FSA has issued new guidance addressing how it will enforce audited financial statement requirements under 34 CFR §668.23(d)(1). The announcement provides important clarification for institutions navigating regulatory changes introduced in 2023.
While FSA is emphasizing stronger oversight in some areas, it is also delaying enforcement of several newer requirements that have proven difficult to implement.
The full announcement is listed below and also accessible at: (GENERAL-26-18) Enforcement priorities related to audited financial statement requirements under §668.23(d)(1)
Posted Date: March 20, 2026
Author: Federal Student Aid
Electronic Announcement: ID GENERAL-26-18
Subject: Enforcement priorities related to audited financial statement requirements under §668.23(d)(1)
On Oct. 31, 2023, the U.S. Department of Education (ED) published Federal Register notice 88 FR 74568 that amended regulations related to financial responsibility, administrative capability, certification procedures, and Ability-to-Benefit. Through this Electronic Announcement, ED is providing notice regarding its enforcement priorities under § 668.23(d)(1) which discusses audited financial statements which, in collaboration with other regulatory requirements, enables ED to make a determination of an institution’s financial responsibility.
ED has discretion regarding the use of its enforcement authority and believes that taking enforcement action against institutions for failure to comply with certain aspects of § 668.23(d)(1) would not be appropriate due to our limited resources nor would taking action advance the national interest or the policy priorities of ED. We also note that institutions of higher education have raised practical challenges associated with transitioning their fiscal year to the new standard and implementing other changes to their financial statements by the originally established effective date. Accordingly, as discussed below, ED has no plans to take enforcement actions under certain specific provisions in § 668.23(d)(1) that went into effect July 1, 2024. ED may also take action to amend § 668.23(d)(1) in a future rulemaking.
Summary of § 668.23(d)(1) Provisions Subject to Delayed Enforcement
Fiscal-Year Alignment with IRS Annual Return(s)
Enforcing the requirement for financial statements submitted to ED for fiscal years beginning on or after July 1, 2024, to match the fiscal year end of the entity’s annual return(s) filed with the Internal Revenue Service (IRS) will not be a priority until at least fiscal years beginning on or after July 1, 2027. Institutions may continue submitting audited financial statements that follow their existing institutional fiscal year, even if that fiscal year does not match the reporting period of IRS annual returns. ED expects that this delay will give institutions additional time to match their fiscal year end dates with their IRS return(s). For institutions that have already aligned their financial statements fiscal years with their IRS return(s), no additional action is required.
ED-Requested or ED-Required Fiscal Years
Enforcing the requirement for submission of acceptable financial statements for a school’s latest complete fiscal year (or such years as requested by ED or required by this part) will not be a priority until at least July 1, 2027. ED will not require institutions to provide audited financial statements covering additional or ED-specified fiscal years under this new authority during the delay period. Existing authorities outside the Oct. 31, 2023, rule remain unchanged.
Expanded Applicability of Financial Statements Submissions
Enforcing the requirement that federal student aid functions performed by that entity are covered in the submission of financial statements will not be a priority until at least July 1, 2027. Institutions may follow the previous version of § 668.23(d)(1) regarding which entities’ financial statements must be included or consolidated in submissions during the delay period.
Required Disclosure When No Related-Party Transactions Exist
Enforcing the requirement that, if there are no related party transactions during the audited fiscal year or related party outstanding balances reported in the financial statements, management must add a note to the financial statements to disclose this fact will not be a priority until at least July 1, 2027. Institutions do not need to add a specific note disclosing when there are no related party transactions for fiscal years covered by the delay. Institutions must continue to follow applicable Generally Accepted Accounting Principles (GAAP) and Generally Accepted Government Auditing Standards (GAGAS) requirements.
The enforcement de-prioritization described in this announcement does not alter ED’s expectation for institutions to submit annual compliance and financial statements audits to ED. Institutions must continue to submit these audits in accordance with the requirements under § 668.23 as enforcing the audit requirement remains an enforcement priority for ED. Additionally, all other amendments to the financial responsibility regulations promulgated in the Oct. 31, 2023, Federal Register remain enforcement priorities for ED. We appreciate your continued partnership as we implement these regulations. Please continue to reference the Knowledge Center for updates.
Contact Information
If you have questions about the information in this announcement, you may reach out to ED using the Contact Customer Support form in FSA’s Partner Connect Help Center. To submit a question, please enter your name, email address, topic, and question. When submitting a question related to this Electronic Announcement, please select the topic “Policy Guidance.”