REP 16 - Your clinic and fraud: a cautionary tale
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.
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.
Over to you
- Have you ever experienced fraud in the physiotherapy profession? At work? What happened?
- How do you vet potential team members to avoid fraudulent behaviour?
- What processes did you put in place to prevent fraudulent behaviour?
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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