West Virginia's Wheeling Jesuit University and one of its vice presidents have been accused of conspiring to illegally divert federal funds by fraudulently billing expenses under grant programs or cooperative agreements, The Intelligencer/Wheeling News-Register reports. The allegation appears in an affidavit filed by a fraud investigator in the NASA Office of Inspector General to obtain search warrants in an active criminal investigation against the school's vice president. According to the document, the fraudulent expenses — allegedly billed between 2005 and 2011 — amounted to millions of dollars and were applied toward personal gain as well as the school's benefit.
A central element of this ongoing case is the legality and appropriateness of the cost allocation methods used by Wheeling Jesuit University and its vice president to bill expenses to numerous grant programs over a period of several years. These methods are far from straightforward, and internal auditors should be familiar with the relevant government regulations, policies, and guidelines, as well as standard financial costing and reporting principles.
As examples, allocating different percentages of the vice president's salary to different grant programs, or hiring a secretary even full time to provide administrative support across several programs, could be both legal and appropriate — provided that these allocations are supported adequately by expense account reporting, time sheets, and other evidence of work actually being performed.
On the other hand, unexplained, rapid, and significant increases in the vice president's salary, or the creation of a merged cost management center covering two distinct programs (and under the direct control of the vice president) would appear to raise red flags to which internal auditors should be alert. Periodic auditing of the adequacy and effectiveness of controls in these areas is warranted.
Through risk-based audit/organizational business planning processes, internal auditors in organizations where grant programs are used should proactively seek out opportunities to provide objective advice to senior management regarding the programs' control design and monitoring processes. This could include bringing forward the results of previous audit engagements that identified particular weaknesses or performance issues that may be avoided if addressed at an early stage.