Internal controls provide direction and prevent, find, and fix problems! Everyone working at a college or university has a role in internal control. Here we begin a 10-part series about internal control at colleges and universities that will heighten your understanding of our control system at WSU and your essential role in its success!
What Can Happen?
First, let's look at what can happen when the press calls with questions about misconduct at a college or university. The following video emphasizes the seriousness and wide-ranging impact of such problems.
The opening montage of news headlines looks like many seen recently in higher ed. As you watch the video, please take note of the various concerns the president and her executive team raise.
What was the primary catalyst for the situation? What questions would you ask before accepting the dean's conclusion that there was no intent to harm? What potential problems and concerns did you identify?
My Review
Here's my review of the situation. How did your analysis compare to mine?
The primary catalyst for the situation was when the grant's principal investigator (PI) advanced money for necessary parts to his brother's machine shop. Unknown to the PI, the shop's finances were poor, and it went bankrupt and before delivering the parts.
A conflict of interest exists when a person's outside or private interests either affect or appear to affect their institutional responsibilities and judgment.
Even though the dean reported the PI intended no financial harm, the president described the situation as a "fairly blatant" conflict of interest. In a conflict of interest situation, appearances matter.
The dean's report to the chief academic officer that the PI intended no harm is presumably based on two facts. The parts were legitimately needed, and the PI believed his brother's shop could deliver the parts.
Nevertheless, questions remain.
- Did the PI follow university procedures for purchasing, bidding, and contracting?
- Why did the PI choose his brother's machine shop?
- How and why was the money advanced?
- Was the expenditure approved by the university's purchasing or research office?
- Did the PI disclose the family relationship before seeking the required approvals?
To advance payment to his brother's machine shop, did the PI bypass established procedures somewhere? Or were the university's controls entirely lacking? In either case, the appearance of impropriety was ripe, even before the loss.
The potential problems and concerns are wide-ranging:
- A direct financial loss of $150,000
- Likely default with grant terms
- Additional personnel and legal costs to address the problems
- Diversion of resources from university priorities
- Unease among faculty and staff with damage to morale
- Scrutiny by federal funding agencies
- Potential for more rules and regulations
- Disruption of the ability to attract future grants
- Fundraising concerns with benefactors
- Appearance of impropriety
- Adverse publicity
- Personal and institutional reputational damage
You'll learn more about your role in internal control in the next and future episodes.
Without question, faculty and staff do a tremendous job with limited resources. The full appreciation for these efforts often goes unrecognized.
What follows is intended not to detract from, but rather to build upon this good work. You will discover that with a little effort, you can improve your awareness of controls and systems.
After preparing this episode, I later saw the following:
Inside Higher Ed - Former U of Iowa Manager Charged With Alledgedly Diverting $1M
Des Moines Register - Former UI Staffer Charged After Audit Alleges He Diverted $1 Million
"A University of Iowa physics and astronomy manager was arrested after a state audit claimed he diverted nearly $1 million in revenue to his personal business and failed to follow the university's conflict of interest policy." The conditions were quite similar to those portrayed in our video!
COI Reporting at WSU
(iStock/designer491)
Our video uses a conflict of interest situation to illustrate its themes. My blog post, Actual or Perceived Conflicts of Interest - Four Recent Examples in Higher Ed, featured several cases making headlines. The conflicts caused headaches and worse for the schools involved.
Conflict of interest reporting is a topic of growing importance in higher education.
At Wichita State:
- Employees must complete a conflict of interest report even if they are not involved in sponsored programs or have known conflicts of interest.
- The electronic reporting form is due in April each year by April 30.
- You can submit or find the status of your conflict of interest report in the Employee Required Training section of myWSU.
Conflicts of interest are at the root of almost all significant ethical and legal compliance issues that go unresolved for a long period of time.
Roy J. Snell, Former CEO and Cofounder of SCCE
Full WSU Policy:
WSU also has a Conflicts of Interest webpage devoted to definitions and frequently asked questions related to conflict of interest situations and required reporting.
SCCE - Society of Corporate Compliance and Ethics