SAN DIEGO — Think your medical practice is immune from employees who commit occupational fraud? Think again.
Of 450 medium- and large-size organizations that participated in KPMG LLP's 2003 United States Fraud Survey, 75% had experienced an incidence of occupational fraud, which the Association of Certified Fraud Examiners (ACFE) defines as “the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing orgajnization's resources or assets.”
What's more, the ACFE's 2008 “Report to the Nation on Occupational Fraud and Abuse” estimated that organizations lost 7% of revenues to fraud and abuse, up from 5% in 2006.
The ACFE report also found that the health care industry had the third highest number of frauds reported, at 8%, and businesses with fewer than 100 employees were more susceptible to occupational fraud, compared with larger businesses.
Motivations behind occupational fraud vary widely and include financial pressures, perceived opportunity, and rationalization. Financial pressures include “things like gambling, lack of money to repay debts, drugs, and seeking status beyond your financial means,” Frederic R. Simmons Jr., certified public accountant, said at the annual conference of the Medical Group Management Association.
Perceived opportunity for fraud can occur when employees “have access to company information and systems and procedures, and knowledge about what the company does,” he added. “Many have heard stories about others who have gotten away with fraud, and they think they can, too.”
Employees may rationalize the fraud, intending to pay back what they steal, but if they aren't caught, the incentive to keep true to that intent fades away. “They get away with it, and the next time they have a need, they try it again and turn into a real dishonest employee,” said Mr. Simmons, CEO of Clearwater (Fla.) Cardiovascular and Interventional Consultants.
In their book “Theft by Employees” (Lexington Books, 1983), sociologists Richard D. Hollinger, Ph.D., and John P. Clark, Ph.D., found that low job satisfaction was a primary cause of employee theft and concluded that the true cost of employee misconduct is grossly underestimated. The authors, who surveyed 10,000 employees, defined misconduct in two ways: property deviance, such as stealing money and office supplies, and production deviance, such as consistently leaving work early or conducting personal business on company time.
In a subset analysis of 4,111 employees who worked in the hospital sector, 27% reported taking hospital supplies, 8% took or used patient medication, and 6% were paid for more hours than they actually worked. In addition, 57% reported taking a long lunch or break without approval, 33% used sick time when they weren't actually sick, and 29% frequently arrived to work late or left early.
According to the ACFE report, more than half of all fraud is committed by employees in the accounting and finance departments or by upper executives. The amount of loss varies by age group, from a median of $25,000 for employees under the age of 26 to a median of $500,000 for those aged 51-60. The frequency of fraud is higher among men, compared with women (59% vs. 41%, respectively).
“People who have been with you a short period of time generally are not the ones who are going to commit the biggest fraud,” Mr. Simmons noted. “It takes a while to understand how businesses' systems and procedures work. It's really the people who have over 5 years experience with you that usually commit the biggest fraud.”
Leading behavioral “red flags” correlated with occupational fraud in the ACFE report include living beyond one's financial means; having financial difficulties; having a “wheeler-dealer” attitude; displaying control issues and an unwillingness to share duties; having divorce or family problems; maintaining an unusually close association with a vendor or customer; displaying irritability, suspiciousness, or defensiveness; dealing with an addiction or with legal problems; having had past employment-related problems; complaining about inadequate pay; and refusing to take vacations.
Lee Ann H. Webster, certified public accountant and administrator of Pathology Associates of Alabama PC, noted that the revenue cycle is a popular target for fraud because “this is generally the largest item on a medical practice financial statement.” The three main types of revenue cycle fraud include skimming unrecorded revenues, such as pocketing the payment from a self-pay patient and not recording the charge; skimming receivables, such as pocketing the payment for a previously recorded charge and covering it up with bogus adjustments or other methods; and lapping, or “robbing Peter to pay Paul.”
Lapping occurs, she said, when patient A pays on account and the perpetrator pockets the payment. Patient B pays on account and the perpetrator records the payment by patient B on patient A's account. This goes on until the perpetrator is caught or covers up the fraud.