Why Bethel University is fighting the U.S. Department of Education

Bethel University is challenging sanctions imposed by the U.S. Department of Education, which says the school has flunked its assessment of financial health.

Federal officials have given the school until later this month to post a multimillion-dollar letter of credit.

But the university's finance chief says Bethel is doing fine, and that the federal assessment is based on faulty, inconsistent calculations. They're among methods that a national organization roundly criticized in November. She says the department is acting like a "bully" and ignoring questions about its calculations.

The school has recruited the aid of 4th District Rep. Betty McCollum, D-Minn., who has asked the Secretary of Education to resolve the problem.

"This is a big deal to schools like Bethel University," said Kathleen Nelson, the school's senior vice president for finance and administration. "It's not going to threaten our survivability. We are a strong, solid school. But the cost of meeting this letter of credit is significant."

Officials from the department did not immediately respond to a request to comment.

On May 6, the Arden Hills-based university received a letter from the Education Department saying it had failed to meet federal financial standards for the 2012 fiscal year.

The school, the letter said, had scored 0.4 out of a possible 3.0 -- far below the minimum passing score of 1.5.

Bethel President James H. Barnes III described his surprise in a letter to McCollum:

"This was absolutely unexpected and contrary to the calculations prepared by our independent auditors," Barnes wrote. "Bethel has always easily exceeded the Department's financial ratio test."

Bethel's auditors found four errors in the department's calculations, Barnes wrote. In each case, he stated, "the Department's calculation was either inconsistent with federal regulations or with generally accepted accounting principles (GAAP) -- or both."

When the auditors corrected the errors, he wrote, Bethel "easily exceeded" the test as it had in years past.

The auditors, the Minneapolis firm of Clifton Larson Allen, said in a May 7 letter to the Department of Education that the score was 2.4 after it corrected the department's mistakes.

Its says the mistakes stem from how the department handled fixed assets, pensions, investment income and unrestricted revenue.

Bethel officials say they appealed the sanctions -- but the department ignored them.

Nelson says the department has been unable to explain its calculations or coherently defend its position in its letters to the university:

"If you have an accountant or a CPA read them, they say, 'This doesn't even make sense. They don't even know what they're talking about. They're just filled with errors.'"

Bethel says the Education Department has demanded an irrevocable letter of credit by July 17. Such letters, similar to a loan by a bank, typically ensure the federal government gets back at least a portion of the financial aid money it has given a college in the event that college shuts down.

The department told Bethel it had a choice: post a $20 million letter -- which represents half of the federal student aid processed by Bethel in a year -- or a $4 million letter, which represents 10 percent of federal funding.

Nelson said the $20 million letter "isn't even an option. Bethel just is not capable of producing a letter of credit for that amount."

Taking out a $4 million letter, however, would also be expensive, Nelson said. It would require an annual fee of $100,000. That money would be enough to potentially jeopardize financial aid for eight or nine students.

"It's not going to jeopardize our future," Nelson said. "But for a school like us, that's a lot of money."

Also, taking out the $4 million note would require Bethel to state that it has not met federal standards of financial responsibility.

"We are concerned with what this would do to our reputation," she said. "Because people who don't understand this issue ... may think that we are not financially stable, that we're not run well, that our survivability is in question -- and none of those are true."

Bethel isn't alone in its concern over the calculations used in federal financial-health assessments.

In report last November, the National Association of Independent Colleges and Universities called for an overhaul of the assessment program. A spokesman said about 70 private schools across the U.S. have faced sanctions due to faulty calculations.

Rep. McCollum asked Secretary of Education Arne Duncan in a June 28 letter to help resolve the issue. She asked for a 90-day extension of the July 17 deadline for Bethel's letter of credit. And she asked for a meeting between her office and officials from Bethel and the department.

"This failure to directly consult with the university or their independent auditors is of great concern to me and completely unacceptable considering the dire consequences associated with the department's determination," she wrote.

• How Augsburg is going all Mark Twain
• How past U of M presidents view higher-ed today
• Metro State data breach affected 160,000 students
• U of M starting massive systems upgrade