AHIA 2012 Chicago Regional Seminar

HX, DX, RX FOR FRAUD

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UT SOUTHWESTERN MEDICAL CENTER

ROBERT RUBEL, CPA, CIA, CISADIRECTOR OF INTERNAL AUDIT

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OUR MISSION

• To improve healthcare in our community, Texas, our nation,and the world through innovation and education.

• To educate the next generation of leaders in patient care,bi di l i d di i

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biomedical science and disease prevention.

• To conduct high-impact, internationally recognized research.

• To deliver patient care that brings UT Southwestern’sscientific advances to the bedside — focusing on quality,safety and service.

FACTS ABOUT UTSOUTHWESTERN

Enrollment (as of Fall 2011)•Medical School -- 932•Graduate School -- 645•Health Professions -- 370

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•Clinical Residents -- 1482•Postdoctoral Fellows -- 1161

Faculty (as of Fall 2011)•Full–Time -- 2006•Part–Time -- 643•Volunteer -- 1407

FACTS ABOUT UTSOUTHWESTERN

Research Facts•About 3500 projects funded by supportfrom federal agencies, foundations,individuals, and corporations.•12 Howard Hughes Medical Institute

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ginvestigators and one early career scientiston campus.•Annual research expenditures have grownfrom $46.7 million in 1985 to $417 million in2011.

Research FundingMore than 400 million dollars a year

FACTS ABOUT UTSOUTHWESTERN

Clinical Training Hospitals

300 Beds--University Hospital–St. Paul

d l l h

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152 Beds-- University Hospital–Zale Lipshy

983 Beds-- Parkland Memorial Hospital

559 Beds-- Children’s Medical Center

300 Beds-- Dallas Veteran’s Affairs MedicalCenter

FACTS ABOUT UTSOUTHWESTERN

We are the future of medicine today!

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We are the future of medicine today!

FACTS ABOUT UTSOUTHWESTERN

Since its formation in 1943, Southwestern Medical School hasgrown from a small wartime medical college into The University ofTexas Southwestern Medical Center, a multifaceted academicinstitution nationally recognized for its excellence in educatingh i i bi di l i ti t d h lth l

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physicians, biomedical scientists, and health-care personnel.

The faculty includes five Nobel Laureates, more than any othermedical school in the world. Four are active faculty members.

For two consecutive years, UT Southwestern has ranked as thebest metropolitan Dallas-Fort Worth hospital in the U.S. News &World Report’s America’s Best Hospitals issue.

WELCOME

Why do people rob banks?

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That’s where the money is!

Sutton’s LawWillie Sutton, Bank Robber

THE FRAUD PROCESS

Fraud TipReported/Discovered

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A Miracle Happens

Perpetrator Goes toJail

5 Stages of Grief

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Defendant

CAE

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OBJECTIVE

Using the clinical practice methodology, weplan to “take a page out of medical

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p p gassessment” and compare that to our

auditing process for fraud.

THE HX, DX, AND RX

MedicalTerminology

MedicalProcedure

Fraud AuditProcedure

Hx: History and � Past family and social �Identify fraud risks

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Hx: History andPhysical (Px)

Past family and socialhistory� Review of symptoms

y�Develop audit plan�Build audit program to detectfraud symptoms and behaviorindicators

Dx: Diagnosis Differential Diagnosis �Fieldwork and assessments�When fraud symptoms areidentified, add symptom-driven steps to audit program

Rx: Prescription �Treatment plan�Medication�Follow-up

�Audit recommendations�Reporting�Follow-up

HX AND PX: HISTORY ANDPHYSICAL

Medical Implications

• Identification of chiefcomplaint

Fraud Audit Implications

• Fraud Risk Assessment/AnnualPlan

• Notification of Audit

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• Medical History• Review of systems• Initial intake survey• Standard Checks

• Planning of Audit (Standard 2200)• Risk Assessment (Standard 2110)

� Consider the fraud risks andexposures and incorporaterelevant fraud proceduresinto the audit program

• Definition of Scope (Standard2220)

• Entrance Conference

DX: DIAGNOSIS

Medical Implications

• ExaminationDiff ti l Di i

Fraud AuditImplications

(Standard 2300)

• Attribute sampling

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• Differential Diagnosis• Test Results• Biopsy

• Benchmarking• Best Practice• Compliance testing• Financial Analysis• Internal Controls• SAS 99 Fraud• Fraud Tests – Performprocedures to detect fraud wherefraud is suspected or symptomsof fraud exist

RX: PRESCRIPTION

Medical Implications

• Medication• Physical Therapy

Fraud AuditImplicationso Communication – On-going because of

fraud(Standard 2440)

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• Surgery• Follow-up

(Standard 2440)� Standard Reporting

• Finding Sheets• Draft Report• Management Response

� Fraud Reporting• Communicate findings &

recommendations to ExecutiveManagement

• Contact UPD (at UTSW)• UPD contacts District Attorney

when appropriateo Final reporto Follow-up (Standard 2500)

HIGH RISK AREAS FOR FRAUDTHE 5 P’S

PAYABLES PHYSICIAN FEES

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PAYROLLPROCUREMENT

PARKING

FRAUD CASES WITHIN UT SYSTEM

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UTPA

Hx (History)Yolanda A. Ramirez was a long term employee of the Department ofContinuing Education

Symptoms

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Yolanda performed various administrative duties including collectingpayments for continuing education courses and preparation of cashreceipts without independent reconciliation.

Internal Audit made a recommendation to segregate duties; however,department resisted implementation because of the trust factor.

Finally, student reviewed cancelled check and noticed Yolanda’s nameas opposed to “UTPA.”

UTPA

Diagnosis?

FALSE CHECKS

C t?

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Cost?

$250,000Auditor’s “skepticism” should be emphasized. The auditor wasrebuked for not following through with the recommendation tosegregate duties. Additional testing should have been conducted.

UT AUSTIN – ART DEPARTMENT

Hx (History)Lynn Deer, Department Administrator for the Dean of Fine Arts, was along term employee who performed many functions for the deanincluding signature authority on all accounts.

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Dean was too busy to handle financial matters.

600 donor accounts with fewer restrictions on use.

SymptomsLynn processed payment vouchers for art workshops, lunches, part-time student workers, etc., picked up check from the Bursar’s Office,cashed at the bank.

UT AUSTIN – ART DEPARTMENT

Diagnosis?

THEFTRecords only went back 10 years. Found by student who receiveddeficiency notice from IRS for not paying taxes on income. Student

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y p y gcalled in and told them he had never worked in the Art Department.Payroll called Lynn Deer to inquire. She left and never returned.

Cost?

$850,000

UT AUSTIN – DEA

Hx (History)Drug Enforcement Agency (DEA) showed up at the Department ofChemistry fully armed to inquire as to how UT chemicals appeared inlocal meth labs.

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UT Department of Chemistry contained chemicals used as precursorsto develop meth.

SymptomsNo controls over the purchasing, receipt and dispensing of chemicals.

UT AUSTIN – DEA

Diagnosis?

Store room clerk purchased excess quantities ofsolvents and chemicals and sold them to local

drug dealers.

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drug dealers.

Cost?

Dean warned if it happened again, he was going tojail.

UT HEALTH SCIENCE CENTERSAN ANTONIO

Hx (History)To appropriately bill under CMS guidelines, documentationmust existto substantiate charges.

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SymptomsDocumentation (medical records, operation reports, lab tests, progressnotes, Pathology reports, etc.) for bills charged to Medicare or Medicaiddid not exist.

UT HEALTH SCIENCE CENTERSAN ANTONIO

Diagnosis?

Billing Fraud

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Cost?

$17.2 Million refunded to Medicare,Medicaid and Champus

AUXILIARY ENTERPRISE FRAUD

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AUXILIARY OPERATIONS

• Administrative Courier Services• ATM Machines• Campus Housing• Campus Post Office

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• Catering• Food Services• Mail Services• Parking Services• Special Concessions/Vending• University Stores (2)• Visitor Information Center

HIGH RISK AREA: PARKING

• Cash and Checks• Systems Access• Mail Sorting

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• Mail Sorting• Timely Deposit• AccountsReceivables

HX: HISTORY

• Living beyond means

Upon and during investigation, the followinghistorical information was discovered concerningthe Director of Auxiliary Enterprises:

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g y• Dictatorial management style• Coercion/Intimidation• Odd work hours• Smelled bad• Business processes performed• Short vacations• Delayed deposits

SYMPTOMS

• Parking ticket paid by car owner and check cashed• Auxiliary Enterprises sent a notice of non-payment to car owner• Second notice of non-payment sent to carowner

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• Auxiliary Enterprises personnel confronted theDirector concerning the multiple non-paymentnotices when payment already cashed.

• Director tried to intimidate two employees whenconfronted, one of which was a former auditor andcolleague.

SYMPTOMS

• Former auditor and colleague provided aninside tip.• Pointed in the right direction

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g• Collusion

It is often difficult to find fraud. Most fraud is detected throughinside information. In this instance, the inside information wassingle source that led Internal Audit to the fraud.

HX: CLASSIC RED FLAGS

• Living beyond means• Dictatorial management style• Coercion/Intimidation• Odd work hours

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• Odd work hours• Smelled bad• Business processes performed• Short vacations• Delayed deposits

TESTS & RESULTS

• Went to Office of Cash Management to obtain a copy ofthe deposit bag from the bank to review contents.Res lts obtained in 48 ho rs and incl ded deposits of

Based on inside information, Internal Audit decided to performthe following:

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• Results obtained in 48 hours and included deposits of:• 12 parking violation payments• 1 rebate check from Apple Computer• 1 personal check from Director

When reviewing or auditing cash operations, pay attention todeposits, specifically the source and destination. Get“Original Business Record Affidavit” on all records.

TESTS & RESULTS

• When Director and Accountant were offcampus, had free access to work areas andcomputers.• Results:

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• Deposit not made in 5 days in theaccountant’s office• Missing $350 cash, later found byaccountant

Around this time, made a call to the police, should havestarted a log of all work, interviews, phone calls, etc.

TESTS & RESULTS

• “Gap” Analysis revealed irregularities and 3 years worthof bank deposits ordered.Called Apple to obtain list of rebate checks from

Based on review of initial deposit information, decidedto further investigate specific deposits:

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• Called Apple to obtain list of rebate checks frominception to date (obtained on-line)• Met with Director and Accountant within one week:• Both suspended• Both terminated within one week

Vendor rebate checks, returns and refunds presentopportunity for fraud if adequate controls do not exist.Attention to the frequency of returns may signal potentialfraud depending on the normal business operations.

TESTS & RESULTS

• After “dumpster diving”, found journal vouchers with no detail• Discovered JV’s used to inflate revenue on one account andt f t t th

Upon escorting the Accountant to the exit, employeeobserved Accountant throwing something in dumpster.

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transfer cost to another:• Debit Cost of Sale, Credit Revenue to their owndepartment!

• After reviewing with the University Store, found expenseitems marked up 10 times

• Cover up theft of cash from vendingPay attention to journal entries that may conceal fraud or arenot characteristic of a given department operation.Supporting documentation for the journal entry is crucial!

TESTS & RESULTS

• Went to Office of Cash Management to obtain a copy ofthe deposit bag from the bank to review contents.Res lts obtained in 48 ho rs and incl ded deposits of

Based on inside information, Internal Audit decided to performthe following:

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• Results obtained in 48 hours and included deposits of:• 12 parking violation payments• 1 rebate check from Apple Computer• 1 personal check from Director

When reviewing or auditing cash operations, pay attention todeposits, specifically the source and destination.

TESTS & RESULTS

• Found the vendor from the store retailsystem had not paid license fees (possiblekickback)• Several years before, Print Shop manager

ld d i t t hi lf f

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sold used equipment to himself for an$18,000 profit• Another kickback scheme• Print Shop manager fled the country

• Possible kickback from other vendors• Refund checks issued on returned goods

DX: DIAGNOSIS

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LEVELS OF PUNISHMENT

Theft up to: Incarceration

$50 – Class C Misdemeanor N/A

$500 – Class B Misdemeanor up to 180 days

$1,500 – Class A Misdemeanor up to a year

$20,000 – State Jail Felony 180 days – 2 years

$100,000 – 3rd Degree Felony 2 years – 10 years

$200,000 – 2nd Degree Felony 2 years – 20 years

>$200,000 – 1st Degree Felony 5 years – 99 years

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POLICE PROCESS

•File a warrant for arrest

A t

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•Arrest

•Book into jail

• File a case with the District Attorney

GRAND JURY PROCESS

Reasonable Suspicion to go to trial

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True Bill or No Bill

Indictment handed down from grand jury in 6 months

PROSECUTION PROCESS

Dallas County District Attorney’s Office

• Second Largest jurisdiction in the State ofTexas with a population of 2,451,730

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• 242 Prosecutors = 1 prosecutor for 10,131people• 72 Investigators

Our case had three different sets of DA’s“Thefts of cash are hard to prove.”

VERDICT

• Plea Bargain July 25, 2008• Civil case dropped August 1, 2008• TSBPA closed file

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• During plea bargain with theAccountant, another fraud found:• Theft of cash from cafeteriaoperation

• Last register closed out, cashwas stolen

DIAGNOSTIC IMPRESSION

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DIAGNOSTIC IMPRESSION

“There are 20 characteristics to define apsychopath. Really the fundamental factor is anabsolute lack of remorse or guilt for their behavior,

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absolute lack of remorse or guilt for their behavior,pathological lying, manipulative, callous, egotistical,

very kind of self centered individual, glib andsuperficial charm”

- Psychologist Dr. John Clarke

Source: http://www.abc.net.au/catalyst/stories/s1360571.htm

“PATIENT” OPINION

• Best (only) defense: attack credibility

(Scorched Earth Defense)

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• Filed ethics complain against the TSCPA

• Filed unemployment claim with TWC

• Filed 200 anonymous complaints with

SAO and local media

THE LAWSUIT

• Filed suit for wrongful termination anddiscrimination• July 2008 began depositions in the civil

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case

RX: PRESCRIPTION

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RX: PRESCRIPTION

• Indictment handed down from grand juryin 6 months• UT Police handled the criminal case•Work with several assistant DA’s to move

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case to trial• During plea bargain with the Accountant,another fraud found:• Theft of cash from cafeteria operation• Last register closed out, cash wasstolen

RX: PRESCRIPTION

• Plea Bargain July 25, 2008• Civil case dropped August 1, 2008• TSBPA closed file

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200 allegationssubmitted to the

Newspapers, Television,and the SAO

3 differentADA’s handled

case Civil casedropped

JUN 05 JUL 05 DEC 05 JUN 07

June 14th –June 24th :Discovery

June 30th -Termination

JUL 08

Civil Lawsuitagainst CAE,BusinessOfficer, andPolice

Investigatorfiled

Plea Bargain

Begandepositions oncivil case

AUG08

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SUMMARY

• It is often difficult to find fraud. Most fraud is detected throughinside information.

• When reviewing or auditing cash operations, pay attention todeposits, specifically the source and destination.

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• Vendor rebate checks, refunds and returns present opportunityfor fraud if adequate controls do not exist. Attention to thefrequency of returns may signal potential fraud depending on thenormal business operations.

• Attention to be given to checks received that are not recorded inAR. In other words, is the check matched with AR or justdeposited? The latter presents additional opportunity for fraud.

SUMMARY (CONT’D)

• Be aware of journal entries that may conceal fraud or areuncharacteristic of a department operation.

• Auditor’s “skepticism” should be emphasized. Follow-

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through with identified risks.

Even more importantly, handling a fraudcase can expose YOU personally.

Public Service Announcement:Always wear sunscreen. There is no safe tanning.

THE TRUE DEFENDANT

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5 Stages of Grief

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Defendant

CAE

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POST DIAGNOSIS

Diagnostic Impression:

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CONFIRMEDCONFIRMED

THE UNIVERSITY OF TEXASSOUTHWESTERN MEDICAL CENTER

ROBERT RUBEL, CPA, CIA, CISADIRECTOR OF INTERNAL AUDIT

ROBERT.RUBEL@UTSOUTHWESTERN.EDU214-648-6106

5323 Harry Hines Blvd.Dallas, Texas 75390-9017

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