Corruption in Collegiate Sports

Editor’s note: This article also appeared in the April issue of Internal Auditor, a publication of the Institute of Internal Auditors. Thanks to managing editor Leah Miller and staff editor Christina Brune for their assistance.  

Had a repentant tutor not listened to her conscience and subsequently spoken with a reporter, everything would have been just fine. But Jan Gangelhoff, the former office manager and part-time tutor for the University of Minnesota men’s basketball team, blew the whistle on the program. As a result, the head coach and, shortly thereafter, two top athletic department administrators were no longer employed by the University of Minnesota, and the school endured months of embarrassing publicity.

Gangelhoff has said that she wrote more than 400 term papers for at least 18 Minnesota basketball players from 1993 to 1998. A subsequent university investigation found that the coach, Clem Haskins, not only broke National Collegiate Athletic Association (NCAA) rules by making cash payments to players, he also told his team to mislead attorneys who were looking into the academic fraud. The university’s report cited the administration’s failure to separate the coach’s influence from the academic support staff. In hopes of preempting possible NCAA punishment later this year, the university has imposed penalties on itself.

“It rates right at the top as far as scandals go,” said Armen Keteyian, who investigated the scandal. “We’re talking about a system that systematically corrupts the very essence of what public education is all about in this country. Point-shaving scandals and academic fraud are two issues that cut right to the heart of what college sports are all about today, and the integrity of the institution is at stake.”

While the University of Minnesota’s reputation singed under harsh media glare, internal auditors at colleges and universities throughout the United States may have secretly hoped that a similar scandal wasn’t brewing in their own backyards. Although the athletic department is just one area under the internal audit department’s umbrella of responsibility, its corruption – and the subsequent high-profile public interest – can result in a crippling blow to the university’s integrity.

It’s fair to say that internal audit departments are challenged by the deep pockets and often unbridled power of big-time college athletic departments. These are highly political environments where the boss is sometimes ambivalent, even turning his back to fraud as long as the team keeps winning. The internal auditors, armed only with complicated NCAA regulations and limited budgets, must still seek ways to implement appropriate checks and balances to help ensure the integrity of their organizations.

College sports fraud and corruption is a sticky subject at best. Of about 20 internal auditors contacted for this article, only a handful responded. Those willing to speak on their experiences wouldn’t allow their names to be used, indicating the delicate nature of their positions.

Internal Audit Role in NCAA Compliance 

“Scott Ford,” the director of internal audit at a Pacific-10 university, claims that most university presidents and audit committees fear “damage to reputation” more than any other threat. “And there’s no greater risk for a potential public-relations nightmare than in college sports and the failure to comply with NCAA rules,” said Ford.

“ Rules violations are big deals, particularly when they appear to be intentional,” he added. “Those cases usually revolve around the highly skilled athletes in football and men’s basketball and may include improper recruiting, ineligible student-athletes, athletes receiving extra benefits, academic fraud, and students being paid for work they didn’t do.” NCAA violations also cover agents who make illegal cash payoffs to recruits – bags of money, new homes, and cars delivered to family members or “street agents” in exchange for a player’s services, for example. Athletic boosters, the affluent supporters of sports, can also potentially hurt programs by giving athletes illegal money.

“Most of the investigations my department conducts in the area of college sports is related to compliance with the NCAA regulations,” Ford said. “The NCAA rules manual is huge, and it includes numerous internal controls designed to document and create audit trails. The NCAA also requires that the athletics program be subjected to an independent review at least once every three years, and the association’s interpretation of that rule is that internal auditors are an appropriate entity to carry out that review.”

While Ford considers the NCAA rulebook to be a thorough asset, many of his peers think that it’s a bit cumbersome. “One of the biggest problems I face is the convoluted and ever-changing nature of NCAA rules,” said “Mary Little,” an audit supervisor at a small university. “It’s very overwhelming to learn and keep up with every single one of the regulations. In some cases there can be violations because it ‘wasn’t that way last year,’ and we didn’t recognize the change. I compare these regulations to income tax laws. We need to have reform, but every time we reform we make it worse.”

“Jennifer Morrison” agreed. A former internal auditor, Morrison currently serves as an NCAA compliance officer for a Division I university. Her experience is unusual in that most of her counterparts have legal backgrounds or are former coaches or athletic department staff employees. “The changing and growing number of NCAA regulations often makes my job challenging,” she said. For example, Morrison related the story of a coach who inadvertently broke a rule by visiting too long with a prospective player while on a recruiting trip without first consulting with the school’s administrators. In another case, Morrison said that a basketball team booster used his plane to ferry a possible recruit. “If he had only documented the trip, there wouldn’t have been an infraction,” she said.

Still, it behooves the university – and the audit staff – to remain alert to potential rules infractions. “If the NCAA punishes a school, they risk losing athletic grants and financial aid,” Ford said. “But far worse than the financial impact is the potential damage to the school’s reputation. Big schools have big stakes in their reputations, and this is an area in which internal auditors can make a huge impact. If the internal auditors can identify potential noncompliance areas and weak controls; fix these areas of weakness; and, as a result, prevent a major rules violation, they’ve really done their colleges a big favor.”

Management Buy-in 

“I think first and foremost, to have any kind of positive impact in this arena, the internal auditors need to have ‘buy-in’ from management throughout the university, up to and including the president who is a voting member of the NCAA,” said Little. In the past, her audit department investigated athletic department cases and presented evidence of rules infractions, but in some instances the administration refused to take any action. “An internal auditor can spend a lot of time and effort gathering data and putting together a report, and then administrators sweep all that work under the carpet – as if the fraud didn’t even exist,” she said.

Attitudes at her school changed, however, when fraud in the athletic department found its way into the media and the university came close to losing a national sports title. “After that, management became much more conscientious about making every effort to follow the rules,” said Little.

Unfortunately, it’s often the shame of media attention and the threat to reputation that sparks action. “Any administrator of any school that’s been publicly accused of an NCAA rules violation will tell you that it creates a media frenzy,” said Ford. The details of the situation rarely matter. Sometimes university management chooses to ignore known illicit activities; or someone – an administrator, a president, a faculty athletics representative – appreciates a particular player’s or team’s accomplishments and looks away from activities that seem a little unusual. Even when administrators react, there’s often counter pressure to take actions of limited effectiveness. Too often, it’s not until the matter becomes public and the media gets involved, that real indictments are handed down.

According to Ford, if the internal audit department is well known for its expertise in the field, it can go a long way toward eliminating corrupt attitudes. “If rules violations occur in an environment where there is a sense that nobody cares, the situation will not rectify itself,” said Ford. “However, if it’s understood that the internal auditors are knowledgeable about the NCAA rules, keep current on rule changes, and routinely conduct audits, then it isn’t so easy for this environment to fester. From the president down through the faculty athletics rep, to the director of athletics, to the coaches – if they know that the auditors are going to come looking, it makes a difference.”
“Every school runs into some issues,” Little said, “whether they involve betting on sporting activities or giving athletes certain perks that, by law, they’re not allowed to receive.” Though the internal auditors at her university don’t have unlimited resources for monitoring fraud, she believes that her department’s solid reputation encourages university employees to alert them to possible irregularities.

Mitigating the Risks  

To be successful, internal auditors working in universities and colleges need a proactive program of compliance auditing. “If they don’t,” maintained Ford, “they’re simply not doing their jobs. The internal auditor’s role is to test the controls, evaluate the controls, and try to improve the controls.” However, Ford stressed that proactive internal audit departments are not a guarantee against intentional rule violators. “Some of the most egregious rule violations have occurred in schools that have darn good internal auditors and proactive compliance auditing programs,” he said. “But if the situations involve collusion and intentional misrepresentation, internal auditors will be hard-pressed to prevent them and the major scandal that erupts as a result.”

“College sports is a unique animal in higher education, and it has its share of unique risks,” added “Gillian Kite,” director of audits at a large northern university. “As internal auditors, I don’t think we can prevent frauds from occurring in this environment. Maybe we can deter them; but I think it’s management’s responsibility to implement the systems to prevent.”

“Rick Wilson,” an internal audit director for a large state university system, claims that asking an internal audit department how to prevent fraud in the athletic department is like asking a bank how to prevent robberies. “Banks are always going to experience theft,” he adds. “As a bank manager, you invest in controls, such as a stronger safe, security cameras, and security guards, but these measures cannot guarantee protection against crime. Athletic departments face a similar situation, and their resources are particularly limited. The best internal auditors can do is to work with available means and try to implement a structure in which there are adequate checks and balances.”

Preventive work, however, can be crucial in preserving the organization’s integrity. “Ruth Thompson,” an audit and investigations manager at a medium-sized college, maintained that it’s far more important to spend money and energy trying to prevent fraud rather than just waiting around for the next “hot tip.” Thompson said her department conducts a three-hour fraud awareness training seminar for university business managers and other administrators. “In addition, the athletic departments invite me over all the time, and I have a strong working relationship with the compliance officer,” she said.

Resources for the Job 

Although he has a good relationship with the university president and board of regents, Wilson said that his administrators have kept the audit function lean in the 1990s; he only has seven auditors for an eight-campus system, which includes schools in Division 1-A, Division 1-AA, and Division II. “It hasn’t been a strong growth decade for our internal audit department,” he said. “We spend most of our time conducting risk assessments and then focusing on our key risks. That doesn’t leave us much time for the proactive educational process. If we spend all our time training and educating, who would perform the audits?”

According to Wilson, audit committee members on the university’s board of regents continue to debate this cost-benefit issue. The argument centers around how much money management should allocate to an overhead function such as internal auditing when the explosion of information technology has mandated that the school invest capital in computers and software.

Kite relates a similar situation. “Neither my institution nor my department are staffed adequately to be the athletic watchdog, but that’s not what our administration or our board wants from us,” she said. “An internal audit staff could consume a vast amount of time providing continuous monitoring of athletic department activities. While some schools do that, we don’t.”

“ The internal auditor has a definite role to play, though,” claims Ford, who points to numerous training programs and manuals as proof. The Association of College and University Auditors (ACUA) compiles a manual, with assistance from the NCAA, on how to perform NCAA compliance audits. In setting up his audit schedule, Wilson reported that he consults both the NCAA Division I Manual, which mandates specific routine compliance and financial audits, as well as ACUA’s Guide to Audits of NCAA Athletics Compliance. “The key to auditing college athletics are those publications,” Ford said.

Courses of Action 

After receiving a tip or discovering a potential fraud, Little gathers data and researches the situation to ensure adequate familiarity with the preliminary facts. “Sometimes a tipster is mistaken, disgruntled, or interested in starting trouble,” she said, “and the situation is not at all what he or she perceived. However, if that’s not the case, and I conclude a fraud has probably occurred, I then bring the case to the audit director. I don’t proceed with any actions until I get my boss’s full cooperation.” With the audit director’s backing, Little then approaches university administration and the athletic director – unless the director is a suspect, in which case, she goes further up the chain of command. “In some cases we’ve had to resort to calling in the campus police investigators and using external law firms. Always, though, we bend over backwards to try to keep the situation out of the media.”

Wilson’s audit department employs a similar process. When the staff discovers that suspected violations are likely to have occurred, Wilson or one of his auditors will try to arrange face-to-face meetings with the suspects and potential witnesses; gather detailed facts; and determine if the case should be classified as an audit, legal, or human resources issue.

“If we determine that the violation is an audit issue, then I take it to the board of regents’ audit committee chair and tell him what the tip was, how many hours we’ve spent on the investigation already, and wait for the committee’s approval to continue,” said Wilson. If the audit committee approves the investigation plan, then the university’s compliance officer, along with the in-house legal counsel, usually will hire an outside legal firm to complete the investigation and work with the school and the NCAA’s investigators in bringing the case to resolution.

Wilson said that it’s imperative in most cases to hire an external law firm to complete the investigation. “If we do all the investigative work in-house, and we make a mistake or miss something, we’re automatically tainted,” he said. “It’s just cleaner if we bring in a party from outside the organization. If we don’t, critics could always say, ‘You tried to cover it up; you didn’t go far enough.’”

Kite agreed. “If a school is unfortunate enough to have a serious compliance problem,” she said, “I think the audit department almost has to engage outside resources to investigate. From a credibility standpoint, it eliminates any independence problems.”

Educate to Prevent 

All the internal auditors interviewed – regardless of the size of their schools or their past experiences – agreed that many messy athletic department frauds could have been prevented with periodic fraud awareness training. As one auditor explained, “Employees can’t prevent a fraud if they don’t know what to look for.”

Kite suggested educational meetings for updating those involved in the athletic department. “We have training programs for our booster clubs, and our coaches are routinely educated on their responsibilities and the requirements of the NCAA,” she said. “I think we’re relatively proactive in trying to maintain an adequate level of compliance.”

In an ideal world, auditors, coaches, support staff, and players would be trained to avert NCAA infractions and outright fraud and abuse by learning the rudiments that internal auditors and fraud examiners use every day. However, doing so would take resources and time – scarce commodities for university internal audit departments. On the other hand, an ounce of prevention sure beats waking up to heart-attack headlines on Monday morning.

Joseph T. Wells, CFE, CPE, is founder and Chairman of the Association of Certified Fraud Examiners.
Dick Carozza is editor of The White Paper. 

SIDEBAR 

Picking Up on the Dark Side of College Sports 

According to the 1997-1998 National Collegiate Athletic Association (NCAA) manual, the NCAA’s mission is “to maintain intercollegiate athletics as an integral part of the student body and, by doing so, retain a clear line of demarcation between intercollegiate athletics and professional sports.” However, many academicians feel that the NCAA isn’t doing enough to protect student athletes and their universities from the dark side of big-time college sports.

Jon Erickson, professor at Drake University and organizer of the newly created National Alliance for College Athletic Reform (NAFCAR), alleges that college and university administrators aren’t running amateur athletic departments but corrupt, money-making operations that exploit student athletes. “Until we face the problem head-on,” Erickson said, “the corruption is going to continue. All reform efforts in the past have failed because those involved weren’t willing to expose what goes on behind the closed doors of higher education. There is a great deal of pressure to continue the current system, and unfortunately, the voice of reform has been weak and diffused.”

In October 1999, Erickson and Drake University hosted the first NAFCAR conference, Corruption in College Sports: The Way Out. Members at the two-day think-tank had an aggressive goal “to do away with the fraud, hypocrisy, professionalism, and commercialism that has turned big-time college sports into an uncontrollable behemoth.”
According to reports following the conference, the more the critics and faculty debated and sought solutions, the more the details became “devilish” and their direction became fuzzy. By the close of the meeting, though, members had produced a working document including allegations against the NCAA and 12 points of suggestion. Though the NCAA public affairs director didn’t respond to requests to answer the allegations in the document, an NCAA compliance officer and several university internal auditors did share their reactions to some of the NAFCAR recommendations:

• Faculty should aggressively challenge the NCAA’s claim that big-time college athletes are amateurs and focus on addressing the special educational needs of athletes in the college sport industry.
  Compliance officer: “I’m not sure this point would achieve much of anything. If a decision is made that college athletes – specifically football and men’s basketball players – are not amateurs, what does that change in terms of providing them an education? The focus should be on delivering an environment of learning for everyone, regardless of athletic status.”
• We propose the creation of a task force to outline steps faculties can take in restoring primacy to the academic mission of higher education.
  Compliance officer: I don’t think a task force is necessary at all. To me, the issue is the integrity of the professors that the university hires to teach. I don’t believe that professors at my school bow to the demands of the athletic department.
  Internal auditor: I would call this suggestion motherhood and apple pie. In other words, who and why would anyone object to it?
• All institutions shall file an annual financial report in accordance with standard accounting principles. The report must include the salary and income from all sources for the athletic director and all coaches; the total income for athletics from all sources, including student fees and private donations; the total expenditures for the current year by category; and the total expenditure commitments made for future years for guaranteed contracts, bond payments, and similar expenditures.
  Compliance officer: Most of this information already is included in the annual disclosure statement we are required to make under federal regulations. It’s also available to the public, and we publish it on the Internet.
  Internal auditor: I think that annual financial reports, such as NCAA financial audits, are fairly ineffective in providing any control value. NAFCAR doesn’t specify which organization should receive the report, but if it’s just an internal process, the university already knows the answers to these questions. In my opinion, such a report would just become perfunctory over time, and add nothing.
• Any monies from apparel companies should be paid to the university and not to any coach.
  Compliance officer: I don’t know that this would reduce risk one way or the other. Most of the time, sponsorship money from apparel companies is included in the coaches’ negotiated contracts. The university is well aware of those funds, so if they were paid through the university, the school would just pay coaches higher salaries. The situation only becomes risky if and when the university is unaware of how much the sponsorship contract between the apparel company and the coach is worth.
  Internal auditor: This recommendation is an absolute must, although it would be controversial with the coaches – in fact, it probably has been. The coach is a university employee, and outside organizations shouldn’t have a business agreement with an employee. If the money went to the university, and then the university bonused or salaried the coach accordingly, it could remove a big chunk of the potential conflict of interest that currently exists.

Internal auditors in the higher education arena may agree with some critics who say that their athletic departments are rife with potential corruption but feel powerless to reform the monolithic system. According to Erickson, the time has come for college presidents, faculty, students, politicians – and even internal auditors – to repudiate piecemeal and superficial reform and embrace a commitment to thoughtful and profound structural transformation.

SIDEBAR 

Big Money Means Big Trouble 

The saturation of big money in college sports has become more and more visible during the last two decades. In 1991, the Knight Foundation Commission report on college athletics concluded that college sports were out of control. Creed Black, the president of the Knight Foundation, told the U.S. Congress that “the rules violations undermined the traditional role of universities as places where the young people learn ethics and integrity.” According to Black, big money had corrupted university athletic programs. Abundant evidence from the 1990s exists to support Black’s claim.

Men’s basketball coaches, such as Jim Calhoun at the University of Connecticut and Mike Krzyzewski at Duke University, reportedly pull in seven-figure incomes. In 1993, Krzyzewski also was reported to have signed a 15-year, $6 million sponsorship contract with Nike. When Rick Pitino left the University of Kentucky for a coaching position in the NBA, he reportedly earned $3.3 million a year in salary, endorsements, radio and TV deals, and summer camps. According to The Arizona Republic, title-winning Lute Olson of Arizona University makes $530,000 per year plus $300,000 from a shoe contract. Even the NCAA reaps rewards, having recently renewed their contract with CBS to broadcast the NCAA men’s basketball tournament for a reported $545 million each year.

D. Stanley Eitzen, professor of sociology at Colorado State University, tackled these big-money issues in “The Paradox of Sport: The Contradictory Lessons Learned” (The World & I, July 1996). “Big-time college coaches are rewarded handsomely if they win,” he writes. “In addition to generous salary raises, successful college coaches receive lucrative contracts from shoe companies and for other endorsements, media deals, summer camps, speaking engagements, and the like. With the potential income of college coaches sometimes exceeding $1 million at the highest levels, the temptations are great to offer illegal inducements to prospective athletes or to find illicit ways to keep them eligible, such as phantom courses, surrogate test takers, and altered transcripts.”

Andrew Zimbalist, author of “Unpaid Professionals: Commercialism and Conflict in Big-time College Sports,” agrees. “With big bucks dangling before their eyes, many NCAA schools find the temptations of success too alluring to worry about the rules,” Zimbalist writes. “Schools cheat. They cheat by arranging to help their prospective athletes pass standardized tests. They cheat by setting up special, rinky-dink curricula so their athletes can stay qualified. And when one school cheats, others feel compelled to do the same.”

For the most part, school administrators do not fire coaches guilty of shady transgressions if they win. As sportswriter John Underwood has characterized it, “We’ve told them it doesn’t matter how clean they keep their program. It doesn’t matter what percentage of their athletes graduate or assume a useful place in society. It doesn’t even matter how well the coaches teach the sport. All that matters are the flashing scoreboard lights.”

The task of reigning in controls and mitigating risk in this type of environment may seem overwhelming to university auditors. Clearly, the audit department faces considerable challenges in ensuring that ethical practices remain intact and that the school does not stray from its primary objective of educating students.