Starting Out: For new and budding fraud examiners
controls and proper oversight should be the bedrocks of any
organization’s approach to preventing fraud. But when corrupt
individuals enrich themselves and make false statements to perpetrate a
fraud, it becomes the beginning of the end. One recent case highlights
the problems faced in both the prevention and investigation of a corrupt
manager and an organization that lacks many principles of an effective
nonprofit. The lessons learned for new (and experienced) fraud examiners
NEIGHBORS HELPING NEIGHBORS (BUT NOT ALWAYS)
is a small town in the middle of the mountains of Southwest Virginia.
Its population is just under 2,100, and the median annual income is just
over $31,000. Saltville claims a rich history, but sadly the town has
become better known for a series of scandals in recent years.
staples of living in a small town are the sense of community and the
importance of “neighbors helping neighbors.” Most American towns,
especially in rural areas, are proud of their volunteer fire and rescue
squads. These departments respond to traffic accidents and fires. They
transport patients and serve as vital lifelines (literally in some
cases) for their neighbors.
However, small-town departments
aren’t immune to fraudsters who take advantage of their positions of
responsibility. In February 2012, the U.S. attorney for the Western
District of Virginia, along with the Virginia Attorney General’s
Medicare Fraud Control Unit, indicted the Saltville Rescue Squad Inc.,
and two of its employees, Eddie Wayne Louthian Sr. and Monica Jane
Hicks, for their roles in a scheme to defraud the Medicare program of
more than $900,000 in a six-year period.
As described in the
indictment and court documents, Louthian was the president and business
manager of the rescue squad. Hicks was the squad’s health privacy and
records manager. She waived trial and later pleaded guilty to a single
count of conspiracy to commit health care fraud.
scheme for the fraud, which he and Hicks began in 2005, was pretty
simple. Among other ambulance services, the squad provided non-emergency
transport to local hospitals or care facilities. Saltville routinely
provided this transportation for three dialysis patients — identified as
“N.H., B.M. and J.R.” in court records.
Medicare regulates the
reimbursement process for non-emergency ambulance transports. Patients
must be confined to their beds or otherwise be in a medical condition
that necessitates ambulance transport. Louthian and Hicks knew the three
patients didn’t qualify for non-emergency transport because they had no
To be paid for the dialysis transportation
expenses, the squad submitted the call sheets and transportation records
for the three patients to health insurer Anthem Blue Cross Blue Shield
and Medicare. These providers relied on these records to evaluate and
pay the claims.
However, Louthian knew the squad wouldn’t be
reimbursed if the insurance providers knew that all three patients were
ambulatory. So, he and Hicks doctored and falsified the call sheets to
show that the three dialysis patients couldn’t walk unassisted. Louthian
directed Hicks to forge physicians’ signatures on the insurance
providers’ “certificates of medical necessity.”
every fraud case, we always ask, “Why did they do this?” These were
trusted managers of a community-based emergency medical service. They
were friends and neighbors in a very small town. What led them to commit
At the trial, a special agent from the Internal
Revenue Service – Criminal Investigation Division testified that
Louthian’s salary doubled during the six-year run of the scheme. He also
purchased expensive real estate.
Louthian paid himself
generously. His annual salary began at $20,000 in 2005 when he took over
the position. By the time his scheme was in full force, he had given
himself a substantial raise and was earning $52,000 a year.
squad also benefited. In June 2008, the squad purchased 40.37 acres of
land for $175,000 and later moved into expensive new digs. However (and
possibly unbeknownst to some members of the rescue squad’s board of
directors), the land purchase was part of a package deal in which
Louthian also bought an adjacent five-acre tract for only $10,000 from
the same seller — a classic case of insider dealing and a
January 18, 2012, a federal grand jury returned an indictment that
charged the Saltville Rescue Squad, Louthian and Hicks as corporate
- The squad as a corporation was charged with one
count of conspiracy to commit health care fraud, one count of health
care fraud, five counts of making false statements in relation to a
health care matter and two counts of money laundering.
was charged with one count of conspiracy to commit health care fraud,
one count of health care fraud, four counts of making false statements
in relation to a health care matter, two counts of money laundering and
one count of making a false statement to a federal grand jury.
was charged with one count of conspiracy to commit health care fraud,
one count of health care fraud and one count of making false statements
in relation to a health care matter.
indictment alleged that between Dec. 6, 2005 and Sept. 17, 2011, the
defendants fraudulently billed Medicare approximately $1.65 million and
fraudulently received approximately $750,000 in reimbursements for
Medicare ambulance transports. Between Dec. 20, 2005 and Sept. 3, 2011,
the defendants also fraudulently billed the insurance provider
approximately $1 million and fraudulently received approximately
$130,000 in reimbursements for the ambulance transports.THE FALLOUT
ensued after the charges went public. The board of directors voted to
shut down the organization, but because of a technicality in the vote
(all the board members hadn’t voted, as required), the board vote was
invalidated. Many board members quit. The episode became a toxic
quagmire for the town.
Hicks, the former business manager,
pleaded guilty and received probation. Louthian and the squad went to
trial. The squad was ultimately acquitted of any involvement. Louthian
was convicted in September 2012 in a jury trial on one count of
conspiracy to commit health care fraud, one count of health care fraud,
four counts of making false statements in relation to a health care
matter and one count of making a false statement to a federal grand
In March 2013, Louthian was sentenced to 48 months in
federal prison and three years of supervised release. The judgment
against him was $907,521, the full amount of the fraud. The court ruled
that assets associated with Louthian, including bank accounts, vehicles,
real estate and an ambulance service, would be forfeited in partial
satisfaction of the judgment.LESSONS LEARNED
case of the Saltville Rescue Squad presents some very compelling
lessons, especially for small town non-profit organizations and
community-based service providers.
First, the classic “tone at
the top” principle, for better or worse, reigned. Members of the squad
listened to, and followed the directions of, their leadership. Sadly, no
one considered that falsifying run sheets was a federal crime. This
case illustrates that when the leadership of an organization doesn’t
establish the proper control environment, fraud often follows.
of course, internal controls matter. Two separate positions did handle
the insurance provider charges. However, it appears that no other
controls were in place. King assisted Louthian, who ran the squad for
his personal benefit. If the organization was ever audited (and it
sounds like it wasn’t), the audit must have been cursory and not
Third, the town didn’t prepare for the community
damage. In Saltville, the prospect of shutting down the rescue squad was
a non-starter, but efforts to curb the squad and reorganize were
disastrous. The squad board wasn’t any more transparent than the
original squad. Some small communities can have a monolithic “us versus
them” mindset and a “you can’t tell us what to do” attitude. Auditors
and fraud examiners must be mindful of this.
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