College Theft of Funds: Official Steals $4.1 Million

By Charles Hall | Asset Misappropriation

Feb 05

College theft happens more than we think. After all, aren’t these guardians tasked with looking after our children? Even in places where we expect unselfishness, sometimes there’s a bad apple. Today, we review a theft of funds involving a college aid official. 

College Theft

When I was a student at the University of Georgia, I needed every dollar I could find. I ate my share of cheap hamburgers and peanut butter sandwiches. In the summers, I scouted peanuts and cotton to make ends meet. So when I see a college aid official stealing student money, I wince. College theft hurts the needy.

College theft

A New York college aid administrator used a simple scheme to steal $4.1 million of student aid funds. How? She made out financial aid checks to nonexistent students and then endorsed them over to the name of an alias. The administrator set up a bank account in the name of the alias and deposited the checks into the bank account, allowing her to convert the checks to cash.

How long did the theft go on? Over ten years. The fraudster stole most of the money in the last two years of the scheme. As is often the case, the thief became bolder over time. 

How many fraudulent checks did she issue? Over 1,000, each to a different student.

How was the fraudster caught? A change in the accounting system required cross-referencing of financial records.

College Theft of Funds Control Weaknesses

No one was comparing the checks written to student admission files. Legitimate students have admission and other information that can be used to verify the students’ existence.

So let’s see how to reduce college theft.

Decreasing College Theft

A person other than the financial aid administrator should compare the student name on the check to student files to verify the existence of the student. If this control can’t be performed for each disbursement, it should be performed on a sample basis, and the persons creating and signing the checks should know their work is being monitored.

This test could be performed by someone in the financial aid office or by an external professional such as a CPA or a Certified Fraud Examiner.

The college can request from the bank the endorsement side of the cleared checks. If the back side of the checks are obtained, then the endorsements can be examined for appropriateness.

Banks Not Providing Cleared Checks

In an effort to save money, some banks don’t provide cleared checks to their clients. And very few banks (if any) provide the copies of the back side of checks. From a fraud prevention perspective, this is not good. Why? Because checks and endorsements can’t be inspected for potentially fraudulent activity. At least periodically, request some endorsements and test those on a sample basis. (The bank may require you to pay for these copies.) Additionally, as I said in another post, someone should be comparing cleared check payees to the general ledger–if not for every check, then at least on a sample basis.

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About the Author

Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.

  • Patrick Williamson says:

    I just found out that in 2013 my local college stole $4300 in financial aid and student loans from me after I withdrew from the semester. I only noticed this when the college said I owed them 500 more dollars for classes I never attended a single day of. I was told I was on academic suspension because the semester before I have a medical condition and had to withdraw. I even had a VA Dr’s letter explaining that I was suffering from PTSD and was the reason for my withdrawal. They wouldn’t budge so I withdrew from 3 of the 4 classes, and had to go to a counselor to withdraw from the final class. Well, they made it impossible to meet with him or talk to him on the phone, so I emailed him and told him I needed to withdraw. The reason for this is because I explained my situation upfront with Dr letter and he told me everything should be fine and he enrolled me in the 4 classes. I left his office and went straight to financial aid where they told me of my academic suspention and that I would have to pay out of pocket to attend. While reviewing my current loans through FASFA I noticed the funds were never returned even though I inquired at the time and they told me they would be.
    Is there anything I can do about this? Isnt this financial aid fraud since I did not post attendance in any class and withdrew from 3 before the semester began?

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