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WSU Audit Update

Your Role in Internal Control - Episode 1, Building Upon Your Good Work

June 21, 2023
By Chris Cavanaugh | chris.cavanaugh@wichita.edu

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?

View "Internal Control at Colleges and Universities: Your Essential Role" (VIDEO 01) with audio descriptions

My Review

Here's my review of the situation. How did your analysis compare to mine?

The primary catalyst for the situation

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. 

Possible questions before accepting the dean's report

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.

  1. Did the PI follow university procedures for purchasing, bidding, and contracting?
  2. Why did the PI choose his brother's machine shop?
  3. How and why was the money advanced?
  4. Was the expenditure approved by the university's purchasing or research office?
  5. 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.

A dozen potential problems and concerns highlighted in the dramatization

The potential problems and concerns are wide-ranging:

  1. A direct financial loss of $150,000
  2. Likely default with grant terms
  3. Additional personnel and legal costs to address the problems
  4. Diversion of resources from university priorities 
  5. Unease among faculty and staff with damage to morale
  6. Scrutiny by federal funding agencies
  7. Potential for more rules and regulations
  8. Disruption of the ability to attract future grants
  9. Fundraising concerns with benefactors
  10. Appearance of impropriety
  11. Adverse publicity
  12. 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 headlines:

KGAN TV Cedar Rapids - 

State Audit exposes $943,000 fraud scheme at University of Iowa's Physics Department

Cedar Rapids Gazette -

Audit: Former University of Iowa employee pocketed $943K for jobs done on university equipment

Concerns among university officials arose when they discovered that a machine shop manager had not disclosed his outside business through the appropriate conflict of interest reporting mechanisms. An audit later revealed that between 2017 and 2021, the manager utilized university staff and equipment to complete projects for his company.

This case caught my attention because of its conflict of interest situation in a university physics department, similar to our video vignette. It serves as a real-world example highlighting the necessity of internal controls in preventing or detecting such situations.

COI Reporting at WSU

Conflict of Interest Policy on a clipboard.

(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 Policies and Procedures: 3.04 / Commitment of Time, Conflict of Interest, Consulting and Other Employment (wichita.edu)

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 

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