An online university that supposedly granted a graduate degree in business to a pet cat was sued Monday for consumer fraud by the Pennsylvania Attorney General's Office.

La Salle University, a religious degree-granting correspondence university, was shut down by the FBI for issuing falsely accredited degree in 1996. Due to the fraud, the students were notified personally or through advertisements that they could receive restitution from the over $ 10 million seized from La Salle. However, due to a bad computer system it is still possible that some students were left out.

Diploma-mill owners are an elusive bunch. They flood e-mail boxes with offers of cheap college degrees, and collect payment through Web sites, then filter that money into overseas bank accounts. When the police try to shut one of the businesses down, the owners just set up shop elsewhere, often in a poor country with weak fraud laws. Unable to snuff out these illegal businesses, many states have changed their strategy: if you can't catch the dealers, go after the consumers. A handful, like Illinois, Indiana, and New Jersey, have recently criminalized the use of fake degrees.

In the US, the government is not directly implemented in the procedure of accreditation. Private agencies are taking care of this. The Education Department is recognizing some agencies. However, they do not do much to stop the activities from less honest ones. Several education institutes are not accredited due to the high procedure costs.

A report released by the department says a project called the Distance Education Demonstration Program has shown that waiving financial-aid restrictions on distance-education providers did not lead to any problems. The rules were designed to prevent fraudulent correspondence programs from gaining access to federal student-aid money. But the report leaves out details about one instance in which an institution closed down after it took advantage of a rule waiver and was then found to be riddled with fraud.

A non-profit corporation that provides a high-speed computer network to colleges in New York State agreed last month to pay the federal government $1.4-million in a lawsuit alleging that it had misused a federal grant.

The U.S. Education Department last week proposed new rules that would loosen a ban on incentive compensation for college recruiters and get rid of a financial-aid regulation. The proposal to eliminate the 12-hour rule follows years of debate. Distance-education providers have pushed the department and Congress to throw out the regulation, but others have cited fears that relaxing the rule would lead to fraud.

At a Congressional hearing in April, the department's inspector general revealed that the agency has lost track of at least $450-million in the past three years. Much of the money was lost in duplicate payments to grant recipients, states, and contractors. But some of it, she said, was stolen or improperly spent by department employees and contractors.

Eighteen parents and seven financial-aid advisers in the Chicago area have been charged with federal student-aid fraud for allegedly obtaining more than $2.6-million in funds by purposefully underreporting their income on financial-aid applications. Two of the aid advisers worked at colleges.