Keeping an eye on the college lock box

How to protect against internal theft

Higher education is big business, but many schools are operating with barely more fiscal security than the average kid’s lemonade stand.

Thefts from colleges are persistent, increasing and coming from all around campus. Common targets for embezzlers include bookstores and cafeterias, tuition collection, and even government grants to professors. Administrators should implement a proactive risk management program that includes checks and balances in the accounting department, regular audits of invoices and other fraud prevention techniques.

Employees eating your lunch

Food services is one area where relaxed controls can put institutions in some sticky situations. Most students pay for their meals through university meal plans, but cash and credit card transactions involving non-students can create exposure.

Strict oversight of the register isn’t enough on its own. Food services at schools with thousands of students are a major operation with potentially hundreds of suppliers creating a ripe area for bad apples. At LaSalle University in Philadelphia, a former director of food services embezzled $5 million over 20 years by creating a phony food vendor, generating fake invoices and keeping the payments for himself.

A simple requirement for a second check of vendor invoices might have uncovered this fraud before two decades passed and millions disappeared.

Who stole my cheese?

The easiest way to steal money is to go right to the source. As elementary as that seems, tuition embezzlement continues to be a persistent issue in higher education. It’s just too tempting for dishonest employees, and many schools have done little to prevent it. Many tuition thefts are as simple as employees having access to both tuition checks and deposit accounts without any secondary oversight.

The pattern of long-term employees committing most university embezzlements continued recently with an administrative employee convicted of stealing $185,000 from The University of Vermont’s Vermont Institute for Artisan Cheese over a six-year period.

All she had to do was add herself as a co-payee to tuition checks and then deposit them in her personal bank account. If proper controls had been in place, the fraud would have been detected almost immediately when the tuition accounts were reconciled.

Don’t take it for granted

Grants are the fuel that power new research and help educators continue improving the lives of their students. But these funds are often managed by professors without sufficient institutional oversight.

The exposure here is to the institution’s reputation and the ability of their faculty to get additional grant money in the future. Northwestern University in Illinois recently paid almost $3 million in fines after it allowed a researcher to process grant reimbursements for personal expenses and travel, in addition to salary payments for nonqualified family.

At Morgan State University in Maryland, an engineering professor was indicted after prosecutors accused him of submitting inappropriate expenses for a proposed transportation study. In his application for the $200,000 grant, prosecutors allege the professor lied about taking leave and that the University of Maryland would contribute to the research.

The grant funds were allegedly used to pay the professor’s mortgage, credit card bills and wife for work she didn’t perform, prosecutors have said.

Proactive protection

No employee should have access to financial resources without oversight or supervision. This is particularly important in the finance department, where duties must be separated, cancelled checks examined and employees required to take vacations so colleagues can cover their roles. (Embezzlers rarely take time off due to fear of getting caught.)

Regularly checking payroll and vendor records is also important. Embezzlers will set up fake employees or submit invoices from fictional companies to move university funds into their own accounts.

It’s critical that embezzlers be penalized publicly to discourage future thefts. The treatment should be the same whether the offender was a low-level coordinator or a tenured professor—theft is theft, and the institution’s reputation is at risk.

Backed by an insurance policy covering employee theft, these practices can provide baseline protection against dishonest employees looking to steal school funds and supplies.

Doug Karpp is vice president at Hiscox USA, a specialist insurer, and is responsible for Hiscox’s crime book.


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