Time for a Fraud Check-up!
Carolinas Health Care System
CPE Day
November 3, 2014
Presenters:
Erik C. Lioy
R. Cory Rogers
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Presenting today:
Erik C. Lioy
Erik is a Grant Thornton Partner and serves as the Forensic and Valuation
Services Practice Leader for the Mid-South Market Territory. He is a Certified
Public Accountant, Certified Fraud Examiner, and designated as Certified in
Financial Forensics by the American Institute of Certified Public Accountants.
With over 20 years of experience, Erik brings unique insight to clients and legal
counsel in a host of matters including commercial litigation, financial
investigations, regulatory matters and fraud prevention.
Contact details
T: 704.632.6915
E: Erik.Lioy@us.gt.com
R. Cory Rogers
Cory Rogers is a Senior Manager in Grant Thornton LLP’s Forensic and
Valuation Services practice located in Charlotte, NC.
Cory has over 10 years of experience assisting clients with contract
compliance, forensic accounting, and litigation support matters. His clients
include both public and private companies in the hospitality, construction, and
not-for-profit industries.
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Contact details
T: 704.632.3539
E: Cory.Rogers@us.gt.com
Learning Objective:
Gain an understanding of recent trends in fraud
through analysis of the Association of Certified
Fraud Examiner's (ACFE) 2014 Report to the
Nation and develop practical strategies to manage
fraud risk.
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The Effects of a Changing Health
Care Environment
Health Care
Reform
Compliance
Programs
Pressure
Rationalization
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Opportunity
Internal
Controls
Ethical
Management
What are some fraud risks in healthcare
organizations?
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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
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4
Health Care is Different?
Do Health Care organizations have significant fraud
risk beyond billing fraud?
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Industry of Victim Organization
7
Schemes – Health Care
8
Is fraud worth
worrying about?
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9
The Cost of Occupational Fraud
OBSERVATION:
Almost half of all cases are
greater than $200,000
10
How Occupational Fraud
is Committed
OBSERVATION:
Asset misappropriation is
most prevalent
11
How Occupational Fraud
is Committed
OBSERVATION:
Although not as common as
other frauds, financial
statement is the costliest
12
Key Lessons:
• 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.
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Duration of Fraud Schemes
OBSERVATION:
Catch it early and save
money!
14
Initial Detection of
Occupational Frauds
OBSERVATION:
Tip lines are the best way to
catch a fraud
15
Source of Tips
16
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 of all tips come from outside the
organization.
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Detecting is good,
preventing is better.
What internal controls
are the most
effective?
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18
Effectiveness of Controls
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Effectiveness of Controls (in an
easier to read format)
1. Surprise Audits 50%
2. Proactive Data Monitoring/Analysis 50%
3. Dedicated Fraud Department, Function
or Team 50%
4. Anti-Fraud Policy 50%
5. Fraud Training for Employees 50%
6. Hotline 50%
7. Formal Fraud Risk Assessments 47.8%
8. Management Review 45.8%
9. Independent Audit Committee 41.7%
10. Internal Audit Department 41.7%
11. Job Rotation/Mandatory Vacation 40%
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12. Fraud Training for
Managers/Executives 38.1%
13. External Audit of ICOFR 37.5%
14. Management Certification of
F/S 37.5%
15. Rewards for Whistleblowers
33.3%
16. Code of Conduct 33.3%
17. External Audit of F/S 25%
18. Employee Support Programs
22.2%
What does a fraudster look like?
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Perpetrator’s Position
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Position of Perpetrator
Based on Region
OBSERVATION:
Rank has its privileges and
rewards!
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Perpetrator’s Age
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Perpetrator’s Age
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Perpetrator’s Gender
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Median Losses Based on
Gender
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Perpetrator’s Tenure
OBSERVATION:
Generally, it is trusted,
tenured employees who
commit fraud
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Perpetrator’s Tenure
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Perpetrator’s Education Level
30
"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
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• 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)
Before Approving Invoices from Vendors
and Contractors – Good Questions to Ask!
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How well do I know this vendor or contractor? Do I have first hand
knowledge that they even exist?
Do I know that they actually provided the goods or services identified in the
invoice or other billing statement?
Do I know that they are using the correct amounts for price (including unit
prices used), sales tax, 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 I used 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 the stated quantities?
How do I know that the invoice and other documents are mathematically
correct?
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Anti-fraud techniques you can use
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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 and
reconciliation
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 – see next slide for
examples
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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
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What happens when
someone is caught?
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35
Behavioral Red Flags
Displayed by Perpetrators
OBSERVATION:
Monitoring employees
personal lifestyle is a
sensitive issue, but you can't
put your head in the sand.
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Criminal Prosecutions
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Recovery of Losses
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Questions?
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Schemes by Industry
40