The a la carte contract: a university employee leverages campus resources for a lucrative side business.

MARK BRECKENRIDGEWAS TOO SMART for his job. "Dr. Breckenridge," as he preferred to be called, held a doctorate in education and had always aspired to be a professor. But with no academic post in the cards, Breckenridge took a job as the head of instructional technology for the continuing education department at Aesop University.

Aesop's community outreach education department (COED) provides certificate credentials in a wide range of fields. The department's instructional technology unit is similar to the audiovisual department found in public high schools--a large storeroom that houses projection and sound equipment, television monitors, and portable computers. Breckenridge supervised a staff of employees whose entire purpose was to set up and dismantle audiovisual equipment.

A self-proclaimed visionary, Breckenridge relished his occasional meetings with university faculty in which he could discuss the various ways his department could transmit course material more effectively. However, because Aesop's salary range fell below his expectations, Breckenridge decided he had no choice but to pursue his vision elsewhere.

The investigation into Breckenridge's supplementary income activities began with a call to the Aesop whistleblower tip line. The anonymous caller alleged that Breckenridge had his own outside company, and that he was using COED staff to set up computers and move audiovisual equipment for the city. Using a public database query service, it took no time for Laura Holt, Aesop's internal auditor assigned to investigate the tip, to find Breckenridge's outside company. Technology Assistance Laboratory Co. (TALC) had its corporate headquarters right in the middle of Breckenridge's house.

But finding the agency within the city that the tipster mentioned took a little more time. All Aesop departments are required to get contracts approved through the university's Extramural Award Office. Aesop's financial systems usually make it easy to identify extramural contracts through the principal investigator (PI)--the faculty member who oversees the project on the university's behalf. However, because Breckenridge was not a bona fide member of Aesop's faculty, he could not be named as a PI.

Searching COED-based contracts by department subunit and fiscal year, Holt discovered what the whistleblower meant by "city": COED's department of instructional technology was named as a service provider in a two-year contract with a local school district. The contract involved a distance-learning program that provided online courses for teachers who were maintaining their credentials in English as a second language (ESL). The school district paid COED to design a Web-based platform for teachers to access the ESL certification courses from desktop computers. The same contract provided funds for COED to purchase the computer equipment, deliver it to designated schools, install the machines, and load and test the software.

The distance-learning contract was originally assigned to Judy McCormick, a PI who was a COED professor. As an academic, Breckenridge expressed great enthusiasm when professor McCormick asked him to assist her with the course development. He attended all of the meetings with Sharon Wiles, the school district's contracting officer, and functioned as the primary liaison throughout the project's duration.

Shortly after the two-year contract ended, McCormick retired. But, as Holt learned through discussions with management, this was just the beginning for Breckenridge. Within a few months, Wiles called her main Aesop contact, Breckenridge, to inquire about COED's interest in a new distance-learning contract. Breckenridge accepted the opportunity with pleasure. It took Breckenridge no time to round up a far-too-busy COED professor, Jon Abbot, and convince him to serve as the nominal PI on a second contract with the school district. The earnest-looking, well-spoken Breckenridge assured the new PI that he would take care of everything from the curriculum design to equipment installation. He would even draft the entire contract.

In light of this discovery, Holt knew she needed to speak with Breckenridge about the questionable contract. The interview with Breckenridge was insufferably long because he wanted to discuss educational theories and Holt wanted to talk about TALC. The interview drew on still longer when she asked about TALC's business lines, and Breckenridge replied, "That depends on what's needed."

The discussion did cover the striking coincidence between TALC's date of incorporation and COED's second contract with the school district. Breckenridge admitted that TALC was formed because the school district--TALC's only client--needed a skill set that was more technologically sophisticated than Aesop's instructional technology department could provide. But Breckenridge refused to provide Holt with a copy of TALC's agreement with the school district, and he also declined to furnish access to TALC's financial records. However, the school district's office of the inspector general (OIG) was very cooperative, providing Holt with copies of the contract, along with photocopies of TALC's invoices and the cancelled checks that Breckenridge deposited.

As for the forced labor component of the original complaint, seven COED employees stated that they brought computer equipment to a handful of schools, and they did so during their regular Aesop work hours. This activity did not violate any university regulations--it was the essence of their jobs. Holt reviewed Breckenridge's department overtime payments in the COED payroll ledgers to see whether Breckenridge was softening the instructional technology staff by paying them a premium at Aesop's expense. Fortunately for the university, there were no overtime payments. Of the seven conscripted COED workers, six reported receiving between US $100 and US $1,000 in cash. One favored employee claimed he got approximately US $3,000.

The investigation was also pervaded by a gnawing concern that Breckenridge might have colluded with Wiles. However, Holt's interview revealed an unexpectedly different finding. When first asked about the distance-learning program, Wiles responded, "Oh, you mean Dr. Breckenridge's contract!"

When Wiles contacted Breckenridge for a second contract with Aesop, Breckenridge convinced her that the COED instructional technology department was not able to provide the "technology infrastructure" that would enable the district to carry out its distance-learning program. As a result, all of the ESL teachers might lose their certification.

But Breckenridge assured Wiles that he could help. Promising that he could arrange the necessary skill set that would save the ESL program, Breckenridge fooled Wiles into signing two contracts: The first contract with Aesop University, in the amount of US $90,000, provided the entire curriculum for the distance-learning program, along with new desktop computers. A second technology infrastructure contract, in the amount of US $125,000, was drawn up between the school district and TALC. Under this a la carte arrangement, "TALC personnel"--consisting exclusively of Breckenridge and his seven COED staff members--would pack up the new computer equipment (in Aesop-owned vans), drive them to the designated schools, unpack the machines, and plug them in. TALC's skilled personnel would also load and test the instructional software developed under Aesop's US $90,000 contract. Aside from the cash incentives he paid the seven COED personnel, Breckenridge presumably kept the rest of the US $125,000.

As the evidence piled up against him, Breckenridge suddenly took an unforeseen medical leave, but COED's senior administration sought and received legal approval to fire him for misconduct. While prosecution would have been optimal, the OIG ultimately determined that finding a statute under which to charge Breckenridge was a near impossibility and decided against pursuing the case.

LESSONS LEARNED

* Senior management should perform independent reviews of extramural contracts to detect suspicious language that includes the absence of expected services. The earlier contract between Aesop and the school district included delivery and installation of equipment, as well as the loading and testing of software. However, the second Aesop contract omitted that set of services, limiting the scope to course design and equipment purchase.

* With the approval of the legal department, employees should be required to periodically declare their outside business interests and update that information as needed. Senior management or human resources should maintain that data in case questions of conflict of interest or job commitment arise.

* Senior management should require faculty to attend stewardship awareness training to ensure that they understand the full ramifications of accepting an extramural award from an outside agency. Simply attaching one's name to a project is never acceptable.

* It is better to be proactive in notifying an outside agency if one's own employee has placed the agency at a disadvantage. The resultant goodwill enabled Aesop to more effectively investigate the actions of its own employee, and may have encouraged the school district to hold the university harmless for its misspent US $125,000.

ELLEN A. FISCHER, CIA, CFE, is the audit manager for investigations at a major U.S. university.

To comment on this article, e-mail the author at [e-mail].

Please send your fraud findings to:

Andi McNeal, CFE, CPA

ACFE World Headquarters, The Gregor Building

716 West Ave., Austin, TX 78701, USA

Tel.: [phone] / Fax: [phone]

E-mail: [e-mail]

EDITED BY ANDI MCNEAL