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Universities need to protect themselves against fraud

Five percent of occupational frauds in Canada are in the education sector, survey says.

BY JUDITH KNELMAN | JUL 25 2012

Universities need to take steps to defend themselves against fraud committed by people who work for them despite a natural inclination to trust employees, said two experts at the annual conference of the Canadian Association of Universities Business Officers.

Mark Britt, director of internal audit at the University of Toronto, and Dominic Peltier-Rivest, associate professor who specializes in fraud prevention and detection at Concordia University’s John Molson School of Business, were panelists at the conference, which was held at Concordia in June.

A survey conducted by Dr. Peltier-Rivest and the Association of Certified Fraud Examiners, a U.S. organization, for a study on occupational fraud in Canada, showed that about five percent of all occupational frauds reported in Canada occurred in the education sector. While five percent is “significant,” said Dr. Peltier-Rivest, the share is comparable to that of most other industries. “Universities are not immune to fraud,” he said.

Sixty-five universities that are members of CAUBO were invited to take part in the fraud survey last year, and just 20 responded. “We were certainly disappointed with the response rate,” said Mr. Britt in an interview. “Part of the problem with fraud is that not talking about it makes us more susceptible to it.”

Universities need to train their administrators and senior managers to recognize and detect it, both experts said. “Because of the environment of collegiality and academic freedom, people are reluctant to put in controls,” said Dr. Peltier-Rivest.

A simple and particularly effective defence against fraud is a mechanism for receiving tips and protecting whistleblowers. Some tipsters will come forward only if they can be completely anonymous, which can be accomplished through an anonymous hotline. Dr. Peltier-Rivest said 45 percent of all frauds reported by Canadian organizations, including universities, come from tips.

He said that a hotline was the origin of a tip about one Canadian case, in which students were allegedly bribing markers to give them higher grades than they deserved. The students implicated in the scheme were expelled after being found guilty of academic misconduct. In some cases, he said, the markers are the instigators, offering bribes to faculty members in exchange for more work, and in some cases, faculty members have also been implicated.

Dr. Peltier-Rivest said a university’s obvious defence would be to monitor grade inflation trends by faculty members. He also recommends spot checks of marked exams and assignments, a policy against hiring students in the program, and centralized hiring of tutors. Accepting gifts or favours from students or suppliers should be forbidden outright. “Most bribery cases start small,” said the professor. “Gifts can be like a secret commission.”

Expense reimbursement schemes are the easiest fraud to commit, said Dr. Peltier-Rivest, and these are seen at all levels in the university community. Receipts in such schemes may be altered, fabricated or mischaracterized (personal expenses claimed as business-related ones).

Most frauds reported in the survey were in the payroll and accounts payable departments, said Mr. Britt. There wasn’t any fraud reported in the categories of construction, research or endowment, but he said he believes this is probably because these areas are harder to track than others.

Mr. Britt said that universities should try to identify their vulnerabilities. For example, situations where one person is in charge of initiating, recording, reconciling and reporting transactions gives a potential fraudster a huge advantage, he said, yet this is far from uncommon.

Many frauds are never detected, but it is especially important to be attentive in the wake of a recession said Dr. Peltier-Rivest: “More cases have broken out in the open since 2008.”
Both speakers emphasized the importance of collecting enough evidence, once a fraud is detected, to bring in the police so that criminal activities are not simply transferred to another unsuspecting institution when an employee is let go. “The real benefit of getting it to the police is that it puts that perpetrator into the [criminal] system,” said Mr. Britt.

 

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