Former University Employee Arrested in Connection with Fraud Case
Submitted by tdemel on Thu, 03/28/2013 - 11:37pm
Investigation Uncovered “Shell Companies” Used to Commit Fraud
KENNESAW, Ga. (March 28, 2013) — A former Kennesaw State University employee was arrested tonight in connection with an area crime ring that created “shell companies” to conduct fraud – including within a unit the employee managed at the university.
Gerald Donaldson, former executive director of environmental health and safety at KSU, was charged with “conspiracy to defraud the state.” Five others have been charged in the criminal case, which alleges the crime ring collectively defrauded the state of nearly $1 million. Warrants for all six individuals were sworn by the Georgia Bureau of Investigation (GBI) and the KSU Police Department today, which also jointly made this evening’s arrest of Donaldson.
Donaldson was terminated from KSU on October 5, 2012, after University officials – aided by an informant’s tip – uncovered his direct involvement in fraudulent business transactions that fell under his supervision. Donaldson’s prosecution was delayed while university officials collaborated with state law enforcement agencies in a months-long investigation, which identified that the fraud extended well beyond KSU, to include private organizations and additional individuals outside of the University System.
The KSU Police Department, the Georgia Bureau of Investigation and the State Attorney General’s office conducted the investigation. Identified irregularities include alleged fraudulent purchasing practices that exploited loopholes in the State purchasing process, which enabled the creation of false vendor profiles and resulted in payments to fictitious vendors.
“Malfeasance and fraudulent behavior absolutely are not tolerated, and we will prosecute any and all employees who abuse their roles to steal from this institution,” said Vice President of Operations Randy Hinds. “We will exercise the full extent of the law to prosecute such criminal activity.”
University employees being vigilant in the course of their duties initially prompted the discovery of the alleged fraud. Concerns arose when KSU employees reviewed invoices that normally had been reviewed by the accused, and recognized that unusual invoices were submitted for payment. Employees and managers reported their concerns to other University officials. An on-going campus-wide review of University business practices and a recently implemented fraud prevention hotline also verified fraudulent activity.
University officials conducted an audit that revealed exceptions to standard protocols, and alleged acts of wrongdoing that included the awarding of contracts to shell corporations and billings for duplicate work. Donaldson, who joined the university in February 2001, allegedly was responsible for approving the fraudulent contracts and for verifying that the work was completed as specified.
As soon as the fraudulent transactions were revealed, officials placed the executive director on administrative leave, and initiated a comprehensive audit and subsequent investigation. Findings resulted in Donaldson’s dismissal one month later, and the referral of the case to the State Attorney General’s office.
As a result of the audit, the investigations and the findings, Kennesaw State officials have implemented several new measures and tightened controls regarding procurement procedures. Identified gaps have been closed and new safeguards have been implemented to assure that the University’s procurement and contracting processes are more secure and better protected from fraud.
KSU officials have taken the following actions in direct response to the loopholes that were identified in the University’s – and the state’s – procurement procedures:
- Hiring of a new high-level administrator, the associate vice president for operations, to whom the business operation team now reports;
- Initiation of an internal monitoring process of all contracts greater than $2,500, and requiring them to have two signatures (the previous one-signature limit was $5,000);
- Rigorous post-award reviews of all contracts from the past two years – nearly 5,000 – that exceeded $5,000; and more than 70 contracts that exceeded $1 million;
- Establishment of a low threshold for repetitive contracts with single-signature authorization;
- Quarterly aggregation of all contracts under a single person’s signature for supervisory review;
- Increased scrutiny of vendors and implementation of a more rigorous vendor-approval process;
- Implementation of additional controls that separate purchasing activities among more contract and billing reviewers; and
- Utilization of fraud prevention software.
In all instances, these implementations exceed current state-level requirements. Campus-wide reviews of potential risk areas also are continuing to develop additional procedures that can help mitigate future loss.
Because the alleged fraud occurred in the Department of Environmental Health and Safety and revolved around the contracting of environmental services which took various forms, Kennesaw State officials also moved quickly to determine that no students, staff or faculty were harmed or were ever in any danger from a failure to perform contracted work. External assessors were brought in to conduct various building surveys of contracted projects, to ensure that required environmental work was properly conducted.
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Kennesaw State University is the third-largest university in Georgia, offering more than 80 graduate and undergraduate degrees, including doctorates in education, business and nursing and a new Ph.D. in international conflict management. A member of the University System of Georgia, Kennesaw State is a comprehensive, residential institution with a growing student population of more than 24,600 from 130 countries.