Corruption Goes to College

Studies show that education organizations are most susceptible to corruption schemes.

Corruption schemes are the most commonly reported form of occupational fraud and account for 27 percent of all occupational frauds, according to The Association of Certified Fraud Examiners' (ACFE) 2008 Report to the Nation on Occupational Fraud and Abuse. More than a quarter of all the frauds in ACFE's report involved some form of corruption such as paying or receiving bribes, engaging in conflicts of interest, extorting illegal payments, or accepting illegal gratuities. Furthermore, the report shows that the median length of time a corruption scheme went undetected was 24 months.

Out of the 905 cases ACFE studied, 59 (6.5 percent) educational organizations fell victim to fraud, which places the industry in sixth place out of 21 industries affected by fraud. ACFE's report shows that billing schemes (33.9 percent), corruption (23.7 percent), and expense reimbursement (23.7 percent) were the most common fraud schemes in the education industry. The perpetrators of these frauds, according to the report, are primarily employees and managers. The report also shows that 48 percent of perpetrators had worked at the organization for five years or less, 40 percent earn less than US $50,000 per year, 59 percent are male, and 50 percent had attended or graduated from college.

Managing the Business Risk of Fraud: A Practical Guide sponsored by The Institute of Internal Auditors, The American Institute of Certified Public Accountants, and ACFE recommends that detection techniques be flexible, adaptable, and continuously changing to meet the various changes in risk. Through an anonymous reporting mechanism (e.g., a whistleblower hotline), process controls, and proactive fraud detection procedures specifically designed to identify fraudulent activity.

"The A La Carte Contract," featured in the October 2007 issue of Internal Auditor magazine, offers a real-life example of a corrupt university employee who leverages campus resources for a lucrative side business.

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