Internal Auditing

Case in Point:
Lessons for the pro-active manager

June 2010
Vol. 2 No. 6
Quotable...

"Are you astonished Aulus, that our friend Fabullinus is so frequently deceived? A good man has always something to learn in regard to fraud."

-- Marcus Aurelius quotes (Roman emperor, best known for his Meditations on Stoic philosophy, AD 121-180)

In 1996 the Association of Certified Fraud Examiners (ACFE) began issuing a biennial report on occupational fraud and abuse. Occupational fraud is simply a fraud committed by an employee against their employer by virtue of their position in the organization. These reports have become some of the most authoritative and widely quoted studies dealing with occupational fraud issues available today. In June, the ACFE issued the 2010 ACFE Report to the Nations on Occupational Fraud and Abuse. In 2010 the report was expanded to include global fraud findings. Reports prior to this year focused on issues occurring in the United States only. This month we will take a look at a few of the findings from this new report.

Two of the findings are especially important for us to consider. First, tips are the most likely source of detecting fraud and the greatest source of tips are employees. This has always been true since the report started monitoring this factor several years ago. I believe this will always be true because fraud is by nature hidden, so other employees are in the best position to see those moments where things may be somewhat exposed. This makes it important for us to ensure our employees realize they have a role in protecting our institution from fraud and also that they are aware of where they can report suspected fraud. Our anonymous reporting system can be found at our website http://www.auburn.edu/audit.

Second, due to the decentralized nature of institutions with colleges, schools, and departments, in many ways we have some similar characteristics to those ''small organizations'' that are disproportionately victimized by fraud. Small organizations sometimes fail to implement controls that larger organizations have in their systems such as separation of duties within processes. If one person has complete control of a financial process, you simply don’t have internal control. In this day of downsizing and doing more with less, it is still important to consider the effects of a reduced staff in light of how internal controls are affected.

Next month we will examine some of the recommendations from the ACFE Report to the Nations. As you examine this month's events across higher education you will again see issues of fraud and ethical failure. Ask yourself if your area has any similar risks and think about what you can do to proactively prevent similar events from occurring here at our institution.

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


Information Security Related Events

June 15, 2010: The eleventh annual EDUCAUSE Current Issues Survey shows some very familiar themes among the top-ten IT issues of strategic importance to technology leaders in higher education. Indeed, all ten of the issues from the 2009 survey are back, albeit in a slightly different order. (link)

June 8, 2010: Thousands of Tufts University alumni have received letters over the past few days warning about a computer security breach that may have left their social security numbers and other personal information exposed. (link)

June 4, 2010: An Englewood, Colo., insurance company has filed a federal lawsuit contending that it isn't responsible for reimbursing the University of Utah for $3.3 million in costs related to a 2008 data breach caused by a third-party service provider. (link)

June 2, 2010: As many as 25,572 Social Security numbers once stored on Penn State computer systems may have been exposed during security breaches in recent weeks, the university reported Wednesday. (link)

June 2, 2010: The University of Louisville says a computer programming error made some personal information about hundreds of dialysis patients in its Kidney Disease Program accessible from outside the program. (link)


Misappropriation/Fraud/Ethics Events

June 28, 2010: A former Oklahoma State University employee resigned recently after being caught using a university credit card to buy tens of thousands of dollars of lingerie, sex toys and other personal items, records show. (link)

June 24, 2010: The University of Kansas is revising how sports tickets will be divvied up, bought and sold - and the new system will include more safeguards to prevent the kind of fraud uncovered this spring. (link)

June 19, 2010: Texas A&M's No. 3 administrator presented himself as a warrior-scholar: a former Navy SEAL with a doctorate from Tufts University. But records obtained by The Bryan-College Station Eagle indicate that Alexander Kemos never was part of the elite fighting force, and Texas A&M officials confirmed Friday that he doesn't have a doctorate or even a master's degree, which was a posted requirement for the $300,000-a-year position as the top adviser to Texas A&M President R. Bowen Loftin. (link)

June 15, 2010: Birmingham-Southern College will cut spending by as much as $10 million, about 20 percent of its budget, in part because it has for years erroneously awarded millions of dollars in extra financial aid, officials said Monday.(link)

June 10, 2010: A state audit has found the University of Florida had "severe deficiencies" in accounting for the spending of several federal grants, including two received by a former nuclear engineering professor who now faces criminal charges for allegedly defrauding NASA and other federal agencies.(link)

June 3, 2010: The University System of Maryland is investigating how $40,700 in gift cards intended for needy families were distributed by University of Maryland-Baltimore's School of Social Work staff and students. (link)

June 3, 2010: According to a 14-page legal notice from the public prosecutor's office in Rome, J. Michael Padgett, 56, antiquities curator at the Princeton University Museum of Art, is a focus of a criminal investigation of ''the illegal export and laundering'' of Italian archaeological objects. (link)

June 2, 2010: A man who registered as a student at The Evergreen State College has been charged with forging documents to fraudulently obtain financial aid and tuition assistance totaling more than $12,000, court papers state. (link)


Compliance/Regulatory Events

June 28, 2010: The Supreme Court ruled, 5-to-4, that public colleges and universities may require religious organizations seeking recognition or funds as campus groups to comply with anti-bias rules. The ruling came in a lawsuit by the Christian Legal Society, which challenged the anti-bias rules of the Hastings College of Law of the University of California. The Hastings policy bars discrimination based on sexual orientation and the Christian Legal Society bars gay people from becoming members. (link)

June 27, 2010: A City College of San Francisco official who has been the target of investigation at the community college has filed a defamation lawsuit against the district's chancellor claiming the chancellor sabotaged his bid for a post at another institution. (link)

June 26, 2010: The University of Colorado Board of Regents says it will challenge an appellate ruling that the school violated state law with its ban of concealed weapons on campus. (link)

June 24, 2010: The death of a fraternity president last year has spurred UNC-Chapel Hill to consider changes in how Greek organizations recruit members. A campus trustee committee Wednesday began to analyze the fraternity and sorority system, hoping to determine whether changes to recruitment and the eight-week pledge period for new members are necessary. (link)

June 22, 2010: The former vice president of enrollment at Allen University has filed a lawsuit against the school and its President Charles Young, claiming she was sexually harassed. (link)

June 21, 2010: The Community College of Baltimore County has agreed to pay $50,000 and provide other relief to settle an age-discrimination lawsuit filed by the U.S. Equal Employment Opportunity Commission, the agency announced Monday. (link)

June 15, 2010: The National Association for College Admission Counseling has found that 60 percent of colleges report receiving applications from students without legal documentation to stay in the United States. (link)

June 9, 2010: The Georgia State Board of Regents waded deeper into the national debate over illegal immigration Wednesday by taking several steps to make sure undocumented students aren't charged the cheaper in-state tuition reserved for Georgia residents. (link)

June 8, 2010: Two members of a California fraternity pleaded no contest to hazing charges and were sentenced to jail Tuesday in connection with the death of a teen more than a year ago. (link)

June 4, 2010: Five federal lawsuits have been filed against Austin Peay State University accusing the school and its chief of police of retaliating against officers who reported sexual discrimination within the campus police department.(link)

June 4, 2010: Ivor van Heerden, released from his Louisiana State University faculty post, has cited new evidence in asking a federal judge to reconsider his rejected request to get his old job back. (link)

June 2, 2010: A judge appointed a special prosecutor Wednesday to weigh animal cruelty charges against nine University of Wisconsin-Madison researchers and officials responsible for experiments that killed sheep. (link)


Other News & Events

June 30, 2010: The University of California, long beleaguered by financial woes, has finally lost it over what it calls a 400 percent increase in subscription costs for 2011. UC faculty and librarians have threatened a systemwide boycott of Nature Publishing Group, including its prestigious flagship journal, after Nature demanded an extra $1 million a year in license fees for its electronic materials. (link)

June 30, 2010: Researchers are back to work today inside the University of Missouri bio-chemistry building where four people were injured in an explosion on Monday. (link)

June 26, 2010: Education officials thought more Indiana high school students would apply for college if applications fees were waived for one week each year, but some colleges say last year's initiative was misguided and caused problems. (link)

June 21, 2010: In the last two years, at least 10 law schools have deliberately changed their grading systems to make them more lenient. (link)

June 17, 2010: UC Berkeley leaders and campus police made serious errors and missed numerous opportunities to avert a violent, daylong confrontation between thousands of student protesters and law enforcement Nov. 20, a long-awaited internal review released Wednesday has found. (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.

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