What Is A Forensic Audit Anyway???

So the Chicago Sun-Times editorial board has weighed in on Chicago State, supporting a request by the University Professionals of Illinois Local 4100 to conduct a comprehensive audit of the university’s finances and practices. Your humble narrator has mentioned the idea of a forensic audit both in this venue and to all who would listen. But like many ideas or practices, do we really know what a forensic audit is as compared to a financial statement audit or the compliance audit conducted under the auspices of the Illinois Auditor General. I will share what I have learned and connect the practice to what I believe has happened at the university since 2009.

A forensic audit is “an examination and evaluation of a firm's or individual's financial information for use as evidence in court. A forensic audit can be conducted in order to prosecute a party for fraud, embezzlement or other financial claims. In addition, an audit may be conducted to determine negligence...” (Investopedia.com) “The forensic audit is usually carried out to prosecute the accused party for financial crimes such as embezzlement of funds, fraud and bribery.” (Reference.com) “Forensic audits are part of a specialized branch of accounting that requires training in fraud detection...The American Institute of Certified Public Accountants classifies forensic accounting into two broad categories: Investigative services involve identifying asset-theft fraud and identifying the perpetrator; litigation services involve gathering evidence and giving testimony leading to the conviction of the perpetrator in a court of law.” (smallbusiness.chron.com) Forensic auditing couples accounting with criminology.

When the university undergoes its annual audit, the auditors sample various transactions that they are examining. For example, if there were 100 contracts over $1 million the auditors may examine 3 of those contracts to ensure compliance with generally accepted accounting principles. A forensic audit would look at each of the contracts to ensure proper accounting practices were followed. The purpose of the forensic audit is to detect fraud and at CSU I imagine that wouldn’t be hard given the administration of the last 7 years. Any permanent president coming in to shut down #CSUclowncar would do themselves a great benefit by demanding transparency of the financial operation of the university. Cronyism does not exist quia non causa or for no reason, rather it exists to provide material benefit to those participating. Material benefit can be clearly defined in economic terms. It could be contracts given to friends or jobs given to friends or relatives both of which have occurred at CSU since 2009.

So where might a forensic audit begin? I am most curious about the amount of money spent on the illusory West Side Campus during the last seven years and who, pray tell, did nearly $6 million go to. Was property acquired? Was equipment purchased? Were employees hired to work at the WSC? If not what were millions of taxpayer dollars spent on?

I am also curious about the spending of non-appropriated funds, namely from the myriad of student fees collected by the university. For example, I believe that a portion of the student activity fee goes toward the operation of a student newspaper. That newspaper hasn’t been published in years so where did the money for its operation go? A forensic audit might just answer that question. 

I am curious about hiring and payroll practices. Might a forensic audit uncover ghost payrolling and identify who was responsible for that particular fraud? In other places in Illinois, ghost payrollers often received prison time for they offences. Might some perp walks be in the offing?

So who might conduct a forensic audit and who would pay for this rather expensive undertaking? A five minute search of the Google machine led me to three companies that would be large enough to conduct a forensic audit of a public university. Meaden & Moore, Plante Moran and Navigant all have significant experience in accounting, auditing and forensic auditing. I am sure any of the Big Four Accounting firms would be capable of a thorough forensic examination of the finances of the university as well. Though it would seem the university is flush with cash, (See Calhoun payoff), it would probably require a special appropriation by the legislature. At the point the university is now, I would not be surprised if legislators from both sides of the aisle demanded a forensic audit before  appropriating any more money to ensure that financial management practices were up to snuff. Given the financial exigency declaration, the board of trustees should have the results of an audit before they terminate the exigency as there was some question from the former president as to whether he was receiving accurate financial information during his brief tenure. I would imagine the interim president and former/current CFO, would want a forensic audit, lest its results turn him into #Fallguy. Undertaking a forensic audit should also instill some confidence in donors, investors, partners, contributors to the university and make it easier to fund raise. 

The reality of the budget crisis is that higher education spending has remained flat but is being used differently with a much higher percentage going to pension funding. This is forcing universities to be more financially independent. CSU will find this difficult as long as its financial condition is murky. A forensic audit could restore confidence and might very well contribute to saving the university from the #CSUclowncar.