C-suite fraud: Cases and deterrents

Recent cases of proven and alleged fraud by executives raise the issue of how companies can anticipate and respond to this problem.

A federal grand jury in Texas, for example, convicted Earnest Gibson III, president of Riverside General Hospital, his son and two others for participating in a $158 million Medicare scam involving partial psychiatric hospitalization services, as FierceHealthPayer:AntiFraud reported. Gibson and his co-conspirators billed for intensive psychiatric treatment that turned out to be a sham. Evidence also showed Gibson paid kickbacks to recruiters and owners of group homes for delivering ineligible beneficiaries to the hospital.

And in New York, executives of a large substance abuse treatment organization were charged in kickback and insurance fraud schemes, the state attorney general's office announced. Alan Brand, CEO of Narco Freedom, allegedly received a monthly kickback of $13,000 for housing some of the provider's facilities in the buildings of a particular real estate developer.

Brand used Medicaid dollars to pay the rent, and there were plenty of those available since Narco Freedom receives about $40 million annually from Medicaid, the announcement noted. Moreover, Brand's son Jason stands accused of filing a bogus $3.5 million insurance claim for restoration of a treatment facility in Brooklyn.

Whether executives break the law themselves or fail to prevent staff from doing so, "organizations urgently need to improve their employees' ability to report C-suite misbehavior without retribution," according to an article in Fraud Magazine. "But longstanding countermeasures, such as fraud hotlines and whistleblower protection programs, can help expose and even prevent executive fraud."

These resources must be designed, implemented and managed well enough to instill trust in them. Employees must know they'll be protected from retribution and that their concerns will be appropriately investigated, the article added.

"The real concern is how you make it easier to report wrong-doing for, say,a junior management accountant with three children and a big mortgage," Michael Woodford, a former CEO who blew the whistle on C-suite colleagues, told Fraud Magazine.

It's also important to have the whistleblowing function report to neutral parties, such as the chairperson of the audit committee of the board of directors. Reporting C-suite misconduct to executives can be futile, the article noted.

For more:
- here's the New York Attorney General's office announcement
- read the Fraud Magazine article (used with permission)

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