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Internal Auditing

Case in Point:
Lessons for the pro-active manager

June 2012
Vol. 4 No. 6
Quotable...
“Many receive advice, only the wise profit from it.”

-- Harper Lee

Last month we discussed some of the significant findings in the Association of Certified Fraud Examiners' (ACFE) 2012 Report to the Nations on Occupational Fraud and Abuse. In 2010 I wrote the following about what contributed to fraud occurring and also what recommendations the report gave for reducing fraud risks. All the things I wrote then are still true today so this month we simply repeat what we communicated then:

Primary Contributors to Fraud Occurring

  1. Lack of Internal Controls - This was by far considered the most significant factor that allowed a fraud to be perpetrated. Your role as the leader of a unit involves assuring you have appropriate controls in place. These controls protect you, your employees, and our institution in a variety of ways.

  2. Override of Existing Controls - Controls are important; however, if employees or managers go around the controls at times, you have a situation which can lend itself to fraud occurring. Controls cannot be optional or just when convenient; they must be followed every time without exception.

  3. Lack of Management Review - While management review is essentially an internal control, the report breaks this item out separately with good reason. Perception of detection is the greatest deterrent to occupational fraud, and if no one is paying attention there is little perceived chance of detection. In my review of cases at our institution, the failure of management to review what was occurring was a major contributing factor in every single case we have reviewed over the past twenty years. If you do not pay attention to what is occurring in your unit, you have substantial risk that fraud will occur, typically by someone you trust and who you never imagined could take such actions.

  4. Poor Tone at the Top - This is something that we have discussed routinely in this newsletter due to its importance. Universities are unique in that we have tone set in a number of decentralized places. Certainly, the president and board set a tone, but also each dean, director, and department head have great influence in the tone in their specific unit. Tone is affected not only by what you say, but perhaps more importantly by what your staff sees you do.

The Report also lists a few recommendations for the prevention and detection of fraud. Two of these items we'd like to share with you.

  1. Fraud reporting mechanisms are critical components of effective fraud detection and prevention systems. This is something we have implemented here at Auburn University. We have an outside company, EthicsPoint, which operates our anonymous reporting system. Employees can report via the web or by phone. Having the system is very important, but we need your help to ensure your staff is aware it is available and that we need their help in detecting and deterring fraud. Simply by pointing this out you can impact the tone you set within your unit.

  2. Employee education is the foundation of preventing and detecting occupational fraud. You might recall from last month's newsletter that employee tips are the biggest source for fraud discovery. This makes sense since employees are routinely near the operations and more likely to see a problem or suspect transaction. Part of the goal of this newsletter is education so feel free to share it with those in your unit. If you would like some specific training on these issues for your area just contact us. We will be happy to come to your unit and discuss this important issue. We have presented to a number of different departments across campus and would welcome the opportunity to speak with your staff.

While these last two months have dealt exclusively with the risk of occupational fraud on campus, you will again note that the risks faced by institutions of higher education are much broader than just this one topic. As you review the events happening across our industry, I again request that you consider how you can proactively manage similar risks here at Auburn University.

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


Information Security & Technology Events

June 29, 2012: The University of Southern California is warning students and faculty about a credit card security breach following the hacking of a software system on the campus. (link)

June 26, 2012: While a hacker claimed he stole private information from a San Jose State University server, University officials disputed that any information of importance was taken from their servers in the breach. (link)

June 23, 2012: Sen. Pat Toomey (R-Pa.) introduced a bill on behalf of himself and four other Republican senators setting national standards for how companies inform individuals of a breach of security related to personal information. (link)

June 15, 2012: Michigan State University has announced that it will stop providing full-service e-mail accounts to alumni who graduated more than two years ago, a cutback that will affect 117,000 people. Some of them are complaining, but officials say it is a necessary cost-cutting measure. (link)

June 12, 2012: University of North Florida students who submitted housing contracts from 1997 to spring 2011 may be vulnerable to a data breach, according to a release on the school's website. The names and social security numbers of 23,246 individuals are among the vulnerable information.(link)

June 5, 2012: Roughly 300 transcripts, some containing complete Social Security numbers, were accessible through a University of Virginia website on Tuesday morning due to an as-yet unspecified human error, university officials have confirmed. (link)

June 1, 2012: Investigation into the May 23 breach initially indicated it affected only the Nebraska University system, but Nebraska State College Chancellor Stan Carpenter said he was notified Wednesday it also included data for Chadron State, Peru State and Wayne State colleges. (link)


Fraud & Ethics Related Events

June 27, 2012: For Justin Schwartz, the Cal State East Bay lecturer who was fired after reporting that a colleague spent thousands of dollars of university money to buy himself high-end sports equipment and climbing lessons, a $100,000 settlement with CSU officially ends the legal dispute with his former employer. (link)

June 26, 2012: A Western Michigan University administrator has been charged with stealing money from the university. (link)

June 15, 2012: Officials who oversee the state's community college system are urging City College of San Francisco to stop paying trustees for the meetings they fail to attend - a practice the state authority says is illegal. (link)

June 13, 2012: A UCSF employee was charged with grand theft and forgery for allegedly embezzling more than $17,000 from the medical school's transplant surgery division, the San Francisco district attorney said Tuesday. (link)

June 12, 2012: UT Southwestern will pay up to $140,000 to calculate how much its former president, Dr. Kern Wildenthal, owes the medical center for spending public dollars on personal travel, a university spokesman says.(link)

June 11, 2012: State authorities want to know if a prominent Georgia Tech professor was using university trips for sexual escapades. Sexually suggestive emails written while Professor Meyer was traveling for Georgia Tech caught the attention of Georgia Tech's legal office, which called in the auditors. (link)

June 9, 2012: The University of North Carolina wants a professor at the center of an academic fraud probe to repay thousands of dollars for teaching a course inappropriately. UNC-Chapel Hill Chancellor Holden Thorp told trustees Friday that Julius Nyang'oro was asked to repay $12,000 for teaching a 2011 summer course as an independent study rather than a lecture.(link)

June 8, 2012: As part of a criminal bribery probe, the Los Angeles County district attorney's office served search warrants at the homes and campus offices of two high-ranking Pasadena City College officials Thursday morning, authorities said. The investigation focuses on the alleged solicitation of bribes last year for a competitive contract for the school. That contract was never awarded. (link)


Compliance/Regulatory & Legal Events

June 28, 2012: A federal judge has unsealed court documents against the wishes of the University of Montana that show university officials voted to expel a student accused of rape after he unsuccessfully requested that the judge intervene in his disciplinary proceedings. (link)

June 22, 2012: A professor at Tennessee State University, his wife and three other people have sued the Tennessee Board of Regents, claiming it systematically set out to destroy the historically black university and hinting that its motivations were racial. (link)

June 22, 2012: Grand Valley State University attempted to “limit the rights” of students when it failed to follow federal guidelines by not accommodating a student who asked to keep a guinea pig in her campus apartment for emotional support. (link)

June 22, 2012: Four California universities with big-time sports programs are fighting a legislative effort that could radically change the way schools recruit, educate and retain student athletes. The schools are opposing the "Student Athlete Bill of Rights," they say, because it would be too expensive, put their programs at a competitive disadvantage and may go against NCAA rules. (link)

June 21, 2012: The Texas Army National Guard has reached an agreement with the University of Texas at Arlington that will ensure soldiers studying at the school will continue to receive up to $4,500 a year in military tuition assistance. (link)

June 20, 2012: A judge has upheld a jury's negligence verdict against the state from the 2007 mass killings at Virginia Tech, but has sharply reduced damages awarded to two families. (link)

June 20, 2012: The Supreme Court of Minnesota has rejected a former University of Minnesota student's claims that the university violated her First Amendment rights when it disciplined her for comments on Facebook that instructors found threatening and in violation of student-conduct rules for her academic program. (link) The student later died. (link)

June 19, 2012: The Ohio Supreme Court on Tuesday sided with Ohio State University in an open records lawsuit brought by ESPN over documents it sought from the university related to the 2011 football team scandal and NCAA investigation. (link)

June 19, 2012: Jim Foley, who played a central and controversial role in the University of Montana's investigation into allegations of sexual assaults involving students, stepped down Tuesday as vice president for external relations. But he'll retain a campus job -- and his $125,942 salary -- for another year. (link)

June 19, 2012: Butler University, NCAA basketball Cinderella, was recently accused of gender discrimination by the federal Office for Civil Rights. From their news release, OCR led the public and the media to believe Butler is discriminating against its female students. But determining Butler's legal compliance is more complicated. (link)

June 18, 2012: Yale University, the target of a federal civil rights investigation over complaints it failed to properly handle sexual misconduct and a sexually hostile environment on campus, reached a settlement Friday with the U.S. Department of Education's Office for Civil Rights. (link)

June 15, 2012: A controversial researcher on air pollution and secondhand cigarette smoke is suing UCLA to get his position back, claiming that his firing was an illegal effort to quash academic dissent and protect politically correct views. (link)

June 15, 2012: President Obama has ordered his administration to stop deporting young immigrants who came to the U.S. as young children and who do not pose a security threat, senior administration officials said this morning. (link)

June 13, 2012: A former South Carolina educator and coach who once worked as a summer camp counselor at The Citadel military college was sentenced to 50 years in prison on Wednesday after pleading guilty to sexual abuse crimes involving 23 young male victims. (link)

June 13, 2012: Laurie Napper, a former medical technician at Howard University Hospital, pled guilty today to a federal charge stemming from the sale of personal information about patients, along with blank prescription forms, announced United States Attorney Ronald C Machen Jr and James W McJunkin, Assistant Director in Charge of the FBI's Washington Field Office. (link)

June 12, 2012: It just got easier to protest, collect signatures and hold rallies at the University of Cincinnati.A federal judge on Tuesday rejected UC’s practice of confining student demonstrations to a “free speech zone” near McMicken Commons on the university’s west campus. (link)

June 12, 2012: The U.S. Court of Appeals for the 11th Circuit on Monday issued a decision strongly backing the rights of an artist whose paintings depict University of Alabama Crimson Tide football players -- even though he ignored the university's request that he pay for a license to use such images. (link)

June 12, 2012: U.S. Education Secretary Arne Duncan's decision earlier this month to fine Tarleton State University $110,000 for failing to report many crimes, including sexual assault, proves the power of public access to government information.(link)

June 11, 2012: Graham B. Spanier, then president of Pennsylvania State University, and two other university officials traded e-mail messages in 2001 about allegations that Jerry Sandusky had molested a boy in a Penn State shower room, but Mr. Spanier ultimately chose not to report the alleged incident to the authorities, NBC News reported. (link)

June 9, 2012: A University of Georgia professor of German was arrested Thursday afternoon by Gwinnett County police after dressing up as a woman and agreeing to have sex with an undercover officer, according to Gwinnett County Police Cpl. Jake Smith. (link)

June 7, 2012: A former Iowa State University employee falsely accused of being a ''potential terrorist or mass murderer'' by his superiors has been awarded more than $1.25 million in what may be the first case tried under Iowa's whistle-blower law. (link)

June 7, 2012: Starting in August, the Metropolitan State College of Denver will authorize lower tuitions for certain undocumented students. The initiative creates an intermediate university tuition level above what legal residents in the state must pay but substantially below what students coming from other states or from abroad pay. (link)

June 7, 2012: UC Berkeley police "may" have violated policies when they jabbed batons at defiant but peaceful students who set up their first Occupy encampment in November, says a tepidly worded report released Wednesday. (link)

June 7, 2012: The attorney for Ward Churchill told the Colorado Supreme Court on Thursday that the University of Colorado conducted a sham investigation in order to retaliate against the former professor for his inflammatory 9/11 essay that compared some World Trade Center victims to a notorious Nazi. (link)

June 6, 2012: Chapman University agreed Wednesday to pay $175,000 to a former film school professor who said she was denied tenure and promotion because of her gender. The U.S. Equal Employment Opportunity Commission settled a sex-discrimination case with Chapman and former assistant professor Lynn Hamrick. In addition to the monetary settlement, the university promoted Hamrick to associate professor. (link)

June 5, 2012: Washington State University has agreed to pay $650,000 to settle a racial discrimination lawsuit brought by two former employees of Chinese descent. (link)

June 5, 2012: Two scientists who helped estimate the size of the 2010 oil spill in the Gulf of Mexico have been forced to hand over more than 3,000 personal e-mail messages. British Petroleum, which demanded the documents, says it needs the correspondence to defend itself in a lawsuit, but the scientists say the move threatens to chill future scientific deliberations. (link)

June 2, 2012: Seventeen former nursing students have sued Maricopa Community Colleges saying they were wrongly forced out of one college's nursing program because of alleged cheating. The former students say officials at Chandler-Gilbert Community College accused them falsely in May 2011 of collaborating on an online quiz that was to be done at home. Some students say they thought the assignment allowed for group collaboration. (link)

June 1, 2012: Two prominent national faculty organizations have accused Texas A&M University at San Antonio of dismissing an adjunct lecturer for publicly criticizing how the university had handled the intimidation she encountered when she complained about Christian crosses on a campus building. (link)


Campus Life & Safety Events

June 27, 2012: The Cornell University chapter of the Sigma Alpha Epsilon fraternity has been found guilty of hazing and other charges in the death of George Desdunes, with the organization found at fault as three pledges were cleared of criminal wrongdoing. Judge Judith Rossiter found the local chapter guilty of first-degree hazing and unlawful dealing with a child, and of second-degree criminal nuisance, in her decision issued Tuesday afternoon. (link)

June 21, 2012: Beer giant Anheuser-Busch will pay the University of Iowa about $185,000 over four years to help support the university’s anti-binge-drinking programs, an athletics department official said. (link)

June 21, 2012: As more college admissions counselors are seeking specialized training, a newly released paper from the National Association for College Admission Counseling argues that high school college readiness counseling requires standardized training, too. (link)

June 19, 2012: Officials at the University of Nebraska at Lincoln believe a professor who had been leading students on a study abroad trip has been detained by Chinese authorities for undisclosed reasons, based on reports from the professor’s family. (link)

June 14, 2012: International students at U.S. college campuses are not very satisfied with their friendships with Americans on average, but their satisfaction level varies by U.S. host region and the student’s home region. This new study will be published online in the National Communication Association’s Journal of International and Intercultural Communication on June 14. (link)

June 13, 2012: A compelling story about a former University of Memphis football player's academic struggles has prompted president Shirley Raines to launch a study to evaluate admissions policies for student athletes.(link)

June 12, 2012: The thing that stood out about the barefoot man who emerged from the jungle to accost Nicole Murray, her best friend Delaina Nielsen and two other Utah college students — aside from the shirt wrapped over his face and the machete he brandished — was how much he talked. (link)

June 12, 2012: Workers at the University of Oklahoma have removed the fire escapes from an administrative building where a 22-year-old student fell to her death last week. (link)

June 7, 2012: The Florida A&M University Board of Trustees handed president James Ammons a no-confidence vote Thursday in the wake of the university's hazing scandal and ongoing management troubles.(link)

June 4, 2012: Five months before a Morgan State University student was charged with dismembering a family friend and eating his heart and parts of his brain, a school instructor flagged the 21-year-old's erratic behavior, describing him as "a Virginia Tech waiting to happen."(link)

June 2, 2012: Players testing positive for marijuana in the mighty Southeastern Conference do not face the one-year suspension that comes from getting busted by the NCAA. In the most successful league of the BCS-era, players routinely get third, fourth and even fifth chances before they're booted from the team; failed drug tests administered by the NCAA result in the automatic suspension. (link)

May 31, 2012: Engmann, 18, was taking part in an end-of-semester, University of Texas tradition known as ''Foam Sword Friday'' in which students rally around campus to relieve stress before final exams. As his fellow revelers waved their foam swords, Engmann ran into the street at the exact moment that the driver of a city bus ran a red light. (link)


Other News & Events

June 28, 2012: The University of Iowa suffered a setback Thursday in its effort to rebuild from a catastrophic 2008 flood when an audit recommended the federal government reverse its longstanding promise to pay the costs of replacing damaged music and art buildings.(link)

June 26, 2012: Teresa A. Sullivan was reinstated as the president of the University of Virginia on Tuesday, completing the arc of an improbable comeback tale that began a little more than two weeks ago with her forced resignation. (link)

June 25, 2012: On the 150th anniversary of the signing of the Morrill Act, Carnegie Corporation of New York released a new national poll which indicates the majority of Americans believe that access to higher education is a right. (link)

June 22, 2012: Ohio State University moved ahead Friday with what's believed to be the country's biggest privately operated university parking system in a move the school says will raise billions for everything from more faculty members to extra student financial aid over the next 50 years. (link)

June 18, 2012: Ten Iranian-Canadian academics have written a letter to Carleton University President Roseann O’Reilly Runte to criticize the university for hosting a conference honouring Ayatollah Ruhollah Khomeini, founding dictator of the Islamic Republic of Iran. (link)

June 15, 2012: At a time when federal and state politicians seem happy to cut and reluctant or unable to increase spending on higher education, a long-awaited report from the National Research Council, the policy arm of the National Academies, argues that the country cannot maintain its position as a leader in research without sustained investment in its public and private universities. (link)

June 7, 2012: UCLA faculty leaders on Thursday narrowly approved a controversial plan to wean the campus' signature MBA program off state funding and have it survive on tuition and donations. (link)

June 1, 2012: Vanderbilt University’s head football coach was penalized after recent comments he made concerning how he hires assistant coaches based on the physical appearance of their wives. (link)

May 31, 2012: American higher education is in the cross hairs of a heated national debate over the value and cost of a college degree. Yet in China, our fiercest global economic competitor, the popularity of American colleges and universities might be at an all-time high.(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

© Redistribution of this newsletter, with or without modification, is permitted provided Auburn University Internal Auditing is listed as the source.