FRAUD & EMBEZZLEMENT in HOSPICE?
There have been a number of instances of fraud in the hospice community as of late. Over the years, I have witnessed numerous situations where embezzlement schemes have surfaced. Most of the time, they are detected when a long-standing “trusted” employee is forced to take a vacation or when there is a change of duties. Sometimes an auditor will catch the problem…but don’t count on it. Embezzlement can take the form of untracked “gift” cards to fictitious vendors to outright theft – “Where are the computers we just bought?” The size of loss can range from a few hundred dollars to hundreds of thousands in Hospiceland. At MVI, we are very, very close to our client’s financial situations as we usually install the financial systems. Therefore, we are especially sensitive when this happens.
As an industry, we need to maintain a public image of integrity. However, it is much more than maintaining an image. We need to be great businesses, in fact and not just hyperbolically. We need to run tight ships with sound business processes such as the proper segregation of duties, forced time-off and sufficient review of transactions…and simultaneously be the genuine epitome of world-class, compassionate care.
Low-Trust Cultures Cost More – High Trust Cultures Cost Less – Sloppy Cultures Cost You Everything…
Low-Trust Cultures cost a lot as layers of management and redundancy are piled onto work processes, as it is commonly believed that people constantly have to be “overseen.” A High- Trust Culture is far more desirable, as it costs less, but it still requires deliberate internal controls. When saying “High-Trust” we are not implying a “trust me, baby” vibe. High-Trust Cultures believe that people are fundamentally good, but time-proven, pragmatic and common-sense business processes are needed and appreciated. A Sloppy Culture will cost you everything, including your personal as well as the organization’s reputation. Everyone has a role to play. The type of people that we hire is important, so HR plays a role. The situations we place people in should be thoroughly thought out, so management plays a role. The situations people find themselves in, by their own hand or the hands of others, play a role. Much can be learned by observing how people conduct their lives and who or what influences them.
Here are some practical things you can do that won’t create a paranoid, Low-Trust Culture, but rather give you additional confidence that fraud and embezzlement is less likely to occur at your hospice:
- Make sure the people/person cutting checks is not the same person that reconciles the bank statement. This is an example of the segregation of duties.
- Make sure bank statements are reconciled EVERY month within a week of receiving the bank statement.
- Make sure the person reconciling the bank statement knows WHY they are doing it. Educate them about the schemes and give them permission to look into matters.
- Once reconciled, the bank statement should be initialed by the person responsible for this duty. This is a practice that auditors like to see. It’s amazing how having a person put his or her own stamp on this document heightens thoroughness and accountability.
- Review credit card statements closely.
- Make sure the person reviewing the credit card statement knows WHY they are doing it. Educate them about the schemes and give them permission to look into matters.
- The person doing the review needs to question patterns and even routine transactions occasionally. Many times fraud has been taking place for years. Match receipts with statements.
- Spot check routine transactions occasionally.
- See who is using the credit card the most.
- Once reviewed, the credit card statement should be initialed by the person responsible for this duty. This is a practice that auditors like to see. Have the person put his or own stamp/initials on this document.
Record all incoming monies into an easy to use cash receipts system daily.
- Many times donor tracking software can be slightly “configured” to make great cash receipts tracking systems. Donor Express for Hospice is ideal for this task as it has been designed in the system since it first appeared on the hospice scene. Even Medicare/Medicaid/Private Insurance, along with Thrift Shop deposits and event receipts, can be tracked.
- Print a daily deposit and receipts report, along with supporting documentation, and file it in sequential order in a 3-ring binder. Your auditors will love you for this.
- “Gift Certificates” to improve staff morale.
- Are the certificates really going to staff? Keep a log of these certificates showing to whom and when they are distributed.
- Watch out for: Personal purchases recoded to appear as legitimate transactions.
- Watch out for: Personal purchases that are “bundled” with other larger purchases.
- Watch out for: Purchases from businesses that happen to be “friends” of employees.
Force Time-off and Vacations
- Be suspicious if someone does not want to take vacations or time off. First, it is unhealthy not to cross train staff in all areas of an organization. Secondly, if people are allowed to build up huge PTO or vacation accruals, and you give the person a raise, you’ve just increased your PTO/Vacation liability retroactively by thousands of dollars! Thirdly, it is unhealthy for people NOT to take vacation or time off!
Use the Benchmarking Reports
- Use the BA Reports to help you detect problems. Look for deviant areas.
- If a CFO/Controller is reluctant to submit benchmarking data, this may be a clue that there is a problem.
Weirdo Accounting and Charts of Accounts
- Many times, clients that have Charts of Accounts (COA) that are very dissimilar to the MVI COA, can make it very difficult to detect classification problems. Though we are highly biased, the MVI COA is the most highly used accounting structure in hospice and is used by hundreds of organizations.
Have a Pre-Planned Media Statement Ready
- If a hospice operates for a long time, chances are you will have a fraud or embezzlement event occur. Why not have an outline of a media release already prepared? Isn’t the Model about having a plan that will last for decades that anticipates future events?
Can you completely eliminate fraud and embezzlement? Probably not. However, you can vastly decrease its probability with a few moves. Let’s protect the reputation of our great endeavor by being world-class business operations.
– by Andrew Reed, CPA