Previous blog posts have featured misappropriation schemes at other universities to highlight the importance of segregation of duties, management oversight, and other control activities.
A $500,000 embezzlement at another Kansas Board of Regents university provides a closer-to-home look at what can go wrong when one person has complete control of departmental operations.
How it Happened - DOJ Release
United States Department of Justice - Former KU Medical Center employee pleads guilty to embezzling more than $500,000
The Department of Justice release includes an overview of Mr. Ahlers' responsibilities, where you can see the problem with all-encompassing control:
"Ahlers was the administrative officer for the Occupational Therapy (OT) Education Department at the KUMC in Kansas City.
"As the administrative officer, Ahlers was responsible for all administrative tasks and financial transactions for the OT Education Department, including budget management, purchasing, billing of external entities, and grant management.
"From at least 2009 and continuing to 2015, Ahlers used that position to steal more than $500,000 to pay for personal expenses."
The DOJ release also explains how Ahlers carried out his scheme:
"To conceal the fraud, instead of forwarding certain KUMC funds to the Institutional Finance and Administration Department, Ahlers deposited the funds into a KUMC Credit Union account.
"Using the KUMC Credit Union account allowed Ahlers to avoid oversight that would have happened in the normal course, by which funds are deposited into a state-controlled bank account, revenue recorded in the university financial system, and funds allocated to department accounts that are reconciled on a monthly basis.
"Ahlers also created invoices outside of the normal system, which prevented others within KUMC from learning about the KUMC Credit Union account and Ahlers' use of it for personal gain."
For six years, Mr. Ahlers embezzled more than half a million dollars for his personal benefit, while taking steps to circumvent the University's Finance and Administration Department.
David Alcott, IRS Acting Special Agent
KCUR 89.3 - Former KU Med Center administrator charged with embezzlement
KCUR's coverage included another aspect that the DOJ release did not. Ahlers filed for Chapter 7 bankruptcy in 2019, listing debts exceeding $1 million, and received a discharge of his debts later that year. Opportunity and financial pressure comprise two sides of the fraud triangle and can be precursors to fraud.1
Sunflower State Radio - Ex-KU Med Center official pleads guilty to tax and embezzlement charges
Sunflower State Radio shares another essential aspect of the case; the fraud's exposure came from a tip:
"The scheme came to light after Ahlers left KU to take another job. A student who had been paid twice contacted Ahlers' successor, who discovered a credit union account Ahlers had opened before leaving KU."
Tips are by far the most prominent means for outing fraud. The Association of Certified Fraud Examiners reports that tips are the principal means for detecting fraud. Within the education industry, tips provide the first clue in 44% of fraud cases.2
WSU Policy Reminders
13.01 / Deposit of Cash ReceiptsThe policy's primary thrust is that WSU Financial Operations is responsible for processing and depositing money received by and for the university.
The Med Center fraudster diverted university money into an account at a credit union. WSU has two credit unions on its campus. Neither credit union is for depositing money intended for WSU. Of course, the Med Center had a similar policy, and the fraud occurred anyway.
WSU provides an anonymous way to report wrongful conduct when something looks amiss:
3.58 / Protection from Retaliation for Reporting Wrongful ConductKey passages:
Wrongful conduct includes, but is not limited to:
- A violation of applicable state or federal laws or regulations.
- A violation of WSU or Kansas Board of Regents policy.
- Using university property, resources, or authority for personal gain or other non-university-related purposes.
To make a good-faith disclosure of suspected or known wrongful conduct, call or submit an anonymous report via the University hotline website (WSU EthicsPoint Compliance Hotline).
If the reporting employee believes the reported conduct remains unresolved, they may submit a report to the University General Counsel. Reports and investigations will be confidential to the extent possible under the law and consistent with the need to research and investigate the matter.
2 St. Louis Shenanigans - How a Trusted Employee Stole More than $5 Million