In this five-part podcast series, sponsored by Affiliated Monitors, Inc. (AMI); I have been joined by AMI Managing Director Stern. We have considered how defense counsel can work proactively with independent monitors to help clients who may have sustained an ethical or compliance violation or are under government scrutiny for allegations of illegal misconduct in a wide variety of industries, disciplines and corporate settings. In this concluding episode, we look at a third-party independent in non-profit setting and how it could help universities survive Varsity Blues.

Many people might not consider the need for a third-party independent in the non-profit setting. However, in light of the Varsity Blues scandal and the negative publicity around it, there is renewed interest in this approach in an area where it has not previously seen a lot of traction. Most interestingly, Stern believes this will be the “next frontier” for federal, state and local prosecutors. He believes there is a “landscape for potential abuse out there” and that Varsity Blues may only be the starting point.

It really starts from the position that most non-profits have less money than for-profit businesses so their compliance programs are typically not as well invested in. Moreover, most non-profits tend to see themselves, because they typically do not have a profit motive, as not open to waste, fraud and abuse. As Stern said, “they see themselves as wearing white hats and they do not see the need for compliance programs.” Finally, they tend to be very siloed. All these factors make the need for robust compliance even more important.

Stern pointed to this final theme as a key weakness which led to the Varsity Blues scandal. He noted that you might have a tennis, water polo or even a soccer coach who wants to recruit a high schooler. Typically, such a recruitment would only be vetted by a college admissions program to insure they were eligible for enrollment at the school, not whether they had the sporting abilities. Further, there would be no check on any potential conflicts of interest or large payments received by such coaches. Stern said, “like anything else, you can build a better mouse trap and have some internal controls which provide some risk-based assurance that the program is working correctly. At the end of the day a corrupt individual can seek ways to get around the situation. But the goal here is not to provide a 100% guarantee that you won’t have a corrupt employee because that can happen. The goal is to have a risk-based assessment, which protects the university and the institution.”

Another example from the world of academia is the National Collegiate Athletic Association (NCAA) basketball recruitment scandal, which is still in the news with the recent allegation that the head coach at Arizona University authorized payments of $10,000 per month to a highly sought-after recruit. Stern said that it is his “view that there are common tools and common themes for any good compliance program. It does not depend whether we are talking about environmental controls or the rules of the road for recruitment? The question is of training, of oversight, of third-party controls and assessment. A university cannot simply depend upon a coach, who may be the highest paid individual employee in the state who will say something like “It’s OK because I said so.””

Stern also gave another example from the non-profit space. He related that AMI help a non-governmental organization that did international work. It was receiving money from United States Agency for International Development (USAID), the State Department and other agencies in the federal government. The founders of the non-profit ran it and tended to treat it as their personal piggy bank. There were some problems and this led Stern to spend time in Bogota, Colombia and in other parts of the world. He related that the goal is “pretty much the same as you ask several of the following questions: What kind of program does the company have? How do they educate, communicate to and train their people? What are they educating them about? What’s the follow-up? What’s the testing? Is there a whistleblower program? And other similar queries.”

The bottom line is that after the NCAA basketball corruption scandal, the Varsity Blues college admissions scandal and others, non-profits will be investigated more thoroughly by federal, state and local regulators. Hiring a third-party independent, such as Stern, on a proactive basis can help any entity.

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