• October 24, 2014

Institute Accused of Falsely Reporting How It Spent State Dept. Funds Settles Lawsuit for $1-Million

The Institute of International Education has paid $1-million to the U.S. government to settle a lawsuit that accused the nonprofit organization of falsely reporting how it spent State Department funds over eight years. The investigation involved a whistle-blower within the institute, who said she first raised concerns about financial procedures to her superiors and had received unfair treatment as a result.

The lawsuit was filed by Preet Bharara, U.S. attorney for the southern district of New York, and was settled in June 2011. The settlement went largely unnoticed at the time but began circulating among international educators last week. While alleging violations of the False Claims Act, the suit does not accuse institute staff members of pocketing federal dollars for personal gain but instead paints a portrait of improper accounting practices that allowed the institute to squeeze every dollar from the grants it received.

The complaint says the organization inaccurately reported labor costs while managing various international scholarships under the State Department's Fulbright Program. Instead of keeping records on how much time employees actually spent working on Fulbright grants, the complaint says the institute told its employees to fraudulently charge their time based on predetermined percentages. It also says the organization shifted funds between grant programs so it could use up all available money. (The government required that leftover funds be returned.)

"Over an eight-year period, the program's administrator did not comply with grant requirements and repeatedly made false claims for payment," Mr. Bharara said in a statement shortly after the settlement was reached. According to his office, the institute did not change its practices until it discovered it was under investigation in 2008.

The institute is a major player in international education, organizing educational training programs for universities, overseeing scholarship programs, and providing emergency funds to help scholars in dangerous parts of the world. According to its 2011 annual report, it had 600 staff members in 17 offices worldwide and a budget of $326-million, 66 percent of which came from the federal government.

The institute released a brief statement Friday in response to an interview request by The Chronicle.

"We worked closely with the Justice Department to understand and address the time-recording practices in question—and we have implemented effective remedial measures to prevent recurrence," the statement said. The institute also said independent accountants had reported that the value of the actual work it performed exceeded what the government paid, and that the government has confirmed that the nonprofit remains fully qualified to continue receiving federal grants.

The State Department declined to comment.

The investigation was prompted by a complaint first filed in 2007 by Rachel Goldberg, an employee of the nonprofit international-education institute at the time. Ms. Goldberg, who was part of the foreign-students division, says she complained to her supervisor and others in 2003 that the institute was improperly including so-called supplemental benefits, which include books and computers, in accounting for funds meant to pay for Fulbright students' tuition and fees. In addition, the complaint says the institute used funds meant for seminars and enrichment grants for supplementary benefits instead.

Saying her protests were rebuffed, Ms. Goldberg sent an e-mail message to the State Department about the problems. As a result, the agency stopped providing funds for supplemental benefits.

Mary E. Kirk, who at the time was the institute's vice president for student exchanges, told Ms. Goldberg "that she should not have sent the e-mail and should have left the matter to her superiors at IIE," according to the complaint. What's more, Ms. Goldberg said she had "been ostracized, her staff had been reduced, and she has incurred unwarranted negative performance evaluations."

As part of the settlement and as a reward for her exposing the accounting practices, the government gave Ms. Goldberg $170,000, which was taken out of the $1-million paid to the government by the institute.

According to her lawyer, Timothy J. McInnis, she no longer works for the institute. Ms. Kirk is now senior counselor for academic exchanges in the office of the president. Aside from the statement about the settlement, the institute declined to comment further on the complaints against it.

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