Ball State UniversityControl Failure: FraudNovember28, 2016Said OUEDRAOGO
Background
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Ball State University (BSU)Muncie, IndianaEstablished in 1918Public coeducational research universityEndowment $192,694,012Students 21,998
Control Failure
GalePrizevoitsformer investment directorInvested$13.5 Minhighly risky mortgage bonds obligations (2008 and 2010) under SethBeokuBetts and GeorgeMontoloadvicesAltered records and conducted university business on her private email accountSethBeokuBetts spent the investment money on luxury cars and real estate
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Control Failure
Interest rate of 5.04727% on a purported $3 million US Treasury investment ⇒ In general interest rate with more than 3 digits after the decimal point is atypicalMaturity date of Aug. 27, 2036 on a supposed Fannie Mae investment⇒ University policy limits investment to terms of 5 yearsDocuments was initialed byPrizevoits, and self-signedSecretly signed contracts to avoid detection by superiors and auditors
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Results
Gale fired fordishonesty, deceit, incompetence, neglect of duty, gross misconduct and willful disobedience of BSU’s investmentpolicy.Financial lost$13.3 million investment lostOnly received $1.5 million in restitution$2.9 million loss in FY2011Reputation lostSethBeokuBetts pleaded guilty in federal court to securities fraud, and GeorgeMontoliopleaded guilty to wirefraud
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What Could/Should those in Authority Have Done Different?
Should have been a Compliance Committee tolookat the investment strategy and policy andreviewthe investment portfolioregularlyConsultation of external financial advisorsBrokerpre-approved listSegregation of duty. The person who initiated the investment shouldnotbethe only one approving the investmentInternalAuditors should havelookedcloselythose investments
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Reference
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http://www.ibj.com/articles/48321-ball-state-fraud-involved-failed-internal-controlshttp://www.ballstatedaily.com/article/2016/02/news-fraudhttp://wane.com/2016/08/05/prosecutor-no-charges-in-ball-state-investment-scandal/http://www.indystar.com/story/news/education/2014/06/25/ball-state-university-records-deception-lack-due-dilligence-muncie-fraudulent-investments-gale-prizevoits/11348489/http://college.usatoday.com/2016/08/12/prosecutor-closes-book-on-ball-state-university-investment-scam/
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