Reducing the risk of funding fraud

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Colleges have received and distributed a lot of federal pandemic relief money in the last 18 months. And criminals are already trying to tap that money and other federal funding.

Just as with fraud involving Pell grants and Title IV funds, the fraud can come from external and internal sources, according to Natalie Forbort, a special investigator in the U.S. Education Department’s Office of the Inspector General (OIG). She discussed ways fraud can be committed and how colleges may protect themselves during a Tuesday webinar hosted by the American Association of Community Colleges.

In OIG’s Special Investigations Unit, Forbort and colleagues investigate claims of fraud related to federal pandemic and disaster funds. When Congress approved that funding, it also provided funding to OIG to review how those funds are spent.

“Our job is to take a look at allegations that can be substantiated through investigation,” Forbort explained. “We are truthfinders.”

Eyes and ears’

OIG has a hotline set up for reporting fraud. Many of the matters that come via the hotline are reported by frontline workers at colleges, such as employees distributing funds or in IT departments, who see irregularities. College employees are the “eyes and ears” that help detect fraud, Forbort said.

Reporting fraud is not only required to meet statutory and regulatory requirements, it can protect the integrity of Title IV and federal pandemic relief programs and help institutions avoid administrative, civil and criminal penalties.

Some potential external scams to look out for are distance education fraud rings, identity theft and falsifying eligibility for financial aid grants. None of these are new scams. The ID Theft Resource Center reported that in 2019, there were 1,473 breaches of more than 164 million records. Of these breaches, 118 were in the education sector.

One example of a recent scam involved an Ohio woman who recruited and enrolled fraudulent students in community colleges, though many didn’t have a high school diploma or GED. She applied for financial aid on behalf of the students. The woman, her recruiters and the fraudulent students split the proceeds of the financial aid. She was sentenced to 114 months in prison and ordered to pay nearly $1.9 million in restitution.

Fraud also happen internally. For instance, theft and embezzlement can occur as colleges are increasing their equipment purchases for distance learning without proper internal controls.

Some practices that could lead to fraud include having one person in control and no separation of duties, as well as a lack of internal controls and not reconciling financial records. Indicators of fraud could be questionable contracts, unusually large amounts of cash payments, unexplained entries in records, missing documentation and unauthorized transactions.

Best practices

There are ways for institutions to better protect themselves, Forbort said. Some best practices are:

  • Conduct a fraud risk assessment and assess potential threats.
  • Create a plan to mitigate risks and to evaluate potential fraud.
  • Coordinate with IT departments to identify common addresses (including IP and email), common bank accounts, common passwords and challenge questions, and anomalous geographic locations.
  • Participate in information sharing with other schools.
  • Require two-factor authentication to improve security of student accounts.
  • Formalize a process for reporting potential fraud, waste and abuse to OIG.

If an investigation is occurring or is pending, don’t “tip off” the subjects. Instead, continue the normal course of business unless otherwise directed.

To stay current on types of fraud affecting institutions of higher education, Forbort suggested signing up for the OIG’s free notification service.

About the Author

Tabitha Whissemore
is a contributor to Community College Daily and managing editor of AACC's Community College Journal.