KEYS TO AN EFFECTIVE DIRECTOR CORPORATE COMPLIANCE AND INTERNAL AUDIT MULTICARE HEALTH SYSTEM TACOMA, WA

Transcription

1 KEYS TO AN EFFECTIVE ANTI-FRAUD PROGRAM WAYNE PURVES DIRECTOR CORPORATE COMPLIANCE AND INTERNAL AUDIT MULTICARE HEALTH SYSTEM TACOMA, WA AHIA 32 nd Annual Conference August 25-28, 2013 Chicago, Illinois

2 What is Fraud? 2 Institute of Internal Auditors any illegal acts characterized by deceit, concealment or violation of trust Association of Certified Fraud Examiners Classifies fraud into main categories: Misrepresentation of material facts Concealment of material facts Bribery Conflicts of Interest Theft of money and property Breach of Fiduciary Duty At the root, all of these acts involve a violation of trust.

3 What is Fraud? 3 Fraud could be committed by anyone in a healthcare setting, and can include a multitude of different activities such as: Falsifying medical records or reports Lying about credentials or qualifications Creating fictitious employees or suppliers Using personally identifiable information from patients for false means Exaggerating expense accounts for personal gain Falsifying i time cards Theft of food, drugs, devices etc. Free services to family or friends

4 2012 ACFE Report to the Nations 4 The data in this study is based on 1,388 cases of occupational fraud that were reported by CFEs. The 2012 Report to the Nations on Occupational Fraud and Abuse is based on the results of an online survey opened to 34,275 Certified Fraud Examiners (CFEs) from October 2011 to December 2011.

5 Occupational Fraud: Direct Financial Impact 5 Survey yparticipants p estimated that the typical organization loses 5% of its revenues to fraud each year. Applied to the 2011 Gross World Product, this figure translates to a potential projected annual fraud loss of more than $3.5 trillion. The median loss caused by the occupational fraud cases in the study was $140,000. More than one-fifth of these cases caused losses of at least $1 million. How does this loss estimation translate to your organization?

6 Occupational Fraud: Indirect Impacts 6 Loss of reputation and brand erosion Increased government intervention Loss of productivity Legal fees Inability to secure funding

7 2012 ACFE Report to the Nations 7 The presence of anti-fraud controls is notably correlated with significant decreases in the cost and duration of occupational fraud schemes.

8 8 Who Owns Responsibility for Fraud Protection?

9 9 Anti Fraud Efforts Require Shared Ownership The team members must possess diverse skill sets to address the complexities of fraud cases and proactive fraud risk initiatives Source: ACFE Fraud Magazine Jan/Feb 2011

10 10 MultiCare s Elements of an Effective Anti Fraud Program Setting the Proper Tone Code of Conduct Fraud Prevention Policies Communication and Training Proactive Approaches Fraud Risk Assessment Hotline Controls Monitoring Reactive Approach Fraud Response Plan

11 Anti Fraud Committee 11 Cross functional leadership participation. Chaired by Director Corporate Compliance and Internal Audit (CFE). Full committee meets quarterly and assigned subgroups meet more frequently. Committee Objectives: Provide ongoing education to the organization regarding advances in corporate fraud detection and prevention practices. Develop and implement proactive monitoring and fraud detection activities for the Anti Fraud Committee to conduct. Fraud We re Against It

12 Setting the Proper Tone: Code of Conduct 12 Promote honest and ethical conduct. Provide full, fair, accurate, timely and understandable disclosure in reports and documents. Comply with applicable laws, rules and regulations. Explicitly state desired behaviors. Report internal violations of code promptly. MHS Standards d for Business Conduct

13 Impacts of Code of Conduct on Fraud 13 When a strong Code of Conduct was in place: The median fraud losses were reduced by 46%. The duration of the fraud scheme was reduced on average by 37.5%. Source: 2010 ACFE Report to the Nations on Occupational Fraud and Abuse

14 Setting the Proper Tone: Fraud Prevention Policies 14 Guide employees through complex issues. Establish procedures to govern the escalation of fraud allegations, guiding important resource decisions. MHS Anti-Fraud Policy

15 Impacts of Anti-Fraud Policies on Fraud When an anti-fraud policy was in place: The median loss related to fraud was reduced by 40%. The average duration of a fraud scheme was reduced d by 28%. Source: 2010 ACFE Report to the Nations on Occupational Fraud and Abuse

16 16 Setting the Proper Tone: Communication and Training Educate employees regarding g the organization s code of ethics. Reinforce with Tone at the Top. Understand protocols for reporting suspicious activity. Communicate disciplinary actions that may be taken in the event of fraud. Raise awareness of fraud scenarios specific to the organization. Educate all employees on Fraud Triangle and Fraud Red Flags. New Employee Orientation New Employee Orientation Annual Compliance Education Anti-Fraud Education Portal Focus on Fraud Articles

17 Impacts of Effective Anti-Fraud Training 17 When Anti-Fraud Training for employees was in place as an anti-fraud control: Median loss related to fraud decreased by 50%. The average duration of a fraud scheme was decreased by 28%. Source: 2010 ACFE Report to the Nations on Occupational Fraud and Abuse

18 18 (Cressey) Fraud Triangle

19 Examples of Fraud Red Flags 19 Employee lifestyle changes: expensive cars, jewelry, homes, clothes, etc. Significant personal debt and credit problems. Behavioral changes: these may be an indication of drugs, alcohol, gambling, or just fear of losing the job. High employee turnover, especially in those areas which are more vulnerable to fraud. Refusal to take vacation or sick leave. Lack of segregation of duties in the vulnerable area. Borrowing money from co-workers. Creditors or collectors appearing at the workplace. Gambling beyond the ability to stand the loss. Excessive drinking or other personal habits. Easily annoyed at reasonable questioning. i Providing unreasonable responses to questions. Refusing vacations or promotions for fear of detection. Bragging about significant new purchases. Carrying unusually large sums of money. Rewriting records under the guise of neatness in presentation.

20 Proactive Approaches: Fraud Risk Assessment 20 Identification of common fraud schemes as well as schemes that are industry, sector or geographically specific. Maintain updates to fraud risk assessment work plan to address changes (e.g., business environment, current issues, etc.). Interviews, Brainstorming, Scenario Building Fraud risks considered as part of all internal audits/internal controls (SOX) reviews Macro-focused fraud risk assessment as incorporated into Enterprise Risk Management program

21 Proactive Approaches: Hotline 21 Provide channel for employees or third parties to report fraud. Tips remain the common method of fraud detection Hotlines remain a leading tool for tip receipt Provides protection for whistleblowers Anonymity preferred

22 Impacts of Hotlines on Fraud 22 When a hotline was implemented an anti-fraud control: The average duration of a fraud scheme was reduced by 7 months. The median loss was reduced by 59%. Source: ACFE Report to the Nations on Occupational a Fraud and Abuse

23 Proactive Approaches: Controls Monitoring 23 Rank fraud schemes identified within the risk assessment. Resulting in planned audits and/or ongoing g analytics Develop action plans to assess, improve, and/or monitor the controls associated with the identified risks. Report the results of the action plans to senior leadership and/or the audit committee. Internal and external audits Fraud Analytics

24 Reactive Approach: Fraud Response Plan 24 Establish investigation protocols. Coordinate remediation action steps across the business units. Maintain consistent disciplinary procedures. Help set the tone within the organization with respect to fraud. Formal investigation protocols defined for internal and external resources.

25 Resources 25 ACFE Website: ACFE Fraud Prevention Check up Sponsor of International Fraud Week: ACFE Insights: ACFE Bookstore National Health Care Anti Fraud Association:

26 Resources 26 IIA: GTAG 13 - Fraud Prevention and Detection in an Automated World IIA, AICPA, ACFE: Managing the Business Risk of Fraud: A Practical Guide, 2008 KPMG LLP: Fraud Risk Management Developing a Strategy for Prevention, Detection, and Response, 2006

27 Summary 27 Fraud is on the rise current economic environment increase fraud pressures and opportunities. An effective Anti Fraud program makes good business sense and implements proper prevention and detection that can have direct bottom line impact. "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently. Warren Buffett, CEO - Berkshire Hathaway

28 Save the Date September 21-24, rd Annual Conference Austin, Texas 28