You are auditing a state university in Louisiana, and in the engineering department you find that a number of endowed professorships and endowed chairs are vacant.In fact, there are more of these endowed positions than qualified faculty.

Donors give monies to universities in the form of professorships and chairs to be given to specific faculty members.The professors then promote the endowed position by various activities (e.g., articles, grants, books, newspaper articles, etc.).If there is no designated professor for one of these positions, the earnings accumulate within the fund.

As an external auditor (or internal auditor) you find that the department is taking the earnings from the unassigned positions (a restricted fund) and using the monies for general uses.For example, a department head is assigned as many as five endowed professorships to be used in the department for various expenditures and those positions are unfilled.Thus allowing the department head to use endowment monies for discretionary purposes.

You read about money laundering in a fraud course while in college.You have read in the newspapers about how Stanford University and other universities were caught using Federal restricted funds for general use.Also, you know that certain parishes in Louisiana also were caught in a form of money laundering.Parish School Boards would collect sales taxes designed for teachers' salaries and use the funds for general use.

1.What would you do?

2.What should you do?

3.Is this a form of money laundering?Why or why not?Check out GASB No. 33. Federal and Louisiana laws should be consulted.

4.Suppose you tell your supervisor about the department's activities, and he/she tells you to forget about it.What would you do?What should you do?

5.Assume that you believe this activity is a form of money laundering and your firm will do nothing.Should you report this activity to the legislative auditors?Would you report it to anyone else?

6.If you assume this activity is not illegal, is the practice ethical for a university?Why or why not?