1. (a) An institution shall provide evidence to the commission the institution is financially sound and can reasonably fulfill its commitments to students and creditors. When an institution applies for an authorization to operate, renewal of an authorization to operate, or an authorization to operate under a change of ownership, or as the commission determines is needed, the institution shall submit financial statements audited by an independent, licensed certified public accountant, and supporting documentation, unless the institution qualifies to submit unaudited financial statements under (e) of this section. The commission may require additional documentation, as the commission considers necessary.
2. (b) If an applicant for initial authorization has not yet begun operations, the commission may allow the applicant to submit alternative documents to those required in (a) of this section. Alternative documents include a business plan with market analysis, a budget, and documentation of working capital sufficient for at least one year of operation, as supported by budget projections and other documentation, as required by the commission, as evidence of financial soundness.

3. (c) For the purposes of this chapter, a postsecondary educational institution is financially sound if audited financial statements or financial statements submitted in accordance with (e) of this section indicate that the institution meets its debt obligations and obligations to students. A postsecondary educational institution is not financially sound if

   1. (1) its financial statements or the commission staff's investigation shows

      1. (A) operating losses;
      2. (B) negative cash flows from operations;
      3. (C) adverse financial ratios; or
      4. (D) conditions or events similar to those described in (A) - (C) of this paragraph that raise substantial doubts that the institution will be able to continue to fulfill its commitments to students and creditors;
   2. (2) its accrediting agency, if any, has found it not to be financially sound; or

   3. (3) the United States Department of Education has

      1. (A) made a final determination that the institution is not financially sound; or
      2. (B) placed the institution on reimbursement status.

4. (d) A postsecondary educational institution that is not financially sound under this section shall

   1. (1) provide a surety bond, cash deposit, or commission-approved negotiable securities in the amount of the greater of

      1. (A) the highest amount of revenue received by the institution for all students enrolled, including all tuition and fee revenues, in all programs during an academic or vocational program period, in the most recent calendar, or fiscal, 12-month period, as applicable; or
      2. (B) the highest amount of revenue for all students projected by the commission that the postsecondary educational institution would receive during an academic or vocational program period of the current year;
   2. (2) maintain a commission-approved, detailed teach-out plan;
   3. (3) clearly and conspicuously disclose to all students and applicants that the commission has determined the institution to be financially unsound, and provide information on how to contact the commission for more information; and

   4. (4) pay for an independent financial soundness review annually from a firm approved by the commission, until

      1. (A) the commission determines the institution to be financially sound; or
      2. (B) the teach-out plan has been completed and the institution has closed.

5. (e) The commission will accept unaudited financial statements from the institution to assess the institution's financial soundness as follows:

   1. (1) if an institution has annual tuition revenues of less than $200,000, the institution must provide the commission with financial statements, prepared in accordance with generally accepted accounting principles, and a compilation report with full disclosure for the most recently completed fiscal year; the report must be prepared by a licensed, independent accounting service;
   2. (2) if an institution has annual tuition revenues of less than $300,000 but more than $200,000, the institution must provide the commission a licensed certified public accountant's review report; the report must state that the institution's financial statements for the most recently completed fiscal year were prepared in accordance with generally accepted accounting principles.

6. (f) A financial statement must include

   1. (1) an accounting report or opinion letter;
   2. (2) a balance sheet;
   3. (3) an income statement;
   4. (4) a statement of cash flows; and
   5. (5) notes to the financial statement.

7. (g) To meet annual financial reporting requirements of 20 AAC 17.062, an institution shall provide one of the following to the commission:

   1. (1) internally prepared financial statements; the statements must include a balance sheet, an income statement, and a statement of cash flows;
   2. (2) a compilation report with full disclosure; or
   3. (3) financial statements audited by an independent licensed certified public accountant.
8. (h) For the purposes of this section, financial reporting must cover the most recent fiscal year. In this subsection, "fiscal year" means the most recent 12-month period that ends before October 1 of the year in which the report is submitted.

(Eff. 9/18/22 Register 243)

Authority: AS 14.42.030, AS 14.48.060, AS 14.48.100, AS 14.48.050, AS 14.48.070