Insights Into Accounting Schemes and Scams

Transcription

1 Insights Into Accounting Schemes and Scams HFMA Arkansas Chapter Spring Conference April 16, 2015 Presented by: Jeffrey Roberts, CPA, CFE, CFF BKD, LLP Forensics and Valuation Agenda Top healthcare fraud trends Real case examples Recognizing fake vendors Psychology of fraud Fraud prevention tips along the way 2 // experience perspective 1

2 Are We Making Progress? An analysis would indicate that the factors most frequently present in embezzlement cases are gambling, extravagant living standards, unusual family expenses, undesirable associates and inadequate income. Source: Why Honest People Steal, Virgil W. Peterson, Journal of Criminal Law, 1947 Fraud Knows No Bounds Position Amount of Loss Status CFO $2.5 million 46 months prison Pastor $900,000 Pleaded guilty Controller $16 Million Pending Librarian $14,000 Pending Doctor $1.2 million 17 months 2

3 Which One Looks Suspicious? Top 5 Fraud Trends Source: 2014 ACFE Report to the Nations 3

4 #1: The High Cost of Fraud in % of Revenue Loss due to fraud and abuse each year Source: 2014 ACFE Report to the Nations # 2 Healthcare Among Most Victimized Ranking Industry Median Loss #1 Banking $200,000 #2 Government $ 64,000 #3 Manufacturing $250,000 #4 Healthcare $175,000 #5 Education $58,000 Source: 2014 Report to the Nations - Association of Certified Fraud Examiners, Inc. 4

5 #3 Recovering Funds is Exception Not Rule 60% recover nothing after finding fraud Reminder: Get insurance! If you have it, make sure its up to date. It will likely be your only chance to get money back. Source: 2014 ACFE Report to the Nations #4 Almost All Have No Prior Criminal History 87% have no criminal history Reminder: Background checks are good, but don t depend on them to evaluate someone s likelihood to commit fraud after hiring them. Source: 2014 ACFE Report to the Nations 5

6 #5 Tips Are Top Method of Detection 51% of all frauds in larger companies detected by tip Solution: Get a hotline if you don t already have one. If you have one, make sure you promote it. Top Five Schemes in Healthcare 1. Corruption 37.0% 2. Purchasing related 29.0% 3. Expense reimburse 31.3% 4. Check tampering 21.0% 5. Skimming receipts 18.0% Source: 2014 Report to the Nations - Association of Certified Fraud Examiners, Inc. 6

7 Common Fraud Schemes Common Disbursement Frauds Company issued credit cards Watch for: Electronic debits used to pay personal bills Fictitious services Personal bills paid by company 7

8 Common Fraud Paying Personal Bills Electronically Company Credit Card Scenarios 8

9 9

10 Executive with Some Downtime Excessive...or not? 10

11 What Do You Think? Charges on the previous two slides (cash, hotel, towel hut charges) for these executives was: A. Excessive and maybe even embezzlement B. It depends on the situation C. Likely okay D. I wish I could go to the Bahamas for work Could you Recognize a Fake Vendor? 22 // experience perspective 11

12 Billing Scheme Example Fake Invoice Example 12

13 Harder: Vendors with Some Legitimacy Common Fake Vendor Warning Signs Description is most often a service No one really knows what the vendor does Vague invoice descriptions Invoice numbers e.g. 101, 102 PO Box, home address, virtual office space All invoices point back to one key person Payments just below approval threshold 26 // experience perspective 13

14 A Few Vendor Verification Tips Combine data analytics with free resources Free and easy internet resources use them Secretary of State websites are great Google Maps/Street view Hit the vendor website Look at the principals behind the company Use caution with fee based searches on internet 27 // experience perspective Cash/AR Schemes Stealing payments how? Contractual adjustments Write-offs Lapping Special receipts (e.g. refunds) Altering/forging endorsements In your organization: Do you know who has the ability to post, write off and collect funds? 14

15 Cooking the Books Allegations: Case of the Hospital CFO Hospital Questions CFO s Accounting Long term employee rose up through ranks Not much outside training Accounting practices come into question Large investigation ensues He believed his accounting was proper under the circumstanceswith the system they had His contention: Just trying to get things right 30// experience drive 15

16 More Background CFO: revenue seems too low Claims no faith in outdated billing system Instructs journal entries to fix accounting Records $5 mil in revenue to make comparable CFO claims working to diagnose The term smoothing found in s Smoothing goes under legal microscope 31// experience drive The CFO s Deposition 16

17 More from the Deposition 33// experience drive Polling Question Smoothing earnings is: A. Always okay B. Never okay C. It depends on how you define smoothing D. Okay, if you think there s an accounting problem E. I m glad I am not an accountant 34// experience drive 17

18 Blurred Lines Good Affected By: Company culture, industry, personal spending philosophy, how we grew up Clearly bad Examples: Never taking a dollar that isn t yours, avoiding perceptions of conflicts of interest, recording accounting entries based on what is right not what helps bottom line Examples: Luxury biz travel, internet use at work, borrowing office equipment for home projects, using employees for personal projects, awarding project to a relative, aggressive accounting positions. These are often debated. Examples: Classic fraud schemes e.g. fake vendors, skimming cash receipts. Normally little debate here. Corruption and Kickbacks 18

19 Yes, Kickbacks Happen in Healthcare! Anatomy of a Kickback Scheme Large organization Several s from whistleblower Allegation: senior executive receiving kickbacks Organization unsure what to believe 19

20 Obstacles and Allegations Special backdoor account being used Money laundered through brother or ex Communications are in code His cut = 20% Tasks Attempt to verify authenticity of s Digital forensics Talk to the executive Talk to others who may have knowledge 20

21 Forwarded from Whistleblower Deleted Recovered from Laptop Executive to His Brother 21

22 Deleted Recovered from Laptop Brother s Reply Bank Statement (Voluntarily Provided) 22

23 Kickbacks - Spreadsheet Found on Laptop Flow of Funds Vendor (or ex-wife of Vendor) Wires funds to a foreign account- Brother of Executive Executive Receives Funds in his Bank Account in U.S. 23

24 Thoughts on Kickback Schemes Can be very difficult to uncover Digital forensics essential Need help of whistleblower & others Understanding relationships is key Know employment history, connections, etc. Warning Signs of Fraud 24

25 Early Warning Signs of Fraud Someone protective over their work Takes few vacations Might work odd hours Personal financial problems Lifestyle out of line with compensation Account reconciliations are always off Don t miss these warning signs!! 25

26 WHERE DOES THE MONEY GO?? A Reminder About Lifestyle Clues In over 90% of the cases, there was a red flag that was missed or only apparent in hindsight. Most common red flags: Living beyond means 44% Financial difficulties 33% Unusually close w/vendor 22% Unwilling to share duties 21% Family Problems 17% % of Cases Source: 2014 Report to the Nations - Association of Certified Fraud Examiners, Inc. 26

27 Homes 53 // experience perspective Shoe Closet 27

28 Boats Jewelry and Accessories 28

29 Indoor Pools Any Guesses? 29

30 Psychology of Fraud Thought to Ponder The question isn t whether a person is honest, but rather in what situations and to what extent Source: Why Do Good People Sometimes Do Bad Things, Muel Kaptein. 30

31 Fraud Perpetrators They re More Like You and Me Law abiding citizen Fraudsters Bank robber, murderer No significant differences Major Differences The Power of Rationalizations Its not my fault No one will suffer if I do this They had it coming you get what you deserve They should look at themselves He started it! Source: Why Do Good People Sometimes Do Bad Things, Muel Kaptein. 31

32 Rationalizations Are Real: Excerpts from Confession Letter And More. 32

33 Confession Letter Ending Small Ethical Slips Pave the Way Many begin with small indiscretions Each step further away from doing right May do things to reduce internal moral conflict e.g. giving gifts, donations What one would have never considered doing before, now seems not all that bad 33

34 Stopping the Unethical Slide Have a comprehensive code of conduct Ethics training for employees Intervene even in small ethical deviations Report problems and concerns Strong ethical culture makes a difference Please Remember This Whoever is careless with the truth in small matters cannot be trusted with important matters. --Albert Einstein 34

35 Anti-Fraud Resources Managing the Business Risk of Fraud: A Practical Guide (AICPA & IIA) BKDForensics.com QUESTIONS? Jeffrey Roberts BKD, LLP 910 E St. Louis Street, Suite 200 Springfield, MO jroberts@bkd.com Blog: bkdforensics.com 70 // experience perspective 35