Robert Felner’s fraud brings changes at the University of Louisville. Comments by Business Ethics Speaker Chuck Gallagher

January 8, 2010

For close to two years the folks at the University of Louisville have had to deal with the repercussions of their former dean of the College of Education and Human Development, Robert Felner’s fraud.  Felner is pictured to the right in the blue stripped tie.

Not long after, University of Louisville President,  James R. Ramsey made the following statement:

The grand jury’s indictment of former dean Robert Felner confirmed our initial concern of wrongdoing in the management of federal grant funds in the College of Education and Human Development. The University of Louisville brought this information to federal authorities last spring. We continue to work with the federal agencies on this investigation and look forward to its conclusion. We have confidence that the judicial system will take the next step and reach a verdict based on the evidence.

Let me reiterate the actions the university has taken since we reported our suspicions regarding Dr. Felner’s alleged criminal behavior to the U.S. attorney’s office. These actions include:

  • Reviewing internal control processes, including an audit of the finances of the College of Education and Human Development.
  • Conducting an external audit of the university’s grants management and contracts practices.
  • Reviewing faculty grievance procedures.
  • Establishing a committee to review managerial and administrative practices at the request of the faculty, staff and student senates.
  • Reviewing the university’s policies and procedures regarding conflicts of interest.
  • Appointing a blue ribbon committee to investigate the alleged improper awarding of a doctoral degree.
  • Creating a new office to field employee concerns and grievances.
  • Visiting frequently with affected faculty and staff and updating the university weekly on actions taken.
  • Updating members of the media on a regular basis.

While the past few weeks have been difficult for the university community, we believe we have taken the necessary steps to address the issues that have surfaced and to begin the healing process on campus and in the community. We have been supported by our faculty, employees, students, donors, retirees and the many friends of the university.

FRAUD PREVENTION:

As a business ethics and fraud prevention speaker, I frequently talk about the three components of fraud – NEED, OPPORTUNITY and RATIONALIZATION.  If any of these three components are absent, the fraud can’t take place.  Notice the first item that the University President stated was a review of their internal controls.

While many scoff at the mention of internal controls, the fact remains, that in any business, effective internal controls are the number one deterrent to fraud.  Here’s a reality check, as a former fraudster (not something I am proud of), I know that had even reasonable internal controls existed, I would have had enough of an obstacle to prevent the actions I took (so many years ago).

I applaud the actions of the University President and hope that soon this ugly chapter will be behind them.

COMMENTS WELCOME


University of Louisville Education Dean – Robert Felner – pleads Guilty to Financial Fraud

January 8, 2010

Robert Felner, hailed as a grant rainmaker, found himself drowning in a sea of his own doing.  Last week, through his Attorney, Robert Felner pled guilty in a case in which he and a colleague are accused of defrauding University of Louisville and another university out of $2.3 million.

Hailed at the outset by University administrators as a change agent, citing him as the driving force behind a spike in grant money at the school. School officials now know that Felner is, not only a thief, but was directly responsible for only a fraction of that windfall.

A federal grand jury in Louisville indicted Felner and his co-defendant, Thomas Schroeder of Port Byron, Ill., in October 2008, charging Felner with 10 counts of mail fraud, conspiracy to commit money laundering and income tax evasion. Schroeder was charged with conspiracy to commit money laundering, mail fraud and conspiracy to defraud the Internal Revenue Service.

Government prosecutors allege that over a seven-year period the men used the Illinois-based National Center for Public Education and Prevention Inc. they created to defraud University of Louisville and the University of Rhode Island, where Felner was involved in another research center he helped create.

The government alleges the men used the Illinois center, which lists Schroeder as president, to divert funds owed to the two universities, siphoning $2.3 million.

The money was deposited in several bank accounts, including one that Felner told federal officials he set up in Louisville in the Illinois center’s name.

UNFORTUNATE FALLOUT

While Colleges and Universities across the nation are working to make sure that “ethics” becomes a fundamental core part of a business education, it seems that on every turn headlines are showing the frailties of the human condition and that even well educated folks can succumb to temptation and do unethical things.  Unfortunately, this will be yet another example of ethics gone awry.

Every presentation I make to university students, from the University of Florida to University of South Dakota, to Long Island University to Baylor, I begin with the following statement:  EVERY CHOICE HAS A CONSEQUENCE.

Felner and Schroeder are now living the consequences of their choices.  If there is a bright spot, hopefully the students at these universities will gain a better perspective on the effect of choices and consequences.  Perhaps, just perhaps, the students, being exposed to the media attention, will connect the dots and take the ethical high road when exposed to temptation.

YOUR COMMENTS ARE WELCOME