Executive to Whistleblower: "Don't Give Me That Ethics Crap!"

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Emily Primeaux
Assistant Editor, Fraud Magazine

When I moved to Austin at the start of the year, I immediately set out to find new establishments that provide services I use frequently: a local dry cleaner, hair salon, grocery store, post office, etc. Finding a local doctor also always ranks high on my list when I move to a new place. And I’ve moved many times.

The most important criterion I look for in a primary care physician is simply that they are well respected and have positive reviews from friends or other patients. Should anything happen to my health, I want to know I’m in capable and experienced hands.  

“There is no single way to commit fraud in the health care industry,”

- Robert Church, CFE, FCPA, CVA

Health care fraud is a sensitive subject, because its prevalence means people like me can suffer at the hands of an irresponsible few. I recently spoke with Robert Church, CFE, FCPA, CVA, Director of Healthcare Investigations at Forensic Strategic Solutions, about a healthcare fraud scheme that took place at DaVita Healthcare Partners in Colorado. DaVita, a provider of kidney dialysis services, was accused of paying for referrals from physicians, which federal law prohibits. As Church explained, when a company pays a provider practice group or a physician for patient referrals, it becomes more about the money than the patients’ well being. Needless to say, this is exactly what I don’t look for in a new doctor.

Church’s extensive knowledge of the case revealed some pretty deplorable information. A former whistleblower himself, Church jumped right in to explain the discovery of the fraud by David Barbetta, a former financial analyst at DaVita, who worked in their mergers and acquisitions group. According to Church, when Barbetta discovered the fraud, he went to his bosses, but was rebuked at every opportunity when he discussed his findings with upper management. Per reports on the case, one executive even told him, “Don’t give me that ethics crap.” Frustrated and angry, Barbetta knew it was time to leave the company and file a claim with the authorities.

Church went on to explain that Barbetta came to authorities with spreadsheets of sales, emails, and insight into the company and its operations. These showed that DaVita was involved in three fraud schemes:

• They allowed physicians to be a part of joint ventures with DaVita and kidney dialysis centers across the country. They then shared that ownership interest at a lower price than fair market value.
• They bought dialysis centers by acquiring them from referring physicians at a value that was in excess of fair market value.
• Finally, to ensure physicians received as much cash as possible, they manipulated the books and records of these joint ventures to squeeze out as much money as they could. One exec even referred to it as a “money bag for physicians.”

As Church discussed, having a whistleblower was crucial when it came time to find the information the fraud examiners needed to break the case open. However, it’s the lessons learned that fraud examiners should consider. “Fraud and health care can exist at all levels and in a host of ways. There is no single way to commit fraud in the health care industry,” says Church. “Companies that are bottom-line-only oriented or cash oriented will go to great lengths to both commit the fraud and cover it up.”

In DaVita’s case, they recently paid $389 million to settle criminal and civil anti-kickback investigations and ended joint ventures with kidney doctors at 28 dialysis clinics. “Eyes open is the order of the day,” says Church. “Recognize that schemes can take a host of avenues to get a company to the end result.”

To hear the entire interview with Robert Church, visit ACFE.com/podcast.

The Right Tools for a Fraud Examination: Do you have a 'fraud response' bag?

SPECIAL TO THE WEB

Stephen Pedneault, CFE, CPA, CFF

In any trade, a technician needs the right tools for a job. Knowledge built upon education, training and experience provides the needed skills. But without the right tools, a technician can only conceptualize the job at hand.

For example, an electrician completes specialized schooling, works as an apprentice, passes exams and ultimately obtains a license — all while working in the trade to gain experience.

However, the two most decisive factors that directly influence the electrician's successful career will be: 1) the ability to determine the best electrical solution for each situation, and 2) the tools within his toolbox. Without a voltmeter, cordless drill, wire cutters and other tools, the electrician can't start — let alone finish — the job.

RECOGNIZING THE NEED FOR A TOOLBOX

Of course, a fraud examiner also can't complete an examination without the right tools.

An accounting firm once called my office with a potential issue involving one of their clients — a local distributor of products to global customers. We immediately arranged a meeting for that afternoon.

I thought about the skills and tools I would bring to the discussion — even though I wouldn't need them right away — to ensure my office could react to the potential client issue. From the little I gleaned from the call, the potential matter involved an employee who held a financial position with the company.

I expected to encounter some type of theft, abuse or embezzlement. So, I prepared my usual basic toolbox (actually a briefcase), which includes a tablet computer with applications for taking notes and recording the meeting in audio and video. I also bring a spiral-bound notebook in case the tablet malfunctions.

I also always carry in my car a "fraud response" bag — an oversized briefcase containing miscellaneous items dedicated to fraud examinations. It contains the tools I need to safeguard and collect physical and electronic evidence: evidence bags, "evidence" tape to seal boxes or cabinets, static bags, USB jump drives, evidence markers and a digital camera. Because I never know when I'll receive my next fraud case or where I'll be when it does I always carry the bag.

Of course, no single fraud examiner possesses every hypothetical skill and tool needed to resolve a client matter. We must possess the ability to know what else we'll need and how to get other qualified individuals involved, such as:

• Computer forensic experts.
• Handwriting experts.
• Surveillance and personal protection specialists.
• Translators.

Most of these associates and I possess a similar mindset, and they're ready to respond to my call for help.

Read the full article from Stephen on Fraud-Magazine.com.

Which Anti-fraud Controls Provide the Best Bang for Your Buck?

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Andi McNeal, CFE, CPA
ACFE Research Director

During International Fraud Awareness Week (Fraud Week), hundreds of organizations worldwide join together to promote the importance of fraud detection, deterrence and investigation. The proactive approach these organizations take to fighting fraud is notable, and it sends a clear message to their employees and the public — as well as to potential perpetrators — that management is serious about protecting the company from fraud.

As part of Fraud Week (and throughout the rest of the year), we encourage companies to examine their internal controls and assess whether they are effectively designed and operating to combat fraud. While undertaking this type of assessment, one of management’s most common concerns is whether the organization’s anti-fraud resources are invested in the most cost-efficient and effective preventive and detective controls. So how can organizations know which anti-fraud controls provide the best bang for their buck?

The ACFE’s 2014 Report to the Nations on Occupational Fraud and Abuse includes information that can help organizations gain insight into the answer to that question. And to highlight our findings in a way that we hope helps in making informed decisions about how to most effectively spend anti-fraud dollars, we also created an infographic on the impact of anti-fraud controls.

As part of our research, we examined the controls that were — and were not — in place at organizations victimized by fraud. This allowed us to identify trends that reflect the potential effectiveness of various anti-fraud controls, such as:

• Organizations that engaged in proactive data monitoring and analysis suffered fraud losses that were approximately 60 percent smaller than organizations that did not.
• Other controls associated with noteworthy reductions in median losses include employee support programs (such as addiction, family or financial counseling), formal management review procedures and a written code of conduct.
•  Although tips are consistently the most common means by which frauds are detected, only 54 percent of the victim organizations in our study had a formal hotline in place at the time of the fraud, meaning nearly half of the companies were not optimally poised to detect the schemes at their organizations.
•  External audits are widely used — 81 percent of victim organizations underwent financial statement audits at the time the frauds occurred — and they serve many useful purposes. However, these audits were responsible for uncovering just 3 percent of the frauds in our study, reflecting the need for organizations to not rely exclusively on this control as the primary means of fraud detection.

Our data also reinforces what so many anti-fraud professionals and small business owners inherently know — that small businesses are uniquely and particularly at risk for fraud. Across the board, small businesses have a much lower implementation rate of anti-fraud controls than larger organizations, which leaves them especially vulnerable to being victimized by dishonest employees.

International Fraud Awareness Week is a great time for anti-fraud professionals to download the infographic on the impact of anti-fraud controls and the full ACFE 2014 Report to the Nations, and to use these resources to educate and encourage managers and business owners about the need for wisely investing in fraud prevention and detection controls.

Are We Losing the War on Identity Theft?

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Steve Lappenbusch, Ph.D.
Tax and Revenue Strategic Market Planner, LexisNexis Risk Solutions

An identity is stolen every three seconds – adding up to about 27,000 per day. In 2012, more than 12 million Americans were victims of identity theft. Furthermore, there have been a record number of security data breaches in recent years that have exposed more than 822 million records, compromising individuals’ personal information such as name, Social Security number (SSN) or bank account. The likelihood that at some point in our lives  each of us will fall victim to a data breach or identity theft is alarmingly high.

Identity theft has become an epidemic for government agencies as well. No sector of government is immune for the simple reason that the government cannot possibly know all there is to know about a person’s identity footprint. This is advantageous to identity thieves. who take advantage of the vast quantities of confidential personal data that is transmitted online. They are using this information against us – and, sadly, they are winning.

There are three critically important factors that LexisNexis has learned that can help government stop the current epidemic of identity fraud. All three things challenge current assumptions in every government system:

1. Everyone’s identity has already been compromised. 
2. Government programs cannot possibly know all there is to know about a person’s identity. Identities are always bigger than the government.
3. To assess an identity for risk, you have to understand identity risk outside government data.

Simply put, we are losing the war on identity theft. Our identities are freely available for pennies a piece on the Internet. It is time to defend ourselves against a crime where the fraud weapons used against us are our own identities. This is a fundamental change in the assumption around identities in government systems. Self-reported data must all be suspected, as most, if not all, identities have been compromised over time. Once the identity is assumed to be stolen, a new approach in identity risk analysis must be used.

Proceeding from the new, data-driven assumption that all identities are already stolen enables the government to think outside the traditional box of identity protection and begin thinking in terms of risk – identity risk. Specifically, how do tax agencies control the risk of all those stolen and synthesized identities hitting their tax systems – tax systems never originally designed for a world where you could not depend on the identity presented?

So, what is the answer? An approach that embraces identity risk analysis, rather than data matching, has proven effective at the state level. Primarily this means analyzing input tax identities against identity information far outside the tax system, or any government system, and against analytics derived from decades of identity risk expertise. 

Avoiding costly identity risks requires reconsidering what an identity really is, carefully cataloging and mapping your identities, and leveraging a unique combination of expertise, patented identity integration technology and a massive, unmatched, nationwide repository of identities going back more than 40 years. This allows you to take into account the complex, dynamic and rapidly changing nature of tax filer identities. It can also solve both owned and matched identity risks simultaneously by allowing identity integration. 

To learn more about identity challenges and risks facing the government today and solutions to help resolve these issues, visit IdentityGov.com.

CFEs: Vote for 2 Open Positions on the ACFE Board of Regents

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John Gill, J.D., CFE
ACFE VP of Education

“Applying to be a member of the Board of Regents and then being elected to serve the membership, were clearly the greatest events of my professional career. It even led to my later selection as the recipient of the Donald R. Cressey Lifetime Achievement Award in 2003.” - Joseph R. Dervaes, CFE, CIA, ACFE Fellow, Regent Emeritus (1999-2003)

I served as the ACFE’s general counsel for nine years, from 1995-2004, and served as the Board of Regents’ legal advisor during that time. I was present at all the board meetings, and I can assure you being a Regent, as Joseph mentioned, is not simply an honorary position without any responsibilities. The Regents work during the year to address policy changes, approve changes to the rules governing admission, hear grievances against members, among many other things.

Their work is vital to the ACFE’s integrity, and their dedication to the membership is one reason for the ACFE’s continued growth and success. It is their job to make sure that your interests are being heard. 

Even though you may have other distractions in your life, and run-off elections to vote for, I want to make a special plea to Certified Fraud Examiners (CFEs) to make sure you remember to vote for two open positions on the ACFE Board of Regents by December 31.

One of the privileges of being a CFE in good standing is that you are allowed to vote for those fellow CFEs you wish to represent you on the Board. The BOR is the highest elected office within the ACFE. 

The election runs from now through December 31, so that gives everyone more than enough time to look at the candidates and select those whom you feel are most qualified. They have offered to work on your behalf to make the ACFE a great organization, so take them up on that offer and cast your vote.