Increased number of frauds in the healthcare industry has become a major concern now days. In the year 2012, a total of $2.28 trillion was spent on health care industry to take measures against these frauds but it had no impact on the number of frauds.as per National Health Care antifraud Association (NHCAA) estimates of financial losses due to these frauds are in tens of billion dollars. Majority of the frauds are done by the internal staffs of the hospital that are well aware of the loopholes of the processes of which they make use (Piper, 2013). They are very well aware that where the company lacks behind be it a technological issue or managerial issue. In many of the cases it has been observed that whenever any exception id done for any employee it results in a fraud most of the times like in this case study, when the HR department took an exception and ignored the polies they had to bear the losses because the employee which they kept was the son of one of the senior staff and as per polies this is not allowed (Gosfield, 2005).
There are three reasons in the case study due to which the fraud happened
Technical- HH is a large hospital in San Francisco which consists of approx. 340 patient beds and 420 physicians and is also affiliated with the prominent university and medical school. It was founded in the year 1912 and in the year 1990 hospital started using mid-range information systems namely AS/400 and TANDEM hardware along with client/server technology and since then it has undergone minor upgrades and customization, this is one of the loop holes which can lead to fraud. When we are not moving with the marketing condition accordingly then there are chances of fraudsters to mold the obsolete software’s as per there need (Piper, 2013). In this case study it was the responsibility of Tracy downs to take care of all the files of vendors and delete the obsolete ones but she was not doing it properly and in fact when Matt Harris was promoted as permanent employee still his vendor file was not deleted due to which he was able to input the fraud data of vendors under his own vendor account. And when his boss was out for vacations Matt was given the access to main safe where pre signed checks were lying and using those he forged checks (Rudman, 2009).
Organizational- when we make organizational policies then they should be strictly followed because they are made keeping in mind the benefit of the welfare of the organization. In this case when there is a policy that you cannot hire a person who belongs to the blood relative of the existing staff then why Matt Harris was kept on the job and if kept then why the background verification was not done (Sparrow, 2014). Tracy Down the accounts payable manager could have prevented this fraud from happening if he doesn’t override the policies made. In spite of being warned by internal auditors, she doesn’t bother to listen to anyone and promoted him as a permanent employee.
People- the administrative workgroup conducted a study of accounting payable department for which they had a staff of ten employees but on completing this task they suddenly realized that they now don’t need two AP clerks as there is a reduction in medical supply to vendors so they decided to eliminate 2 clerks in spite of their bosses were not in favor of this elimination but they did without listening to them (Gosfield, 2005). A few months later there was again shortage so they hired Matt as a temporary clerk in AP department who later was accused of the fraud. Have they listened to their bosses they could have prevented this fraud from happening? Mr. Smith, CFO of the company was brought to the notice by Mr. Walter that Harris has been hired and it is against policies then Smith could have chosen to eliminate Harris instead of shifting him to another department, he was somewhat thought emotionally at that very moment as Harris mother was ex-employee (Klein & Campbell, 2006) .
Internal auditor Mr. Walter also plays an important role in this case. On doing routine checkup when he identified that Mr. Harris is a son of Sharon Harris one of their employees and it is against the rule of organization’s nepotism policy and is a very sensitive issue then at that very moment he should have convinced Mr. Smith Company’s CFO to take action against this matter. Later on, when Allen Walter began planning an information system fraud investigation he identified that a possible fraud has occurred and he notified all the departments about this but the mistake which he made was he didn’t follow up (Powderly, 2015). There could have been a systematic plan made on implementing which such frauds could be prevented.
There should be a department head for every department and he should be responsible for all the workings of that department and the only HR should be responsible for hiring employees and that too with checking all the necessary information (Rudman, 2009). Whenever any manager goes for a sudden leave then work should be delegated to the manager of the same level and that too within the dual custody and one person should be responsible only for one task.
Major responsibilities and the charge should be given only to senior employees who are old in the system not to new employees. Internal auditors must do a routine checkup fortnightly and if they found any loop whole in the system. Then it should be directly reported to the department manager and CFO of the company and immediate action must be taken.organisation policies must be reviewed every year and all the technology must be updated with the time so that security standards are maintained and no one can try to override (Gosfield, 2005). Later on, when the fraud was detected only then the finance and accounts department took the auditor’s comment seriously if these problems were rectified earlier they do not have to suffer a loss of $80,000. It should become a practice for both the departments as well as auditors to review the comments and rectify the same at the earliest (Klein & Campbell, 2006).
There are few ethical dilemmas in this case which could have saved company from this loss like in case when Mr. Smith, CFO of the company was brought in notice by Mr. Walter that Harris has been hired and it is against policies then Smith could have chosen to eliminate Harris instead of shifting him to another department, he was somewhat thought emotionally at that very moment as Harris mother was ex-employee (Piper, 2013)
This case has many loop holes of which the employee took advantage and did the fraud. There are many risks associated with the case. This shows that how can a well-designed information system can be hacked and taken advantage of. a systematic plan made on implementing which such frauds could be prevented (Powderly, 2015). There should be a department head for every department and he should be responsible for all the workings of that department and the only HR should be responsible for hiring employees and that too with checking all the necessary information. Another thing is that company’s do make policies for the benefit of the employees and welfare of the organization but the top management itself does not follow them sometimes or follow at their own discretion and finally it can be seen that how the internal auditors can work together with other departments to identify the issues and get them sorted out if worked well.
Gosfield, A. G., 2005. The hifdeen cost of free Lunches: Fraud and abuse in physician Pharmaceutical Arrangements.. Medical Practice Management , 3(10), pp. 253-258.
Klein, R. D. & Campbell, S., 2006. Health Care Fraud and Abuse Laws. Archives of Pathology & Laboratory Medicine: , 130(8), pp. 1169-1177.
Piper, C., 2013. 10 popular health care provider fraud schemes. Faraud Magazine , pp. 2-5.
Powderly, H., 2015. Biggest healthcare frauds in 2015: Running list. Health care Finance, 3(6), pp. 10-15.
Rudman, W. J., 2009. Healthcare Fraud and Abuse. Online research Journal , 6(2), pp. 3-5.
Sparrow, M. K., 2014. Fraud Control in the Health Care. National Institute of Justice, 2(3), pp. 5-10.