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Internal Auditing

Case in Point:
Lessons for the pro-active manager

July 2010
Vol. 3 No. 7
Quotable...
“Most ignorance is vincible ignorance.  We don’t know because we don’t want to know.”

-- Aldous Huxley

This month we focus on one specific risk you should be careful to avoid overlooking: the Fair Labor Standards Act (FLSA). FLSA is a compliance risk that seems to have grown in importance over the past year as this quote from the August 2011 issue of Mainstreet Business Journal illustrates:

''According to statistics from the office that administers the federal courts; more lawsuits asserting claims under the Fair Labor Standards Act (FLSA) were filed in 2010 than ever before. The number of such claims filed during the relevant time period in 2010 was almost 25% higher than for the previous year and was 278% higher than ten years ago.''

FLSA was originally passed in 1938 and has been amended numerous times over the years since. For universities, the most important aspects of FLSA include the requirements to pay minimum wage and the requirements involving overtime for nonexempt employees. Most universities face their greatest FLSA risk in three areas1:

  1. not paying nonexempt employees for working lunches
  2. not paying nonexempt employees for work done ''off-the-clock''
  3. inappropriately classifying nonexempt employees as exempt

Department heads and supervisors can reduce their risks in these first two areas by ensuring nonexempt employees keep accurate records. In other words, before signing a timesheet or approving a payroll, provide actual supervision and monitoring, making sure that what is being reported is what has actually happened. While a subordinate may sign-off on a payroll, your responsibility cannot be delegated away. The argument that ''well ... it all balances out over time'' or ''our employees just love our institution and don't mind working extra without pay'' are not valid under the FLSA. Employees cannot waive their rights under FLSA, so even if an employee wanted to waive overtime they cannot do this under the law. Lawsuits have occurred in which an employee initially appeared willing to forego overtime but later became disgruntled. In these cases the organization is liable for not paying overtime as required.

Also important to note is when FLSA auditors review a complaint, oftentimes an assumption is made that if one person was paid incorrectly, then others were as well. The FLSA review may then expand into a review of many other employees and how they were paid and it becomes contingent upon the university to prove it paid employees correctly. Fair or not, this is the current regulatory environment and failing to take this law seriously can have major repercussions for any organization. Penalties can include not only back pay but also fines which can be very substantial.

Like most of the risks we present here, the best course is to be proactive and prevent problems from occurring in your area. Ensure you and your managers are aware of FLSA regulations and if you have a question, contact the Office of Human Resources2 for their help before you run into FLSA complaints or litigation.

Notes:
1. For institutions other than Auburn University, you should consult with your HR Office as to how FLSA applies at your institution as classifications can vary among institutions.
2. Special thanks to Chuck Gerards of AU's Human Resources for his input on FLSA regulations.

M. Kevin Robinson, CIA, CFE, CCEP
Executive Director, Internal Auditing


Information Security Related Events

July 26, 2011: UNLV has reported a possible information security breach that took place in 2008. (link)

July 21, 2011: A Zambian man who scribbled down the names, birth dates and Social Security numbers of 19 University of Pittsburgh Medical Center Shadyside patients, then gave them to a compatriot, faces possible jail time after his guilty plea in federal court Thursday. (link)

July 19, 2011: A federal indictment unsealed today accuses Aaron Swartz -- an activist, well-known programmer, and former fellow at Harvard's Center for Ethics -- of stealing millions of scholarly articles last year with the intent of sharing them online. (link)

July 6, 2011: A cyberattack last week may have exposed the personal information, including the names and student identification numbers, of 250 Clark College students. (link)


Misappropriation/Fraud/Ethics Events

July 19, 2011: A state appeals court in Ohio has overturned part of a lower court's ruling against a former Ohio University professor, Bhavin V. Mehta, who alleged that he had been defamed by the university when it accused him of supporting ''rampant and flagrant plagiarism'' by his students. (link)

July 16, 2011: Although attorneys for former Hocking College President John Light and his wife continued to insist neither did anything illegal, the couple took plea agreements and were convicted yesterday, ending a five-year criminal probe of their actions as officials of the college. (link)

July 12, 2011: Fraud perpetrators will leave lifestyle clues that they are up to no good. In her experience, criminals tend to follow recognizable patterns. They like to give gifts, and they are compulsive shoppers. Gambling problems are common among them. (link)

July 8, 2011: A cashier who stole more than $27 million from Adelaide's Flinders University (Austrialia) has been sentenced to nine years in jail. Christopher Wayne Fuss, 47, started misappropriating funds six months into his employment at the university and continued for two years. (link)

 


Compliance/Regulatory Events

July 29, 2011: A 23-year-old woman admitted Thursday that she filed more than 90 fradulent student-loan applications seeking more $1.7 million. The Browns Mills resident, who had taken only a handful of college courses, received more than $192,000 in the scheme. (link)

July 25, 2011: The government is proposing sweeping changes in the rules covering research involving human subjects, an effort officials say would strengthen protections while reducing red tape that can impede studies. (link)

July 25, 2011: Nearly a year after two former Washburn University administrators filed a lawsuit against the university, its Board of Regents and President Jerry Farley, a settlement agreement has been reached, and the two women's attorney said he believes they are pleased they can move on with their lives. (link)

July 21, 2011: Joe Bontke, outreach manager for the Equal Employment Opportunity Commission's office in Houston, said that he regularly reminds employers and human resource managers about the risks of violating federal antidiscrimination employment rules and laws by using online research in hiring decisions. (link)

July 20, 2011: Researchers must navigate the shifting privacy standards of social networks and their users. And the committees set up to protect research subjects--institutional review boards, or IRB's--lack experience with Web-based research. (link)

July 20, 2011: The behavioral psychologist Marc Hauser has resigned from the Harvard faculty, 11 months after the university accused him of being ''solely responsible'' for eight counts of scientific misconduct. (link)

July 15, 2011: Federal prosecutors on Thursday accused a former UNC Charlotte employee of falsifying student visa information to help about 66 foreign nationals stay in the United States illegally. (link)

July 14, 2011: Administrators at Florida's Edison State College admitted Thursday the school awarded degrees to students who didn't complete program requirements, a practice that violates state law and accrediting standards. (link)

July 11, 2011: The Minnesota Court of Appeals today upheld the University of Minnesota's right to discipline a student in a mortuary sciences class who made jokes about a cadaver and made threats on her Facebook page. (link)

July 11, 2011: In a legal fight surrounded by unusual secrecy, a former student at Sewanee: The University of the South contends the university wrongly forced him to leave after a female student falsely accused him of raping her in his dorm room. (link)

July 8, 2011: Saint Augustine's College (SAC) graduate Roman Caple filed suit against SAC and SAC President Dianne Boardley Suber after he was forbidden from participating in spring 2011 graduation ceremonies due to a comment he posted on Facebook about how the college was handling its recovery from tornado damage. (link)

July 7, 2011: N.C. State University said this afternoon it shut down its research reactor after a leak was discovered at the nuclear facility. (link)

July 5, 2011: People with concealed carry permits are not subject to a University of Virginia policy prohibiting individuals from bringing guns into school facilities without permission, Virginia Attorney General Ken Cuccinelli recently concluded in legal advice to a legislator. (link)

 


Other News & Events

July 22, 2011: The delay of a planned merger this fall between Atlantic Union College and Maryland-based Washington Adventist University will result in all of AUC's faculty and staff being laid off on July 31. (link)

July 17, 2011: The University of California at Berkeley is asking its 5,800 new freshmen to submit audio samples of themselves as part of an orientation project. (link)

July 16, 2011: Nothing went wrong, but it could have. That was the conclusion of a Florida State University review of a controversial contract with a conservative billionaire that came under fire earlier this year. (link)

July 12, 2011: A British artist is constructing a sculpture at the University of Wyoming that implicates coal in the region's mountain pine beetle epidemic, and the state's powerful mining industry--which has been generous to the institution--is not happy about it. (link)

July 7, 2011: Given the same grant, certain students perform better while others struggle more, even though all of them are financially needy. That is one of the major findings of a new study that suggests that need-based aid could be more effectively distributed. (link)


If you have any suggestions, questions or feedback, please e-mail me at robinmk@auburn.edu. We hope you find this information useful and would appreciate hearing your thoughts. Feel free to forward this email to your direct reports, colleagues, employees or others who might find it of value. Back issues of this newsletter are available on our web site at http://www.auburn.edu/audit.

If you have any suggestions for items to include in future newsletters, please e-mail Robert Gottesman at gotterw@auburn.edu.

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Department of Internal Auditing
Auburn University
304 Samford Hall
M. Kevin Robinson, Exec. Director
robinmk@auburn.edu
334.844.4389

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