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.
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.
How many fraudulent checks did she issue? Over 1,000, each to a different student.
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.
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 could be examined for appropriateness.
Learn from the CPA Scribo newsletter!
Get my free weekly accounting and auditing digest with the latest content.