Former University Employee Arrested in Connection with Fraud Case
Investigation Uncovered “Shell Companies” Used to Commit Fraud
(Mar 28, 2013) —
KENNESAW, Ga. (March 28, 2013) — A former Kennesaw State University employee was arrested tonight in connection with
an area crime ring that created “shell companies” to conduct fraud – including within
a unit the employee managed at the university.
Gerald Donaldson, former executive director of environmental health and safety at
KSU, was charged with “conspiracy to defraud the state.” Five others have been charged
in the criminal case, which alleges the crime ring collectively defrauded the state
of nearly $1 million. Warrants for all six individuals were sworn by the Georgia Bureau
of Investigation (GBI) and the KSU Police Department today, which also jointly made
this evening’s arrest of Donaldson.
Donaldson was terminated from KSU on October 5, 2012, after University officials –
aided by an informant’s tip – uncovered his direct involvement in fraudulent business
transactions that fell under his supervision. Donaldson’s prosecution was delayed
while university officials collaborated with state law enforcement agencies in a months-long
investigation, which identified that the fraud extended well beyond KSU, to include
private organizations and additional individuals outside of the University System.
The KSU Police Department, the Georgia Bureau of Investigation and the State Attorney
General’s office conducted the investigation. Identified irregularities include alleged
fraudulent purchasing practices that exploited loopholes in the State purchasing process,
which enabled the creation of false vendor profiles and resulted in payments to fictitious
“Malfeasance and fraudulent behavior absolutely are not tolerated, and we will prosecute
any and all employees who abuse their roles to steal from this institution,” said
Vice President of Operations Randy Hinds. “We will exercise the full extent of the
law to prosecute such criminal activity.”
University employees being vigilant in the course of their duties initially prompted
the discovery of the alleged fraud. Concerns arose when KSU employees reviewed invoices
that normally had been reviewed by the accused, and recognized that unusual invoices
were submitted for payment. Employees and managers reported their concerns to other
University officials. An on-going campus-wide review of University business practices
and a recently implemented fraud prevention hotline also verified fraudulent activity.
University officials conducted an audit that revealed exceptions to standard protocols,
and alleged acts of wrongdoing that included the awarding of contracts to shell corporations
and billings for duplicate work. Donaldson, who joined the university in February
2001, allegedly was responsible for approving the fraudulent contracts and for verifying
that the work was completed as specified.
As soon as the fraudulent transactions were revealed, officials placed the executive
director on administrative leave, and initiated a comprehensive audit and subsequent
investigation. Findings resulted in Donaldson’s dismissal one month later, and the
referral of the case to the State Attorney General’s office.
As a result of the audit, the investigations and the findings, Kennesaw State officials
have implemented several new measures and tightened controls regarding procurement
procedures. Identified gaps have been closed and new safeguards have been implemented
to assure that the University’s procurement and contracting processes are more secure
and better protected from fraud.
KSU officials have taken the following actions in direct response to the loopholes
that were identified in the University’s – and the state’s – procurement procedures:
- Hiring of a new high-level administrator, the associate vice president for operations,
to whom the business operation team now reports;
- Initiation of an internal monitoring process of all contracts greater than $2,500,
and requiring them to have two signatures (the previous one-signature limit was $5,000);
- Rigorous post-award reviews of all contracts from the past two years – nearly 5,000
– that exceeded $5,000; and more than 70 contracts that exceeded $1 million;
- Establishment of a low threshold for repetitive contracts with single-signature authorization;
- Quarterly aggregation of all contracts under a single person’s signature for supervisory
- Increased scrutiny of vendors and implementation of a more rigorous vendor-approval
- Implementation of additional controls that separate purchasing activities among more
contract and billing reviewers; and
- Utilization of fraud prevention software.
In all instances, these implementations exceed current state-level requirements. Campus-wide
reviews of potential risk areas also are continuing to develop additional procedures
that can help mitigate future loss.
Because the alleged fraud occurred in the Department of Environmental Health and Safety
and revolved around the contracting of environmental services which took various forms,
Kennesaw State officials also moved quickly to determine that no students, staff or
faculty were harmed or were ever in any danger from a failure to perform contracted
work. External assessors were brought in to conduct various building surveys of contracted
projects, to ensure that required environmental work was properly conducted.
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Kennesaw State University is the third-largest university in Georgia, offering more
than 80 graduate and undergraduate degrees, including doctorates in education, business
and nursing and a new Ph.D. in international conflict management. A member of the
University System of Georgia, Kennesaw State is a comprehensive, residential institution
with a growing student population of more than 24,600 from 130 countries.
A leader in innovative teaching and learning, Kennesaw State University offers close to 200 undergraduate, graduate and doctoral degrees to its more than 41,000 students. With 11 colleges on two metro Atlanta campuses, Kennesaw State is a member of the University System of Georgia and the second-largest university in the state. The university’s vibrant campus culture, diverse population, strong global ties and entrepreneurial spirit draw students from throughout the region and from 126 countries across the globe. Kennesaw State is a Carnegie-designated doctoral research institution (R2), placing it among an elite group of only 6 percent of U.S. colleges and universities with an R1 or R2 status. For more information, visit kennesaw.edu.