The Bogousslavsky Affair

Lake Geneva's pristine water in Switzerland is renowned for attracting wealthy tourists and investors. But a few years ago a prominent resident made it the splashy backdrop for a spectacular embezzlement case.

On March 12, Julien Bogousslavsky, 55, was found guilty of several charges of fraud including embezzling CHF5.3 million (almost US$7.6 million), according to genevalunch.com, the Lake Geneva regional community newspaper. He awaits sentencing, scheduled to take place in 2010, according to the March 25 article, "L 'Etat reclame advantage" in the Swiss newspaper 24 Heures.

Bogousslavsky was chief of the CHUV Neurology Department, professor at the University of Lausanne's Medical School, and a lieutenant colonel in the Swiss Army before his arrest in late April 2006.

"No one would have imagined that one among us, one renowned for his exceptional proven professional capabilities, would harm to such a significant extent the image of the CHUV [Centre Hospitalier Universitaire Vaudois] through the embezzlement of funds and could distress the labors of so many co-workers for several months," wrote Bernard Decrauzat, general director of Lausanne's hospital, the CHUV, in its 2006 annual report.

Bogousslavsky was accused of embezzling funds from the CHUV's budgeted, taxpayer-financed research as well as research funds provided by large pharmaceutical companies.

It's believed he used the diverted sums to support his passion for rare and antique books for his personal library. But according to the article, "Inculpé d'escroquerie, le neurologue du CHUV a passé la nuit en prison," published April 29, 2006 in 24 Heures, while Bougousslavsky pleaded guilty to most charges, he maintains that he didn't purchase the entirety of his rare book collection with his illicit gains.

Jean Treccani, the local district attorney, told 24 Heures he believed Bogousslavsky was telling the truth. He said he didn't think Bogousslavsky was a compulsive collector because, at the time of his arrest, he had considerable leftover cash in his accounts and two splendid houses - one in Epalinges-Switzerland and the other in the south of France.

Perhaps it was only a crime of convenience. According to several articles in 24 Heures around the time the story first broke, CHUV lacked the internal controls needed at the time to prevent Bogousslavsky from allegedly creating false purchase orders and subsequent false delivery receipts from fictitious companies for equipment that was never delivered to the hospital.

THE SETTING 

Lausanne, Switzerland, which is home to the CHUV; the University of Lausanne (UNIL); and the world-class, high-tech Swiss Federal Institute of Technology (EPFL), resembles North Carolina's vibrant Research Triangle.

Located in the heart of Europe, with a highly skilled workforce and strong focus on education and research, this Vaud Region attracts major corporations, particularly in biotechnology and medicine.

Area businesses, which receive lucrative grants for research and development, become natural targets for fraud and misconduct. These organizations strive to retain talented, highly skilled, and motivated staff, but they're also required to implement highly effective internal controls if they want to prevent fraud.

Fraud management programs help avoid drains in cash, equipment, and other assets. According to the article, "How Private Companies Stop Fraud," published in the October/November 2006 issue of Chief Executive magazine, they also minimize exposure to criminal and civil liability or threats that could compromise corporate reputation - a company's most prized asset.

Occupational fraud affects almost all organizations. The ACFE defines occupational fraud in its "2008 Report to the Nation on Occupational Fraud & Abuse" as the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources or assets.

The ACFE reports that most people who commit fraud are first-time offenders because only 12 percent of the offenders had previous convictions for fraud-related offense. Moreover, the ACFE reports that fraud is largely committed by employees who hold executive positions, who have been with a company for a long time, and who are thus respected and trusted employees. That was certainly the case with Bogousslavsky.

The ACFE says effective fraud management programs should start from top in the corporate hierarchy - to assess fraud risk, control activities, perform monitoring, and implement incident response and remediation. However, it says that organizations ought to further protect themselves by arming human resource departments with adequate resources to prevent "adverse selection." (The ACFE defines adverse selection as the practice of hiring people who run counter to the best interests and mission of an organization.)

According to the Report to the Nation, human resource departments should build organizational capabilities by combining thorough interviewing techniques with solid employee background checks during the hiring process while implementing strong internal controls and conducting regular fraud audits.

WHO IS BOGOUSSLAVSKY? 

According to media reports at the time of his arrest, Bogousslavsky, a member of a wealthy family, was born in Paris and arrived in Switzerland at age 4. He completed his scientific studies in Lausanne and pursued his medical studies at the University of Geneva. His paternal grandfather, a Cossack of Ukrainian origin, distinguished himself in the world of high fashion in France. His maternal grandfather was a successful musician - a specialist in jazz who founded the "Revue musicale" in 1919. His father was a sculptor who personally knew Picasso, Eluard, Aragon, and Léger.

Bogousslavsky, often quoted as a neurology expert, was due to preside at the annual congress of the European Neurological Society in Lausanne at the end of April in 2006. However, the discovery of the embezzlement and subsequent arrest put an end to a brilliant career.

Despite his entanglement with the law, Bogousslavsky was able to resume his practice in the Canton de Vaud with a private group of medical services, Genolier Swiss Medical Network (GSMN) at the Clinique Valmont in Glion, as the chief of neurology and neuro-rehabilitation in October 2006.

Antoine Hubert, president of the GSMN wasn't intimidated when hiring him.

"Click on Julien Bogousslavsky on Google and you'll find 37,000 references on neurology, and a few concerning this sordid affair," Hubert said in the Aug. 29, 2006 article, "Julien Bogousslavsky satisfait d'avoir retrouvé du travail," published in 24 Heures. "His medical capabilities are well recognized. In purgatory, he won't serve humankind. It would be a pity [to waste such a talent]."

We certainly hope Hubert has taken the necessary precautions to eliminate the "opportunity" element in Bogousslavsky's new work environment, where he remains employed until his sentencing.

Additionally, the Office of Invalid Insurance of the Canton de Vaud (Office AI du Canton de Vaud) calls regularly on Bogousslavsky for his expert testimony despite the federation's criminal charges. The AI office chooses the experts in line with their medical expertise, according to Jean-Philippe Ruegger, head of the office. He also said that Bogousslavsky hasn't been found at fault for medical malpractice and still holds his license to practice.

In fact, the Conseil de Sante, the Swiss federal authority that governs medical practice in Switzerland, awaits the completion of the criminal process to begin its own process against Bogousslavsky.

According to the Aug. 30, 2008 24 Heures article, "Le neurologue inculpé est resté expert pour l'AI," the medical community questions how the state can indict Bogousslavsky and yet tolerate that another public institution has commissioned him work.

The physicians agree there's nothing illegal in the state's calling on Bogousslavsky's testimony, but most question the state's actions and classify them as shocking and morally reprehensible.

THE OPPORTUNITY: ACCESS TO FUNDS 

According to the April 27, 2006 article, "Un chef de service du CHUV soupçonné de malversations par amour pour Ramuz," published in Le Temps, another large Swiss daily newspaper,

Bogousslavsky was able to access two money sources: the research funds and the service/specialty funds. These funds don't draw on the CHUV's ordinary budget. They're supplied by private grants and the honoraries from the CHUV doctors' private practices.

Research Funds
As chief of service, Bogousslavsky would create a credit line for funds to support a given research project. This money was deposited into a specific account in the CHUV's accounting system. The expenses for staff and the majority of purchases for the research project were controlled through this account.

The catch was that extraordinary purchases weren't subject to a double-signature control as were other purchases, which created an opportunity to fabricate fictitious suppliers. Over time, the extraordinary purchases account reached 10 percent of the total volume of purchases destined for CHUV research and development - a considerable sum.

Service/Specialty Funds
Going back to the late '80s, the private-practice revenues of the doctors employed by the CHUV traditionally would travel through the CHUV's accounting system. The hospital would take a share, depending on the specifics of each service or treatment. Another share would complement the doctors' overall salaries in various specialty areas.

The rest - 10 percent at a minimum - would go to service funds for continuing education and training, and to purchase needed materials among other purposes. The vague definition of needed materials (these could be, for example, materials needed for "effective management of the hospital's services") gave the CHUV's chief of service broad latitude in the use of these funds. Luc Schenker, CHUV's director of finance, advised that the double signature control system be used in all cases, but wasn't mandatory.

According to 24 Heures, the CHUV managed approximately 600 general research funds, which totaled about CHF 11 million in 2005. The cash flow through these funds was about CHF 8 million per year.

However, for the approximately 40 so-called "service funds," comprised mainly of money from private consultations at the CHUV, the comparable total was CHF 19 million and the cash flow totaled CHF 12 million per year for an average of CHF 300,000 cash flow per service fund.

In the case of the department of neurology's service fund, in which private practice revenues were significantly higher than most, the through-flow was above average.

REDRESSING BOGOUSSLAVSKY'S ACTIONS 

On May 23, 2006, Christie's in Paris auctioned Bogousslavsky's fabulously rare and antique book collection of the avant-garde movement (1890-1940) comprising works from Eluard, Picasso, Breton, and Apollinaire, among others.

The proceeds from the 134 lots, estimated to be worth between CHF 5.5 and 7.7 million (between about US$4.9 million and $6.9 million), were credited to an account controlled by the Swiss Ministry of Justice.

Ironically, this sum is well in excess of the funds Bogousslavsky diverted to acquire the collection.

SAVE MONEY WITH PREVENTION 

Prevention and deterrence are still the least expensive means to tackle fraud. The internal audits conducted by Pricewaterhouse-Coopers at the request of the CHV in the aftermath of this fraud scheme highlighted numerous and serious loopholes in the hospital's financial controls.

Adverse selection is reportedly one of the most costly errors any organization can commit. Corporate recruiters' poor interviewing skills and failure to scrutinize applicants' professional histories for top management positions are a lethal combination for fraudsters to reap exceptional benefits in the short term.  

Deniz Saral, Ph.D., is chairman and professor of business in the School of Business and Technology of Webster University's Geneva Campus. He is one of the founding members and former president of the Swiss Council on Occupational Fraud and director of The Hub, a center for entrepreneurial creativity in Geneva. 

Patricia Santos is the projects manager at The Hub and Deniz Saral's research assistant.  

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