Case Study Analysis: Healthy Hospital Fraud, Theories, and Strategies

This case study analyzes a fraud incident at Healthy Hospital, where a temporary clerk, Mr. Harris, exploited loopholes in the accounts payable department to embezzle funds. The analysis identifies technical, organizational, and people-related reasons contributing to the fraud, including weaknesses in cheque approval processes, lack of background checks, and the absence of updated vendor records. The essay discusses the application of various fraud theories, such as the Fraud Triangle, Fraud Diamond, Fraud Management Lifecycle, and Dempster-Shafer Theory, to understand and prevent such incidents. It suggests strategies like fraud risk prevention policies, effective internal controls, fraud risk assessments, and anti-fraud training to mitigate future risks. The study emphasizes the importance of regular internal audits, peer reviews, and adherence to established protocols to ensure ethical conduct and financial integrity within the organization.

RUNNING HEAD: Case Study Analysis: Case study of Healthy Hospital
Case Study Analysis
Case study of Healthy Hospital

Case Study Analysis: Case study of Healthy Hospital 1
Table of Contents
Case Study Analysis...................................................................................................................2
References..................................................................................................................................7

Case Study Analysis: Case study of Healthy Hospital 2
Case Study Analysis
This essay has covered the critical analysis of a case of fraud which has taken place in an
organisation. Frauds are wrongful or criminal acts which are executed by an individual or a
group with a motive to secure financial gain. Different aspects related to the case have been
discussed in this essay for analysing the reasons due to which fraud has occurred. The
discussion will be made regarding the manner in which Healthy Hospital could have dealt
with the issue. For coping with this fraud, different theories can be applied and these theories
will be discussed in this essay. A process or strategies can be applied by Healthy Hospital for
preventing the occurrence of fraud in its internal environment.
In the given case, a fraud has been identified which was deep perpetuated in the Healthy
Hospital. The healthy hospital has received complaints from the main supply vendors of the
hospital regarding the payment system as the payments were not being paid to them on time.
During the analysis of the situation, it was identified by CFO that the accounts payable
department was unable to process every invoice of the vendors as per the specified term of
trade. As a solution to this problem, CFO Smith allowed the accounts payable department to
hire a temporary clerk. The temporary clerk Mr Harris was the son of the staff of HH and he
was hired without conducting interviews of other candidates and background check. After the
vacancy in the accounts payable department, he was given an opportunity to apply for this
post. Mr Harris started working as a permanent clerk. A fraud was identified in the accounts
payable department and it was identified that this fraud was executed by Mr Harris. During
the interrogation, he confessed that he executed this fraud for meeting the medical expenses
of his terminal illness. After the verbal confession, a written confession was provided by Mr
Harris and he confessed that this was done by him only. He stated that he did not have any
means for making repayment of the amount he has obtained by fraud. It has been analysed

Case Study Analysis: Case study of Healthy Hospital 3
that there were different reasons identified in the case which has formed a base for the fraud.
These reasons included technical related reasons, organisational related reasons and people
related reasons.
According to the standard operating procedure of HH every cheque which is of above $15000
needed the second sign. Mr Harris took advantage of this loophole and prepared cheques
which were of less than $15000. Another technical related reason is even after getting
converted into a permanent employee of Healthy Hospital, Mr Harris was maintaining his
own vendor account. The systems used by HH were installed in the 1990s and this lack of
adoption of advanced technology has formed a base for the fraud. According to the standard
procedure of HH, every employee must pass a background investigation for ensuring the
reliability and trustworthiness of the individual. In the case of Mr Harris, no background
investigation was conducted as he was the son of a senior accounts payable clerk. Another
organisational related reason is the lack of effectiveness in following the rules and regulations
of the hospital. As HH has stated that no close relative of an existing employee can be hired
in the same department of the Hospital. The reason behind this was that this incident
increases the chances of fraud in the organisation. All these facts were avoided by HH. The
staff of the accounts payable department of the Healthy hospital was not keeping an updated
record of the vendors and Mr Harris took advantage of this issue. Downs concern was not
given importance as according to Downs appointment of Mr Harris was against the policies
of Healthy hospital regarding nepotism.
Internal Audit Manager should have conducted an audit on a regular basis so as to determine
the reasons for fraud. Determination of these reasons would have enhanced the effectiveness
of internal audit and kept a check on the frauds. Internal audit manager could have applied
strategies for eliminating the chances of fraud. Peer review technique could have applied by
the internal audit manager for ensuring a check on the actions of every employee of Healthy

Case Study Analysis: Case study of Healthy Hospital 4
Hospital (Jennifer, 2010). Internal audit manager could have focused on the finance
department so as to trace the unethical activities taking place in the department. All these
reasons are responsible for the fraud occurred in Healthy Hospital. HH could have applied
different strategies or approaches for ensuring that fraud is not taking place in the
organisation. Healthy Hospital could have applied different theories for the purpose of
dealing with the issue at hand. Application of these theories could have guided the actions of
Healthy Hospital in the right direction and helped in coping with the fraud occurred. These
theories which Healthy hospital could have applied include The Fraud Triangle Theory, The
Fraud Diamond Theory, The Fraud Management Lifecycle and Dempster-Shafer Theory
(Abdullahi, et. al., 2015).
The Fraud Triangle Theory is an important framework which is used by the organisations
with a motive to analyse the fragility to fraud and unethical behaviour carried out in the
organisation. This theory provides a way which can be applied for avoiding the chances of
being a victim of fraud. There are three factors included in this theory and these three factors
are pressure, opportunity and rationalisation. Healthy Hospital needs to ensure prevention of
these factors which would result in eliminating the reasons forming the basis for conducting
unethical practices (Mann, 2013). Healthy Hospital could have reduced the pressure on its
employees for preventing the unethical practices. The focus of Healthy Hospital needs to be
on reducing the opportunities available for the occurrence of fraud and unethical activities.
HH could have included a zero tolerance policy for making the employees aware of the
policy and impact on an employee for the breach of this policy (Brumell Group, 2015).
The Fraud Diamond Theory is considered as a less expensive and effective approach. This
theory is focused on prevention of fraud rather than detecting the fraud after it has taken place
(Srivastava, 2011). This theory also helps in identification of the elements which form a base
for the occurrence of fraud. Four elements are included in this theory and this theory is an

Case Study Analysis: Case study of Healthy Hospital 5
extended version of The Fraud Triangle theory. Healthy Hospital could have used this theory
for preventing the fraud so that the performance and reputation of HH is not getting affected
(Abdullahi & Mansor, 2015).
The Fraud Management Lifecycle includes eight stages which focus on reducing the loss
caused due to the fraud and reducing the impact of fraud on business. Different stages help in
detecting the fraud by executing every stage one after one. These eight stages of this theory
are Deterrence, Prevention, Detection, Mitigation, Analysis, Policy, Investigation, and
Prosecution. Applying this theory could help HH in forecasting the frauds which can take
place in future. Predicting the frauds in advance could prevent the frauds from occurring. It
would help the internal audit manager to make predictions on the basis of past or present
frauds (Ijeoma & Aronu, 2013).
Dempster-Shafer Theory permits the internal audit manager of HH to combine different
pieces of evidence collected from different sources so as to draw a conclusion. HH could
apply this theory, for combining the evidence collected from different internal and external
environment of the organisation. This could help the organisation in taking decisions and
making estimates regarding the frauds (Coppolino, et. al., 2015).
Various strategies and processes can be used by HH for preventing frauds. HH can include
fraud risk prevention policy, effective internal control, fraud risk assessment and anti-fraud
policy and training (Reed, 2014). Fraud risk prevention policy can be used by HH for
preventing frauds. This policy includes different stages or steps. These stages include
knowing the employees, setting-up reporting system, implementation of internal control,
monitoring the vacation balances, hiring experts and developing a positive work environment
(Di Sarno, et. al., 2013). Effective internal control includes different stages establishing web-
based portal, segregating the duties, implementation of peer review technique, reconciliation
of the bank accounts by the management, reviewing the expense reimbursement and setting

Case Study Analysis: Case study of Healthy Hospital 6
standards for approval of cheques (DKM, 2015). HH can change the standard operating
procedure for the approval of cheques for eliminating the chances of fraud. Fraud risk
assessments can be conducted by HH at regular intervals for ensuring that employees are
performing their roles and responsibilities in an ethical manner. Anti-fraud policy and
training can be developed by HH for enhancing the values and principles adopted by the
employees (Chuck, 2010).
Thus, from the above-discussed analysis of the case of Healthy Hospital, it can be concluded
that various organisational, technical and person related reasons were responsible for the
fraud. Mr Harris has taken advantage of these reasons which have acted as loopholes in the
case of Healthy Hospital. Internal audit manager could have conducted an audit on regular
basis as well as advised Healthy Hospital to use peer review technique for ensuring that no
employee is acting against the interest of the organisation. Different theories are available for
preventing fraud and identification of fraud. These theories could have applied for dealing
with the issue along with the strategies for preventing the fraud from occurring.

Case Study Analysis: Case study of Healthy Hospital 7
References
Abdullahi, R. & Mansor, N., 2015, “Fraud Triangle Theory and Fraud Diamond Theory.
Understanding the Convergent and Divergent For Future Research”, International Journal of
Academic Research in Accounting, Finance and Management Sciences, Vol. 5, No.4, pp. 38–
45.
Abdullahi, R., Mansor, N. & Nuhu, M. S., 2015, “Fraud Triangle Theory and Fraud Diamond
Theory: Understanding the Convergent and Divergent for Future Research”, European
Journal of Business and Management, Vol.7, No.28.
Brumell Group, 2015, “The Fraud Triangle Theory”, Brumell Group. Accessed on: 30
August 2017. Retrieved from: http://www.brumellgroup.com/news/the-fraud-triangle-theory/
Chuck, Y., 2010, “Preventing an "inside job": simple steps can help stop fraud from
within”, Dental Lab Products, 35(5), p.40.
Coppolino, L., D’Antonio, S., Formicola, V., Massei, C. and Romano, L., 2015, “Use of the
Dempster-Shafer Theory for Fraud Detection: The Mobile Money Transfer Case Study”,
Springer International Publishing Switzerland, Vol. 570, pp. 465-474.
Di Sarno, C., Formicola, V., Sicuranza, M., Paragliola, G., 2013, “Addressing security issues
of electronic health record systems through enhanced siem technology”, Eighth International
Conference on vailability, Reliability and Security (ARES), pp. 646–653.
DKM, 2015, “Anti-Fraud And Corruption Strategy And Prevention Plan”, DKM.
Ijeoma, N. & Aronu, C. O., 2013, “The Impact of Fraud Management on Organizational
Survival in Nigeria”, American Journal of Economics, 3(6), pp. 268-272.
Jennifer, L., 2010, “Closer eye on RAC; Report warns of need to watch for overpayments.
(NEWS)(Recovery Audit Contractor )”, Modern Healthcare, 40(16), p.14.

Case Study Analysis: Case study of Healthy Hospital 8
Mann, L., 2013, “How to reduce the risk of purchasing fraud”, Healthcare Financial
Management, 67(7), pp.78–82.
Reed, S., 2014, “Six Strategies For Fraud Prevention In Your Business”, CG Team blog.
Accessed on: 30 August 2017. Retrieved from: http://www.cgteam.com/blog/six-strategies-
for-fraud-prevention-in-your-business
Srivastava, R. P., 2011, “The dempster-shafer theory: An introduction and fraud risk
assessment illustration”, Australian Accounting Review 21.3 (2011): 282-291.