oversight

Grant Fraud

Published by the National Science Foundation, Office of Inspector General on 1997-10-15.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                         NATIONAL SCIENCE FOUNDATION
                                          OFFICE OF INSPECTOR GENERAL
                                           OFFICE OF INVESTIGATIONS

                                 CLOSEOUT MEMORANDUM

TO: AIGI       File Number: I97070032                                              Date: 02 March 2002

Subject: Closeout Memo                                                                       Page 1 of 1
 1I



      There was no closeout written at the time this case was closed. The following information was
      extracted fiom the file in conformance with standard closeout documents.

      Our office was informed that the subject1was alleged to have committed embezzlement, theft, or
      diversion of grant funds. The university's2 audit branch notified NSF-OIG that the subject, a
      secretary on an NSF grant3,had generated false vouchers and received payments for guest speakers
      who did not exist, and had stolen computers purchased with NSF funds. The University police
      executed a search warrant and recovered financial documents and stolen computers worth $5,077.
      Prosecution of the subject was coordinated with the local district attorney's office. The University
      returned the remaining loss of $47,034 to the NSF grant, for a total recovery of $52,111. The subject
      and two other individuals pleaded guilty in state court. The subject was sentenced to one year in jail,
      restitution, and probation. The two other individuals received probation.

      Accordingly this case is closed.




      I
                Prepared by:                      Cleared by:
               Agent:           Attorney:        Supervisor:     AIGI
  Name:



Signature &
 'I
    date:
                                     1
                                                  .   .    .    ...




                    SENIOR VICE PRESIDENT--BUSINESS AND FINANCE

                         OFFICE OF THE UNIVERSITY AUDITOR




                                  MATHEMATICS AND SCIENCE
                                     Internal Audit No.
                                       Report on Defalcation
                                          December 1997




Prepared by:



-                      ---   --
                CPA
               I;


Principal Auditor


Approved by:



-.                                                                       .A   -
                 ,CPA                                                     CPA
Director of ~u'ait                                        University Auditor
                                 TABLE OF CONTENTS

                                                     Page No.

I.    INTRODUCTION

      A.       Purpose of the Investigation

      B.       Scope of the Investigation

      C.       Background

11.   RESULTS OF INVESTIGATION

      A.       Stipend Payments

      B.       Equipment

      C.       Supply Purchases

      D.       Cost Reimbursement

      E.       Travel Vouchers

Appendix A-F
INTRODUCTION
A.       Purpose of the Investigation
On June 13, 1997, the University Auditor was contacted by the Director of
Administration for Academic Advancement. The Director was concerned about
the activities of an employee,               inthe,
                              (      ).   Department investigation procedures had
ascertained that :            ordered a Dell Laptop computer that had not been
authorized and had apparently forged the signature of the Assistant Vice President
for Academic Advancement on an Entertainment Check Request.


The Office of the University Auditor initiated an investigation into the concerns
raised by the Director of Administration for Academic Advancement. The
objectives of the investigation were to:
1. ascertain the validity of the concern raised about
2. quantify the amount of any loss,
3. ascertain the methodology used to commit any fraudulent activities,
4. determine if any other individuals were involved in any fraud identified, and
5. identify internal controls that may have been circumvented by any fraudulent
     activities.


B.       Scope of the Investigation
The non-payroll transactions of 1           for Fiscal Years 1995-96 and 1996-97
were reviewed as part of the investigation. The investigation included an
examination of invoices, independent consulting agreements, contract files,
subcontract agreements, canceled checks, travel vouchers, computer reports,
correspondence files, personnel records, and interviews of employees and
vendors.


The investigation also included a limited review of           subcontractor
(formally known as       ..   ---   -.         . The review focused on controls over
vendor payments, specifically stipend payments.
Investigative efforts were coordinated with the                       , Police and Special
Agents of the Office of the Inspector General, National Science Foundation
(NSF). NSF's Special Agents requested and were provided periodic updates on
the status of our investigation. NSF Special Agents attended our initial meetings
with          - -.



C.       Background
         is               .'s state initiative to promote math and science education
reform. Funding for               -   is provided by a grant fiom NSF.


The                    kite Department of Education (        ,   was initially responsible for
managing and overseeing                   activities.      awarded    '        (formally
known as                                  a subcontract to operate and administer
        t's two programs:                                                                   )and
                          Under the subcontract             's responsibilities included:
     employing directors for               and
     securing and managing extramural funds,
     working with             in developing policy and strategic plans for              and
                                                                                       I,




     assisting with outreach and public relations.


Responsibility for              was transferred fiom the            to the University in
September 1994. The University became responsible for managing and
overseeing all activities related tc               and for providing leadership, policy
coordination, and strategic planning and implementation for the entire
initiative. The transfer included oversight responsibility of             ----- s $1.5 million
subcontract. The Office of Academic Collaboratives in Education, within the
Department of Academic Advancement, administers the                         program.
Director             is the University employee responsible for overseeing                  'S

operations.
       _-   continues to provide support by allowing '-             to purchase airline tickets
      through the    --   ._1 travel agency. Director       as overall coordinator is also
      allowed to purchase airline tickets through the            travel agency.


                   was Direct01        r's Administrative Assistant and was responsible for
      vendor contracts and invoices including                's subcontract.


11.   RESULTS OF INVESTIGATION
      Administrative Assistant 1;            8   dehuded the University of $55,5 17 by
      initiating fraudulent disbursements, stealing computer equipment and supplies,
      and stealing cost reimbursement checks. $5,077 of the $55,5 17 has been
      recovered.                was able to accomplish her fraudulent activities in part
      because she undermined internal control procedures by forging signatures and
      supporting documents. No evidence of involvement by other University
      employees was noted.


      A summary by type of transaction of the $55,517 loss amount and the $5,077
      recovered amount is set forth in Appendix A.


      A.     Stipend Payments
      Finding
      Administrative Assistant                   defrauded the University of $3 1,246 by
      initiating and processing nineteen fraudulent payments to friends and relatives.
      (See Appendix B for detailed listing.)


      Comments
                   was hired in September 1995 to be Director          -   's Administrative
      Assistant. Her duties included, among other things, the preparation of
      expenditure documents, the monthly reconciliation of (                s General Ledger,
      the preparation of            's budget reports, and ordering department supplies.     '
However,              :did not have authority to approve expenditure documents.
            aenerally circumvented this control in two ways.      '          would
either forge the supporting documentation or forge an approver's signature. Since
----- -     performed the G/L reconciliation there was little chance the forgeries
would be detected. Characteristics of the fraudulent payments were as follows:


     checks were delivered tc            : instead of being   mailed to the payee,
     payees were family or fiiends of:
     checks were cashed by payees at local               P   Bank Branches or
     deposited into             s bank account, and
     supporting documentation either was forged or did not exist.


B.        Equipment
Finding
Administrative Assistant              ;tole three Dell computers and one HP
DeskJet Printer totaling $1 1,414. (See Appendix C for detailed listing.)


Comments
Concerns about.             first surfaced wher        's Property Management Unit
sent Property Tags for two Dell Laptop computers to Academic Advancement's
Inventory Manager. The Inventory Manager had no paper work on the
computers and requested the paper work from    ,,A,,   ,,,




The paper work provided by               showed the purchase of a single Dell
laptop computer. Academic Advancement's Inventory Manager contacted                  's
Property Management Unit to correct the number of computers purchased.
However,        's Property Management reaffirmed its position and sent a copy of
the Dell Purchase Order which showed the purchase of two Dell Laptop
computers.
           : was then confronted with 1      ~ ' Purchase
                                                 s        Order.            stated that
she had decided to order the second computer because of discussions she had with
the          Director regarding a Laptop computer for another individual in the
unit.                then contacted Dell Computer and obtained a return authorization
number.


However, the computer was never returned. The Department Inventory Manager
contacted Dell Computers on July 10, 1997, to verify that the computer had been
returned, but was informed that the computer had not been returned and the return
authorization had lapsed.


A subsequent physical count of the department's inventory disclosed two Dell
Optiplex 5 100/xm computers missing. The Department's Director of
Administration stated that a HP DesMet color printer was also missing. A search
.of;          's residence by the         .'olice recovered one missing Dell Optiplex
5100/xm computer, the missing HP DesMet color printer, and the       '   : property tag
for the other missing Dell Optiplex 5 100/xm computer.


C.      Supply Purchases
Finding
Administrative Assistant      I       : made twenty supply purchases totaling $6,744
that were fraudulent or had no supporting documentation. (See Appendix D for
detailed listing.)


Comments
One of:          : 's duties was to buy supplies for the department. Our review of
Academic Advancement's supply purchases disclosed twenty purchases that had
no supporting documentation, such as supply requests, receiving reports, invoices,
and entries in the Department Procurement Authorization Log.
Documentation for two of the twenty purchases was obtained by                          Police
during the search of     1     's residence. One was a $1,564 purchase from
        -.
            for upgrading one of the Dell computers that she stole fiom
The other was a $213 purchase of software that was later returned. Our review
could not locate a credit in the                   Ledger for the $213.


D.       Cost Reimbursement
Finding
Administrative Assistant                     defrauded the University and the (
Department of Education of $5,95 1 by inappropriately diverting cost
reimbursements to herself and her sister. (See Appendix E for detailedlisting.)


Comments
American Association for the Advancement of Science
         entered into two agreements, each referred to as a "Memorandum of
Understanding," with the American Association for the Advancement of Science
(AAAS). The agreements stated that AAAS would provide financial assistance to
        : in sponsoring conferences.

J   -- - --,was able to divert an AAAS reimbursement of $4,120 by
inappropriately completing the "Payer's Request for Taxpayer Identification
Number and Certification." Instead of showing the University as Payee,
       listed her sister :     -    ....
                                            - as payee.
                                           -.              Accordingly, AAAS ,sentthe
check to '!              :   instead of the University.

-


Director . _ , attended a conference in Washington, DC in October 1996. All
              .



costs associated with the trip were to be paid by :
                                                                        .   .
                                                               \   ;1           y. A
University "Travel Expense Report" in the amount of $1,831 was prepared by
              on behalf of Director        ... ,   The "Travel Expense Report" was
submitted to                          in January 1997.
Expenses claimed on the                                                  J'   "Travel Expense Report" were:
airfare $1,792, parking $30 and meal $9.17. The costs actually paid by Director
(         , were parking                 and the meal. (The airfare was charged to the ,
Department of Education's account by                                      -              . Once I - .,        --   ----.,
had reimbursed the $1,792 airfare, the                                  _--_ - _   State Department of Education
should have been reimbursed the $1,792, since it paid the airfare.)

                                         *

A search of                                     ,'s bank records disclosed the deposit of the $1,83 1
                        r   check. The check had been endorsed over to '                        -   '     . by Director
1                  However, Director                      - stated that he had never endorsed any check over
to '           ,
               ,




Director.                       -   '                   arivers License number was also on the check.
However, during our review of .                                  .   -- _ ;'s office we found a photocopy of
Director                    ;   dr's
                                     -   -- -
                                                        Drivers License. During our interview of Director
          - he stated that on several occasions he had given                                        ;   his wallet.


E.                    Travel Vouchers
Finding
Administrative Assistant                            ,           defrauded the University of $162 by
submitting claims for airfare costs                                           did not incur. (See Appendix F for
detailed listing.)


Comments
A review of                                      s travel reimbursements disclosed that she claimed
reimbursement for airfare she did not incur on two travel vouchers. The tickets
for both trips were purchased through                                               ,.
                                                                                - -.,and charged against the
    .   .__-   - -.         State Department of Education account.                               did not incur any
airfare cost.
                                                                  *****
                                  -.
                                   ..... Investigation                            Appendix A
                                 Project No.
                          Summary of Fraudulent Transactions



                                  Loss            v
            Area                 Amount            ELSE        Other     Reference

Stipend Payments                  $31,246        $29,632       $1,614    Appendix B

Equipment                          1 1,414        11,414                 Appendix C

Supply Purchases                       6,744       6,744                 Appendix D

Cost Reimbursement                     5,951       4,159         1,792   Appendix E

Travel Vouchers                         162          162                 Appendix F


 Loss Before Recoveries           $55,517        $52,1I 1      $3,406

Less Recoveries
 Computer Equipment                $3,513         $3,513                 Appendix C
 Computer Supplies                  1,564          1,564                 Appendix D
                                   $5,077         $5.077

     Adjusted Loss
                                                                      Investigation                         Appendix B
                                                               Project No. 1 ,




                                                                                   -
                                                         Schedule of Fraudulent Payments



Federal i'                                                Payment                  Check       Issue
Grantee-                                 Relationshir,    nu=         Rea                      Piatr:   Amount       blnte

 DOE                  .' ).-'..          Friend           Stipend      F594118     25-78065
 NSF                  -                  Friend           Stipend      F565439     27-75983


 DOE         ....-..-     ..             Friend           Stipend      F573042     26-02775
 NSF                                     Friend           Stipend      F565438     27-75985
 NSF          -. .        ..   .-   ..
                                         Friend           Stipend     F565466      25-40558


 DOE                                     Cousin           Stipend     F594117      25-80964


 DOE                                     Husband          Stipend     F573040      25-86474
 DOE                                     Husband         Stipend      F594121      26-02768
 NSF                                     Husband          Stipend     F573016      27-75984
 NSF                                     Husband          Honorarium F565408
 NSF                                     Husband            tI
                                                                      F565408
 NSF                                     Husband            tt
                                                                      F565408      29-23603



 DOE         . .-..
                  J                      Sister          Stipend                   25-571 59
 NSF                                     Sister          Stipend      F565436      27-76363
 NSF                                     Sister          Stipend      F565409      27-90315
 NSF                                     Sister          Stipend      F565449      28-40556
 NSF                                     Sister          Stipend      F682203      28-76886
 NSF                                     Sister          Editorial Serv F565416    29-06383
 NSF                                     Sister          Editorial Serv F565415    29-06384




    Note
       1'                xnceled the first check because accounting mailed the check
             instead of sending the check to her. The second check was voided by
         ,   accounting because of printing errors during the check write.
                                                          Investigation                          Appendix C
                                                    Project No. ,  ,.
                                                  Equipment Transactions


              Property                                                      Reference
              Number                    Description                          Number      Price   Notes

           - - .-     -- . . .    Microcomputer                                         $3,080    (A)
                                  Dell OPTIPLEX 5100IXM

              -   .   -0 *    3   Microcomputer                         ,   &   '   a


                                  Dell OPTlPLEX 5100IXM

          ;   .   .d.l   .,       Microcomputer
                                  Dell Latitude
                                  LM M166MMX

                                  HP DeskJet 820 CSE

         Total

         Less Recoveries
                                  Dell OPTIPLEX 5100lXM
                                  HP DeskJet 820 CSE



         Adjusted Total

Notes:


 (A)     Equipment was recovered by               'olice during their search of
         residence.

 (B)     Printer was purchased using Low Value Purchase procedures.
         Accordingly, it was not placed into inventory but instead expensed.
                                                                ; Investigation                      Appendix D
                                                           Project No '
                                                           Supply Purchases



                                                                                                       -
    i                   Vendor                            Amount                     Comments

                                                                                  No Documentation
                                                                                           It
                                                                                                       Notes




                                                                                     Defalcation
                                                                                          I1



                                                                                  No Documentation
                                                                                          It


                                                                                          11


                                                                                          I1


                                                                                          tI


                                                                                          I1




    i
    !        Total
    f
    t
    1
    t

,
    !.
    j        Notes:
    i            1. Documentation supporting the validity of these
    i               purchases could not be located. The University has
                    decided to treat these purchases as not being valid.
    I
    !
                 2. This was a purchase of computer hardware to upgrade
        i           the stolen Dell OPTIPLEX Computer recovered by the
        I1           -,,  Police during the search of ;, ., I s residence.

                 3. Documentation for this purchase was recovered by the
                       - - Police during the search of           s residence.
                    This was a purchase of computer software that
                    later returned for credit; However, our review of         s
                    G/L could not locate the credit.
                                                    Investigation                           Appendix E
                                             Project No.
                                            Cost Reimbursements



                                                        Reimbursement
                                                              LYrre        AImulIt         Notes
American Assoc. for the Advancement of Science          Conference Costs      $4,120         1


                                                        Travel Expenses        1,831        2

                                                                              $5,951


Notes:

 1            ! diverted AAAS's  $4,120 payment by inappropriately completing the
     Payer's Request for Taxpayer Identification Number and Certification.
               listed her sister   a    I    .
                                            ., as payee instead of the University.

 2   A search of , I   -41  s bank records disclosed the deposit of the $1,831
     University check. The check had been endorsed over t~ h- r          by Director   I


     However, Director     - stated that he had never endorsed any check over to
                                                  .Investigation
                                             Project No.
                                                                                          Appendix F

                                             Travel Payments




        -                              Traveler
                                                                Total
                                                              Amount of
                                                              avel Voucher
                                                                              Amount
                                                                             of Airfare
                                                                              Claimed




Note:

  1                ; airline tickets
                                  for both these trips were purchased through
                       . The cost of the tickets were charged to         IState
        Department of Education account at .              .1.          : should
        not have claim reimbursement for airfare since she did not incur any
        airfare costs.
OFFICE OF THE SENIOR VICE PRESIDENT-                                   OFFICE OF THE PRESIDENT
BUSINESS AND FINANCE


                                                                         February 26, 1998




       Grants and Agreements Off~cer
       National Science Foundation
       4201 Wilson Blvd.
       Arlington, VA 22230



       Subject:       Internal Audit of Cooperative Agreement No        -.   .




       On July 17, 1997, we informed you that we had discovered an employee theft involving the
       subject agreement. At that time, we promised to provide you a report when our investigation
       was completed. As promised, enclosed is a copy of the internal audit. The investigation was
       conducted with the assistance of Special Agents                      and             from the
       NSF Office of Inspector General.

       Appendix A provides a summary of fraudulent transactions for the period of October 1995
       through July 1997. Total losses to the NSF Cooperative Agreement amounted to $52,111. Of
       this amount, $5,077 was recovered in computer supplies and equipment, or replaced with
       comparable equipment provided by the University. The remaining loss was replaced with
       University resources.

   The                           'olice Department has requested that the            County District
   Attorney's 0 k c e prosecute the individual involved in the theft. Our investigation did not find
   evidence of involvement in the theft by other University employees, and we terminated the
   involved employee in July 1997.
   1
      ,   , ,.
February 26, 1998
Page 2 of 2




The University department housing the             )reject has since undergone extensive review,
including internal audits of processes and procedures. System controls were strengthened in an
effort to prevent any fbture losses resulting from fiaudulent activity.

Should you have any questions, please feel free to contact me at (510) 987-9838.




                                            Director
                                            Research Administration Office




Enclosure (1)

cc:       Director --------.,
                           ,u/ enc.)
          Special Agent.      (w/ enc.)
          Provos     -
          Auditor
          Director       -
          Director .
          Director (