Whistleblower who got $6 million still on lookout for fraud

Arizona Daily Star: The Tucson woman who earned nearly $6 million as the whistleblower who uncovered overbilling at the Carondelet Health Network is launching her own effort to prevent health-care fraud.

“Providers are turning their heads, not wanting to hear about fraud, waste and abuse,” Jacqueline Nash Bloink said in an interview last week.

Continue reading at the Arizona Daily Star.

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Lessons Learned: Segregate Duties to Unmask Employee Fraud

Borrowing a case from the Internal Revenue Service’s list of recent fraud investigations, an experienced office manager was seen as a trusted employee and was given little to no supervision. Unfortunately, she was wearing that trust as a mask to disguise her fraudulent behavior.

Over a span of two years she secretly forged documents allowing her to steal almost $120,000 and commit tax evasion. This was possible because of a lax office environment with little to no internal controls. So how do we unmask the hidden dangers of employee fraud to help prevent these behaviors?

Segregation of duties is often considered to be one of the keys to having successful internal controls in a business. In the case above, the office manager did not have anyone working with her on a day-to-day basis; if she had, they may have observed improper financial procedures well before they were discovered two years later. A business should have more than one person required to complete a task, especially one involving finances.

This helps in two ways:
1. Minimizes minor mistakes. With two or more sets of eyes going over a task, the risk of missing a mistake is significantly reduced.
2. Reduces opportunities for fraud. A successful scheme often heavily relies on one element of the fraud triangle: opportunity. If an employee has proper supervision and knows that several people will be involved in a financial procedure, the lack of opportunity may keep their fraudulent behavior in check.

For more information on how internal controls can help reduce your risk of occupational fraud, please contact a Certified Fraud Examiner at Piercy Bowler Taylor & Kern.
Fraud case source: http://www.irs.gov/uac/Examples-of-General-Fraud-Investigations-Fiscal-Year-2014

Top 3 Things a Business Should Do to Protect Against Fraud

In this new business world where departments have been cut so one employee may do the work of two, the opportunity for internal fraud increases dramatically.  Companies need to be proactive to stay ahead of the fraud triangle – where opportunity, pressure and rationalization meet.  In order to do this, management should make sure to do the following three things to protect themselves:

  1. Educate Employees About Fraud
    1. Teach employees about the red flags for fraud – incomplete financial reports, no back up for expenses, low employee morale or employees afraid to take time off. Also, be aware of changes in lifestyle that are inconsistent with demonstrated past behavior and/or not in line with the position within company.  For example, the accounts payable clerk that begins wearing expensive jewelry and is driving a luxury car.
    2. Inform employees about the cost of fraud for the business. The average fraud case will cost a company $160,000. That could mean the difference between raises, bonuses, or even laying off an employee.
    3. Let them know you will always report fraud and seek the help of law enforcement to find the culprit.
    4. Involve employees in key decisions that impact their area of operations, so that there is a greater sense of investment/ownership in operations.

 

  1. Hold Surprise Audits
    1. Surprise audits are a great way to deter fraud within a company.  The unannounced review of a specific department, division or person in the company will keep the other departments on their toes.  This is similar to a surprise cash count in a retail store, when a manager counts out the employee’s drawer.  There is no advance notice and depending in who or what is being audited, it can be done by a manager, internal auditor, external auditor or other accounting person.
    2. Inform all employees that surprise audits will occur throughout the year and include that in training or orientation meetings so they know from the very beginning that they could be audited.

 

  1. Make it Easy to Report Fraud
    1. Tell employees that they can always report suspicions of fraud anonymously through a hotline or comment box you have set up in a private area of the office.
    2. Maintain an open door policy with management
    3. Set the proper tone from the top down with upper management demonstrating strong decision making and ethical conduct as an example to others.

 

If you suspect an employee of fraud, forensic accountants can sift through the financial data and track where fraud occurred. They then analyze the data to find out just how much money was stolen and often work with law enforcement to report their findings.  Contact a Certified Fraud Examiner at Piercy Bowler Taylor & Kern if you are in need of these services.

 

Tricia J. Cook is a senior forensic analyst with the forensic accounting and litigation services department at Piercy Bowler Taylor & Kern CPAs. She sifts through financial transactions to resolve allegations or evaluate suspicions, interpreting that transactional data and then organizing that information into easy to understand reports for use by counsel, or for presentation in a court-of-law.  She can be reached at tcook@pbtk.com or 702-384-1120.

PBTK Case Study #3: Determine Economic Losses as Neutral Expert

PBTK was retained as a neutral fact finder to make a final determination of tenant economic losses pursuant to an Engagement Protocol drafted by counsel pursuant to a settlement arrangement. This business interruption claim for lost profits resulted from water intrusion and the subsequent repair process at a men’s clothier tenant (“Clothier”)
located in Las Vegas.

Relevant issues included:  Loss period, Gross profit margins, Methodology for estimating lost sales and Impact of related-party supplier relationship.

PROCEDURES

PBTK performed procedures to determine the time-span of the business interruption, quantify losses and determine the extra costs incurred as a result.

Planning:

Review loss estimates prepared by the litigating parties; perform site visit; review photographs of the water damage; conduct interviews with the general manager and corporate-level accounting personnel; Evaluate monthly retail traffic counts and monthly
relative sales indexes for other tenants of the shopping venue.

Forensic Investigation and Analysis:

Background research on the Clothier, including its origin and mode of operation; analyze and evaluate financial statements and tax returns of Clothier; develop predictive indicators for quantifying lost sales using composite sales indices from other retailers; determine loss period for the Clothier; consider possible avoided costs; quantify any extra costs incurred as a result.

Quantify the Loss:

An economic loss was determined, including business interruption loss and extra cost components.

OUTCOME

Issued a Preliminary Report from which the parties were able to reach a settlement.

Forensic Accounting Case Study from PBTK

PBTK Case Study #1: Employee Fraud Investigation

PBTK was retained by a locally-owned casino to investigate and quantify the losses to support an employee theft insurance claim that was perpetrated by a key employee.  Following that investigation, we assisted the State of Nevada Gaming Control Enforcement Division in its submittal of the matter for prosecution, and then supported prosecution of the suspect by the Clark County District Attorney’s Office.

Procedures:

Procedures included performing background research on the suspect, considering the financial and accounting processing environment, identifying and isolating suspicious transactions and those subject to influence by the suspect, testing selected transactions, and quantifying the theft loss.

Planning Phase:

Background research; evaluate and understand financial and accounting processing systems of the casino/hotel that may have been preyed upon; identify transactions subject to potential manipulation; conduct interviews of management and the suspect.

 Investigative Accounting Procedures:

Analyze the support for identified cash payouts; physical inventory of all computer equipment; independent assessment of purchase quantities and costs; analyze falsified invoice files from a recovered compact disk.

Quantify the Theft Loss:

The loss amount of approximately $500,000 was determined by aggregating fabricated invoices that had been identified based on our independent physical inventory and estimating the inflated purchase costs using financial analyses and extrapolation.

Outcome:

This claim was accepted by the insurance carrier, which promptly paid out the policy limit under the employee theft coverage of the insurance policy. The perpetrator was indicted and entered a guilty plea for his offenses.