Cleaning our Own House

De-frauding the halls of academe

By Mary-Jo Kranacher, MBA, CFE, CPA

Fraud Edge

As Certified Fraud Examiners, we learn that three factors, collectively referred to as the Fraud Triangle, may portend fraudulent behavior. According to the late Donald Cressey, when pressures/incentives, opportunity, and rationalization converge, the environment is ripe for fraud. Although many may presuppose that academe is above such behavior, history has shown otherwise. All types of organizations are susceptible to fraud - even colleges and universities.

According to articles in the Chronicle of Higher Education and other print media, universities are sometimes quite far from the bastions of ethics they preach in their volumes of policies and procedures. In fact, because of concerns about the effect of "bad press" on public relations and fundraising, higher education has frequently sought to negotiate "back-room deals" as opposed to rooting out the problem. Therefore, the cases that do reach the public eye could be just the tip of the iceberg.

Regrettably, it has become rather commonplace to hear about administrators being asked to step down from their positions as a result of "accounting problems." This phrase has sometimes become synonymous in academe with fraud. Some of the recent fraudulent schemes in academe include:

  • The resignation of the University of Tennessee's former president, John W. Shumaker, in August 2003. The state comptroller's office released a report stating that Shumaker had misused university credit cards and misled internal auditors. The report also accuses Shumaker of "his repeated failure to provide credit-card receipts; alterations to his calendar; and the existence of personal trips, which were purported to be business trips." Shumaker stepped down from his position after it was revealed that he had bought extravagant items for his home, including a $30,100 phone system, and made personal use of the university's airplane. Questions were also raised about a $300,000 no-bid consulting contract that the university awarded to a friend of Shumaker.
  • A state audit in November 2004 at the University of North Carolina School of the Arts exposed that nearly $1 million had been diverted for nonacademic purposes. The questionable payments cited include unauthorized overtime pay and travel expenses for several employees, a $25,000 down payment for a new residence for the school's chancellor, and lease payments of $15,000 for a Cadillac Escalade for a former vice chancellor of finance and administration, Joseph L. Dickson. Dickson also received more than $90,000 for consulting and expenses in violation of University of North Carolina policies.
  • Central Connecticut State University's chief financial officer, Frank Resnick, was fired in November 2004 after a state audit revealed that he had used fraudulent means to circumvent the competitive-bidding process. Resnick is accused of pushing through a $40 million, 10-year contract with a food-service company, Chartwells USA, that had paid his way into several charity golf tournaments. Resnick has stated that nothing he did "rises to the level of termination."
  • A former president and former student-aid director of Morris Brown College, in Atlanta, Ga., were indicted in December 2004 for allegedly obtaining $5 million in federal funds through fraudulent activity while at the college. Dolores Cross, who served as Morris Brown's president from November 1998 until February 2002, increased spending by $8.5 million during her first year on the job. To help pay for the spending spree, which included 50 business and personal trips for herself and her family and friends, she and Parvesh Singh, the student-aid director, fraudulently secured $5 million worth of federal grants and federal and private student loans. Hundreds of students were victims of the alleged fraud, which they perpetrated by obtaining more than 1,800 loans and Pell Grants for ineligible students. Many of the illegal loans later hurt students' ability to secure financial aid at other colleges. 

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