If the goal of a U.S. Senate hearing is to shake up a chief executive officer, it worked on George Burnett, the CEO of Westwood College.
I visited Burnett in his Denver office Friday, a couple of days after one of his employees was caught on hidden camera, apparently encouraging student loan fraud.
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The video, by a U.S. Government Accountability Office investigator, served as an example of rampant abuses alleged to be taking place in the for-profit school industry. This includes problems at some of the biggest players, such as The University of Phoenix, owned by the Apollo Group Inc., and Kaplan Inc., owned by the Washington Post Co. (NYSE:WPO)
The GAO sent undercover investigators, posing as students, to 15 different campuses of 12 for-profit schools in June and July. Some, not all, of the for-profit schools cited in a GAO report last week derived 89% or more of their revenue from federal student aid. The University of Phoenix's parent company has said it received 83% of its revenue from Title IV financial aid program funds in fiscal 2009.
All 15 visits uncovered either fraud, deception or questionable practices, the GAO's Gregory Kutz testified before the Senate Committee on Health, Education, Labor and Pensions on Wednesday.
Westwood College's Dallas campus was one of the schools where Kutz's investigators captured what he called outright fraud. An investigator posing as a student told a financial aid representative that he had $250,000 from an inheritance.
"Frankly, in my opinion, they don't need to know how much cash you have," the financial aid rep advised.
Burnett stepped up and told me the woman in the GAO video was a Westwood representative."I am shaken and appalled," said Burnett, who is now in the throes of a regulatory and public relations nightmare. "It's terribly disappointing...the behavior of this employee. What it tells me as the leader of this organization is that we have to do better."
Burnett is launching a companywide investigation, covering his 17 campuses across the nation and his online division. He said he wants to determine whether this was an isolated incident or a systemic problem. He said he's also adding an extensive third-party verification program. He's raising admission standards. And most significantly, he is doing away with incentive-based pay for admissions counselors.
Abuses at for-profit schools, as exposed in the Senate hearing, mostly stem from a sales culture among admissions counselors who will do almost anything to close a deal. They reel in students showing little concern for students' future or whether they can ever repay their government-backed loans, witnesses at the Senate hearing complained.
Changing this culture could be expensive. The Washington Post Co. on Friday saw its shares plunge after warning new federal policies could have a "material effect" on its business. Kaplan generates two-thirds of its revenue.
Many complaints about Westwood's admission practices precede Burnett, who joined the privately held company in 2006 after working at phonebook publisher Dex Media and telecom company Qwest. Burnett has spent much of his energy trying to clean up the school's admissions issues, while also battling regulators and litigants.
When I met with Burnett last year, he outlined a series of steps he was taking to fix the problems. And yet these problems seem to persist.
"I'm a person that cares a lot about what we do for these students," Burnett said. "I care a lot about our mission. I care a lot about being compliant in the highest levels of integrity. And while we've taken a number of steps, they've been clearly inadequate because they didn't prevent this person from allegedly doing what they did."
Westwood officials had yet to confront the employee on the video when I talked to Burnett."In a cruel twist, this individual is out on bereavement leave," Burnett explained "Their mid-20s-years-old son died of cancer this week and was being buried the day of the hearings."
With a tragedy upon a tragedy, she'll be interviewed so Westwood can determine why any of its employees would advise a student to falsify a student loan application. And then, unfortunately, she'll have to be fired under Westwood's no-tolerance policy.
The Department of Education has turned the matter over to its Office of Inspector General. "We've reached out to them, and if there is an investigation, which we expect, we will cooperate fully," Burnett said.
Meantime, Burnett says, he'll hold fast to his mission. "We need people to train the American population to be the work force that can run this economy. We're one way of doing that. And where you have problems, you feel terrible about it, but you've got to stamp that out, and continue to do this."
(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. Contact Al at email@example.com or tellittoal.com)