain a compliance attestation of its FFEL
Program. These compliance attestations are performed in accordance with the
AICPA's Professional Standards for Attestation Engagements (SSAE) No. 10,
Section 800, the general fieldwork and reporting standards in GOVERNMENT
AUDITING STANDARDS, issued by the Comptroller General of the United States; and
the Audit Guide, COMPLIANCE AUDITS (ATTESTATION ENGAGEMENTS) FOR LENDERS AND
LENDER SERVICERS PARTICIPATING IN THE FEDERAL FAMILY EDUCATION LOAN PROGRAM (the
Guide) issued by the U.S. Department of Education, Office of Inspector General,
dated December 1996.
Lenders using a third-party service organization(s) to service all or part of
its FFEL Program loan portfolio may not be able to make all of the assertions
required in Section II of the Audit Guide. In those situations, the Department
of Education will accept, as meeting the lender audit requirement, an
independent accountants' report based upon an "alternative or combined"
engagement as defined in Section III of the Audit Guide. The lender must obtain
from the service organization an audit/attestation report that meets the
requirements described in Section III of the Audit Guide.
The independent accountants' report(s) must include their opinion with respect
to the service organization's compliance with the specified requirements in
Section II of the Audit Guide pertaining to functions carried out by the
servicing organization.
Nelnet, Inc. (Nelnet) is a for profit third-party student loan servicing
organization responsible for the proper and timely performance of many aspects
of student loan processing. Nelnet operates servicing centers in Denver, CO;
Jacksonville, FL; Indianapolis, IN; and Lincoln, NE. The primary services
provided to the loan holders by Nelnet are:
o accepting loan origination and disbursement information on new and
existing borrowers;
o processing of general xxxxxxxx correspondence, forbearance and deferment
requests and borrower status changes;
o receiving and tracking original, imaged or electronic loan documentation;
o maintaining borrower demographic information while the student is in
school, billing accrued interest to the appropriate parties, and combining
multiple loans where appropriate;
o processing borrower loans through the grace period, placing the loans into
repayment and calculating monthly payment amounts; and;
o applying loan payments, calculating delinquency periods, collection
activities, claim processing on defaulted loans and cure procedures for
defaulted loans rejected by the guarantor.
The functions described above provide a basis for Nelnet to prepare information
for the quarterly Lender's Interest and Special Allowance Request and
Reports--LaRS.
The lender ID's covered by this report are included in Appendix B.
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APPENDIX B
NELNET, INC.
Listing of Lenders Covered by Compliance Attestation
December 31, 2005
203760 803017 806078 810509 821806 826730 829763 832500 833832
213760 803128 806126 810755 821830 826861 829769 832502 833872
233580 803238 806208 811353 822022 826865 830111 832584 833880
421623 803258 806400 811949 822046 826943 830186 832710 833881
428577 803264 806595 812211 822239 826978 830227 832775 833895
528577 803266 806773 812265 822243 827231 830248 832934 833934
530868 803342 807418 813133 822366 827511 830288 832998 833953
605156 803348 807612 813169 822384 827537 830293 833032 834036
605178 803359 807669 813285 822660 827603 830309 833051 834078
605974 803408 807743 813760 822671 827610 830343 833074 834097
607743 803447 807745 815502 822745 827735 830372 833078 834100
608036 803508 807806 815657 822908 827855 830427 833079 834133
619628 803516 808036 815678 822927 827866 830513 833088 834148
620682 803533 808134 815897 823065 827954 830525 833093 834161
622660 803557 808140 815979 823185 828067 830529 833135 834169
630868 803588 808173 816298 823296 828141 830549 833174 834178
631300 803606 808217 816799 823299 828148 830617 833205 834212
631484 803608 808238 817408 823546 828259 830628 833211 899980
633820 803631 808258 817409 823817 828295 830772 833214 899982
633832 803634 808260 817411 823964 828375 830796 833273 899988
713760 803645 808316 817420 824004 828478 830868 833294 999712
728577 803654 808426 817516 824060 828564 830953 833305
732775 803670 808441 817729 824135 828577 830977 833325
733135 803672 808543 818313 824289 828634 831008 833361
800802 803694 808606 819524 824327 828728 831149 833405
801890 803709 808662 819590 824335 828785 831300 833456
801891 803758 808711 819628 824504 828793 831419 833457
801894 803799 808732 819648 824573 828875 831455 833471
801935 803909 808863 819824 824690 829030 831484 833487
801943 804283 808877 819922 824800 829077 831593 833495
801947 804456 808896 819931 825033 829167 831692 833500
801953 804575 808936 820198 825310 829191 831836 833501
802285 804860 808942 820334 825323 829223 831846 833585
802301 804868 808959 820393 825495 829262 831870 833610
802330 804959 809063 820622 825585 829302 831970 833669
802560 805178 809479 820682 825641 829366 832057 833670
802759 805317 809685 820685 826087 829458 832095 833674
802794 805593 810007 820937 826140 829464 832198 833702
802843 805806 810086 821024 826351 829489 832339 833733
802965 805849 810088 821449 826509 829565 832347 833741
802983 805923 810123 821471 826625 829626 832398 833806
802995 805974 810148 821623 826710 829691 832415 833820
803000 805997 810240 821666 826717 829704 832445 833821
7
