Two for Fraud: A Compliance Case Study
This month, with our focus on fraud, we depart from our usual format of highlighting a single case to bring you two cases at once. As always, the names and details – including names of departments and units – have been changed to protect the identities of the people involved.
Scenario 1:
Meredith, a professor in the Honors College, was excited to finally be offering a creative writing workshop for teens. She’d been wanting to do this for a while, but hadn’t been able to find the funding to make it happen. This year was different; through an organization that helps instructors get federal grant funds for use with at-risk youth she was able to raise the money she needed. She submitted the paperwork and the Honors College told her when the funds had been disbursed.
Meredith spent the funds to promote the program, book the meeting spaces and buy the materials needed to work with the teens over the summer. But all of this took much more time than she had anticipated, and, as her husband pointed out, she wasn’t even getting paid.
In order to feel like her efforts were worthwhile, Meredith decided to charge a fee for the program. She added a link to her personal PayPal account to the online registration form. Parents or guardians would have to pay $50 when registering their teens. A few weeks before the program was scheduled to begin, Meredith was pleased to see that 15 students had registered for her workshop.
But everything changed when she got a phone call one morning. Meredith recognized the number for Dr. Callaway, Dean of the Honors College. He told her someone had made an anonymous report saying she was charging a fee for a federally-funded grant program, and he wanted to know if this was true.
Scenario 2:
Carl was at a family reunion, talking to his relatives about what he does for VCU. “I work in Desktop Services, so we help people with their computers. We’ve been swamped lately! We just upgraded most of the laptops, so we have hundreds of them just lying around in boxes. Let me know if any of you need a laptop!”
Carl was half-serious; selling the old laptops had become a nice little side-hustle for him. He’d even started selling them on eBay. It was pretty easy; when they had some newly decommissioned laptops at work, Carl would update the inventory system to look like they were sent out for surplus. Recently, he got a buddy involved by having the friend post multiple laptops, together in a “lot,” on eBay. He split the profits from each sale with his friend.
Someone questioned Carl one day as he was carrying laptops out the back door of the building where he worked. He lied and said that he’d been asked to take them to the facility where they were sent for surplus.
The following day, Carl was informed that he was being investigated. It seemed that someone had noticed discrepancies between the inventory records for the retired laptops and the laptops that were being sent to surplus.
The Takeaway
While these cases look different, they have one thing in common: At best, they represent financial misconduct; at worst, they represent fraud.
When Meredith charged a fee for a federally-funded program and used her personal PayPal account to collect the fees, she implied that her fee was part of the federally funded program when it was not. That false claim, and her apparent effort to profit from it, together with the commingling of personal and program funds are significant problems.
Carl acted like he was surplussing-out the old laptops when he was really selling university property for profit. And by preventing the laptops from actually getting sent to surplus, he was defrauding the university of the benefits they were entitled to receive by writing-off old assets.
VCU’s Fraud Identification and Reporting Requirements policy reads as follows:
University employees are responsible for safeguarding university resources under their control and for ensuring that those resources are used only for authorized purposes and in accordance with university rules, policies, and applicable federal and state laws.
While both employees felt like it was okay to do what they were doing, they were both in violation of this policy. Fortunately, in the real cases, someone spoke up to alert VCU that employees were doing something wrong. Investigations into both cases led to consequences ranging from a reprimand to possible criminal charges.
Being on the lookout and recognizing red flags for fraud is something we’re all supposed to do. Together, we can safeguard university resources and ensure that we avoid the serious consequences that can follow fraudulent activity.
Ever wonder WHY people commit fraud? Read all about it in this month’s Compliance Corner.