Em­bez­zlers test com­pli­ance

In­ter­nal con­trols are key, fraud in­ves­ti­ga­tors say

Modern Healthcare - - Front Page - Joe Carl­son

As health­care providers be­gin to ratchet up spend­ing on big-ticket items such as health in­for­ma­tion tech­nol­ogy sys­tems, sev­eral re­cent cases sug­gest it’s never too soon to dou­blecheck the in­tegrity of in­ter­nal con­trols for pre­vent­ing in­sider fraud and em­bez­zle­ment.

And though it may feel tempt­ing to want to trust a com­pany’s high-level ex­ec­u­tives, in­ves­ti­ga­tors in whitecol­lar fraud say the con­trols that ap­ply to the most pow­er­ful of­fi­cials in the com­pany are among the most crit­i­cal, from the per­spec­tive of po­ten­tial fi­nan­cial dam­ages.

“The higher the loss, usu­ally the far­ther up the cor­po­rate chain the per­pe­tra­tor is,” said Den­nis Sack­re­iter, a for­mer FBI white-col­lar fraud in­ves­ti­ga­tor and a prin­ci­pal with Min­neapo­lis in­ves­ti­ga­tion firm Way­Point. “CFOs steal mil­lions. The clerk steals hun­dreds or thou­sands of dol­lars.”

Wil­liam Roe, the for­mer chief fi­nan­cial of­fi­cer of Dan­bury (Conn.) Hos­pi­tal, was sen­tenced to 33 months in prison July 11 for em­bez­zling at least $170,000 from two hos­pi­tals by form­ing a phony shell cor­po­ra­tion called Cy­cle Soft­ware So­lu­tions and then hav­ing in­voices paid by the hos­pi­tal for health in­for­ma­tion tech­nol­ogy ser­vices.

In Philadel­phia, for­mer gen­eral coun­sel Roo­sevelt Hairston Jr. pleaded guilty July 14 to em­bez­zling $1.7 mil­lion from 459-bed Chil­dren’s Hos­pi­tal of Philadel­phia by cre­at­ing fake com­pa­nies and sham in­voices for fic­ti­tious ser­vices, in­clud­ing ex­pert wit­nesses in court cases.

In Win­ston-Salem, N.C., Carol Craw­ley Maultsby, the for­mer vice pres­i­dent of risk man­age­ment at No­vant Health, was charged by city po­lice July 22 with em­bez­zling as much as $620,000 from the 12-hos­pi­tal sys­tem by ex­ploit­ing her au­thor­ity to au­tho­rize pay­ments from the sys­tem’s li­a­bil­ity self­in­sur­ance fund.

De­spite the string of health­care-em­bez- zle­ment sto­ries in a two-week pe­riod, ex­perts say it’s dif­fi­cult to gauge how com­mon such ac­tiv­ity is.

“The fact is, in many cases when you have a hos­pi­tal or other in­sti­tu­tion en­gaged in ac­tiv­ity like that, they have a ten­dency to work out a side deal and sweep it un­der the ta­ble,” said Richard Kusserow, the for­mer in­spec­tor gen­eral for HHS who now is CEO of com­pli­ance-con­sult­ing firm Strate­gic Man­age­ment, Alexan­dria, Va. “I would say only a mi­nor­ity of cases like this make it to law en­force­ment in the pub­lic do­main.”

Kris Jones-Bart­ley, the founder and pres­i­dent of med­i­cal group prac­tice con­sul­tancy Health­care Man­age­ment Sys­tems in Napa, Calif., said she has yet to have any client press charges af­ter dis­cov­er­ing an embezzler in the act. Yet a large ma­jor­ity of her clients have had such prob­lems with in­ter­nal fraud.

A spokesman for No­vant Health said keep­ing the al­le­ga­tions un­der wraps was never an op­tion af­ter an in­ter­nal au­di­tor dis­cov­ered “a de­tail that didn’t look quite right” and un­cov­ered Maultsby’s pur­ported scheme.

“I ac­tu­ally think be­ing trans­par­ent about it, as much as we can, is im­por­tant for our or­ga­ni­za­tion,” said Jim Tobal­ski, a se­nior vice pres­i­dent in mar­ket­ing for No­vant. “We’re not reck­less with our trans­parency, but it’s im­por­tant to point out, when some­thing like this hap­pens it will make us an even bet­ter or­ga­ni­za­tion.”

He said the sys­tem in­sti­tuted changes in its in­ter­nal con­trols in the wake of Maultsby’s ar­rest, though he de­clined to de­scribe them be­cause the dis­clo­sure might de­crease their ef­fec­tive­ness.

Ex­perts said many of the key pre­cau­tions are straight­for­ward, such as sep­a­rat­ing the abil­ity to cut checks from the au­thor­ity to sign con­tracts or ap­prove pay­ments.

Of­fi­cials should also keep in mind that the first signs of trou­ble can show up in earn­ings, which means cash-flow and profit state­ments can be mon­i­tored for sus­pi­cious dips in prof­itabil­ity.

Au­di­tors, in­ter­nally and from out­side, should be used to scru­ti­nize in­di­vid­ual in­voices and lists of con­trac­tors. Richard Ostrom, an­other for­mer FBI in­ves­ti­ga­tor who is a prin­ci­pal at Way­Point, said the ad­dresses of the ven­dors can be telling. For ex­am­ple, a sus­pi­cious ven­dor may have reg­u­lar pay­ments go­ing to a P.O. box or a busi­ness ad­dress that matches up with an em­ployee’s ad­dress.

Though not de­fin­i­tive, ex­perts said warn­ing signs for fraud­u­lent ac­tiv­ity may ap­pear through changes in be­hav­ior or per­sonal cir­cum­stances, such as the use of il­le­gal drugs or al­co­hol, or hav­ing a messy di­vorce or fi­nan­cial pres­sures.

“Clearly, some­body who ar­rives to work in a Maserati and is known to have a lot of girlfriends on the side, you’d be un­com­fort­able hav­ing them with con­trol over the bank ac­count,” Kusserow said. “You should not ig­nore signs of heavy per­sonal stress. If some­one is snort­ing a lot of co­caine and they are your banker, then I would get wor­ried.”

Court records say Roe ex­hib­ited sev­eral clas­sic warn­ing signs, such as a de­te­ri­o­rat­ing fam­ily life, sink­ing per­sonal fi­nances and hav­ing a large bonus de­nied. In his plea for mercy from his sen­tenc­ing judge, Roe wrote that he first learned about in­voice-fraud schemes dur­ing a meet­ing of CFOs of Catholic Health Part­ners hos­pi­tals.

CHP had em­ployed Roe as CFO at St. Rita’s Med­i­cal Cen­ter in Lima, Ohio. A spokesman for the sys­tem con­firmed the meet­ing, but said the mat­ter came up only as “a rou­tine fraud-preven­tion dis­cus­sion item.”

“This was not a how-to, but a hey, watch-out,” CHP spokesman Mike Boehmer said in an e-mail. “There have been no other in­stances of this kind of ac­tiv­ity at CHP hos­pi­tals.”

CONNECTICUT POST, AU­TUMN DRISCOLL Roe leaves fed­eral district court with his wife, Diane, af­ter be­ing re­leased on bail Sept. 9, 2010.

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