Leveraging Analytics to Mitigate Risks Associated with Foreign Funding in Higher Education

Section 117 of the Higher Education Act of 1965 states, “Whenever any institution is owned or controlled by a foreign source or receives a gift from or enters into a contract with a foreign source, the value of which is $250,000 or more, considered alone or in combination with all other gifts from or contracts with that foreign source within a calendar year, the institution shall file a disclosure report.” 

In the past 40-plus years, it appears as though this provision has been all but ignored by U.S. universities and the Department of Education. This is no longer the case. As highlighted in a recent article by The Wall Street Journal, the Department of Education is no longer turning a blind eye to foreign funding of higher education institutions. Harvard and Yale are facing investigations as part of an alleged $6.5 billion in unreported funding from countries whose governments are deemed to be potentially hostile toward the United States. 

Harvard and Yale join the ranks of six other schools that have faced such investigations since the Department of Education began increasing enforcement efforts in July of last year. This increase also has led to the arrest of Harvard’s chemistry department chair back in January. It appears the government also is homing in on specific overseas companies such as Huawei, ZTE, Kaspersky Lab, the Skolkovo Foundation, the Alavi Foundation and the Qatar National Research Fund.

The reasoning behind the department’s focus on Section 117 likely goes hand in hand with today’s geopolitical climate. That being said, these actions have bipartisan support in Congress and likely won’t change with a new administration. 

So, how can the more than 4,000 other colleges and universities get ahead of this trend before Uncle Sam shows up on their campuses? The answer is simple: treat all funding, foreign or domestic, the same way they treat tuition funding. For years, higher education has focused on which programs, departments and students have contributed the most to financial performance. Advanced analytics around contribution margins are becoming more commonplace. Universities can review historical performance and develop programs to continuously monitor such performance. They can then respond with appropriate actions.

The leap from performing analytics around funding from tuition to performing analytics around other kinds of funding is minimal. The data being gathered in each scenario may even be housed in the same place. If an organization is looking back at how much tuition from the psychology department contributes to the university, it should look back at how much gifts or contracts from Chinese entities contribute. If it’s keeping tabs on the engineering department’s performance, it should keep tabs on gifts from Iranian entities. 

Investing in these kinds of efforts can help place a university ahead of the curve and show the Department of Education that the university is taking the matter as seriously as the government. Doing so also may help keep the university out of The Wall Street Journal, at least in a negative light. It appears some institutions have already begun doing this, as 10 schools have reported approximately $3.6 billion in previously unreported foreign funding. 

There are service providers with industry expertise that can help institutions determine if they have any previously unreported foreign funding and develop ongoing analytics to flag items that may need to be reported. In addition, these providers can help keep track of communications with foreign entities and individuals should the institution become the subject of an investigation. 

There’s no telling which section of a 45-year-old act the government is going to shine a light on next, but there are ways for colleges and universities to address potential issues pertaining to §117. For more information, reach out to your BKD Trusted Advisor^™ or use the Contact Us form below.