Case Study: Analysis of Frauds in the Healthcare Industry

This case study examines healthcare fraud, focusing on a hospital's vulnerabilities that led to financial losses. The analysis identifies technical issues with outdated information systems, organizational failures in policy enforcement, and the role of individuals in perpetrating the fraud. The case highlights how ignoring established policies, such as nepotism rules, and inadequate internal audits created opportunities for fraudulent activities. The study emphasizes the need for updated technology, strict adherence to organizational policies, and proactive internal audits to prevent similar incidents. The case also points out the ethical dilemmas faced by the management. The conclusion emphasizes the importance of a systematic approach to fraud prevention, including clear departmental responsibilities and regular reviews of policies and technology.

Qwertyuiopasdfghjklzxcvbnmqwertyu
iopasdfghjklzxcvbnmqwertyuiopasdfg
hjklzxcvbnmqwertyuiopasdfghjklzxcv
bnmqwertyuiopasdfghjklzxcvbnmqwe
rtyuiopas
dfghjklzxcvbnmqwertyuiopasdfghjklzx
cvbnmqwertyuiopasdfghjklzxcvbnmq
wertyuiopasdfghjklzxcvbnmqwertyuio
pasdfghjklzxcvbnmqwertyuiopasdfghj
klzxcvbnmqwertyuiopasdfghjklzxcvbn
mqwertyuiopasdfghjklzxcvbnmqwerty
uiopasdfghjklzxcvbnmqwertyuiopasdf
ghjklzxcvbnmqwertyuiopasdfghjklzxc
vbnmqwertyuiopasdfghjklzxcvbnmqw
ertyuiopasdfghjklzxcvbnmrtyuiopasdf
Frauds in healthcare industry

Frauds in healthcare industry 2
Frauds in healthcare industry
Introduction
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).
Critical analysis
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

Frauds in healthcare industry 3
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 market 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 accounts 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

Frauds in healthcare industry 4
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.

Frauds in healthcare industry 5
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)
Conclusion
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

Frauds in healthcare industry 6
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.

Frauds in healthcare industry 7
References
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.