The United States Government Accountability Office (GAO) sent out undercover applicants to 15 different schools across the country. These applicants uncovered numerous deceptive and fraudulent tactics used by the schools they applied with. The statistically irrelevant information sent stocks declining and lawyers spinning. No longer then two days after the document was leaked two separate Law Offices sent out press releases (here and here) stating that they will begin an Investigation on behalf of EDMC shareholders to find out if there were any possible breaches of fiduciary duty or other violations of the law.

EDMC stock took a dive to a new 5 year low of $14.92 while others also took large dips. What exactly did the report say?  Let take a closer look:

Here are four specific issues that the GAO report listed:

Fraudulent, Deceptive, and Otherwise Questionable Practices
Certificate Program – California  Undercover applicant was encouraged by a college representative to
change federal aid forms to falsely increase the number of dependents in the household in order to qualify for grants.

Associate’s Degree – Florida Undercover applicant was falsely told that the college was accredited by the same organization that accredits Harvard and the University of Florida.

Certificate Program – Washington, D.C. Admissions representative said that barbers can earn up to $150,000 to $250,000 a year, an exceptional figure for the industry. The Bureau of Labor Statistics reports that 90 percent of barbers make less than $43,000 a year.

Certificate Program – Florida  Admission representative told an undercover applicant that student loans were not like a car payment and that no one would “come after” the applicant if she did not pay back her loans.

The report also goes into the call practices of the schools they inquired with. I find this portion of the report interesting, because of what other studies have shown about the amount of call attempts schools typically make on a lead.

According to the GAO report:

I find these numbers questionable. They simply don’t seem to add up to what normally happens. Yes, schools call the leads within 5 minutes. Yes, they call leads multiple times a day if they can’t get a hold of them. Looking at these numbers leads me to suggest that the applicants filled out as many forms as possible. The report clearly states that at least one applicant filled out forms on two different portal sites.

“Two fictitious prospective students expressed interest
in a culinary arts certificate, one on Web site A and one on Web site B.
Two other prospective students expressed interest in a bachelor’s in
business administration degree, one on each Web site.”

Additionally, these numbers included counts whereby the GAO researched the sources of calls that did not leave messages. To me this sounds like they were simply fishing for as many calls as possible and frankly a typical applicants simply do not do this. Not only did they sit around counting calls, but as the above statement claims, they filled out forms on multiple websites.

Clearly this report is not statistically relevant, however still uncovered a number of questionable activities that need to be addressed. If you have not had a chance read the GAO report here it is for your review. Download Report

To get a really interesting point of view, one the supports the for-profit industry and articulates the view far better then I ever would, take a look at the InterEd briefings. I also recommend taking a look at the comparison analysis that InterEd completed which shows how significantly higher the tax burden is from traditional University versus for-profit schools.

What are your thoughts about the report? Does the GAO need to perform a complete and detailed analysis on the industry, rather then half complete report?

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