Our college and university administrators often view us as "experts in all things fraud." This unofficial title can lead us to many interesting adventures -- from being interviewed for television programs to fielding students' and colleagues' hypothetical questions. But our expertise can also bring unexpected responsibilities: We might be called upon for advice when fraud rears its ugly head in the halls of academia.
Colleges and universities, of course, aren't immune from fraud, as we can see from the recent media reports about financial aid counselors steering students to "preferred lenders." In fact, colleges and universities like many nonprofit organizations tend to suffer from the dual ills of insufficient internal controls and an excessively naive attitude.
We should stay abreast of recent fraud cases involving colleges and universities because some day we might have to apply our skills in our workplaces. Here I supply you with two stories based on recent cases that illustrate some of the types of fraud that can occur at higher education institutions. (Because the cases are pending in court, to protect any innocent parties I've changed the names of individuals and institutions and some identifiable situations.)
CASE OF THE VORACIOUS VENDOR
Allium State University administrators were thrilled with the announcement: The university had been awarded a generous federal grant to produce educational videos for elementary schools in economically distressed communities.
But after the celebrations had ended, reality set in. The university had to begin the necessary work to comply with the grant. The first step would be to acquire the equipment to create and reproduce the educational videos.
Because they had little time, the university's president, Norman Steubenite, decided to bypass the usual procurement process and went directly to someone he believed would steer him in the correct direction: the school's director of media services, Paz Thruskeme. Steubenite asked Thruskeme for the name of a dependable vendor that could provide the necessary equipment and supplies to fulfill the grant requirements.
Thruskeme heaped praise on P&T Ltd. She said P&T would be able to supply Allium State all necessary equipment. Steubenite directed Thruskeme to place the orders, and he would authorize the payments.
Shortly thereafter, P&T received an order for more than $500,000 in video production and reproduction equipment. Within a few weeks, P&T delivered the goods to Allium State and received payment in full from the federal grant funds.
Almost a year later, state auditors were reviewing the university's financials and were concerned when they came across the purchase of the media equipment. State policy requires a purchase of that size to go through a competitive bidding process and be approved by the university's board of trustees. President Steubenite told the auditors that exigent circumstances required a bypass of the normal process, but the auditors said the state policy still should have trumped his decision.
The curious auditors now dug deeper. They contacted several media suppliers and found that the price of comparable equipment was approximately $250,000 -- half the price P&T had charged. The auditors checked the public records and found that P&T Ltd. held a business license, but it was listed as a catering firm.
The auditors found that the business address was in a residential neighborhood; they compared it against the university employee database and discovered that it belonged to the home of Paz Thruskeme.
The university confronted Thruskeme with the evidence, and she quickly "resigned." The state auditor general referred the matter to the attorney general who immediately began an investigation. Because federal funds were involved, the state AG also informed federal authorities, which also began an investigation.
After a deluge of damaging media articles and editorials, President Steubenite finally sought the counsel of the professor who taught the university's fraud examination classes. However, by being contacted so late in the process, there was little on which the professor could advise the president. The next day, the Allium State Public Relations Office issued a short release stating that the president was retiring, and that any further questions to the president should be directed to his personal attorney. Federal and state investigations continue.
CASE OF THE LARCENOUS LOTHARIO
Robling College seemed to really like Mike Bezel, the vice president of financial affairs. Tall, handsome, and suave, he was rumored to be quite a ladies' man, despite a marriage of 10 years and three children.
Bezel's employees said he was a demanding, but fair, supervisor. They were impressed that Bezel was usually the first to arrive and the last to leave every day, that he was always impeccably dressed, drove the latest sports car, and was known for his frequent vacations to "the islands." Bezel attributed his wealth to a generous inheritance and good investments.
Robling's president, Ed Gasco, and the board of trustees also were impressed. Bezel's presentations to the president's cabinet and the board were consistently professional. Though the college's independent auditors gave unqualified opinions as to all material matters in the annual reports when taken as a whole, they said Bezel's friendly manner and style made the engagement especially enjoyable. They considered him more of a friend than a client.
So Gasco was astonished when his secretary one day told him that Bezel's wife and Linda Young, a tenure-track assistant professor of art, were in his outer office and demanding to see him. They said they had something important to tell him about Bezel, wouldn't talk to anyone else, and wouldn't leave. Gasco was confused. Bezel was on vacation that week; why wasn't his wife with him? And why was Young with her? Gasco asked his secretary to reschedule his appointments, hold his calls, and show the two women in.
Gasco was dumbfounded by what they told him. First, Young admitted that for the past two years she had been having an affair with Mike Bezel. Secondly, earlier in the day, Young learned that Bezel was on a vacation in Mexico with a female graduate student. When Young had heard the news, she went to the Bezel home, tearfully admitted to Mrs. Bezel her affair with her husband, and then told her that she had suspected that Mike had been stealing money from Robling College. Young said that each time they planned to leave town for a weekend together, she would meet Mike Bezel at his office, and he would remove thousands of dollars in cash from his office safe before they left. Mrs. Bezel told Young that she knew about her husband's office safe because he kept a piece of paper with its combination in his sock drawer. Armed with the combination, Mrs. Bezel and Young, now allies, decided to visit President Gasco.
Gasco called the college's counsel, Barbara Egzam, for advice. Egzam told Gasco to get the chief of campus security and meet her at Bezel's office.
At Bezel's office, the chief of security, with Gasco and Egzam witnessing, opened the safe, which contained envelopes full of cash. They stopped counting when they reached a quarter of a million dollars. They were flabbergasted. The team carefully placed all the money back in the safe, locked it, and sealed it with self-adhesive address labels. Gasco arranged to have a crew from the maintenance department move the safe to his office.
At that point, Gasco recalled that the business department had just begun offering a class in fraud examination; he telephoned Dr. Bright, the class professor, and asked her to come to see him immediately.
Bright was surprised to see a safe in the middle of the president's office. Gasco told her the whole sordid tale and asked for advice and assistance. Bright said Gasco should first call the audit committee chair on the board of trustees. He explained the situation to the chair and requested that he convene an emergency meeting. That evening, the members of the audit committee retained a forensic accounting firm to investigate the case.
Within a few days, the accounting firm had discovered evidence to indicate that Bezel had been skimming cash from various sources of miscellaneous university revenue for at least six years. Bezel had carefully covered his tracks. The outside auditors had never seemed to test miscellaneous income or petty cash, so he was able to skim more than half a million dollars through the years. Bezel financed his playboy lifestyle with this slush fund.
When Bezel returned from Mexico, the chief of campus security was in his office and escorted him to the president's office. Gasco told him to take a leave of absence, effective immediately. Bezel was then escorted off campus and told that if he returned, he would be arrested for trespassing.
Per Bright's advice, Robling College referred the matter to law enforcement authorities. Charges against Bezel are pending.
BE PREPARED TO ADVISE
These stories illustrate that higher education, of course, isn't immune to fraud. Colleges and universities, without warning, might call upon its fraud examination educators for counsel. So it would behoove us to be prepared to use the same skills and techniques that we teach our students.
THE NEXT COLUMNIST
With this column, I end my two-year tenure as chair of the ACFE Higher Education Committee. It has been a pleasure to serve in this capacity, and to author Fraud EDge. I would like to thank all of the people at the ACFE who have assisted me during my term as chair, especially Joe Wells, Dick Carozza, Keely Miers, and Wendi Williams Hundley. The incoming Higher Education Committee chair and Fraud EDge columnist, Dr. Richard Hurley of the University of Connecticut, is an outstanding academic and a leader in fraud examination education. I'm confident that he'll do an exceptional job.
William J. Kresse, M.S., J.D., CFE, CPA, is an assistant professor in the Graham School of Management at Saint Xavier University in Chicago, Ill. He's the recipient of the 2007 ACFE Educator of the Year Award.
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