Utah Department of Administrative Services Division of Administrative Rules

File No. 33773

This rule was published in the July 1, 2010, issue (Vol. 2010, No. 13) of the Utah State Bulletin.


Commerce, Consumer Protection

Section R152-34-7

Rules Relating to the Operation of Proprietary Schools under Section 13-34-107

Notice of Proposed Rule

(Amendment)

DAR File No.: 33773
Filed: 06/15/2010 02:52:38 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The purpose of this amendment is to clarify and amend the financial documentation required for postsecondary proprietary school registration; and to raise the surety requirement to an amount reflective of current receipts by postsecondary proprietary schools.

Summary of the rule or change:

Pro forma financial statements and Profit and Loss Statements were replaced by Income Statements and Statement of Stockholders' Equity as acceptable financial statements. The surety requirement after the first year of a postsecondary proprietary school's operation was raised to $300,000.

State statutory or constitutional authorization for this rule:

  • Section 13-2-5
  • Section 63G-4-3
  • Title 13, Chapter 34

Anticipated cost or savings to:

the state budget:

The state budget will not be affected by changing the financial statement forms that postsecondary schools are required to provide. The state budget will not be affected by raising the surety requirement for postsecondary proprietary schools.

local governments:

Local government will not be affected by changing the financial statement forms that postsecondary schools are required to provide. Local government will not be affected by raising the surety requirement for postsecondary proprietary schools.

small businesses:

To the extent that postsecondary proprietary schools employ fewer than fifty (50) persons, there will be increased costs associated with the increased surety requirement. This cost impact is difficult to quantify as it will vary based on factors such as the school's credit worthiness, how long the school has been operating, the financial soundness of school operators, etc. However, Division records indicate that only three (3) registered schools will be required to increase their surety amount.

persons other than small businesses, businesses, or local governmental entities:

There will be increased costs associated with the increased surety requirement. This cost impact is difficult to quantify as it will vary based on factors such as the school's credit worthiness, how long the school has been operating, the financial soundness of school operators, etc. However, Division records indicate that only three (3) registered schools will be required to increase their surety amount.

Compliance costs for affected persons:

There will be increased costs associated with the increased surety requirement. This cost impact is difficult to quantify as it will vary based on factors such as the school's credit worthiness, how long the school has been operating, the financial soundness of school operators, etc. However, Division records indicate that only three (3) registered schools will be required to increase their surety amount.

Comments by the department head on the fiscal impact the rule may have on businesses:

In addition to the fiscal impact noted in the rule summary, there may be some benefit to the insurance or surety industry due to the requirement that postsecondary proprietary schools in operation for more than a year must obtain an increased surety. However, it is not expected to be an appreciable impact as only three registered schools are affected.

Francine Giani. Executive Director

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Commerce
Consumer Protection
160 E 300 S
SALT LAKE CITY, UT 84111-2316

Direct questions regarding this rule to:

  • Angela Hendricks at the above address, by phone at 801-530-6035, by FAX at 801-538-6001, or by Internet E-mail at ahendricks@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

08/02/2010

This rule may become effective on:

08/09/2010

Authorized by:

Kevin Olsen, Director

RULE TEXT

R152. Commerce, Consumer Protection.

R152-34. Postsecondary Proprietary School Act Rules.

R152-34-7. Rules Relating to the Operation of Proprietary Schools under Section 13-34-107.

(1) An authorized officer of the institution to be registered under this chapter shall sign a disclosure as to whether the institution or an owner, officer, director, administrator, faculty member, staff member, or agent of the institution has violated laws, federal regulations or state rules as determined in a criminal, civil or administrative proceeding.

(2) The [d]Division shall refuse to register an institution when the [d]Division:

(a) determines that the institution or an owner, officer, director, administrator, faculty member, staff member, or agent of the institution has violated laws, federal regulations or state rules, as determined in a criminal, civil or administrative proceeding;

(b) determines the violation(s) to be relevant to the appropriate operation of the school; and

(c) has a reasonable doubt that the institution will function in accordance with these laws and rules or provide students with an appropriate learning experience.

(3) A change in the ownership of an institution, as defined in Section 13-34-103(8), occurs when there is a merger or change in the controlling interest of the entity or if there is a transfer of more than 50 percent of the its assets within a three-year period. When this occurs the following information is submitted to the [d]Division for its review:

(a) a copy of any new articles of incorporation;

(b) a current financial statement, as outlined in subsection (8) below;

(c) a listing of all institutional personnel that have changed as a result of the ownership transaction, together with complete resumes and qualifications;

(d) a detailed description of any material modifications to be made in the operation of the institution; and

(e) payment of the appropriate fee.

(i) The [d]Division collects the following fees in accordance with U.C.A. [Subs]Section 13-34-107(5):

(A) Initial registration application fees will be based on the expected gross income of the registered program during the first year of operation. The initial application fee shall be computed as one-half of one percent of the gross tuition income of the registered program(s) expected during the first year, but not less than $100 or more than $2,000. The institution shall provide documentation to substantiate the amount of the fee, in a form specified by the [d]Division.

(B) The [d]Division also collects annual registration fees computed as one-half of one percent of the gross tuition income of the registered program(s) during the previous year, but not less than $100 or more than $2,000. The institution shall provide documentation to substantiate the amount of the fee, in a form specified by the [d]Division. The annual registration fee is due on the anniversary date of the institution's certificate of registration.

(C) All registration fees collected by the [d]Division will be used to enhance the administration of the Act and Rules.

(4) The institution shall submit to the [d]Division its renewal registration statement application, along with the appropriate fee, no later than thirty (30) days prior to the expiration date of the current certificate of registration.

(5) In addition to the annual registration fee, an institution failing to file a renewal registration application by the due date or filing an incomplete registration application or renewal shall pay an additional fee of $25 for each month or part of a month after the date on which the registration statement application or renewal were due to be filed.

(6) Within thirty (30) days after receipt of an initial or renewal registration statement application and its attachments, the [d]Division shall do one of the following:

(a) issue a certificate of registration;

(b) request further information and, if needed, conduct a site visit to the institution as detailed in R152-34-10(1); or

(c) refuse to accept the registration statement based on Sections 13-34-107 and 113.

(7) Although a certificate of registration is valid for two (2) years, the [d]Division may periodically request updates of financial statements, surety requirements and the following statistical information:

(a) The number of students enrolled from September 1 through August 31;

(b) The number of students who completed and received a credential;

(c) The number of students who terminated or withdrew;

(d) The number of administrators, faculty, supporting staff, and agents; and

(e) The new catalog, information bulletin, or supplements.

(8) The institution [must]shall have, in addition to other criteria contained in this rule, sufficient financial resources to fulfill its commitments to students and staff members, and to meet its other obligations as evidenced by the following financial statements:

(a)[(i)] A current financial statement prepared in accordance with generally accepted accounting principles including a balance sheet, [a profit and loss statement]an income statement, a statement of stockholders' equity, and a statement of cash flows for the most recent fiscal year with all applicable footnotes; [or

(ii) Pro forma financial statements until actual information is available when an institution has not operated long enough to complete a fiscal year;]and either:

[(b)](i) A certified fiscal audit of the institution's financial statement performed by a certified or licensed public accountant; or

(ii) A review of the institution's financial statement performed by a certified or licensed public accountant[, which shall include at least a statement by the accountant that there are not material modifications that should be made to the financial statement for it to be in conformity with generally accepted accounting principles;].

(b) If the institution has been determined to be bond exempt under Subsection (14) and has total gross tuition income that does not exceed $50,000, the institution may, in lieu of the financial statements set forth in Subsection (8)(a), provide to the Division;

(i) a copy of the institution's most recently filed federal tax return; or

(ii) if the institution is not required to file a return, then a copy of the owner's most recently filed federal tax return.

(9)(a) A satisfactory surety in the form of a bond, certificate of deposit, or irrevocable letter of credit [must]shall be provided by the institution before a certificate of registration will be issued by the [d]Division.

(b) The obligation of the surety will be that the institution, its officers, agents, and employees will:

(i) faithfully perform the terms and conditions of contracts for tuition and other instructional fees entered into between the institution and persons enrolling as students; and

(ii) conform to the provisions of the Utah Postsecondary Proprietary School Act and Rules.

(c) The bond, certificate of deposit, or letter of credit [must]shall be in a form approved by the [d]Division and issued by a company authorized to do such business in Utah.

(d)(i) The bond, certificate of deposit, or letter of credit [must]shall be payable to the [d]Division to be used for creating teach-out opportunities or for refunding tuition, book fees, supply fees, equipment fees, and other instructional fees paid by a student or potential student, enrollee, or his or her parent or guardian.

(ii) In each instance the [d]Division may determine:

(A) which of the uses listed in Subsection (9)(d)(i) are appropriate; and

(B) if the [d]Division creates teach-out opportunities, the appropriate institution to provide the instruction.

(e) An institution that closes or otherwise discontinues operation s shall maintain the institution's surety until:

(i) at least one year has passed since the institution has notified the [d]Division in writing that the institution has closed or discontinued operation; and

(ii) the institution has satisfied the requirements of Section R152-34-9.

(10)(a) The surety company may not be relieved of liability on the surety unless it gives the institution and the [d]Division ninety calendar days notice by certified mail of the company's intent to cancel the surety.

(b) The cancellation or discontinuance of surety coverage after such notice does not discharge or otherwise affect any claim filed by a student, enrollee or his/her parent or guardian for damage resulting from any act of the institution alleged to have occurred while the surety was in effect, or for an institution's ceasing operations during the term for which tuition had been paid while the surety was in force.

(c) If at any time the company that issued the surety cancels or discontinues the coverage, the institution's registration is revoked as a matter of law on the effective date of the cancellation or discontinuance of surety coverage unless a replacement surety is obtained and provided to the [d]Division.

(11)(a) Before an original registration is issued, and except as otherwise provided in this rule, the institution shall secure and submit to the [d]Division a surety in the form of a bond, certificate of deposit or letter of credit in an amount of one hundred and eighty-seven thousand, five- hundred dollars ($187,500) for schools expecting to enroll more than 100 separate individual students (non-duplicated enrollments) during the first year of operation, one hundred and twenty-five thousand dollars ($125,000) for schools expecting to enroll between 50 and 99 separate individual students during the first year, and sixty-two thousand, five- hundred dollars ($62,500) for institutions expecting to enroll less than 50 separate individual students during the first year.

(b) Institutions that submit evidence acceptable to the [d]Division that the school's gross tuition income from any source during the first year will be less than twenty-five thousand dollars ($25,000) may provide a surety of twelve thousand, five hundred dollars ($12,500) for the first year of operation.

(12)(a) Except as otherwise provided in this rule, the minimum amount of the required surety to be submitted annually after the first year of operation will be based on twenty-five percent of the annual gross tuition income from registered program(s) for the previous year (rounded to the nearest $1,000), with a minimum surety amount of twelve thousand, five hundred dollars ($12,500) and a maximum surety amount of [one hundred and eighty-seven thousand, five-hundred dollars ($187,500)]three hundred thousand dollars ($300,000).

(b) The surety [must]shall be renewed each year by the anniversary date of the school's certificate of registration, and also included as a part of each two-year application for registration renewal.

(c) No additional programs may be offered without appropriate adjustment to the surety amount.

(13)(a) The institution shall provide a statement by a school official regarding the calculation of gross tuition income and written evidence confirming that the amount of the surety meets the requirements of this rule.

(b) The [d]Division may require that such statement be verified by an independent certified public accountant if the [d]Division determines that the written evidence confirming the amount of the surety is questionable.

(14) An institution with a total cost per program of five hundred dollars or less or a length of each such program of less than one month shall not be required to have a surety.

(15) The [d]Division will not register a program at a proprietary school if it determines that the educational credential associated with the program may be interpreted by employers and the public to represent the undertaking or completion of educational achievement that has not been undertaken and earned.

(16) Acceptance of registration statements and the issuing of certificates of registration to operate a school signifies that the legal requirements prescribed by statute and regulations have been satisfied. It does not mean that the [d]Division supervises, recommends, nor accredits institutions whose statements are on file and who have been issued certificates of registration to operate.

 

KEY: education, postsecondary proprietary schools, registration requirements, consumer protection

Date of Enactment or Last Substantive Amendment: [May 22, 2007]2010

Notice of Continuation: June 15, 2007

Authorizing, and Implemented or Interpreted Law: 13-2-5(1)

 


Additional Information

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For questions regarding the content or application of this rule, please contact Angela Hendricks at the above address, by phone at 801-530-6035, by FAX at 801-538-6001, or by Internet E-mail at ahendricks@utah.gov.