When the Boss Trumps Internal Controls: What a Difference a Hotline, a Routine Audit and the Right Reporting Chain Could Have Made

When a college was so broke it couldn't even afford copy paper, toner and other inexpensive supplies, it took some sleuthing to find the reason. This article summarizes the heroic efforts of one CPA, without pay or outside staff (or experience in fraud detection), who helped bring down a powerful and arrogant college president. Mary-Jo Kranacher, CPA, was an adjunct professor in a large, urban public university. One day after work she was headed out of the building when a colleague, clutching a sealed manila envelope, said in a low voice, Mary-Jo, I need for you to see this material. But not here, not on campus. Kranacher took the envelope home and carefully examined its contents. She was shocked to see page after page of purchase orders and vouchers she believed to be clearly inappropriate expenses that had been paid with the college's funds: liquor stores, personal credit card charges and international travel, to name a few. Each and every document had been authorized by the college president, Regina (not her real name). Regina had been hired three years earlier with great fanfare and support. But the honeymoon was short-lived; she quickly developed a reputation as a ruthless dictator who was fiscally irresponsible. Those who dared to question her authority or decisions found themselves on the street. The personnel director, for instance, was fired while he was at lunch. Upon his return he found the locks on his office had been changed and his personal effects unceremoniously dumped into boxes for him to tote home. And that was just the beginning. REIGN BY TERROR I'd personally seen Regina's management style before. At the age of twenty-some thing, I was appointed a special agent of the Federal Bureau of Investigation. While I was attending the FBI Academy in 1972, J. Edgar Hoover died in his sleep. I learned about it when I went to breakfast the next morning. You couldn't wipe the smiles off the faces of many veteran and rookie agents. Although Hoover did much good by helping create a legendary law enforcement agency, few would dispute that he reigned by terror. Those employees who displeased him were demoted, transferred or fired. Even U.S. presidents were fearful of Hoover's wrath. He surrounded himself with those who would obey him without question. According to lore, the FBI director was once reading a memorandum when he noticed that the document's margins were too wide. On the memo, he wrote, Watch the borders. Without asking why, Hoover's underlings immediately dispatched agents to the crossings at Mexico and Canada, too fearful to inquire of him as to what they should be watching. Much the same atmosphere existed in Regina's reign. Although the college had various boards and committees to provide fiscal oversight, the president ruled with an iron fist; her decisions were not to be questioned by anyone, any time, under any circumstances. Regardless, Kranacher knew by looking at the documentation that something appeared very, very wrong. Rumors also had been swirling around the institution that Regina's lavish spending habits added to the deepening financial crisis at the school. Whatever the situation, the CPA was determined to get to the bottom of it, even if it cost her job. By gaining the trust of several employees who worked in the administrative offices of the college, Kranacher was secretly provided with documents that showed the president had used the school's expense account reimbursements to line her own pockets. Kranacher compiled a summary report with copies of the illicit expense account charges that she presented confidentially to the faculty governance and union leadership at the institution. But nothing happened. DEEP DEBIT The financial problems of the college had not escaped the notice of one enterprising newspaper reporter. Like many journalists, he hardly considered himself an accounting expert. …

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