While the dog days of summer have typically been a fairly quiet time for internal audit news, there is one place where internal audit is creating some heat these months—on university campuses.
There have been a string of university officials and professors who have been implicated of wrongdoing after an internal audit. In some cases, the internal audit function was the first to spot the fraud, and in other cases the audit was conducted as part of an investigation after allegations of misdeeds emerged. Either way, the rash of cases serve as a reminder and good indication of internal audit’s ability and responsibility to spot fraud and wrongdoing, whether on university campuses or on corporate campuses and offices.
Georgia Tech’s Hornets’ Nest
The most recent case involves four officials at Georgia Tech, whom were ousted after multiple internal audits detailed an array of allegations of financial misuse and executive behavior in violation of the university’s code of conduct.
Steve Swant, executive vice president of administration and finance at Georgia Tech, was fired after an internal audit report revealed allegations that Swant took a high-paying position on the board of a large GT vendor, raising big conflicts of interest, and charged GT for international travel that was conducted as part of his position on the vendor’s board. Complaints about Swant first surfaced in an anonymous call to the university’s whistleblower hotline.
A second GT official—vice president of campus services, Paul Strouts—resigned after an internal audit surfaced allegations that he also conducted business dealings with a vendor that entailed major conflicts of interest. An internal audit report accused Strouts of using an annual bookstore vendor payment intended for student outreach to get a luxury box at the football stadium for personal use and of providing a friend with a bogus $100,000-a-year job at Georgia Tech. Two other individuals resigned after reports indicated they either know about or benefited from the misdeeds.
In response to the findings, Georgia Tech is taking some remediating action, including:
- Having the University’s chief audit executive report directly to the president
- Creating a revamped, cabinet-level position of the vice president for ethics, compliance, and risk management, which will report directly to president
- Conducting a survey of the university’s ethical culture at all levels
- Clarifying its policies pertaining to “consulting leave”
In an audit report on the problems, obtained and published by CBS46 in Atlanta, Georgia Tech Chief Audit Executive Phillip Hurd wrote: “We found merit in the allegations that revealed improper vendor relationships, waste and abuse as it relates to GT time, improper contractual requirements and gratuities from vendors, and a disregard for GT and Board of Regents policies.”
Sooners Say ‘Later’ to VP
An internal audit at Oklahoma University resulted in the ouster of Jabar Shumate, a vice president at the school, when it indicated he misused a university vehicle hundreds of times just within the last year. According to the audit, Shumate drove a 2016 Chevrolet Tahoe assigned to his department, the Office of University Community, to his residence where it remained parked overnight hundreds of times between July 1, 2017, and March 29 of this year, which is against state law.
“He was made aware of misuse of the vehicle,” Anil Gollahalli, vice president and general counsel for OU, told the local paper, the Norman Transcript. “He voluntarily chose to resign at that time.”
For his part, Shumate says the audit of his use of a university vehicle is retribution for his views on another issue. In a statement, Shumate said he was targeted for his opposition to the university’s plans to reinstate the Sigma Alpha Epsilon fraternity, which was suspended in 2015 following the publication of a video showing members taking part in a racist chant. “Given the University’s intent to ruin me personally, I am suspect of any information contained within this audit,” Shumate said in the statement. “My duties also required me to frequently attend events, meetings, and recruitment efforts in the evenings and early mornings. The University was well aware of my vehicle usage and therefore sanctioned it.”
Bad Medicine
In another case, a university internal audit resulted in an investigation at an affiliate organization. Louisiana State University quietly forced out the longtime chairman of its medical school’s neurosurgery department, Dr. Anil Nanda, last October, but the potential reasons for his departure are just now coming to light.
Questions about Nanda’s billing practices surfaced in 2016 from an anonymous complaint. An investigation from the University’s internal audit function found that Nanda was using improper billing practices at his job at LSU Health Shreveport, which is affiliated with the university. Internal auditors focused on cases involving three or more simultaneous surgeries by Nanda at the teaching hospital affiliated with LSU Health.
A larger investigation of the health provider’s practices found other instances of simultaneous billing, where doctors are named as surgeons on procedures that are happening at the same time, which is illegal even if the doctor is serving in a supervisory role. Auditors found 374 concurrent surgery cases between Nov. 6, 2011, and Dec. 31, 2016, at the Shreveport teaching hospital affiliated with LSU Medical School. LSU Health’s compliance office self-reported the billing problems to the U.S. Office of the Inspector General, repaid money from some of the claims, and later negotiated a settlement that included $750,000 in damages.
Keeping an Eye on the Ball
The cases above come on the heels of some internal audit investigations into practices at university athletic departments. In May, an internal audit centered on the Washington State University athletic department found extensive mismanagement and potential fraud related to home football games. The report stated that WSU possibly inflated home football attendance figures and improperly distributed free tickets to football games. “The environment within Athletics … did not support a culture of compliance or fiscal responsibility,” according to the audit report, which was completed in mid-April.
Meanwhile, an internal audit report at Michigan State University said athletic department officials ignored previous internal audit reports and failed to fix problems repeatedly identified by them. Former athletic director Mark Hollis resigned in January, days after Larry Nassar, the former USA Gymnastics doctor who also was employed by Michigan State, was sentenced to 40 to 175 years in prison for sexually abusing more than 150 girls and young women, although those cases are unrelated to audits that found financial improprieties in MSU’s athletic department.
In May, an MSU spokeswoman told the Lansing State Journal that auditors found no evidence of fraud and the audits mention no missing funds. Yet the university’s in-house audit team repeatedly warned Hollis and former MSU president Lou Anna Simon that sports staffers were not adequately following university financial procedures, according to reports obtained by the Journal through a public records request.
Oddly enough, MSU isn’t even the only university in Michigan to have problems on compliance with the findings of an internal audit report. Officials at its rival, Michigan University, are currently in a dispute over the validity of findings from an audit of the university’s investment office. University of Michigan officials say that a 2014 internal audit of its investment office, which controls a $10 billion endowment, reached several faulty conclusions.
As multitudes of students soon head back to college campuses later this month and in September, university internal audit departments will no doubt keep their vigilance over fraud and wrongdoing by college officials, professors, and others. Corporate internal audit functions will also be on the lookout for fraud, even as they stress their role as partners and advisors to business units and functions throughout the organization. 
(Photo at top: Georgia Tech D.M. Smith Building, by Disavian, used under CC-BY-SA 3.0, Wikimedia Commons)
Joseph McCafferty is Editor & Publisher of Internal Audit 360°