Fraud Risks in the Health Care Profession

Published August 11, 2011

By Ken Wilson, CFE, CSAR

The health care profession ranks fourth in the nation, behind banking, construction and retail, in employee embezzlement, according to studies conducted by the Association of Certified Fraud Examiners.  The average loss for a small business is $200,000.00.

I have personally investigated losses substantially greater than this, up to $1.9 million and as low as $500.00. Actual costs are always much greater than the dollar amounts, when you add in legal, accounting and investigative expenses, not to mention the emotional toll these thefts take on the owners, their staff and their families.

When a long time, trusted employee steals from a business the feeling of being personally violated impacts everyone.  The owners can’t help but ask these hard questions: Why didn’t I see the red flags sooner?  How could this employee have done such a thing?  What do we do now?  From my experience, these questions are very typical. 

Victims of employee embezzlement need to remember they should not be too hard on themselves for the dishonest conduct of an employee.   It was no more the owner’s fault for the embezzlement than it would have been if their house was burglarized and the front door was left unlocked or a window not closed. Yes, there are things business owners can do to lessen their risks.  Having procedures and safeguards in place are equivalent to locking the front door and closing the windows.  Having trust in an employee, who later takes advantage of that trust, is not a fault, but an admirable quality. 

It is true you cannot safeguard against every possibility, but when it comes to employee embezzlement, removing opportunity removes an essential component of what is called the “fraud triangle”.  According to the Association of Certified Fraud Examiners, the fraud triangle consists of three components.  The first is “opportunity”, the second is “financial need” and the third is “rationalization.”  Only when an employee has a financial need, is able to rationalize their dishonest conduct and has an opportunity to steal, will they actually commit the crime.

The next issue will discuss the “red flags” of fraud.