Alberta’s auditor general says lax financial and academic controls over schools jointly operated in China by Medicine Hat College left it "highly susceptible" to fraud and threatened its academic credentials.

"Everything that we have here is an indication of a failed control system," auditor general Merwan Saher told CBC News. "This is not how any organization should conduct its affairs. This is putting Alberta’s reputation at risk. It is a serious matter."

The report is a scathing indictment of the college’s weak business planning, risk assessment and contract management processes by its International Education Division. The auditor general said the college’s appointed board of governors failed to competently oversee the division and the college president overstepped his authority.

"The integrity of the college’s academic credentials have been put at risk," Saher said.

The report pointed specifically to a contract the college signed in 2008 with Qinhuangdho Rands Electronic Co. Ltd. (Rands), a private Chinese company in China. Rands was to provide non-credit Medicine Hat College programs to students in China.

But the contract was not vetted by a lawyer, and neither were any of the other contracts between the college and foreign companies.

College's reputation at risk

The auditors also found that Rands was not registered in China to operate such a school, which means, "Medicine Hat College may not be compliant with the Chinese education regulatory system and may be exposed to legal , financial and reputational risks," the report states.

Rands was supposed to offer the programs through a subsidiary — E & A College. But auditors could find no documentation to show the subsidiary existed. None of the E & A students were registered at Medicine Hat College, and auditors could not determine how many students were actually enrolled or how much tuition they had paid.

Auditors also found Medicine Hat College did not know what courses E & A was offering, who would be teaching the courses and, in fact, there was no evidence the courses were even offered. 

Most troubling was the finances of the contract. Medicine Hat College was to collect 100 per cent of the tuition and then remit 70 per cent to Rands.  For the 2010-2011 academic year, the college owed Rands $212,000.

But auditors found the invoice for that payment was not submitted by Rands. Instead, it was created by college staff at the direction of the director of the foreign-student program.  

Worse yet, auditors found the $212,000 was destined for the personal bank account of the president of Rands. The auditor general’s office confirmed the payment did not go through and the money has not yet been paid to Rands.

Academic standards ignored

Although Chinese students received credit from Medicine Hat College, the audit found courses that did not use the college’s curriculum or exams. The college also did not know who was teaching the courses or what their credentials were. 

Student applications were not vetted so the college could not know if the students met its entrance standards. Students also weren’t required to provide identification, so the college wouldn’t know who was actually taking the course.

Auditors reviewed grading sheets and found Chinese students passed courses in which they had failed both the mid-term and final exams, or were passed even when they had failing averages.

Because of concerns over high failure rates by foreign students, the college changed its grading scheme in 2011–2012.

"Students were no longer even required to pass exams," the report states. Instead, "the marks from mid-term and final exams were averaged with the 40 per cent grade of the grade assigned by the instructor."

Auditors found this change had a "significant impact" on the failure rate. It went from 34 per cent in 2009-2010 to just six per cent in 2011-2012.

Undocumented travel to Thailand

The report also questioned more than $325,000 spent by staff over a three-year period on 34 international trips. Auditors found documentation didn’t show the reasons for the trips or what was supposed to be achieved.

Thailand was a popular destination for college staff. Between 2010 and 2012, staff made stops in Thailand 11 times for a total of 61 days. But the audit also found the college only recruited 11 Thai students to its international English as a Second Language program.

"The college had no process to assess whether the results achieved met their expectation," the report states. "This information was necessary to make decisions about whether continued travel to Thailand was warranted."

The report said the board asked no relevant questions about the division’s activities before making decisions and failed to ensure the president complied with the college’s policy to limit international activity.

Board member Kevin Burton could not explain why the board failed so badly.

"We probably relied too much on oral presentations and not enough on written representations," Burton said, adding that they accepted the auditor’s report and took full responsibility.

The president, Ralph Weeks, left the college last month. The college won’t say if his departure is related to the auditor general’s audit.

The college has now suspended all future enrolment in the international program and has launched a full internal investigation.

Advanced Education Minister Thomas Lukaszuk said he is waiting for analysis of what happened from both the board and his own staff before deciding whether to dismiss the board. He also did not rule out calling in the police to investigate.

"I can tell you if there is a necessity, then I will act accordingly," Lukaszuk said.

Wildrose MLA Rob Anderson chairs the legislature’s public accounts committee. He said he intends to call the Medicine Hat College board before the committee.

"We will be asking them some tough questions and I look forward to their answers," Anderson said. "And I look forward to hearing that they're doing everything humanly possible to correct this problem immediately. And if there was anything untoward in this program — any kinds of fraud or anything like that — that that is reported and dealt with in the proper way."