Fraud Found Close to Home

Federal Grant Monies Tempt Some Academics


richard_hurley-50x50.jpg   Fraud EDge 

Now that Judge Denny Chin has handed Bernard Madoff his 150-year sentence for committing "not merely a bloodless crime," he said, but an "extraordinarily evil" one, federal investigators and forensic experts have turned their attention to others who might have collaborated with Madoff in this massive Ponzi investment scheme.

However, before the search begins in earnest for possible accomplices, higher-ed faculty should be reminded that sometimes when we look for possible red flags of fraud we fail to see what's right in front of us. Sometimes fraud or the allegations of fraud can be found at home in our own academic spaces.

A recent example of such an event was highlighted in an article written by David Glenn in the June 12 edition of The Chronicle of Higher Education, which sported the bold headline, "Expert on Schools Teaches U. of Louisville About Fraud."

So what was an expert, in this case the dean of education at the University of Louisville, doing in the anti-fraud education business anyway? It turns out Dean Robert D. Felner wasn't a CFE investigating fraud but a Ph.D. with a 68-page federal indictment hanging around his neck. He's been charged with nine counts of mail fraud, money laundering, and tax evasion. In particular, he was charged with misappropriating $694,000 in federal grant funds. Considering the trillions of dollars the federal government is earmarking for grants to stimulate the economy, this misappropriation of federal grant monies might be a warning signal to us all that this fraud story might have many sequels in the coming semesters.

Glenn reported Felner had dropped out of high school in the mid-1960s but then managed to get into college and go on to graduate from the University of Connecticut in 1972. He said Felner earned a doctorate in psychology from the University of Rochester in 1977 and then landed a faculty position at Yale. Later, he created the National Center on Public Education and Social Policy at the University of Rhode Island and eventually became dean of education at the University of Louisville before he announced his appointment as the new chancellor of the University of Wisconsin-Parkside. So how could someone like Felner get into so much trouble?

Perhaps the three points of the Fraud Triangle will once again explain this alleged fraud.

Maybe he was under pressure to get published, to obtain federal grants, to earn tenure, and to climb the academic ladder in a "publish or perish" world.

Possibly he seized the opportunity to commit fraud. It often depends on the lack of oversight and internal controls within an organization. Glenn wrote that red tape in the research and funding sectors of academic institutions could actually hide red flags. Perhaps that was the case here. Many academic institutions have struggled to bring more organizational control to the awarding, billing, spending, and monitoring, in addition to the allocation, verification, and authorization of research grants from external sources.

It's also probable that Felner was able to rationalize and convince himself that his crime caused no financial harm to the university. Perhaps he figured it wasn't their money anyway. Furthermore, Felner might have thought the university's overhead charge, normally 25 percent to 50 percent of the grant, was too high a tariff to pay for his successful external grant proposal. If Felner is found guilty of committing this fraud, he will have managed to meet all three sides of the Fraud Triangle in his career. Perhaps the trial will reveal additional reasons for this alleged fraud. Meanwhile, it's up to the University of Louisville to clean up the mess. Fortunately, one possible indiscretion doesn't condemn the entire collegiate community. Unfortunately, there are many other similar cases plaguing college campuses today.

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