"Robinson's Theory of Fraud Opportunity: a person with complete control of a process, and who fully understands the system for which they have complete control, is a danger to the organization from an occupational fraud standpoint. This risk is increased exponentially when you have complete trust in this employee."
The past two months we've focused on topics that routinely appear in the Fraud & Ethics related section of Case in Point--conflicts of interest and the use of funds/fiduciary responsibility. This month I'd like to address the most common type of article linked in the Fraud & Ethics section: occupational fraud. Simply put, occupational fraud is an employee stealing from their employer. Education has ranked in the top ten in frequency of occupational fraud for several years, though our losses tend to be much lower than other industries.
I have the privilege of teaching a class called Fraud Examination each year in our Masters of Accountancy Program here at Auburn. As we have just finished the summer semester of this course, I thought it might be a good time to review some of the fraud basics that can help you prevent fraud in your area. Generally, there are three factors present when someone chooses to commit occupational fraud (commonly referred to as the fraud triangle): pressure, rationalization, and opportunity.
- Pressure has historically come from financial need, however, over the past few years it appears an increasing number of people who commit fraud do so simply to live a lifestyle they otherwise could not afford. I believe social media is a driving force in this becoming a pressure. I've yet to see any research that proves my theory, but the anecdotal evidence is abundant.
- Rationalization are the lies people convince themselves of to engage in the fraudulent act. Most often, it is that they are simply borrowing the money and will repay it.
- Opportunity is the final factor and occurs in a wide range of activities such as processing expenses, collecting funds, or having access to assets of value. We can decrease opportunity by having good internal controls.
In most cases, the greatest contributor to the fraud being able to occur is this: one person has complete control of a process without any oversight or monitoring. Fraud rarely occurs when strong controls and oversight are in place. Therefore, it is important to ensure key duties are separated and that oversight is routine. Small changes that improve controls can pay big dividends in fraud prevention.
Employee fraud is a risk all institutions face, and it is worth some thought about where the specific risks reside in your operations. However, as you see each month here in Case in Point, this is just one of many risks we face daily in higher education. We again invite you to review the issues that have occurred in our industry over the past month with a view toward proactive risk management.
M. Kevin Robinson, CIA, CFE
Associate Vice President
Office of Audit, Compliance & Privacy
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Information Security & Technology Events
Jul 17: System Vulnerability: The U.S. Department of Education (Department) has obtained information regarding the active and ongoing exploitation of a previously identified vulnerability in the Ellucian Banner (Banner) system. The vulnerability only occurs in Ellucian Banner Web Tailor versions 8.8.3, 8.8.4, and 8.9 and Banner Enterprise Identity Services versions 8.3, 8.3.1, 8.3.2, and 8.4. The Department has identified 62 colleges or universities that have been affected by exploitation of this vulnerability. (link)
Jul 16: Data Breach: The University of Alabama says a 2009 computer security incident involving a server for Brewer-Porch Children's Center may have exposed some personal information for about 1,400 former clients, employees and medical providers. In June, staff preparing an old server for disposal discovered unauthorized login activity between Oct. 24, 2009, and Dec. 9, 2009, from outside the United States. (link)
Jul 16: Stolen Laptop: More than 900 current and former employees of the University of Nebraska-Lincoln's Institute of Agriculture and Natural Resources have been offered identity theft protection after a laptop containing their personal information was stolen overseas. Thieves made off with the laptop of a consultant who helps manage IANR's employee retirement benefits while that individual was on vacation in Italy, UNL said in a news release. While the names, Social Security numbers, home and email addresses and financial account information on the laptop were password-protected, they were not encrypted, leaving UNL employees vulnerable. (link)
Jul 11: Hack/Ransom: Monroe College's computer system was hacked by someone demanding a $2 million ransom in Bitcoin, the Daily News has learned. A hacker crippled the Bronx-based school's computer network by encrypting its files remotely at 6:45 a.m. Wednesday, authorities said. The school's website was completely inaccessible after the hack, though its Facebook page is still up. (link)
Jul 01: Website Hack: A hacker or simply call them a cyber criminal hacked into the independent student newspaper of the University of Ottawa (uOttawa) "The Fulcrum" and ended up deleting the entire website early Sunday morning. The Fulcrum has been serving the University of Ottawa since 1942 while the website has been online since 2006. The deleted content of the website goes all the way back to 2010. (link)
Fraud & Ethics Related Events
Jul 22: Theft: A former band director at Southern University in Louisiana is accused of pocketing more than $293,000 from public funds owed to the school. A report released Monday by Legislative Auditor Daryl Purpera says Nathan Haymer set up a collection system with an unauthorized third party to collect the money. The Advocate reports Haymer also appears to have submitted false invoices, collecting about $46,000 from the university in expense reimbursements he didn't incur. He also received about $43,000 in payments from Mardi Gras krewes for the band's performances at the parade from 2015 to 2018. (link)
Jul 20: Wire Fraud Mistrial: A former Michigan State University professor and world-renowned robotics expert accused of defrauding MSU will not be retried after jurors could not agree on a verdict at his trial in federal court. Ning Xi, charged with wire fraud, was accused by federal authoriites of defrauding MSU and the Institute of Electrical and Electronics Engineers, or IEEE, a non-profit headquartered in New York, of hundreds of thousands of dollars. (link)
Jul 18: Misrepresentation Fraud: Two former Grand Canyon University students are suing the school, alleging that recruiters committed fraud by misrepresenting whether the school's degrees would work properly in their home states. The lawsuit was filed Thursday by attorney E. Adam Webb in Fulton County, Georgia. The students live in Georgia and West Virginia and attended GCU online. (link)
Jul 16: Money Laundering: A money launderer who targeted University of Iowa employees in 2015 will face prison time, following sentencing by a United States District Court judge. Nadine Nzuega Robinson, 39, pleaded guilty to money laundering charges in October and was sentenced this week to 120 months in prison for a scheme to cash federal tax refunds belonging to dozens of University of Iowa employees. (link)
Jul 12: Embezzlement Charges: A former financial supervisor at Northern New Mexico College has been charged with embezzlement, more than two years after she admitted to State Police to stealing money from the school. Henrietta Trujillo, 63, was charged with one count of embezzlement for stealing about $82,000 in cash from the college between August 2012 and December 2014, according to a criminal information filed in Rio Arriba County District Court on Friday. (link)
Jul 09: Conflict of Interest: Harvard said Tuesday that it is firing its longtime fencing coach, finding that he violated the university's conflict-of-interest policy by selling his home to a wealthy businessman whose teenage son was looking to apply to the university and fence on the team. The property, a modest three-bedroom Colonial in Needham, was assessed at $549,300, and sold for $989,500. (link)
Jul 08: Embezzlement: A Florence man has been charged with taking class registration fees from Clemson University for his own personal use. Agents of the S.C. Law Enforcement Division charged Jacob Stokes, 36, on Friday with embezzlement of public funds, value less than $10,000. The SLED investigation was requested by the Clemson University Police Department. Stokes was acting as an agent of Clemson Extension at the time of the incident, according to SLED. He collected $100 from each of 14 individuals at a pesticide applicator course, according to the report. (link)
Jul 05: Misuse of Funds: A Michigan college is accusing the University of Missouri of misusing millions of dollars in an endowment from 2003. Hillsdale College, located in south Michigan, sued the university in 2017 over the school's handling of a multimillion-dollar endowment to hire business and economics professors. The college says MU has not followed the instructions of the endowment and that Hillsdale should instead get the money. (link)
Compliance/Regulatory & Legal Events
Jul 27: Gender Discrimination Lawsuit: Two former attorneys for the LSU Health Sciences Center in New Orleans have sued the LSU Board of Supervisors and a trio of high-ranking administrators over claims of gender discrimination. In a civil suit filed Monday in U.S. District Court in New Orleans, plaintiffs Katherine Muslow and Meredith Cunningham say that for years they were victims of inequitable pay policies that paid men tens of thousands of dollars a year more than women for the same type of work and experience. (link)
Jul 26: Title IX Lawsuit: A former Carleton College student who was accused of sexually assaulting a fellow student after their initiation into a secret society is suing the college for expelling him. Taariq Vanegas, 21, claims his accuser was the aggressor and that the college in Northfield failed to give him a fair disciplinary hearing. The Seattle resident alleges Carleton violated the federal Title IX law, which prohibits sex discrimination at schools and colleges. (link)
Jul 24: Breach of Contract Lawsuit: Former KU Jayhawks football coach David Beaty said in a sworn statement that he's holding off on buying a house in Austin, Texas while he awaits the $3 million he says Kansas Athletics owes him for finishing out the 2018 season, during which he was fired. Beaty's residence -- he's currently living in an Austin apartment and plans to stay there indefinitely while his wife and youngest daughter remain in Lawrence -- gets to a central matter in his lawsuit against Kansas Athletics. (link)
Jul 24: Sex Discrimination Lawsuit: Four months after firing her on the basis of a report that found her to be bullying and abusive to her team, former Georgia Tech women's basketball coach MaChelle Joseph filed a lawsuit against the Tech athletic association and school and state officials. Joseph alleged sex discrimination against her and her team, a retaliatory and hostile work environment and breach of contract in a complaint filed Tuesday in the U.S. District Court for the Northern District of Georgia. It follows similar charges made at the time of her firing March 26. (link)
Jul 24: Unequal Pay Lawsuit Settlement: Three former deans at University of Arizona have settled with the Arizona Board of Regents after filing a federal lawsuit claiming they were underpaid by tens of thousands of dollars compared to male colleagues. "Plaintiffs brought this action to highlight the importance of gender equity and diverse leadership in higher education, and both parties agree and reaffirm the continuing importance of these issues," a joint statement between the three women and the Board of Regents, released Wednesday, stated. (link)
Jul 24: Age Discrimination Lawsuit: A Tuskegee University professor is suing the school over age discrimination claims, alleging he pulls in an associate professor's salary despite his promotion to a full professorship 40 years ago. Marshall Burns, a professor of physics, filed the federal discrimination lawsuit on Friday, July 19. Burns alleges that despite a four-decade tenure at Tuskegee, he makes $18,000 to $30,000 less than younger professors. (link)
Jul 23: Lawsuit Settlement: In 2016, Iowa State University accused an employee of fraud and theft in a dispute over the unusual but lucrative campus assets she managed: popular outdoor sculptures made of thousands of Lego bricks. Three years later, the school has withdrawn its allegations against Teresa McLaughlin under a settlement reached last month. The university paid McLaughlin $225,000 in wages and attorneys' fees, will offer her health insurance until 2022 and has given her a glowing letter of recommendation from its president. (link)
Jul 22: Mishandled Sexual Misconduct Lawsuit: A Penn State student is suing the university for reportedly mishandling a sexual assault allegation against him and changing its definition of consent one week before a second hearing, according to a civil rights complaint filed on Thursday. The student, named John Doe in the complaint, said the university unfairly conducted its investigation into the reported assault and did not uphold his right to a fair, unbiased disciplinary process. (link)
Jul 22: Title IX Settlement: The University of Wisconsin System reached a $325,000 settlement with a former student who says UW-Oshkosh violated her rights and acted "with deliberate indifference" to the sexual harassment she faced from one of her professors. The former student, A.R. in court documents, sued in October, claiming the university violated her Title IX rights when it failed to take action against former art professor Michael Beitz. (link)
Jul 19: NCAA Violation: The former University of Central Florida head women's cross country/track and field coach violated NCAA head coach control rules when she did not promote an atmosphere for compliance and failed to monitor a former assistant women's cross country coach, according to a negotiated resolution agreement approved by a Division I Committee on Infractions panel. The former assistant coach violated NCAA ethical conduct rules when he refused to participate in an interview with the NCAA enforcement staff after separating from the university. (link)
Jul 18: Harassment/Intimidation Lawsuit: A man claims West Virginia University attempted to intimidate him and keep him from attending a board meeting. Jay Folse filed the lawsuit against WVU, the WVU Board of Governors, Board of Governors Chairman William Wilmoth, and two unnamed WVU police officers on July 1 in U.S. District Court for the Southern District of West Virginia. According to the suit, the defendants brought two WVU campus police officers out of their jurisdiction to the Fayette County meeting with the intent of preventing Folse from attending the meeting and to harass and intimidate him due to his efforts to reveal wrongdoing. (link)
Jul 17: Retaliation Lawsuit: A federal court judge has ruled in favor of a former Emporia State University employee who lost her job in 2015 after she complained about being the target of a racial slur. Angelica Hale and her husband, Melvin, represented themselves in separate lawsuits alleging the university retaliated when the black couple accused officials of failing to investigate the slur. (link)
Jul 15: Records Request Lawsuit: An animal rescue group asked the University of Missouri for records on 179 cats and dogs the school used in medical research. The price tag the university put on the documents: $82,000. So the Los Angeles-based group, Beagle Freedom Project, sued the university, claiming the cost is "prohibitively high" and "violates the Missouri Sunshine Law." (link)
Jul 13: Drug Use & Misconduct: A star Hunter College psychology professor and sex and drug researcher is accused of snorting cocaine at school events and throwing annual bashes that grew from low-key pizza parties into binge-drinking and go-go-boy bacchanals, according to sources and official documents. Jeffrey Parsons quit July 3 following a school probe that substantiated May 2018 complaints by employees. Every year he'd host a party he claimed he paid for out of his expense account known as the CHEST fest, a former employee said. (link)
Jul 12: Sexual Assault Lawsuits: Nine more women have alleged in two lawsuits they were sexually assaulted by a former gynecologist who worked for the University of California, Los Angeles. The lawsuits state the women were assaulted by Dr. James Heaps during examinations between 1989 and 2017. The women allege the inappropriate touching sometimes without gloves was not for any legitimate medical purpose and solely for Heaps' sexual gratification. The most recent lawsuits were filed Thursday and Friday in Los Angeles Superior Court against the doctor, the university system's regents and other parties. (link)
Jul 12: Discrimination Lawsuit: A Michigan State engineering professor who was sued by several students for what they called "abusive" labor practices has filed a lawsuit alleging the university discriminated against him because of his Iranian heritage and epilepsy. Parviz Soroushian has been on paid administrative leave since July 2018, when MSU began an investigation into his conduct with students at his lab, Lansing-based Metna Co. (link)
Jul 11: Gender Bias Lawsuit: A federal judge will let a jury decide a lawsuit against Grinnell College that challenges the way the Iowa school handles sexual misconduct complaints. The lawsuit was filed in March 2017 by a male student identified only as John Doe, who was expelled in 2016 after he was accused of sexual misconduct. Judge Rebecca Goodgame Ebinger concluded in a ruling filed Tuesday that he has adequately shown that gender bias could have been a motivating factor in his dismissal and he may not have received a fair and impartial review of his appeal. (link)
Jul 10: NCAA Violations: The first formal salvo has been fired by the NCAA in response to the federal corruption investigation that rocked college basketball. And the target is North Carolina State. On Tuesday, NCAA enforcement delivered a notice of allegations that charges the NC State men's basketball program and two former coaches with major violations. The school released the notice of allegations publicly Wednesday, after a meeting of the Board of Trustees. (link)
Jul 10: Title IX Settlement: Michigan State University paid a combined $1.2 million to a woman and a former football player who were embroiled in a Title IX investigation and subsequent lawsuits if they both agreed to "set aside" the findings of an investigation that found the football player responsible for violating the school's sexual misconduct policy. The former female student, listed as "Jane Doe" in settlement documents obtained Tuesday by Outside the Lines as part of a public records request, received $475,000 from the university. The football player, Keith Mumphery, received $725,000. (link)
Jul 10: Fraud & Breach of Contract: Two companies are suing Michigan State University and the executive director of MSU Technologies for fraud and breach of contract. Composite Innovation Group and its subsidiary Atomic Composites, both based in Detroit, say the university tried to license them rights to an invention meant to protect soldiers and football players and other athletes without taking the steps necessary to secure patents. (link)
Jul 09: Reporting Systems Law: Pennsylvania's colleges and universities have a year to develop online, anonymous reporting systems to receive complaints about sexual assault from students and employees. Gov. Tom Wolf, appearing with the law's backers in the It's On Us campaign, said Monday that the law he signed is the first of its kind in the nation. (link)
Jul 08: Settlements: A patient who alleged she was sexually assaulted by a UCLA Health gynecologist was awarded $2.25 million in a settlement finalized last month with the University of California regents, according to university records released Monday. The patient's accusation stemmed from a February 2018 appointment with Dr. James M. Heaps. Heaps was charged in early June with sexual battery and exploitation in connection with his treatment of two patients -- including the woman whose claim was settled last month. (link)
Jul 05: Poaching Lawsuit/Settlement: USC has agreed to pay UC San Diego $50 million and to publicly apologize to the school for the way it wrested control of its prestigious Alzheimer's Disease Cooperative Study in 2015 during a raid that led to a highly contentious lawsuit. The penalty and apology have resulted in the settlement of a lawsuit the UCSD and the UC Board of Regents brought against USC in San Diego County Superior Court. (link)
Jul 03: Breach of Contract: A world-renowned Lou Gehrig's disease expert and Northwestern University researcher is suing his employer, claiming he's being pushed out of his job. Dr. Teepu Siddique, 71, a neurologist at the university's Feinberg School of Medicine, said he's not entirely sure what's behind the mistreatment he claims. His lawyer, who filed suit this week in Cook County Circuit Court, said it's about money. (link)
Jul 02: NCAA Violations: UConn's men's basketball program has been placed on probation for two years and former coach Kevin Ollie has been sanctioned individually for violations of NCAA rules during his tenure. The NCAA Committee on Infractions on Tuesday outlined numerous violations, most occurring between 2013 and 2018, and cited Ollie for failing to promote an atmosphere of compliance. (link)
Jul 02: NCAA Whistleblower Lawsuit: A former member of the USC football coaching staff alleged in a lawsuit Monday that undergraduate students were paid to pose as graduate assistants from the team to take online classes on their behalf and fulfill their degree requirements. Rick Courtright, USC's defensive quality control assistant from 2016 to 2018, said in the lawsuit he overheard graduate assistants Brett Arce and Austin Clark discuss working with defensive coordinator Clancy Pendergast to pay two students with low-level positions in the program to take online classes for the graduate assistants. (link)
Jul 02: Unlawful Termination Lawsuit: A state court gave a Lock Haven University mathematics professor his job back, but a federal judge says Charles H. Morgan Jr. cannot collect damages for what he alleges was an unlawful termination. U.S. Middle District Judge John E. Jones III on Thursday ruled there was no evidence the 2016 firing violated Morgan's due process and equal protection rights. (link)
Jul 01: Reinstated Title IX Lawsuit: Finding dismissal was premature, the 7th Circuit Court of Appeals has reinstated a lawsuit against Purdue University brought by a male student accused of sexual assault. The male student, using the pseudonym John Doe, claimed Purdue violated his rights under the 14th Amendment and Title IX after the school conducted a "constitutionally flawed" investigation into the allegations brought by his former girlfriend. He also claimed the university discriminated against him on the basis of sex. (link)
Campus Life & Safety Events
Jul 29: Guns on Campus: After many settlement conferences and a third attempt at mediation, a trial to determine whether a ban on concealed weapons at the University of Missouri conflicts with the state constitution will go forward, attorneys told Boone County Circuit Judge Jeff Harris Monday during a pretrial hearing. The University of Missouri has a rule prohibiting concealed guns on campus, including keeping them in a personal vehicle. Two lawsuits seeking to overturn the rule have been combined. (link)
Jul 26: Credit Card Theft: A University of Notre Dame junior has been charged with four counts of fraud for allegedly taking credit card numbers from people on campus. Katherine Jin was charged Friday and a warrant has been issued for her arrest. As of Friday afternoon she had not been taken into custody. From Jan. 20, 2018 to May 24 of this year, Jin was an employee at Au Bon Pan located in the Hesburgh Library on campus. (link)
Jul 25: Free Speech: In a victory for student press freedom, a Ninth Circuit appeals court found the University of California, San Diego's defunding of a satirical newspaper violated the constitutional rights protecting freedom of the press. The school's student government had defunded all student media after the school's satirical newspaper published an article mocking "safe spaces" in 2015.Now, the court has rejected the attempt at censorship, according to a news release from the Foundation for Individual Rights in Education (FIRE). (link)
Jul 24: Murder: Police have charged a fellow University of Mississippi student with the murder of Ally Kostial, 21, whose body was found over the weekend 20 miles from campus near a lake known as a popular hangout. Brandon Theesfeld, 22, was booked into the Lafayette County Jail on Monday and charged with murder after police arrested him at a gas station in Tennessee. (link)
Jul 23: Residence Hall Lawsuit: The College of Charleston filed suit against one of its developers a week ago the claims water is getting into the 17-year-old Marcia Kelly McAlister Residence Hall and causing damage. The college says the dorm is home to about 525 students, but now this "home away from home" has a number of building code violations. On-going issues costing the college a great deal of money, according to the lawsuit. (link)
Jul 22: Campus Threats: Howard University officials say they are investigating life-threatening messages posted to social media targeting the campus community. The university announced Sunday it would launch an internal investigation into the messages, which were posted by students and shared with school administrators through email and group chats. President Wayne A. I. Frederick's public statement posted to social media and the school's website indicates the threats may be linked to recent confusion over scholarships and financial aid eligibility. (link)
Jul 19: Campus Police & Theft: A woman was critically injured after a University of Utah police squad car struck her bike Thursday night, police said. U. police responded to a report that two bicycles were stolen at the Marriott Library on campus about 9:30 p.m., according to Salt Lake Police Lt. Carlos Valencia. A witness told police they saw two people take the bikes. The injured bicyclist was riding one of the stolen bikes, U. Police Deputy Chief Rick McLenon later confirmed. (link)
Jul 18: Anti-Hazing Law: Governor Ron DeSantis signed what is being called a ‘cutting-edge' anti-hazing law this summer, but it does not take effect until after the August fraternity and sorority 2019 rush. Experts say the law is an attempt to stem the sometimes deadly rituals by expanding those who could be criminally liable and offering protections for those who come to the aid of an ailing victim. The law gives immunity to Good Samaritans who call 911 if they see a hazing victim who needs medical attention. It also says anyone who attempts to administer aid will not be charged. (link)
Jul 17: Hazing Conviction: A former Louisiana State University student was found guilty of negligent homicide Wednesday in the fraternity hazing death of 18-year-old pledge Maxwell Gruver, the East Baton Rouge District Attorney's Office said.
Matthew Naquin faces up to five years in prison. His sentencing is scheduled for October 16. Gruver was pronounced dead on September 14, 2017, after an alcohol-related hazing ritual while pledging Phi Delta Theta. (link)
Jul 12: Campus Police/Rape: A Roane State Community College campus police officer was arrested and charged with statutory rape by an authority figure Friday. Justin Willoughby, 27, was arrested and charged with two counts of statutory rape by an authority figure Friday. According to court documents, Willoughby used his authority to accomplish sexual conduct with a minor under the age of 18 in his office in October of 2018. (link)
Jul 09: Construction Accident: Two construction workers were pulled from a trench at a construction site on the campus of the University of North Carolina at Chapel Hill after a beam fell on top of the workers Tuesday morning, authorities said. The workers were rushed for medical treatment to UNC Health Care but their conditions were not immediately disclosed. (link)
Jul 08: Student Organization/First Amendment: Wayne State University's guidelines that all student groups -- including religious groups -- allow students to be part of a group's leadership team, even if those students don't believe the same as the group, should be struck down, religious liberty advocacy attorneys will argue in federal court Wednesday. The court appearance is part of an ongoing battle between Wayne State and the local chapter of InterVarsity Christian Fellowship. (link)
Jul 07: Campus Safety: There was some panic at Thomas Jefferson University's East Falls campus Sunday morning after a computer glitch mistakenly sent out an active shooter alert. In a written statement, the university said in part "the alert was sent out due to a resolvable system error during a routine morning test of the Jefferson alert system." (link)
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