International Health Care Fraud Allegations

Most of the time, fraudulent activities only involve one person, or at the most, two people. But what is happening up north in Canada, involves nearly 10% of the 1800 people who run the Health Care Facility. So far, around 150 people have been fired or willingly resigned. Baycrest Health Sciences said their Toronto-based geriatric Baycrest Hospital suffered between $4 million and $5 million in losses over an eight-year period. This does not include the cost of fixing the mess, which is still to happen.

According to the July 11, 2019 Toronto Sun, the losses were caused by employees filing bogus claims by submitting receipts for products and services that were never received. Perhaps an employee would submit a reimbursement claim for an authorized product and then use the funds to buy something unauthorized. Local politicians like the spokesman for Provincial Health Minister Christine Elliott, are blaming the fraud on loose internal controls. The quote is “… long-standing auditing weaknesses [which] allowed this … to go unchecked for too long.”

A different take might be that in Canada the notion of personal responsibility is heavily diluted.  Does the notion of “free” national health care affect behavior? Whose money was actually embezzled?  Not to be overly political, but when a fraud involves 150 different people, at one company, different dynamics seem to be at work.  When 150 people misbehave over an eight-year period, then the typical notions about keeping the fraud hidden from public view as long as possible, goes out the window. Everyone at the facility likely  knew what was happening. What really caused such a large mess?

How does one become an accidental fraudster?

July 19, 2018 Based on a story from the July 17, 2019 ACFE Newsletter.

At the closing session of the 2018 29th annual ACFE conference, a convicted felon, who spent 22 months in jail, explained how his accidental fraudster persona, actually happened. Ryan Homa discusses why, as chief accountant for a Midwest manufacturer, he had intimate familiarity with his firm’s accounting system. Specifically, Ryan discovered a glitch in his company’s check writing application.

The accounting software allowed for the amount to be manipulated, after the check amount had been entered in and the amount stored internally.  All one needed to do was answer “no” to the question whether the check printed correctly. Then, before the check actually printed externally, a new amount could be placed on the face of the printed check. Being a good employee, Homa went to the IT department and reported the glitch. They told him the fix would cost $3,000 and was not worth the effort.

Over the next three years Homa proceeded to write checks to himself totaling $1.3 million. Perhaps the IT department had undervalued the worth of the glitch fix? But he did not start stealing immediately. Only after several  months passed.  He considered  the pressure caused by needing to meet a mortgage payment.  Even though the unpaid mortgage loomed large because of his poor cash planning. So Homa finally started his misappropriation. Of course, at first, he intended to repay the stolen money, but the ease of stealing far outweighed his guilt,  as it is for almost all accidental fraudsters. 

Donald Cressey’s Fraud Triangle explains this fraudulent behavior well. On one side of the triangle we have opportunity (the glitchy software). On another side we have financial pressure (insufficient cash on hand for a mortgage payment). On the third side of the triangle, we have rationalization (“I will just borrow the money now and then quickly repay it”). Because each of us have an imperfect human nature, we are easily capable of rationalization. Plus almost all of us feel we are under financial pressure from time to time. This reality means that the only real way to significantly reduce the common nature of fraud is to significantly decrease the opportunity in our own firm.

Is your firm actively reducing fraud and embezzlement opportunity?

Former Microsoft Executive sentenced to 28 months for embezzlement and stealing

A former executive at Microsoft got caught with his hand in the cookie jar. Warning, your forehead may sustain a dent after you hit yourself wondering why he did it!

Jeff Tran pleaded guilty to soliciting $775,000 from a vendor and depositing the payment in his own bank account, according to an article in the June 28th Seattle Times.  Then he requested help from the vendor, threatening to kill the preferred status the vendor enjoyed with Microsoft, if the vendor did not help cover up the theft.

Part of Tran’s job was deciding which Microsoft employees received tickets. Tran also  admitted stealing blocks of 2017 Superbowl tickets and tailgate party tickets and selling them for $208,200. This was after he had successfully sold a dozen 2016 Superbowl tickets for $41,200, and no one noticed. As is true for the typical fraudster, the defrauded amount grows over time.

The most interesting fact about this fraud is that Tran  never spent any of the embezzled funds. There was not any perceived financial pressure. The stolen money was all recovered, untouched! Jeff Tran will lose his freedom for 28 months of jail time and a large annual salary, seemingly simply for the short-term rush that accompanied the theft.


What was he thinking?

Fraud can also be small in dollars, but large in impact.

The NEWDaily online edition reported that the CEO of the largest bank in New Zealand resigned. Exact details were not given, though the bank said that an internal investigation had raised concerns over travel expense reimbursements. Media “widely reported” that Mr. Hisco billed the bank for thousands of dollars — worth of chauffeured car trips.

The thirty-year veteran Hisco said he did not agree with all of the board’s concerns, but “accepted accountability” and forfeited any unvested stock options. It is interesting to note that Mr. Hisco earned around $3.5 million in the last full year. This is a minor fraud in dollar terms, but we might wonder why a person would throw away $3.5 million over what may be a few thousandth of his annual compensation.

Is there more to the story?

The Financial Times clarified, quoting Sir John, a former New Zealand Prime Minister, that Hisco had the authority to spend the money, but it was his mischaracterization that got him into trouble. Mr. Hisco had spent the money on wine storage and chauffeur-driven cars over a period of several years.

What is fraud and why does it happen?

What is fraud and why does it happen?

Simply stated, fraud happens when there is an accumulation of money, or at least a steady flow of cash or the equivalent, and a (formerly trustworthy) trusted party, managing that money, who decides to appropriate some cash for his or her own use. We call that type of theft, embezzlement. Most fraud is some form of “asset misappropriation”, the term used in the fraud examiner’s world.

Fraud is not a simple robbery, where force or a weapon is used to coerce someone to turn over valuable property of which the possessor rightfully controls. Instead of being trustworthy, the embezzler tricks the rightful owner of the property into thinking that the cash flow or the accumulated amount is still unimpeded and/or is not being diverted. That trickery is used to hide growing stolen goods, accumulating in value over time.

Who is guilty of this dastardly deed? According to the worldwide Association of Certified Fraud Examiners (ACFE), around 85% of fraudsters are what is called in the parlance, an “accidental” fraudster. Those who defraud, intentionally participated in and perpetrated the fraud. That is part of the trickery. But “accidental”, is used as a modifier meaning that although the fraudster intentionally took the money, they did not begin the job intending to become an embezzler. It just worked out that way.

How does an accidental fraudster come to be? Well, in 1973 a sociologist named Donald R. Cressey, in a book called “Other People’s Money”, put forth a theory that explains about 85% of fraudulent behavior on the part of an accidental fraudster. Cressey’s theory is known as the Fraud Triangle. The three sides of this triangle are 1) Perceived unshareable financial pressure, 2) Perceived opportunity, and 3) Rationalization. Through a combination of financial pressure like an unknown expensive surgery for a loved one or a drug habit, or gambling debts, etc., ad infinitum, plus rationalization, then if given the right opportunity, most of us could become an accidental fraudster.

We generally do not know our employees well enough to know exactly what unshareable financial pressure they are facing. And unfortunately, we humans tend to rationalize on a regular basis. Therefore, the only real way to prevent fraudulent activity taking place is to prevent the opportunity from occurring. How might this be accomplished? Stay tuned for my next blurb