healthcare fraud - turnaround management … healthcare...how occupational fraud is committed 4the...

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“Helping clients build, preserve and transfer business value since 1958.”

Healthcare Fraud

Kevin Crumbo

May 22, 2012

“‘Financial statements tell a story ’ saysFinancial statements tell a story, saysaccounting professor W. Steve Albrect, ‘and the story should make sense.’ If not, it’s possible the story is a fake.”

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Irrational Ratios, by Joseph T. Wells, August 2001

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“Robbery, theft and other street crimes are the bailiwick y,of the young and undereducated. According to the FBI,

these kinds of offenses are at a 30-year low. Why? First, our society--because of baby boomers--is aging…Second, because of mass media, that smaller pool of young people

has learned a very valuable lesson:

The best way to rob a bank is to own one.” y(emphasis added)

New Approaches for Fraud Deterrence, by Joseph T. Wells, February 2004

Objectives

Elements of occupational fraud Elements of occupational fraud

Fraudulent schemes

Current trends in healthcare fraud

Case examples

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Financial Fraud

In general, most forensic accountants define financial fraud as the intentional deception of others to obtain property, services, and/or other

lvalue.

What is “Occupational” Fraud?

The term “occupational fraud” may be defined as:

The use of one’s occupation for personal enrichment through the deliberate

i i li i f

Source: 2012 Report to the Nations on Occupational Fraud & Abuse, © 2012 by the Association of Certified Fraud Examiners

misuse or misapplication of the employing organization’s

resources or assets.

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When is Occupational Fraud Possible?

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Types of Frauds:Occupational Fraud and Abuse Classification System


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The Cost of Occupational Fraud

Fraud by its very nature does not lendFraud, by its very nature, does not lend itself to being scientifically observed or

measured in an accurate manner. One of the primary characteristics of fraud is that it is clandestine or hidden; almost

all fraud involves the attempted concealment of the crime.

Source: 2010 Report to the Nations on Occupational Fraud & Abuse, published by ACFE

concealment of the crime.

Distribution of Fraud Losses


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How Occupational Fraud is Committed

4The sum of percentages in this chart exceeds 100% because several cases involved schemes from more than one category.


Median Loss by Fraud Type


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Who are the Perpetrators?


How Much Does the Company Lose?


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How Long Can They Get Away With It?


Gender of Perpetrator Based on Region



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How is Fraud Detected?


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Source of Tips


Primary Internal Control Weakness Observed by CFEs


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Anti-Fraud Controls


Anti-Fraud Controls


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Ways Fraud is Committed

Asset Misappropriation Perpetrator steals or misuses an organization’s resources Perpetrator steals or misuses an organization’s resources.

Corruption The employee uses his or her influence in business

transactions in a way that violates his or her duty to the employer for the purpose of obtaining a benefit for him- or herself or someone else.

Financial Statement Fraud Involves the intentional misstatement or omission of

material information in the organization’s financial reports.

Asset Misappropriation Schemes

Scheme Description

Skimming Cash is stolen before it is recorded on the books

Cash larceny Cash is stolen after it is recorded on the booksCash larceny Cash is stolen after it is recorded on the books

Billing Fictitious invoices, inflated invoices or invoices for personal purchases

Expense reimbursement

Claims for reimbursement for fictitious or inflated business expenses

Check tampering Intercepting, forging or altering a check drawn on the organization’s bank account

Payroll False claims for compensation resulting in payment

Register disbursement False entries on a cash register to conceal the fraudulent removal of cash

Non-cash misappropriations

Employee steals or misuses non-cash assets

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Corruption Schemes

Scheme Description

Bribery and kickbacks Offering, giving, receiving or soliciting anything of value to influence the outcome of a business transaction.

Economic Extortion The flip side of bribery – demanding something of value as a condition of awarding business

Conflicts of interest When an employee, manager, or executive of an organization has an undisclosed personal economic interest in a transaction that adversely affects the company of shareholders’ interests.

Illegal gratuities Similar bribery, except something of value is given to reward a business decision rather than influence it.

Financial Statement Fraud

Scheme Examples

Overstating Revenue Recording gross, rather than net, revenue Recording revenues of other companies when acting as a “middleman” Recording sales that never took place Recording future sales in the current period Recording sales of products that are out on consignment

Understating expenses Reporting cost of sales as a nonoperating expense so it does not negatively affect gross margin

Capitalizing operating expenses Omitting expenses by not recording them at all Recording expenses in the improper period

I t l ti M i l tiImproper asset valuations Manipulating reserves Changing useful lives of assets Failing to take a write down when needed Manipulating estimates of fair market value

Smoothing of earnings (“Cookie Jar Reserves”)

Overestimating liabilities during “good” periods and storing away funds for future use against declining revenues

Improper Disclosures Failure to disclose adequate information, particularly involving related party transactions and loans to management

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Red Flags for Entities

Thrives despite competitors struggling with declining sales and profits

Excessive pressure on senior managers and employees to achieve unusually tough profit targets and business goals

Complex or unusual payment methods and agreements between business and certain suppliers/customers

Multiple banking arrangements rather than one clear provider

Consistently pushes the limits/boundaries regarding matters of financial judgment or accounting treatmentfinancial judgment or accounting treatment

Excessive secrecy about a function, its operations and its financial results

Not forthcoming with answers or supporting information to internal inquiries

Increased profitability fails to lead to increased cash flows

31Source: KPMG International Cooperative “Who is a Typical Fraudster”

Simultaneous Fraud

DELOITTE STUDY “Ten Things about gFinancial Statement Fraud”• 74% of the SEC enforcement releases described at least 2 fraud schemes • 25% described at least 5 schemes • 7% described more than 10 alleged fraud schemes • 1% alleged over 20 schemes

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Other Schemes

• Financial Institution Fraud

• Tax Fraud

• Check & Credit Card Fraud

• Ponzi Schemes

• Telemarketing Fraud

• Medicare FraudMedicare Fraud

• Insurance Fraud

• Securities Fraud

• Bankruptcy Fraud

Health Care Fraud

Losses from health care fraud are estimated to be tens of billions of dollars per year. Impact to consumers: Higher premiums and out of pocket

expenses

Reduced benefits/coverage

Impact to employers: Increases overall cost of doing business

34Source: The Problem of Health Care Fraud, published by the National Health Care Anti-fraud Association

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Health Care Fraud

Majority of HC fraud is committed by a ll i it f di h t idsmall minority of dishonest providers.

Variables at play in schemes The entire population of our nation’s patients

The entire range of potential medical conditions and treatments on which to base false claims

The ability to spread false billings among many insurers i l l i l di M di d M di idsimultaneously, including Medicare and Medicaid,

increasing proceeds and lessening chances of detection.


Health Care Fraud

Common provider schemes:illi f i d d Billing for services never rendered

Upcoding

Performing medically unnecessary services

Misrepresenting non-covered treatments as medically necessary covered treatments to obtain insurance payments

Falsifying diagnosis to justify not medically necessary y g g j y y ytests, surgeries or procedures

Unbundling procedures

Kickbacks for patient referrals

Waiving co-pays or deductibles and over-billing the insurance carrier or benefit plan


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Health Care Fraud & Organized Crime

Criminals are migrating from Criminals are migrating from illegal drug trafficking to Medicare, Medicaid and private health insurance fraud.

Criminal rings based in Central and South America fabricate claims from non-existent clinics.


Human Face to Health Care Fraud

Individual victims subject to unnecessary or unsafe medical procedures

Medical records are compromised

Compromised limits on patient’s benefitsbenefits


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Detection Methods

Whistleblower Whistleblower Dodd-Frank Act

False Claims Act (“Lincoln Law”)

Data analysis Ad hoc

Automated procedures

Continuous auditing and monitoring

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Data Analysis Techniques

Statistical parameters / identify outliers Statistical parameters / identify outliers

Classification

Stratification of numbers

Digital analysis using Benford’s Law

Duplicate testing

Gap testing

Validating entry dates

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Federal Penalties

HIPAA establishes health care HIPAA establishes health care fraud as a federal criminal offense Federal prison term up to 10 years

Financial penalties

Prison term can double or be life if fraud results in injury or death of patient.


Case Studies

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“Helping clients build, preserve and transfer business value since 1958.”

Thank You

Kevin Crumbo

(615) 782 4274

KraftCPAs Turnaround & Restructuring Group PLLC

www.kraftcpas.com

(615) 782-4274

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