Fraud by faculty
Fraud by faculty
What happens when fraud comes from within?
When it comes to fraud at colleges or universities, the imaginative mind quickly conjures up images of dark, eerie rooms filled with hooded hackers. However, what happens when the source of fraud is actually a world-renown professor, or a well-respected provost? In the 2018 Global Study on Occupational Fraud and Abuse, the ACFE places education 7th out of 24 for most reported cases of employee embezzlement, with 97 cases generating a median loss of $68,000. Read more to learn how white-collar crimes have pervaded throughout higher education institutions, and what we can do to stop them.
A series of unfortunate events
The reality of occupational fraud at higher education institutions is that it can happen to anyone, anytime, anywhere, and it can go undetected for years at a time. Most incidents never make it to news headlines, as universities attempt to preserve their reputation, but here are some we do know of:
In November 2013, it was discovered that an administrator had improperly “compensated herself approximately $390,000” from 2007 to 2010 for work relating to a university-sponsored conference. After identifying the fraud, the private university entered into an agreement with the administrator, who repaid the balance plus interest.
Although this specific instance was contained, this university has been a victim to two previous instances of internal fraud. In January 2005, university auditors confronted an associate director/program coordinator for the Brazilian Studies program, who had diverted funds of $311,000 between 2001-2005. The next day, the employee admitted to the theft and fled to Brazil. Even worse was the story of a former medical center administrator who was sentenced to 20 months in prison for stealing $350,000 between 1995 and 2002. Since the grants stolen contained overhead costs that were not associated with any individual program, the university was forced to repay over $500,000 to the federal government.
In July 2015, an administrative assistant in the school of nursing received an 18-month prison term for stealing over $300,000. The former employee leveraged a rather nefarious scheme, misleading students by asking them to pay tuition via PayPal to an undisclosed account.
In September 2015, a computer lab manager was accused of stealing $80,000 from the school for personal purchases, some of which included Legos, iPads, television sets, and more. The employee had worked within the university for 17 years.
Small Public College
In March 2017, news broke that $200,000 had been stolen from a small public college in the western U.S., and a high-level employee had resigned in connection to the missing money. The university president confirmed that a financial services director who had worked at the college for 5+ years had resigned. In a statement, New Mexico state auditor Tim Keller reiterated how “those were hundreds of thousands of dollars that should have been serving students and faculty, not the personal benefit of an employee”.
Death by a thousand cuts
You’re probably curious as to what the aftermaths of these cases look like. Let’s turn back to the 2018 ACFE study. For starters, the perpetrators of fraud receive minimal internal punishment in the form of termination (65%), settlement (12%), resignation (10%), or no punishment at all (6%). On the other hand, however, the report demonstrates that victim organizations were fined a median amount of $100,000, resulting from financial statement fraud (17%), corruption (11%), or asset misappropriation (8%).
To make matters worse, the majority (53%) of victim organizations recover none of their losses, with less than a third making partial recoveries and only 15% reverting all funds. Add this to what we’ve already covered about reputational losses, along with the time and the cost associated with litigation, and you start to sympathize with universities who want to keep the incident “under wraps”.
See it to believe it
So at the end of the day, what can we do about it? How can we stop dishonest employees, especially when they come disguised as benevolent administrators or friendly lab managers?
The basics include everything from ethical leadership training for senior administrators, regular fraud risk assessments, anonymous hotlines, and corrective alignment of faculty member incentives.
But if your treasury team truly wants to mitigate occupational fraud, you have to be able to detect the red flags. This requires financial oversight in the form of secure, integrated payments. And that’s our bread and butter. Schedule a quick call to learn how we can help you:
A special thanks to Brenna Dixon of Oklahoma State University for inspiring us to share about Occupational Fraud from her talk “Fraud - The Big Picture” and “Fraud - A Focused Look” at the 2018 Bursar’s Conference in Savannah, Georgia.