Case #8: Past History – Predictor of Future Behavior

The Conviction:
The United States Attorney’s Office announced that the defendant, let us call her “Kathy”, pled guilty in federal court in February 2010 to unlawfully obtaining employment at a health care provider after her exclusion as a result of a previous health care fraud conviction. “Kathy” also pled guilty to bank fraud and embezzlement in connection with health care. The maximum penalty for her felony offenses is imprisonment for 30 years and a fine of $1,000,000.

The Alleged Scheme:
U.S. Attorney’s Office presented as evidence in the case that “Kathy” misapplied money and other assets of a health care benefit program, used the doctor’s inkpad signature stamp to endorse diverted checks, and deposited those checks into her own bank account. It is also alleged that she evaded detection by making false data entries in the doctor’s billing computer, where she recorded transactions as “non-allowed services” to conceal her embezzlement scheme.

“Kathy” was employed as a bookkeeper and medical billing specialist in the victimized doctor’s office from May 26, 1998 to December 31, 2008, according to court records.

The Scheme’s Downfall:
The particulars relating to the discovery of this fraud were not announced, however, the United States Attorney praised the investigation conducted by the Office of the Inspector General for the U.S. Department of Health and Human Services and the Office of the Maine Attorney General.

While information released from the U.S. Attorney’s Office does not designate an amount of money stolen, a civil lawsuit accused the defendant of defrauding the doctor $59,260.

Lessons Learned:

• Past History: Records in U.S. District Court show “Kathy” pleaded guilty to two counts of health care fraud on July 31, 1998, and was sentenced on Nov. 9, 1998, to one year of probation, 180 days of home confinement and a $3,500 fine. “Kathy” began working for the doctor on May 26, 1998, but records show she did not pled guilty to the federal charges until July 31, 1998. A criminal records check would have likely revealed that a federal charge was “pending” in court. Where legal and authorized by your attorney, it is always a good idea to include “pending charges” when asking about prior convictions or receiving authorization from an applicant to conduct a background check.
• This perpetrator had uncontrolled access to and used the doctor’s inkpad signature stamp as an instrumental part of her crime. Experiences show that check authorizers’ inkpad signature stamps should not be used anywhere within an organization.
• Red Flags: Allegedly, “Kathy” told bank officials that the insurance reimbursement checks were for payroll, she was an employee of the medical practice, and that the doctor wanted to use the reimbursement checks as a means of paying her wages. Such an alleged statement— if in fact made—should have sent up a warning flag at the bank involved. “Kathy” estimated she started stealing about two checks a month in 2003 and was stealing a greater number of checks toward the end of her employment in December 2008. She allegedly told a federal agent she signed 36 checks that were made payable to the victimized doctor for his services. Whether these allegations are correct or not, this issue shows a need for employers to speak with their bank officials regarding such matters as the above and request that confirmation calls to be made to a company official for checks exceeding a pre-determined amount or other questionable circumstances.
• Adequate “separation of duties” and “oversight” obviously were not priority issues within this medical practice. It appears this bookkeeper was able to open mail, record the status of incoming checks, make unrestricted entries into the computer system, and have uncontrolled access to the inkpad signature stamp without close supervisory oversight and control.

How about your operation? Are you protected… REALLY protected against an internal fraudster from crippling or even destroying your business?

Be informed – learn from the experiences of others. Get involved – and YOU will be prepared.

Read more in Business Fraud: From Trust To Betrayal