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REP 16 - Your clinic and fraud: a cautionary tale

Physiotherapy Alberta

Starting a new business has its risks, maybe even more so for physiotherapists, as they are typically not formally trained in business. 

But there are some risks that even the most seasoned business owner can’t completely avoid, such as fraud. Corporate fraud is a reality for many business owners. 

Corporate fraud is done either by or against a company. It is often done by the misappropriation of company assets, creating fictional revenues, concealing expenses, or under/over stating revenues, and often involves the theft of revenue or data (personal information, etc.). 

According to the Global Economic Crime Survey completed by PricewaterhouseCoopers (PwC) in 2011, 34% of the 3,877 companies surveyed worldwide reported that they were victim to economic crime. Of the Canadian companies surveyed, 32% reported being victim to economic crime during the previous 12 months. 

We often hear about large businesses being defrauded, but often don’t consider that your physiotherapy businesses might be at risk as well. Reg Speers, a physiotherapist who has owned six physiotherapy clinics in Central Alberta, learned this the hard way. 

Reg has agreed to share his story to prompt physiotherapists who currently have a business or to those thinking of starting a new business to think about safeguards to prevent fraud. 

 

Reg’s Story 

In 2000, three months after graduating from the University of Alberta, I purchased my first physiotherapy clinic. I have owned six physiotherapy clinics in Central Alberta, and all have been or continue to be successful businesses with the exception of one. 

The first clinic I owned I merged with another in the same area of the city. Soon afterwards, an office manager was hired to help manage the day-to-day administration of the clinic. Unbeknownst to my partner and I, the officer manager opened an account and redirected funds meant for the clinic. 

Cheques were deposited into this account with the office manager then deleting the transactions associated with the deposited funds on the clinic’s software. The misappropriation was not detected due to the office manager’s alteration of the accounting records. 

During the period from November 2001 to September 2004, the office manager defrauded the business of close to $500,000, and used the funds deposited into the fraudulent account for personal expenses and to gamble at local casinos. 

I was aware that something was not right with the clinic’s accounting, as revenues were being generated but not profit. In addition to discussions with my accountant and bookkeeper, in late 2003, I brought in the expertise of an outside company to help my financially struggling clinic, but to no avail. 

And then, in early September 2004, a client reported that a $720 outstanding bill for physiotherapy services at the clinic had been paid by the client’s insurance company. 

I called the insurance adjuster associated with that client’s claim, and requested a copy of the front and back of the cheque that was to have paid the client’s bill. When I examined the back of this cheque, I noted that the cheque had been deposited at a financial institution that my clinic did not have a bank account with. 

Later, it was discovered that the bank’s policies and procedures had not been followed when the office manager opened the account. 

Further investigation uncovered the entirety of all the misappropriated funds. After filing a police report, my associates and I attempted to confront the office manager at the clinic. 

Subsequently, the office manager filed false claims at the local Health Region offices claiming the physiotherapy clinic misappropriated funds and double-billed the Health Region, which resulted in an investigation and legal action by the Health Region. 

In the end, the office manager was charged criminally and it took more than three years for this matter to go to criminal court. 

The office manager was eventually convicted in 2008 of two counts of fraud and one count of perjury and sentenced to four years in prison. The unfounded allegations made by the office manager to the Health Region were resolved. 

After several years of legal battles, which had many sleepless nights and a lot of frustration, I have learned many valuable lessons both personally and professionally. 

For more information about Speers Health Clinics, visit speershealthclinics.com

 

Tips to Prevent Fraud 

No one wants to be a victim of fraud. Not only does fraud make businesses lose money, it can also affect other aspects of business. According to the PwC survey, of those companies that were victims of economic crime, employee morale, business relations and reputation/brand were significantly damaged by economic crime.

  • Fraud risk assessment – These assessments should be performed on a regular basis to ensure your security measures are up-to-date.
  • Education – Educate your staff and yourself on recognizing signs of fraud and/or scams. The more you know the better you can protect yourself and your business.
  • Reporting mechanisms – Allow ways for staff, vendors or customers to discretely report any tips or suspected illegal behaviour. Follow through and investigate all claims.
  • Create a code of ethics and business conduct – Ask employees and all future new hires to read and sign the code of ethics.
  • Screen staff – According to the PwC survey, 56% of the organizations worldwide that were victims of economic crime reported that it was committed by an employee. For staff with positions of financial responsibility or for those that have access to secure information, perform background and/or credit checks prior to hiring.
  • Culture and environment – Try to create an open and honest culture, and positive work environment.
  • Protect against cybercrime – Reassess your online, computer, or server security features as technology evolves quickly. In the PwC survey, cybercrime is one of the four top economic crimes as it is low risk and high reward. Personal information is often a target of cybercrime; be sure that is protected as well.
  • Implement a response plan – Create a plan on how you’re practice will deal with suspected fraud.
  • Get professional advice – Looking for more tailored advice? Ask your accountant or lawyer. Visit http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/h_00122.html for more information.
  • Report Fraud – Fraud often goes unreported. If you are a victim of fraud, make sure you report it

http://www.antifraudcentre-centreantifraude.ca/reportincident-signalerincident/index-eng.htm 

 

Over to you

  1. Have you ever experienced fraud in the physiotherapy profession?  At work? What happened?
  2. How do you vet potential team members to avoid fraudulent behaviour? 
  3. What processes did you put in place to prevent fraudulent behaviour?

 

References 

1. Coenen T. A Three-Point Plan to Prevent Corporate Fraud. Available at: http://www.allbusiness.com/accounting/forensicaccounting/4968016-1.html. Accessed: February 2013.

2. Henderson S. Corporate Fraud Still Fourishing. Available at: http://www.camagazine.com/archives/print-edition/2006/ march/upfront/news-and-trends/camagazine8040.aspx. Accessed February 2013. 

3. MacFregor S. Fighting Fraud. Available at: http://www.pwc.com/ ca/en/private-company/lets-talk/fi ghting_fraud.jhtml. Accessed February 2013. 

4. PricewaterhouseCoopers LLP. Cybercrime: protecting against the growing threat. Available at: http://www.pwc.com/en_GX/ gx/economic-crime-survey/assets/GECS_GLOBAL_REPORT.pdf. Accessed February 2013. 

5. PricewaterhouseCoopers LLP. The Global Economic Crime Survey. Available at: http://www.pwc.com/en_CA/ca/risk/ forensic-services/publications/economic-crime-surveycanadian-supplement-2011-en.pdf. Accessed February 2013. 

6. Royal Canadian Mounted Police. Major Fraud. Available at: http://www.rcmp-grc.gc.ca/ccb-sddc/fraud-fraude-eng.htm. Accessed February 2013

 

Published in Physiotherapy Alberta Newsletter PT Issue 1, 2013 https://www.physiotherapyalberta.ca/files/newsletter_issue_1_2013.pdf 

 

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Comments

This is an illuminating story.  However, it falls to the business owner to have in place adequate oversight to all business systems. If the clinic was indeed losing 150k a year in cash receipts, the failure is of clinic management to not identify that glaring error. To anyone starting out in private practice, I would highly suggest some education in basic financial management - learn to read a balance sheet, be familiar with basic accounting terms, and obviously in this case learn how to review receivables and correlate to payment summaries. After 23 years in a large private practice, I still check the a/r reports in detail. Attention to basic metrics such as accounts receivables should identify a problem before it becomes an issue, for fraud avoidance or just for good busines practice. Our clinic has lost some small cash payments over the years  - we no longer offer payment by cash, which can make simple fraud and theft less easy.

While running a physiotherapy clinic is a business, not every person who opens a clinic is a natural business person.  It is important to have people you trust to assist you in your business, and to have appropriate oversights in place.  This story was republished to increase everyones's awareness of the need for having these oversights.  

@CPA_Melissa

Consider me fatigued. This #30reps experiment has proven that being reminded daily about fraud, unethical behaviour and the shortcomings of some professionals only makes me want to unsubscribe from the mailing list. (I understand it is an important topic, but it only took about #5reps to drive the point home) I now dread seeing it in my inbox. I will persevere and hope the next #30reps can prove to be more applicable, informative and uplifting. Would love to know about the great things that are happening in our profession. 

 

Thank you for your feedback. We will take this into consideration for future awareness campaigns. We wanted to point out that the stories are labelled green, yellow or red to indicate good practice, cautionary tales and practices that should be stopped and reported. In total, there are 7 green blogs, 17 yellow blogs and 6 red blogs. We do understand that it is uncomfortable to read about some of these issues however it was felt to be an important topic to tackle and discuss openly. Different posts are resonating with different people depending on their specific circumstances. 

Unsubscribing from emails: If you're interested in how to do this, at the bottom of each #30REPS email, there's a sentence "Want to manage how often you receive #30REPS? Click here".  You can update your preferences by unticking the #30REPS box. 

Thanks again and hope you check in to chat about fraud, abuse and waste!

@CPA_Chantal

 

Consider me fatigued.  I'm with you on this.  In 2015 I enjopyed #reps and felt invigorated with my profession.  This year the 30 reps is quite a downer with Fraud and Malpractice.  I want to read 30 reps to invigorate my practice not to discourage me. CPA I am disappointed with your offerings this year.

Thank you for your feedback. We appreciate hearing your reaction to #30reps. We understand that this is not the most uplifting of topics. CPA decided that it was time to tackle this difficult subject for the good of the profession. 

CPA members will be asked to demontrate their commitment to ethics and professionalism which is something we can all be proud of. Stay tuned for blog post #30...

@CPA_Chantal and @CPA_Melissa

I agree with the comment above. The focus has been overwhelmingly negative. Please give us something positive and uplifting to reflect upon!

Burying our head in the sand will not make issues disappear or erase them. I think the 30reps have been eye opening and thought provoking. Well done. 

Thanks for sharing this story.  I have to commend the owners of this clinic for actually going ahead and pressing charges so that this person could not walk away and commit this crime again.  I have heard that this is more usually the case as everyone involved is among other things very embarassed.  As clinicians we are often more involved with treating patients than looking after the financial end of things.  This may also happen in other areas of life.

I heard ot a case many years ago that occurred in Florida many years ago in a clinic run by a well respected manual therapist.  The office manager involved was very well liked and trusted implicitly.  After she left and another office manager started, I believe they stopped counting the losses at around 100K.  Several of the therapists at the clinic actually had to get counselling afterwards due break of trust issues involved with someone who they thought was their friend.  Charges were never filed as I believe "it was complicated".  Unfortunately, I have friends also whose treasurer at the church made off with over 500K.  Again I believe no charges were laid as yes "he was their friend",

I am sorry that this topic has made some people uncomfortable, but I believe sorry uncomfortable topics are sometimes part of our education

Thank you for bringing up these stories.  It does take courage to take action, especially when trust relationships have been broken.

@CPA_Melissa

I have found these reps very interesting and the short nature of them easy to include in my busy days. I remember some 20 years ago before extensive use of computers, our front desk manager would not give out receipts to some people and just pocket the cash and check it off in the chart - no back up cross reference I believe - just chart and receipts. I was only a staff physio, not an owner, and when I was at the front desk one day and gave out a receipt the patient said she had never been given a receipt before - I was confused,

 

 

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