Penn State Scandal Summary

The purpose of this memo is to provide insight into the July 2012 “Report of the Special Investigative Counsel regarding the actions of the Pennsylvania State University related to the Child Sexual Abuse Committed by Gerald A. Sandusky” which is referred to as the “Freeh Report.” In this memo I will focus on the significant breakdowns in leadership at Penn State and the failure of the board to exercise oversight which created an environment where ethical negligence and misconduct occurred.

The culture at Penn State prior to the Child Sexual Abuse was one of the nonconformity and a lack of oversight. Penn State is a well-respected University within a small town. The University has over ninety-thousand student’s total. The University offers

diverse programs that attract individuals nationally. With the school having multiple satellite locations, a lot of its administrative departments were spread across multiple campuses with no central office. With a lack of centralized control over the human resources functions, it was unclear who had the responsibility for ensuring each department was following the University’s compliance policies.
In most organizations, management would be accountable to the Board, but at Penn State it seems there was really no governance in place to protect the University. Each department was responsible for its own ability to police itself. The lines of leadership weren’t clearly defined as to whom was responsible for ensuring the University policies were being enforced, and in the event of an incident, who or where would one file a report. However, when there was a report to be filed, any type of crime or incident, it seemed it was reported to the University Police. This could have led to Coach McQueary being somewhat confused as to whom he should report what he saw February 9, 2001 when he witnessed Sandusky assaulted a young boy. McQueary went to the Coach Paterno since he was the Head Coach. Coach Paterno didn’t understand the policies and reported the incident to Timothy Curley the Athletic Director.
The lack of emphasis on values and accountability created an environment in which the President, Athletic Director, and other senior leadership were able to make decisions to cover up a crime to avoid negative publicity.

This is what COSO’s Enhancing Board Oversight: Avoiding Judgment Traps and Biases describes as overconfidence tendency. Because of relaxed policies and a lack of reporting structure senior leadership were able make assessments of risk or other judgments and decisions which resulted from personal motivation or self-interest. Because of this the Board itself was not informed of the investigation of Jerry Sandusky until after the charges were filed against him. The Freeh report noted that there were formal complaints made against Sandusky in 1998 and 2001 and that senior leadership was made aware of the accusations against Sandusky but failed to inform the Board of Trustees, community and officials. However, once the board was made aware, they still failed to provide appropriate oversight and control activities. According to the Freeh Report, “during a May 2011 briefing the board downplayed the nature of the Grand Jury investigation of Sandusky. They did not independently assess the information or demand detail reporting of the matter, nor did they inquire about the Attorney General request for subpoenas” (101). The report went on to say that the Board met six times a year, and these incidents were never brought up. Because the Board did not require President

Spanier or other senior officials to keep them abreast of important matters, they did not feel accountable to do so.
There were several root cause drivers; one that stands out more was that there was an inadequate risk assessment. The University failed to utilize its Risk Management office in evaluating potential risks. According to the Freeh report, the University Risk Management office was responsible for “managing risks involving physical, personnel… and legal and regulatory compliance” (37). The lack of a centralized administrative office established an environment where the Athletics Department could operate as a separate entity. The University also was resistant in bringing in external agencies to help with mitigating potential risks within its departments. Another root cause driver was lack of communication and consultation. The Board of Trustees failed to implement a control design that would have promoted a tone at the top within the internal environment that provided governance and oversight.
According to the Freeh report, the failure of President Graham Spanier, Senior Vice President Gary Schultz, Head football Coach Joseph Paterno, and Athletic Director Timothy Curley to protect children by allowing Gerald A.

Sandusky unrestricted and uncontrolled access to Pennsylvania State University facilities reveal numerous individual filings and weaknesses of the university’s culture, governance, administration, and compliance policies for protecting children (127). Other notable root cause drivers was the disregard of the Clery Act, which is a consumer protection law required for all colleges and universities that participate in federal financial programs, and the whistleblower policies protection. There was emphasis placed on “the Penn State” way, which was a way of viewing their respected football program. The leaders wanted to protect their brand and reputation and viewed that more important than the scandal

itself.
In conclusion, The Fresh Market board can avoid some of the issues by establishing the entity’s tone at the top within the internal environment. The board should exercise its authority for day-to-day management and control activity of the entity to minimize risk. While it is the job of Senior Management to assess risk, it is the board’s job to ensure there is a framework for them to do so. The board should also ensure there are open lines of communication and continuing awareness of the operations and compliance. Review periodically policies for relevance and necessity and modify or rescind when appropriate.