Embed Size (px)
Citation preview
Fraud: The Silent KillerCatching & Preventing It
Presented By:
Patrick Trotta, CPA, CHCMark Steinberg, CPA, CVA
Learning Objective
Gain an understanding of recent trends in fraud throughanalysis of the Association of Certified Fraud Examiner's(ACFE) 2014 Report to the Nation and develop practicalstrategies to manage fraud risk.
Case #1
A CFO of a retirement home stole in excess of $300,000. He stole about $206,000 by setting up abank account that used a variation of one of the company’s medical supply vendors. He would thensubmit fake invoices in the name of the fake vendor and have the payments deposited into the bankaccount he had set up. He also submitted personal expenses to be paid by the Company. Thoseincluded $6,300 in landscaping and $16,000 in carpentry work at his home. $2,000 in snow coneservices, $3,700 for moon bounce equipment for a family business that holds children’s parties.$6,000 for cell phone bills, $3,200 for a plasma TV, and $3,000 in personal credit card payments.Finally a $24,000 payment to a woman he was having a affair with. The scheme began to unravelwhen the CEO received a red light ticket for a vehicle she did not know the Company owned. Turnedout it was the CFO’s vehicle that was bought and registered in the name of the Company.
Case #2
A 55 year old bookkeeper who worked for a nursing home for over 31 years stole at least $850,000from the nursing home over a 10 year period. The accountant who worked with the FBI said it wasamong the most sophisticated fraud schemes he had ever encountered. The scheme involvedmoney sent to the nursing home by insurance companies, to cover a percentage of the resident’sbills. The bookkeeper entered lower percentages of coverage into the books then the insurancecompanies actually paid, then she would steal the difference. She used three different methods toaccess the funds, including electronic credit card transfers, checks written out to herself, and checkswritten out to cash. Two different accounting firms had conducted audits of the facility’s books butnever detected the missing funds. A second bookkeeper hired by the facility first spotted theabnormalities when the facility switched to new accounting software.
Case #3
Over a 4 year period of time a nursing home business office manager was able to embezzle $460,000from 136 residents of the facility. As a business office manager, she was authorized to access andmanage funds in two separate accounts including: the facility’s general account, where the facilityincome was deposited and day‐to‐day facility expenses were paid; and the Resident Trust Fund (RFT)account, which contains funds presented to facility residents, deposited into the account and helduntil residents request funds for their incidentals. The scheme involved the manager transferringresidents’ overpayments for room and board from the general account into the RFT account andlater making cash withdrawals from the RTF account for personal expenses. The overpaymentswould occur because many residents pay out‐of‐pocket (private pay) for room and board and skillednursing care while waiting for Medicaid or other insurance to be approved. In these cases themanager would not advise the residents or their representatives of the switch to Medicaid or theother insurance in a timely manner resulting in duplicate payments. The manager would often directsubordinate employees to make cash withdrawals and turn the cash over to her.
Case #4
The administrator of a nursing home knew something was wrong when she saw the receipt: a $90debit from a resident’s trust fund account for a pair of designer jeans. Of all the elderly residents atthe 100 bed nursing home, Amy Brown figured this one was especially unlikely to spend his savingson pricy pants. Turns out both of his legs had been amputated. The administrator poured over thetrust fund books. There were receipts to back up every change, so audits had found nothing amiss.But she spotted receipts for things she knew residents would not buy – North Face jackets, UGGboots, hair dryers, makeup, and even a baseball bat. Turned out an office staffer had been chargingpersonal expenses to trust accounts of 83 different residents. The total of the embezzlementexceeded $100,000.
Case #5
The administrator and 6 other employees of a nursing home were able to embezzle thousands ofdollars over several years. The embezzlement involved putting relatives of the employees involvedon the payroll even though they never worked at the facility themselves. They would cut thesepayroll checks in the names of the phantom employees and give them out to the employeesinvolved, who would then deposit them into their accounts. In addition to the payroll scheme theyalso would write checks from the resident trust fund account and deposit them into their accountspromising to pay the money back which they never did. They also stole over 3,700 prescription drugtablets.
Case #6
Two California doctors were convicted in May 2016 of lying about patients' terminally ill status inorder to refer them to a hospice facility and submit roughly $8.8 million in fraudulent Medicare andMedi‐Cal claims. Sri Wijegoonaratna, 61, and Boyao Huang, M.D. 43, are the sixth defendants namedin the case; four other defendants have pleaded guilty to healthcare fraud and are awaitingsentencing, according to the U.S. Attorney's Office for the Central District of California. The schemewas ran from March 2009 to June 2013. The two physicians were convicted on charges that theyfalsely stated that patients were terminally ill, even if they did not require end‐of‐life care. Thepatients were then referred to California Hospice Care in Covina, CA (CHC). CHC submitted nearly$8.8 million in false claims to Medicare and Medi‐Cal, the state's Medicaid program, and receivedclose to $7.4 million in payments. In exchange for their referrals to CHC, Wijegoonaratna and Huangreceived tens of thousands of dollars in kickbacks. Huang was found guilty of four counts ofhealthcare fraud, and could serve up to 40 years in federal prison.
Case #7
An Alabama nursing home employee was arrested late in April 2016 on charges that she stole theidentities of hundreds of people — including eight residents of the nursing facility where she worked.Erika Machelle Davis, 33, was charged with trafficking in stolen identities on Friday for allegedlystealing the identities of people across the country, including children and residents of MagnoliaRidge Care and Rehabilitation Center in Gardendale, AL. Davis' exact position at the facility is unclear.Authorities say the investigation into Davis began after the daughter of a Magnolia Ridge residentnoticed unusual activities in her mother's checking account. Upon searching Davis' home, policefound notebooks with the names, dates of birth and other personal information for hundreds ofpeople, as well as instructions for compromising an ATM. Davis had been using the stolen identitiesto pay bills and buy furniture, clothes and shoes.
Case #8
Former Rockwall doctor Jacques Roy and his cohorts wooed about 11,000 Medicare patients withpromises of cash, food stamps and groceries as part of a nearly $400 million home health care scam,federal authorities said. A federal jury in Dallas found Roy guilty in what is believed to be the nation’slargest home health care fraud involving a single doctor. Authorities said that Roy and hiscompanions recruited fake patients — including some of Dallas’ homeless — to submit the bogushealth care claims.
Billing Frauds
1) Extendicare Health Services fined $38 million for providing substandard care to Medicare andMedicaid residents.
2) Hebrew Homes Health Network fined $17 million for giving doctors kickbacks for the referral ofMedicare patients to its skilled nursing facilities.
3) Nursing home company fined $48 million for inflated bills submitted to Medicare.4) Virginia Adult Day Care Center agreed to settle case alleging fraudulent billing of transportation
services for $385,000.
The Effects of a Changing Health Care Environment
What are some fraud risks in healthcare organizations?
• Employee payroll and benefits fraud• Theft of equipment, supplies and drugs• Patient identity or property theft• Cash theft• Vendor conflict of interest• Fictitious vendors• Coding/billing fraud
Health Care is Different?
Do Health Care organizations have significant fraud risk beyond billing fraud?
Industry of Victim Organization
Schemes – Health Care
Is fraud worth worrying about?Is fraud worth worrying about?
The Cost of Occupational Fraud
OBSERVATION:Almost half of all cases are greater than $200,000
OBSERVATION:Almost half of all cases are greater than $200,000
How Occupational Fraud is Committed
OBSERVATION:Asset misappropriation is most
prevalent
OBSERVATION:Asset misappropriation is most
prevalent
How Occupational Fraud is Committed
OBSERVATION:Although not as common as
other frauds, financial statement is the costliest
OBSERVATION:Although not as common as
other frauds, financial statement is the costliest
• Asset misappropriation is most common. What do you have worth stealing?
• Corruption (bribes and kickbacks) is trending up. How do you manage the risk?
Background checks
Annual certification of business relationships
• Financial statement frauds remain costliest.
Key Lessons:
Duration of Fraud Schemes
OBSERVATION:Catch it early and save money!
OBSERVATION:Catch it early and save money!
Initial Detection of Occupational Frauds
OBSERVATION:Tip lines are the best way to
catch a fraud
Source of Tips
Catching the Bad Guys
• You need a hotline regardless of whether you are public(required by SOX) or private.
• Open your hotline to customers and vendors. Almost half ofall tips come from outside the organization.
Detecting is good, preventing is better. What internal controls are the
most effective?
Detecting is good, preventing is better. What internal controls are the
most effective?
Effectiveness of Controls
What does a fraudster look like?
Perpetrator’s Position
Perpetrator’s Age
Perpetrator’s Gender
Median Losses Based on Gender
Perpetrator’s Department
Perpetrator’s Tenure
The Number of Perpetrators
"Red Flags of Employee Behavior"
• Living beyond ones means• Financial difficulties• Control issues, unwillingness to share duties• Unusually close association with
vendor/customer• Wheeler‐dealer attitude• Divorce/family problems• Irritability, suspiciousness or defensiveness• Addiction problems• Unusual generosity• Missing or incomplete documents
• Refusal to take vacations• Past employment‐related problems• Complains about inadequate pay• Excessive pressure from within organization• Past legal problems• Instability in life circumstances• Excessive family/peer pressure for success• Complains about lack of authority• Conspicuous change in behavior (dominating,
absolute behavior)
Behavioral Red Flags Displayed by Perpetrators
Before Approving Invoices from Vendors & Contractors – Good Questions to Ask!
• How well do I know this vendor or contractor? Do I have first hand knowledge that they evenexist?
• Do I know that they actually provided the goods or services identified in the invoice or otherbilling statement?
• Do I know that they are using the correct amounts for price (including unit prices used), salestax, freight, and other variables that make up the amount invoiced?
• On what basis do I know that the prices are reasonable in the first place? What standard have Iused in determining that the price charged is fair?
• How do I know that the quantities make sense? On what basis have we agreed to purchase thestated quantities?
• How do I know that the invoice and other documents are mathematically correct?
Anti‐fraud techniques you can use
• Create and maintain an ethical culture of doing the right thing• All employees should be encouraged to take vacations (40 consecutive hours at one time)• Restrict authorization and access to assets (money, inventory, sensitive information, PHI,
computer systems)• Segregate duties to provide "checks and balances" – no single individual should have control
over two or more of the following responsibilities: authorization, custody, recordkeeping andreconciliation
• Check out first‐time vendors• Review supporting documentation for all disbursements and check requests – see subsequent
slide for tips on approving invoices• Watch for "red flags" in employee behavior
What should each of us do?
• Be concerned and vigilant managers – it's a part of our job responsibilities! Understand the fraud risks in our areas Manage the challenges and exposures that fraud and misconduct present Minimize the opportunities
• Immediately report suspected misconduct and dishonesty
What happens when someone is caught?What happens when someone is caught?
Criminal Prosecutions
Criminal Prosecutions
Recovery of Losses
Mark A. Steinberg CPA, CVAPartner
[email protected] direct
Patrick V. TrottaCPA, CHCPartner
[email protected] direct
800 Red Brook Boulevard | Suite 300 | Owings Mills | Maryland | 21117
Questions?
