Corruption Is Endemic

These two recent stories have little in common except that they both raise the question: why have massive frauds become commonplace in our society?

The first comes from Yale Medical School, via the New York Post: a Yale employee defrauded the university of more than $40 million over a period of up to ten years:

A former Yale University employee admitted to pilfering more than $40 million worth of electronics from the Ivy League school – and then using the proceeds of her scheme to fund a lavish lifestyle that included luxury cars, ritzy real estate and travel.

The criminal, Jamie Petrone, didn’t hold a particularly high position. She was the director of finance and administration at Yale Medical School’s department of emergency medicine. As such, she was authorized to buy electronic equipment for her department as long as the total value was below $10,000. It turned out that 90 percent of her purchases on behalf of Yale Medical School were fraudulent:

[T]he goods were shipped to an unnamed out-of-state business, which sold the equipment for cash and wired the proceeds to an account controlled by Maziv Entertainment – where Petrone was listed as a principal.

So for years, 90 percent of the equipment (sub-$10,000) that Yale’s emergency medicine department paid for–more than $40 million worth–never showed up. It didn’t exist. And no one noticed.

Meanwhile, Ms. Petrone lived high off the hog:

As part of her guilty plea, the ex-administrator forfeited more than $560,000 and turned over a fleet of high-end cars – including two Mercedes Benzes, two Cadillac Escalades, a Range Rover and Dodge Charger.

Petrone also agreed to sell off three properties in Connecticut as restitution. A fourth property she owns in Georgia also could be seized and sold.

How could such a blatant fraud be perpetrated on Yale? Certainly the medical school was grotesquely incompetent. But part of the answer is that Yale has far too much money. If its medical school can lose $40 million without even noticing, there is way too much cash sloshing around. If you have been thinking about writing checks to Yale? Don’t.

A second instance of corruption is the Feeding Our Future scandal in Minnesota. The scandal actually involves entities in addition to FOF, and altogether $460 million or more has been funneled through these agencies by the federal free food programs Child and Adult Care Food Program (CACFP) and the Summer Food Service Program (SFSP). The whole thing turned out to be a criminal enterprise. Various crooks pretended to be feeding many thousands of non-existent Minnesota children. The fraud should have been obvious since, if you added up the numbers, a ridiculous percentage of all of the children in the state were supposedly getting free food through these newly-founded charities.

The corruption occurred primarily, although not entirely, within Minnesota’s Somali community. Apparently spread sheets have been circulating among fraudsters showing the names and addresses of many thousands of Somali immigrants who can be listed as phantom beneficiaries of government programs. Here, like the Yale criminal, those who were in on the fraud have lived lavishly, with federal taxpayer money administered by the State of Minnesota paying for luxury cars, expensive homes, exotic vacations, and so on. Scott wrote here about a young Somali bride who was given a tray of gold worth $100,000 as a wedding gift by persons involved in the Feeding Our Future fraud.

Such criminality is not subtle. Little care is taken to hide it. How can a handful of fly-by-night fraudsters steal hundreds of millions of dollars from the U.S. government and the State of Minnesota, and no one notices? As in Yale’s case, the answer is partly gross incompetence in Minnesota’s Tim Walz administration. But in the larger picture, government at all levels is rolling in so much dough that they don’t know what to do with it. A few hundred million is hardly worth checking up on.

These are two financial scandals out of a great many, most of which undoubtedly have not been uncovered. It appears that massive governmental and non-profit institutions, like the State of Minnesota and Yale University, have so much money that no one really cares if tens of millions or hundreds of millions of dollars go up in smoke. The best way to cut down on fraud at such institutions is to substantially reduce their funding. If budgets at such institutions were cut by, say, 30%, and incentives for managers to detect fraud were implemented, the criminal spigot would rapidly go dry.