Financial Misadventures of Three Marginal Universities for Foreign Students

The Commonwealth of Virginia seems to be moving toward revoking the operating license of Virginia International University (VIU) in Fairfax, Va. VIU, which offers both undergraduate and graduate courses, is known to be associated with the conservative Muslim cult run by Turkish cleric Fethullah Gulen, now living in self-exile in rural Pennsylvania. The cult, and allegations of mismanagement of funds used to run its string of charter schools, have been investigated by the FBI for years, but no indictments have been filed, at least not yet.

VIU provides large numbers of work permits to its just about 100 percent F-1 (foreign student visa) student body, while, according to the state, tolerating excessive levels of plagiarism and other academic failings.

This development comes as other new information has emerged about the troubles of VIU, and two roughly comparable (though not Gulen-affiliated) institutions, Northwestern Polytechnic University (NPU) in Fremont, Calif., and California University of Management and Sciences (CalUMS), which has operations in both California and Virginia.

The three universities are all non-profit entities, all have nearly 100 percent foreign student bodies, and all have accreditation from a controversial entity — the Accrediting Council for Independent Colleges and Schools (ACICS) — which recently was rescued from oblivion by Secretary of Education Betsy DeVos.

In each case the students are largely from India, and they are mostly taking courses for master's degrees. The last factor is important because at this level alien students are instantly eligible for work permits and thus partially subsidized jobs through the government's Optional Practical Training program.

Of the three, VIU is in the most in danger. In addition, both VIU and NPU, according to newly released federal documents, had financially disastrous years in 2017, each taking multi-million-dollar hits in tuition income and in their bottom lines.

State Regulator Actions

On this coming Monday (March 18), a committee of the State Council of Higher Education for Virginia (SCHEV) will act on a staff recommendation that the state should revoke VIU's license. If the committee approves the recommendation, as it has similar staff recommendations in the past, the ultimate decision will be made by the full Council later.

The staff recommendations (see p. 34), include such comments as "failure of instructors to adhere to standards outlined in course syllabi; rampant plagiarism; graduate level courses lacking academic rigor; ... and grade inflation."

Also (p. 37):

SCHEV staff reviewed a potion of the assignments [in a specific course] submitted by students and detected 11 plagiarized assignments. Every student in the class submitted at least one plagiarized item. Five of the six students enrolled received final grades of A. The sixth student received an A-.

Another finding, this about a course in the MBA program:

Four final papers reflected students with extremely low levels of English proficiency. In their attempts to hide plagiarism, students substituted synonyms for words in their reports and created strings of nonsensical sentences in the process. The following represent examples of wording from 2 different final papers:

1. "However, if the situation is happened even the company protected, the occupational disease is seeking so they need to get treatment earlier." (sic)
2. "Faircheck will use Justice theory as battleship with the conflict of interests." (sic)

There were three As and one C awarded in that class.

In addition to these academic problems, the staff report also included these headings: "Administrators Are Not Appropriately Qualified" and "Student Financial Records Are Inadequately Maintained; Refunds Improperly Calculated".

Meanwhile, the California regulatory agency, having received a similarly devastating report from its staff on CalUMS, decided to let the institution continue to operate, but only if it discharged both its founder, his wife, and three others from the board; CalUMS accepted the terms.

See here for a sample of CalUMS' shaky command of the English language.

Financial Setbacks for VIU and NPU

CIS obtained, as a result of requests made of the IRS, the public financial reports (Forms 990) of both VIU and NPU for 2017, the latest available. These reports, while nominally in the public domain, have not shown up yet on the internet. They show serious financial setbacks for both institutions in terms of income (mostly tuition) received in 2017 as opposed to 2016. They are summarized in the following table.

The two schools took different approaches to the abrupt drops in cash flow. NPU cut its costs enough to continue to operate at a profit, albeit a lesser one. VIU did not do so, and turned a $4.3 million profit in 2016 to a $5.2 million loss the following year.

Think of the profitability of an entity, such as NPU, that could continue to create a profit even though it lost about 6/7ths of its gross from 2016 to 2017!

VIU's Odd Financial Arrangements

Some corporate entities get in trouble for not paying their taxes; VIU is in the strange, perhaps unique situation, of paying its property taxes when it need not do so, which reveals something about that institution's odd finances. Why would any entity pay property taxes when it does not need to, particularly one in financial troubles? Is there some legitimate purpose being served in this way?

Here's the story:

In 2015, according to Fairfax County, Va., tax records, the university gave its campus, along with an accompanying mortgage, to Malvi Consulting, a 70 percent university-owned, for-profit subsidiary, with the same president as VIU. VIU guaranteed the mortgage payments.

VIU then started paying rent to Malvi for the real estate that it previously owned. Malvi, being a for-profit, could not claim the tax-free status that non-profit universities enjoy and thus it (using VIU funds) paid Fairfax County something like $450,000 in property taxes in the last five years. These payments need not have been made had the real estate transfer not taken place.

Then in 2017, as noted above, the university's finances collapsed. Yet, even so, VIU raised its rent payment to its own subsidiary from $919,000 in 2016 to $1,179,000 in 2017, an increase of 28 percent while its receipts fell by 53 percent. All of this is a matter of public record in its Forms 990.

Why enrich the VIU-controlled subsidiary while the university's income went into a nose-dive? Was it because, as with another institution affiliated with the Gulen cult, Dove Schools in Oklahoma, transfer payments were made to other Gulen institutions? Those transfers were confirmed by the Oklahoma State Auditor. Malvi's financial records are not open to the public so there is no readily available answer to that question.

Although CalUMS is in trouble for its former leadership, and should be for its illiterate documentation, it does one thing right: it owns its Fairfax County, Va., campus, and it does not pay property taxes.

The Strange Case of BAU International

Speaking of Turkish-controlled, U.S.-located educational institutions, there is BAU International University, which is part of a highly successful, for-profit school system based in Turkey. BAU has rented its nicely appointed quarters just around the corner from the White House and appears, from a casual visit, to be a prosperous, probably expensive, operation, yet, as we reported earlier, it is facing serious problems with the District of Columbia's licensing system.

In that report we said that BAU lost its accreditation because it had continued to refuse to provide an adequate financial statement to the Accrediting Council of Independent Colleges and Schools, and that the ACICS decision was under appeal; this according to a BAU executive.

It now turns out that the decision is not appealable, that an accreditation of some kind is required by the D.C. regulators, and it must be secured before the institution's sixth birthday, which comes up in August. Getting accreditation is a long process, and it will be interesting to see how this turns out. A school can get the Department of Homeland Security's permission to cause the issuance of F-1 visas without being accredited, but it cannot do so without a state (or D.C., in this case) license.

Meanwhile, and this is not usually a good sign, the university has decided to change its name or, more precisely, to change the name but not the abbreviation. BAU was short for Bahçeşehir University, the name of the parent institution in Istanbul.

BAU now stand for Bay Atlantic University, and since the campus is not on either a bay or an ocean, the explanation is that it is in the watershed of the Potomac River, which flows into the Chesapeake Bay, which in turn flows into the Atlantic Ocean. Got it?

But it is far better to manipulate the initials in one's name than to do the same with one's finances.