Education Fraud: 10 NEW Risks for Teachers, Administrators, Principals, Boards and Taxpayers You've seen the headlines but WHY and HOW???? * 34 educators in Atlanta, including the Superintendent of the Year, arrested. * El Paso Principals goes to prison. * Charter schools faking students and attendance. * U Texas admissions scandal * Law Schools reporting fake dat to American Bar Association * School trustee convicted of theft * VP Fin Aid steals $3 million * 34% of DC graduates got diploma violating policy * Office worker steals bus passes * An Indiana day care owner reported fake children. * A principal in Texas went to prison. Fraud is personal. If the office secretary steals money it leaves less for the people who deserve. Education Fraud is NOT a management or business problem. It's a behavior problem. No Child Left Behind incented massive education fraud. ECOT charter school in Ohio is being investigated for cheating

1. Education
Fraud
2hv5
10 New Risks for Teachers,
Administrators, Principals,
Superintendents, Board
Members and Taxpayers

2. Required Legal Stuff
These materials were developed by Gary D. Zeune.
The following policies govern their use:
◼ These materials are intended for use in group study situations and
were not developed for self-study or reference uses. These materials
are copyrighted. Reproduction of the manual or any portion of it is prohibited unless
written permission has been obtained from Gary D. Zeune.
◼ These materials were prepared solely for the purpose of continuing professional
education. They are distributed with the understanding that Gary Zeune is not engaged
in rendering legal, accounting, or other professional services. If legal advice or other
expert assistance is required, the services of a competent professional should be
sought.
◼ Participants are advised that the Statement on Standards for Formal Continuing
Education (CPE) Programs places responsibility on both the individual participant and
the program sponsor to maintain a record of attendance at a CPE program.
◼ The information the participant should keep on each program is (a) sponsor's name, (b)
title and/or description of content, (c) date(s) of the program, (d) location, (e) number
of CPE contact hours. This information is found in the printed program for most courses
or conferences and/or in a CPE attendance record form. Either or both of these
documents should be kept for an appropriate period to enable regular periodic reporting
to jurisdictional board(s) and to professional organizations requiring such reports.
© Gary Zeune CPA 2

3. Copyright Notice
This manual is protected by U.S. Copyright
law. You may not reproduce any part of this
manual in any form without written consent
of the copyright owner.
Get up to 10 slides free…email Gary the…
1. Presentation title and v# in the upper right
corner on the first slide and
2. Up to 10 slide numbers
3. Retain “© Gary Zeune CPA”
©
NOTE:
© Gary Zeune CPA 3

4. Gary Zeune CPA
Gary Zeune CPA has 40+ years in public accounting,
corporate finance, investment banking.
He also has the only speakers bureau in the U.S. for white
collar criminals. The Pros & The Cons has been profiled in NY
Times, WSJ, LA Times, Forbes and numerous other publications.
Since 1987 more than 20,000 professionals have attended his classes on fraud,
ethics and corporate strategy.
He writes extensively and has had more than 20 articles published in national
magazines and journals.
The Pros & The Cons
gzfraud@TheProsAndTheCons.com
614-761-8911
© Gary Zeune CPA 4

5. Easy to Fool
RISK: Doing the same
thing over and over
CONTROL: Don’t do more work,
but do it __________
© Gary Zeune CPA 5

6. Your Auditors are REQUIRED to Understand
Your Educational Entity and Environment
Statement on Auditing Standards 122 REQUIRES
21 Understanding the entity and its environment consists of….
a. Industry, regulatory, and other external factors
b. Nature of the entity
c. Objectives and strategies and related business risks
d. Measurement and review of financial performance
e. Internal controls
© Gary Zeune CPA 6

7. If You Can’t Tell Me 10 Ways Your School
Can Fail, You Don’t Know the Risk
Statement on Auditing Standards 122 REQUIRES
24 Industry, Regulatory and Other External Factors including …..
Competitive environment
Supplier and customer relationships
Technological developments
Regulatory environment
Accounting, legal, political and environmental issues
25 Risk of the industry
© Gary Zeune CPA 7

8. Assessing Risks
Nearly all risks is
operational, not in finance
and accounting.
© Gary Zeune CPA 8

9. Stress
Any entity or
person under
stress is a
fraud risk.
© Gary Zeune CPA 9

10. 5 Levels That Create Fraud Risk
© Gary Zeune CPA 10
From national to each person
National No Child Left Behind
Regional State funding, laws, rules, regulation
Local Cities
Entity Specific schools
Personal Bookkeeper or teacher feels treated unfairly

11. Your Auditors are REQUIRED to Understand
Your Educational Entity and Environment
Statement on Auditing Standards 122
21 Understanding the entity and its environment consists of….
a. Industry, regulatory, and other external factors
b. Nature of the entity
c. Objectives and strategies and related business risks
d. Measurement and review of financial performance
e. Internal controls
© Gary Zeune CPA 11

12. Public Employees Rush to Retire
◼ States and municipalities cut benefits
◼ Unintended consequence = retire to lock in benefits
◼ NJ, Calif, Colorado
◼ Wisconsin 73% jump in applications to retire from Jan and Feb 2011
over 2010
◼ Schools expecting exodus when contracts expire
RISK: Failing to modify audit/controls when senior, most experienced,
executives/employees ___________
© Gary Zeune CPA 12

13. Fireworks + Non-profits
◼ States, led by Calif, are banning fireworks
◼ Why _____________
◼ Cities and counties can ban
◼ Churches, schools, youth sports
◼ 3500 Calif groups net $35 million
◼ “Safe and Sane” required is more expensive
◼ 10 – 50% of funding
RISK: How will entities replace _____________
© Gary Zeune CPA 13

14. Florida Licenses
◼ Florida deregulating more than a dozen professions: hair braiders,
interior designers, yacht brokers, travel agents, auctioneers,
telemarketers…
◼ Interior designers required to have ___ years of schooling and
apprenticeship + pass two day exam
◼ Without license can result in a ____________
RISK: What’s likely to happen to ________________
6
YEAR IN JAIL
FEES
© Gary Zeune CPA 14

15. Consideration of
Laws and Regulations
in an Audit
AU-C Section 250
12/15/12
Replaced SAS 54
© Gary Zeune CPA 15

16. Laws and Regulations
◼ Violations of laws or governmental regulations
◼ Two types for audits
◼ Direct and material effect on financial statements
◼ Other illegal acts that are indirect/operational
◼ By the entity/management/employees for the entity
◼ Does NOT include personal misconduct unrelated to their business
activities
If someone will cheat on his/her spouse, what makes you think they
won’t _______________
© Gary Zeune CPA 16

17. Laws and Regulations – New
14b
REQUIRES inspection of correspondence, if any,
with the relevant licensing or regulatory agency
Why Client operating illegally
Risk Client will create fake paperwork
Tips
Verify client payment
Confirm docs directly
Do NOT tell client
© Gary Zeune CPA 17

18. Mississippi
College
◼ Lewis Nobles Pres for 25 years, stole 15 years
◼ Personally collected checks
◼ Checking account in name of college
◼ $3 million in donations
◼ School of Nursing, School of Law, a FM radio station
◼ "He was Mississippi College. He did everything--he had full and
complete and absolute power." Charles Willibanks, law school faculty,
1977 to 1981.
◼ 1 of 18 most effective US college presidents in 1986
© Gary Zeune CPA 18

19. Mississippi
College
◼ Trustees demanded proof expenditures were legit
◼ Typed on photocopy of real bank statement
◼ Mail fraud, tax evasion and money laundering
◼ Fled to San Fran, cyanide
◼ Sentence 7+ years
◼ Stock and brokerage fees, real estate, large credit card accounts
and lavish purchases for himself and women friends
◼ Detected when a fundraiser approached a donor who had
already _______
© Gary Zeune CPA 19

20. Houston Schools
◼ Drop out rate
◼ Incentives
◼ “Dissappeared” students
◼ Graduation rate
◼ Skipping tests
◼ System wide
◼ Whistle blower
◼ Retaliation
TIP: A portion of the funding was obtained __________
Watch Houston
Schools video on our
web site
© Gary Zeune CPA 20

21. Credit Card Abuses
◼ Anyone can have one
◼ No credit checks on employees
◼ Credit limits based on reasonable need
◼ Locked up until needed
◼ Card holders acknowledge rules and responsibility
◼ Prompt review of statements
◼ Submit supporting charge slips or pay personally
◼ Quickly suspend or revoke if abused
Fraud Tip: Use purchasing cards instead of credit cards
© Gary Zeune CPA 21

22. Purchasing Card Features
◼ Single transaction limit
◼ Monthly dollar limit
◼ Finance office/Budget $ limit
◼ Merchant blocking
◼ Daily transaction limit
◼ Monthly transaction limit
◼ Total company limit
◼ Can be different to each cardholder
© Gary Zeune CPA 22

23. Donna Renee Gamble
◼ Georgia Tech P-Card
◼ Pleads guilty 22 counts $316,000
◼ Number of personal items __________
◼ NSF grant funds
◼ Fake invoices
◼ Supervisor ______________
Tip: How was she caught _____________________
3800
approved
Watch Donna Renee
Gamble steals $300k using
her purchasing card
© Gary Zeune CPA 23

24. Some of the Things Gamble Bought……
◼ Barrington Model 801 oboe
◼ Philips 32-inch, widescreen LCD
HD TV
◼ Sylvania 20-inch, flat panel LCD
TV with built-in DVD player
◼ Axion 20-inch, flat panel TV
◼ Bunn ULTRA-2 frozen drink
system
◼ Crosley mini bubble jukebox
◼ Voit competition soccer foosball
table game
8. Makita 2800-watt generator
9. Honda pressure washer
10. Coleman Gas Log patio hearth
11. Centurion Euro-style boat cover
12. 4 Lafuma RSX La Napoule
recliner lounge chairs
13. Huffy women's comfort bicycle
14. 2 Kulana Luhi women's cruiser
bicycles
15. 4 digital cameras
16. Yamaha WaveRunner III
© Gary Zeune CPA 24

25. CPA Dan Korson
◼ Muskegon Catholic Schools
◼ Finance manager 7 yrs
◼ Embezzled $ 1.5 million
◼ Muskegon Family Care $ 1.5 million
◼ Catholic Social Services $ 170,000
◼ 5 years + repay $2+ million
◼ 7 employees + close school
Caught when IRS billed school for unpaid ___________
Risk: Trust is NOT an ________________________
Video: CPA Dan Korson sentenced to prison
payroll taxes
© Gary Zeune CPA 25

26. Colleges Manipulate Donor Numbers
◼ Alumni living longer
◼ More competition for donations
◼ Trustees set performance targets
◼ 5% of U.S. News score is alumni donor rate
◼ Trinity College Hartford Conn 2005 to 2006
◼ 35 student volunteers door-to-door
◼ Donations over 2 years 97% senior rate
◼ Boosted overall rate 2005 of 45% to _______% in 2006
◼ $1 million
© Gary Zeune CPA 26

27. Colleges Manipulate Donor Numbers
◼ Harvard $29 billion alumni giving rate 39% to 48%
◼ Senior’s gifts different for tax purposes than for alumni-giving
rate…..counted over ______________
◼ Promise to seniors……….We won’t solicit _________
◼ Colleges count donating seniors but not the senior class which raises
the __________________
◼ Rationalizations….
◼ Everyone is _________________
◼ The methods are an __________________
multiple years
those years
‘donation rate’
© Gary Zeune CPA 27

28. Colleges Manipulate Donor Numbers
◼ The Issue: More colleges are
manipulating their giving rates.
◼ The Background: High giving
rates boost a school's status in
U.S. News & World Report's
annual college survey and
with __________________.
◼ What It Means: Colleges are ______________ donors.
Tip: Don’t just trace from receipt to bank, look at
HOW the money was ______________.
potential donors
© Gary Zeune CPA 28

29. Villanova Dean Law School
◼ “People steal. People cheat. Then they lie about it. . . .This is nothing
new.” — Dean Mark A. Sargent
◼ Fired + 3 yr ban practicing law
◼ 3 others fired/resigned
◼ Ordered fraudulent admissions data — including GPA and LSAT scores
— sent to ABA starting 2002
◼ US News and World Report law school rankings
◼ ABA required Villanova to post censure on website
TIP: Sargent caught in __________________________
© Gary Zeune CPA 29

30. Managing Partner Andrew Miller
◼ Miller Lilly & Pearce, CPAs
◼ Specialized in schools
◼ 26 counts including….
◼ Tampering with Public Records
◼ Falsifying Business Records
◼ Tampering with Physical Evidence
◼ Offering a False Instrument for Filing
◼ Changed payee on 15 checks
◼ "He did it to spare himself embarrassment for not having uncovered the
fraud sooner."
◼ Pleaded guilty 2005 first-degree public record tampering
◼ Sentenced to 4 months in prison and 5 years' probation
Andrew Miller
© Gary Zeune CPA 30

31. Roslyn, NY Schools
◼ Concorde to England
◼ Mortgage payments on Fla. homes
◼ $1 million ATM withdrawals
◼ NY auditors 57,000 checks over 8 yrs
◼ Super Frank Tassone $2,407,965
◼ Clerk Deborah Rigano $334,452
◼ Not traceable $1,508,274
◼ 26 others $2,288,462
Former Roslyn School
Superintendent Frank
Tassone sentenced to
4 to 12 years and
$2 million of restitution.
Pamela Gluckin
$4,634,012
Up 3 to 9 years
+ $4MM
restitution
© Gary Zeune CPA 31

32. $11 Million detail
SCHOOL FUNDS USED FOR PERSONAL BENEFIT
Personal Credit Cards $5,902,544
Private Mortgages and Loans $1,137,939
Home Depot $609,000
Food $594,121
Salaries and Benefits $576,586
Gluckin-owned Companies $255,537
Computers and Electronic Equipment $249,883
Private Automobiles $206,798
Insurance Premiums $160,171
Travel Expenses $133,619
Other Personal Expenses $112,983
APPARENT MISUSE OF DISTRICT FUNDS:
Related Party Consultants $1,074,547
Postage and Shipping $166,945
Other Questionable Expenditures $64,492
TOTAL $11,245,165
© Gary Zeune CPA 32

33. Roslyn, NY Schools
"The work of Miller, Lilly, & Pearce was so appallingly
inadequate that it would shock anyone associated with the
auditing profession and certainly the taxpayers who
depend on the firm to safeguard their money," State
Comptroller Alan Hevesi said at a Jan. 6 press conference
in Mineola.
"Our auditors found fraud so pervasive that it would have
taken significant effort not to uncover it," Hevesi
continued. "Even a rudimentary review of disbursements
and cancelled checks would have revealed many instances
of wrongdoing. I am extremely troubled by our findings,
and I urge the State Board for Public Accountancy and the
Nassau County District Attorney's Office to pursue this
matter aggressively."
Alan Hevesi
© Gary Zeune CPA 33

34. Roslyn, NY Schools
◼ As a result of Roslyn scandal the NY comptroller and Attorney General
have started a statewide investigation of the school system.
Tip: What are the odds Roslyn is the ONLY district with fraud problems?
100% 50% 0%
Watch… Roslyn School Embezzlers Collect Pensions
© Gary Zeune CPA 34

35. Managing Partner Andrew Miller
Reports of NY State Office of the State Comptroller
◼ Roslyn Union Free School District-Independent Audit
Services (2004M-84)
◼ Roslyn Union Free School District-Anatomy of a Scandal
(2005M-21) Andrew Miller
© Gary Zeune CPA 35

36. NYU Scheme
◼ VP Admits $4.1 Million Theft
◼ 1000 checks to fake students
◼ 10 years
◼ Every check in different name
CONTROL: Match any info that ___________________.
© Gary Zeune CPA 36

37. Bishop State College
Alabama state officials announced in February that they
had identified more than $438,000 in abuses of the
financial aid program at Bishop State Community College
in Mobile, including $87,000 in athletic scholarships
awarded to 42 relatives of employees (and others) who
played no sports. Included was one employee's 67-year-
old disabled grandmother, who received scholarships in
three sports (but was unable to use them, in that she
__________ shortly after the paperwork came through).
© Gary Zeune CPA 37

38. Colleges, six lenders
accused of kickback scheme
◼ Student loans are $____Billion industry
◼ Higher Education Act
◼ Prohibits colleges from requiring students to borrow from a specific
bank or loan company
◼ Allows “preferred lenders”
◼ Students choose recommended lender _____
◼ Lenders fight like crazy to be _______________
90+%
85
© Gary Zeune CPA 38

39. Colleges, six lenders
accused of kickback scheme
◼ NY Attorney General investigating
100+ lenders, including Ivy League
◼ Sallie Mae – SLM Corp
◼ NeInet Inc
◼ Education Finance Partners Inc.
◼ EduCap Inc.
◼ College Board
◼ CIT Group Inc.
◼ Nationwide investigation because they recruit students from NY
© Gary Zeune CPA 39

40. Colleges, six lenders
accused of kickback scheme
◼ 8 universities settled agreeing to stop revenue sharing with Citibank
and accepting perks
◼ 5 universities refund $3.27 million
◼ Citibank student-loan unit adopts a _____________
◼ NYAG: revenue sharing is illegal since students aren’t getting the best
financial terms on the theory prices are higher than otherwise would be
◼ Colleges signed code of conduct
◼ Prohibits anything of value
◼ Disclose criteria to select preferred lenders
© Gary Zeune CPA 40

41. Universities Abuse Research Grants
Dr. Kyriakie Sarafoglou
Cornell Whistleblower
Medical science’s dirty little secret……..Survey
of 3,300 research scientists by HealthPartners
Research Foundation, more than 50% of
established grant-getting scientists admitted
using money designated for one project on
another, often for undisclosed research that
might lead to future grants.
As Universities Get Billions
in Grants, Some See Abuses
© Gary Zeune CPA 41

42. Universities Abuse Grants
Until now, the government has essentially relied on the honor system to
police its grants. The auditors who examine universities' books are hired
by the universities themselves. However, the inspector general's office at
the Department of Health and Human Services says it has started a pilot
program in which its auditors are visiting universities to examine their
books.
TIP: Are your work papers up to speed to be reviewed by _______?HHS
© Gary Zeune CPA 42

43. Universities Settle Charges
U of Minn Med
School
Early
1990s
Largest settlement at time $32
Mayo Clinic 2005 Charged gov’t for research unrelated to NIH
grants
$6.5
U of Alabama 2005 Overstated research + billed Medicare for
research funded elsewhere
$3.4
Harvard 2004 Billed gov’t for salaries and expenses
unrelated to federal grants
$2.4
Johns Hopkins 2004 Overcharge for faculty time and effort for
NIH grants
$2.6
Northwestern 2003 Overcharged time on NIH projects $5.5
© Gary Zeune CPA 43

44. Cornell’s Medical Research
◼ Dr. Kyriakie Sarafoglou pediatric endocrinologist
◼ Greek native with strong sense of right and wrong
◼ $20 billion annual total NIH grants
◼ Returned to U.S. since wouldn’t pay Greek docs ______
◼ Cornell using $23 million of NIH grant money for study of children’s
diseases for normal adult care
◼ Nurses paid to care for children instead caring for adults
◼ Superiors refused to _________________________
kickbacks
© Gary Zeune CPA 44

45. Cornell’s Medical Research
◼ Prosecutors intervened based on Dr. Sarafoglou ‘s 35-page qui tam suit
◼ She was a research subject advocate which exposed her to many
projects
◼ Phantom nurses led to phantom ___________________
◼ NIH funded pediatric Hodgkin’s study projected to use 100 hospital
days……..actual ________
◼ Patient care billed to NIH even though not in the ______
NONE
research projects
study
© Gary Zeune CPA 45

46. Want the Most
Interesting Conference
Session You’ve EVER
Attended?
The Pros & The Cons
gzfraud@TheProsAndTheCons.com
614-761-8911
© Gary Zeune CPA 46