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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 June 30, 2003
Final Report
NELNET
Table of Contents
Independent Accountants' Report
Nelnet Statement of Compliance
APPENDIX
A Background
B Listing of Lenders Covered by Compliance Attestation
Independent Accountants' Report
The Board of Directors
Nelnet Loan Services, Inc.
We have examined management's assertions, included in the accompanying
representation letter dated September 29, 2003, that Nelnet Loan Services, 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 Nelnet's administration of the Federal Family
Education Loan Program on behalf of its lender clients, as listed in Appendix B,
during the year ended June 30, 2003:
o Support for LaRS (formerly known as the ED Form 799)
o Loan Documentation
o Payment 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 the Collection of Loans
o Timely Filing of Claims
o Curing Due Diligence/Timely Filing Violations
We have also examined management's assertion that Nelnet maintained effective
internal control over compliance with the aforementioned compliance requirements
as of June 30, 2003 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 the
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 made in accordance with 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
irregularities 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 Nelnet complied with the
aforementioned compliance requirements for the year ended June 30, 2003 are
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 June 30, 2003, 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 audit
committee, management, lender clients, 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
September 29, 2003
September 29, 2003
Xx. Xxxxxx Xxxxx KPMG LLP
000 Xxxxx 00xx Xxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000-0000
Dear Xx. Xxxxx:
We, as members of Nelnet Loan Services, 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 June 30, 2003. Based on this
evaluation, we assert that during the year ended June 30, 2003, Nelnet 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
(formerly known as the ED Form 799) prepared by Nelnet and submitted to ED
on behalf of our lender clients or the billing information prepared by
Nelnet and submitted to our lender clients during the year ended June 30,
2003 agrees with Nelnet's summary records/ledger and as of June 30, 2003,
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 (formerly known as the
ED Form 799) prepared by Nelnet and submitted to ED on behalf of our lender
clients or the billing information prepared by Nelnet and submitted to our
lender clients during the year ended June 30, 2003 with - and as of June
30, 2003, 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 June 30, 2003, Nelnet completely reported, classified
and computed, in accordance with LaRS (formerly known as the ED Form 799)
instructions - and as of June 30, 2003, Nelnet had effective internal
control over compliance with LaRS (formerly known as the ED Form 799)
instructions for classifying and computing - the loan origination
information reported in Part I in either the LaRS (formerly known as the ED
Form 799) prepared by Nelnet and submitted to ED on behalf of our lender
clients or the billing information prepared by Nelnet and submitted to our
lender clients. During the year ended June 30, 2003, Nelnet paid ED - and
as of June 30, 2003, Nelnet had effective internal control over compliance
with requirements for payment to ED of - origination fees in excess of
interest and special allowance.
Xx. Xxxxxx Xxxxx
Xxxx Two
September 29, 2003
o Loans included in Part II of either the LaRS (formerly known as the ED Form
799) prepared by Nelnet and submitted to ED on behalf of our lender clients
or the billing information prepared by Nelnet and submitted to our lender
clients during the year ended June 30, 2003 were - and as of June 30, 2003,
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 (formerly known as the ED Form 799) instructions.
Ending principal amounts, average daily balances, and interest amounts were
calculated in accordance with - and as of June 30, 2003, Nelnet had
effective internal controls over compliance with requirements for
calculation in accordance with - the LaRS (formerly known as the ED Form
799) instructions.
o Loans included in Part III of either the LaRS (formerly known as the ED
Form 799) prepared by Nelnet and submitted to ED on behalf of our lender
clients or the billing information prepared by Nelnet and submitted to our
lender clients during the year ended June 30, 2003 were, - and as of June
30, 2003, 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 (formerly known as the
ED Form 799) in accordance with the LaRS (formerly known as the ED Form
799) instructions. Ending principal balances, average daily balances, and
adjustments for differences in average daily balances were calculated in
accordance with - and as of June 30, 2003, Nelnet had effective internal
controls over compliance with requirements for calculation in accordance
with - the LaRS (formerly known as the ED Form 799) instructions.
o In Parts IV and V of the LaRS (formerly known as the ED Form 799) prepared
by Nelnet and submitted to ED on behalf of our lender clients or the
billing information prepared by Nelnet and submitted to our lender clients
during the year ended June 30, 2003, Nelnet properly classified and
accurately reported - and as of June 30, 2003, Nelnet had effective
internal control over compliance with requirements to properly classify and
report - loan principal balances in accordance with the LaRS (formerly
known as the ED Form 799) 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 June 30, 2003 were recorded by Nelnet in accordance with - and
as of June 30, 2003, Nelnet had effective internal control over compliance
for recording loan purchases/sales in accordance with (identify the
applicable documents such as purchase/sales agreements or the instructions
lender provided to Nelnet) 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 June 30, 2003, Nelnet paid
ED - and as June 30, 2003, Nelnet had effective internal control over
compliance with requirements for payments to ED of - loan origination fees
for which we were responsible for paying on behalf of our lender clients in
accordance
Xx. Xxxxxx Xxxxx
Xxxx Three
September 29, 2003
with the agreements. During the year ended June 30, 2003, Nelnet recorded
completely and accurately in the servicer's loan servicing systems - and as
of June 30, 2003, Nelnet had effective internal control over compliance
with requirements to record completely and accurately in the servicer's
loan servicing systems - all applicable LaRS (formerly known as the ED Form
799) loan data for loans transferred, including beginning balances.
o Upon receipt of Student Status Confirmation Reports or other notification
of change information for loans serviced during the year ended June 30,
2003, Nelnet accurately updated - and as of June 30, 2003, 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 June 30, 2003, Nelnet: (a)
calculated - and as of June 30, 2003, 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 June 30, 2003,
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 June 30, 2003, Nelnet complied
with - and as of June 30, 2003, 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).
o For loans serviced during the year ended June 30, 2003, Nelnet complied
with - and as of June 30, 2003, 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 00 XXX 000.000(x), (x), (x), (x), (x) and (g)
for default claims contained in 34 CFR 682.406(a)(5). For loans serviced
during the year ended June 30, 2003, Nelnet accurately categorized - and as
of June 30, 2003, Nelnet had effective internal control over compliance
with requirements for accurately categorizing - amounts pertaining to
claims in the LaRS (formerly known as the ED Form 799).
o For loans with timely-filing violations or due diligence violations that
were cured during the year ended June 30, 2003, Nelnet documented that it
performed - and, as of June 30, 2003, 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 June 30, 2003,
Nelnet properly categorized - and, as of June 30, 2003, Nelnet had
effective internal control over compliance with the
Xx. Xxxxxx Xxxxx
Xxxx Four
September 29, 2003
requirements to properly categorize the loans in the LaRS (formerly known as
the ED Form 799) prepared and submitted to ED on behalf of our lender
clients or the billing information prepared by Nelnet and submitted to our
lender clients.
Very Truly Yours,
Nelnet Loan Services, Inc.
/s/ Xxxxxxx X. Xxxx
--------------------------
Xxxxxxx X. Xxxx
Executive Director
Nelnet Loan Services, Inc.
APPENDIX A
NELNET LOAN SERVICES, INC.
Background
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 US 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 Loan Services, 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,
Colorado; Jacksonville, Florida; Indianapolis, Indiana; and Lincoln, Nebraska.
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 borrower 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 (formerly known as the ED Form 799).
The lender ID's covered by this report are included in Appendix B.
APPENDIX B
Listing of Lenders Covered by Compliance Attestation
203760 802759 805593 809678 821623 826509 829464 831819 833457
213760 802828 805806 809685 821666 826625 829565 831836 833471
231455 802843 805849 810007 821806 826710 829626 831846 833487
313760 802983 805923 810086 821830 826717 829650 831870 833495
331300 802995 805943 810088 822022 826730 829691 831970 833500
421623 803000 805974 810123 822046 826757 829704 832036 833501
428577 803017 805997 810148 822243 826865 829717 832057 833580
430628 803128 806078 810470 822366 826943 829763 832339 833585
508471 803238 806126 810509 822384 826947 829769 832347 833610
521623 803258 806208 810755 822660 826953 830111 832415 833659
528577 803264 806361 811077 822671 826978 830186 832445 833669
530868 803266 806400 811353 822745 827192 830227 832500 833670
531300 803342 806595 812211 822908 827231 830248 832502 833674
605156 803348 806773 813133 822927 827511 830288 832584 833702
605974 803359 807418 813169 823065 827537 830293 832640 833733
607743 803414 807669 813285 823185 827603 830309 832710 833741
608036 803447 807743 813760 823296 827610 830343 832775 833806
608543 803488 807806 814392 823299 827735 830372 832934 833817
610755 803508 808036 815502 823546 827800 830427 832998 833820
611353 803516 808047 815678 823817 827855 830469 833005 833821
619628 803533 808134 815897 823964 827866 830513 833051 833832
620682 803547 808173 815979 824004 828067 830525 833074 833872
622660 803557 808217 817240 824060 828141 830547 833078 833873
630868 803588 808238 817408 824072 828148 830549 833079 833892
631300 803606 808258 817409 824135 828259 830604 833088 833895
631484 803608 808260 817420 824289 828295 830617 833093 833934
633820 803631 808316 817516 824327 828375 830624 833101 833934
633832 803634 808426 818313 824335 828478 830628 833135 833953
700121 803645 808441 819524 824397 828564 830631 833174 834036
705147 803654 808471 819628 824495 828577 830772 833189 888884
713760 803670 808543 819648 824504 828577 830796 833205 888886
724690 803694 808606 819824 824573 828634 830868 833207 899980
728577 803709 808628 819922 824690 828728 830953 833211 899982
732775 803758 808662 819931 824800 828785 830974 833212 899988
733135 803799 808711 820198 825033 828793 830977 833214 999712
800241 803909 808863 820334 825310 828875 831008 833220 999990
800802 804283 808874 820393 825323 829005 831149 833271 999996
801890 804456 808877 820622 825495 829030 831213 833273
801891 804575 808888 820682 825585 829077 831299 833294
801894 804860 808896 820685 825641 829191 831300 833305
801935 804868 808936 820937 826087 829223 831419 833310
801943 804959 808942 820967 826140 829262 831455 833325
801947 805041 808959 821024 826212 829302 831484 833361
801953 805147 809063 821449 826351 829394 831593 833452
802560 805178 809479 821471 826442 829458 831692 833456
