Title IV fraud detection
A vigilant employee at Rio Salado College in Tempe, Arizona, noticed similar handwriting on several financial aid applications. She alerted her supervisors, who found other irregularities—such as the same mailing addresses—on a number of applications.
The college notified authorities, and when the federal investigators completed their work, participants in a financial aid scheme faced 130 indictments. The group’s ringleader recruited people to pose as students, submitted false federal aid documentation, and then split the funds.
Together, they embezzled more than $530,000 from the government in illegally obtained grants and loans.
The growth of online education has brought a wave of what’s often referred to as Title IV fraud, in reference to the federal student aid program. Online classes make it easier than ever before to apply for assistance, register with a college, take the money and never attend classes.
The number of potential fraud recipients increased 82 percent between 2009 (18,719) and 2012 (34,007), according to an Inspector General report for the U.S. Department of Education. These so-called students stole an estimated $187 million in federal aid in 2012 alone.
Because fraud usually involves federal (not institutional) funds that are funneled through the college or university, it often occurs under the radar.
Fraud can also have a big impact. It results in less access to aid for legitimate students and potentially affects an institution’s cohort default rate. So taking steps to prevent fraud and to identify potential fraud is important. (Legally, institutions don’t confirm fraud, only report it when suspected.)
Proactive institutions have developed the following key steps to tackle Title IV fraud.
1. Acknowledge the issue.
It’s naïve to assume your college has not been affected by fraud, says Robert Ritz, senior vice president of student financial services at Liberty University in Virginia, which has a robust fraud detection program described as a model by the U.S. Department of Education.
Administrators from elsewhere with several thousand online students have told him they aren’t aware of any fraud and have not dedicated resources to review accounts thoroughly. “I quickly let them know that they do have fraud occurring and they need to quickly address it,” he says.
Attempted fraud can occur in many forms, including:
- a single individual using his own identity to obtain financial aid funds, never intending to complete any courses
- an individual who steals others’ identity or colludes with friends and family to inundate the school with multiple fraud attempts
- sophisticated fraud rings
“Some of these sophisticated rings have set up their own call centers and have even threatened schools with legal action,” Ritz says. They may also demand information that could help them determine how they were caught, to avoid making that mistake at the next target school.
2. Follow Department of Education guidelines.
Most anti-fraud practices are implemented at the institution level, says Karen McCarthy, director of policy analysis at the National Association of Student Financial Aid Administrators. However, the Department of Education has issued some regulations regarding fraud, and by following them, colleges can limit damages.
One example: Unusual enrollment history procedures, which include flagging financial aid applications of students who have received assistance at multiple institutions within the past three years. The department provides this documentation to colleges so they can pinpoint fraud before Title IV money is disbursed.
When an institution receives a financial aid application from an individual who has been flagged, administrators can check the student’s history at the other schools and deny aid if academic credits weren’t earned. Most institutions offer an appeals process for students who have legitimate reasons for their unusual enrollment history.
3. Use fraud detection technologies.
Catching fraud can take a lot of staff time, but technology can simplify the process. Some financial aid technology platforms (such as CampusLogic) allow institutions to track the IP addresses of applicants and to monitor suspicious login patterns, such as multiple accounts logging in from the same IP address or accounts with multiple login failures.
Technology can also help pinpoint inconsistent or unusual data. “A student who lives in Baltimore and submits all assignments through an IP address in Baltimore, except quizzes and exams, which are submitted through an IP address in Houston, is likely a problem,” Ritz says.
Technology can also track fraud trends. At Liberty, finance officers map addresses and zip codes that emerge in potential fraud cases. “Sometimes they begin to cluster and rings are identified in a particular area, and we focus resources in that zip code until we see that the trend quiets,” Ritz says.
This involves paying special attention to applications that originate from those areas to ensure that they are authentic.
Recently, trend trackers at Liberty have identified potential fraud originating from Texas (Arlington, Cypress, Dallas and Houston); Georgia (Atlanta, Columbus, Cordele, Macon and Stone Mountain); Miami; Goldsboro, North Carolina; and Memphis, Ritz says.
4. Verify applicant identities.
After Rio Salado was the victim of the highly publicized Title IV fraud ring several years ago, college leaders there believe the best tool for preventing further fraud is completing a thorough verification of student identification for all financial aid applicants.
For instance, every applicant must provide color copies of a passport, driver’s license or other state-issued identification, says LeRodrick Terry, vice president of student affairs.
5. Keep eyes and ears open.
There’s no substitute for financial aid employees who take the initiative to watch for curiosities or potential fraud.
Ritz recommends recording inbound phone calls to detect “inconsistent voices, strange hesitations, background chatter and other clues that you are speaking with a fake student.”
Some Liberty employees have talked to “potential students” on the phone and heard what sounds like a call center in the background—a sure sign of a potential fraud ring.
Other, more subtle signals can be just as telling. “If an individual hesitates to confirm personal information such as date of birth, it is a warning sign,” Ritz says.
6. Centralize fraud-related work.
Institutions should have at least one point person for fraud strategy—someone who communicates about it to others across campus and interacts with federal agencies when suspected fraud must be reported and investigated. Led by this administrator, financial aid offices should ensure everyone is aware of the institution’s fraud prevention strategies.
For instance, academic leaders, especially those overseeing online courses, should be able to report plagiarism and inauthentic class assignments via the LMS.
While of course not all plagiarism indicates Title IV fraud, says Ritz, “sometimes plagiarism links multiple students together showing deeper collusion and providing a fuller picture of a fraud ring.”
Finance leaders at Texas Tech University focus on consistent communication with staff about policies and procedures, such as keeping them updated about fraud activities and changes in regulations.
They also regularly monitor internal systems and quality controls to prevent fraud, says Shannon Crossland, director of student financial aid and scholarships.
Her office uses the document management and storage system Sharepoint to allow staff to disclose trends or differences in their systems. Suppose a staffer observes a trend or inconsistency with the financial aid applications she is reviewing.
She will post information and documentation about it on the Sharepoint compliance file so that others can be aware of the issue and look for similarities in their own files.
“This approach assists in identifying whether we have a system issue, programming issue, policy and procedure issue, or training issue,” Crossland says.
“Individuals attempting fraud often try to divide and conquer various areas of the school,” Ritz says. “They will submit multiple complaints and contact multiple departments, which can cause confusion and inconsistent responses.”
By having a centralized person or group tasked with handling fraud, professionals across campus know where to refer questions, and those referrals can be vetted against written policy and procedures.
In addition, if a case is turned over to an outside agency, a centralized office can better respond to questions and help expedite the agency’s work—hopefully putting one fraudster out of business and making room for investigation of others.