• Practice makes imperfect

    A charismatic fraudster drains a physicians’ practice for more than 20 years

    Fraudsters are often able to deceive their victims for long periods of time through gained trust and personability. These cases cut their victims the deepest as not only have they lost money, they’ve been personally betrayed as well. That was the case with a 12-person medical practice that housed a charismatic fraudster for two decades.

    Total Primary Care Pros was first established by 12 practitioners, with the friendly Brian* as the lead administrative physician. Brian was a well-liked figure in the community. He was a very charismatic person and appeared to be the perfect professional, spouse, parent and friend — the type of person you want to point to as an example to others.

    Brian was a very charismatic person and appeared to be the perfect professional, spouse, parent and friend — the type of person you want to point to as an example to others.

    Although the practice was buzzing with activity for nearly 20 years, the physicians in the practice noticed they were losing money, despite producing substantial revenues. Millions of dollars seemed to simply disappear. Some of the physicians became suspicious that something was going on. Many of the physicians were operating at a loss month after month. Some of the physicians believed many of the expenses that were charged to them seemed exorbitant. Several of the physicians left the practice over the years as a result. It was discovered that more than $25 million was skimmed and embezzled over a 20-year period.

    Initially, the partners were part of the decision-making process as far as expansion and general matters, but as the years passed, and as dissatisfaction set in because of low revenues, decision-making was transferred to “committees” — the financial ones of which were run by Brian and his closest allies. Whenever one physician would start calling for accountability, Brian and his friends would begin to ostracize them from the rest of the group, along with punishing the dissatisfied physician with a reduced schedule and inflated costs. These financial penalties were apparently levied to reduce their financial ability to hire outside help to pursue an audit or take other action. Most physicians who were hired to replace those who left were not concerned about finances because their spouses were successful, they had family money or they were nonconfrontational. Essentially these physicians were perfect targets for fraud schemes.

    It became evident that Brian was at least complicit when I met with him to discuss why there were no efforts to pursue recall or collections, which would increase revenues for all the physicians. His response was that he was satisfied with things the way they were. This was shocking because, if the financial statements were true, any physician would have jumped at the chance to find such easy ways to increase revenues. His body language screamed that he did not want anyone rocking the boat. This was a major turning point in the investigation. When the seventh physician, Ewan*, left the practice, he expected to be paid approximately $50,000 in accounts receivable, but was only paid a little more than $2,000. He hired my firm to investigate and we discovered that Ewan’s accounts receivable at the time of his resignation was closer to $100,000.

    When Brian first set up the practice, he implemented a confusing, overlapping financial records structure using three different software systems, all of which were antiquated. With poor record keeping and numerous individuals separately handling the incoming revenue, no one knew how much money was actually coming in to the practice. Untrained, unqualified and overpaid office managers were replaced often and financial information was withheld from other physicians. The partnership was set up as a corporation rather than the normal practice of a limited partnership which helps avoid double taxation on revenues. It was discovered that this was done to reduce liability if the fraud was discovered since corporations cannot be charged criminally, reported losses eliminated corporate taxes owed and Brian could plead ignorance.

    Brian used all these tactics to cover that he was skimming millions of dollars in revenue, which he diverted into 401K funds and used to pay state and federal taxes on the illicit funds. He also used company credit cards for unauthorized purchases. Brian underreported revenues and grossly overinflated expenses to conceal his fraud. In addition, each year the corporation reported losses when the skimmed profits would have resulted in double taxation. By fraudulently reporting corporate losses as a result of the skimming, Brian also defrauded the federal and state governments of tax revenues on the corporate income he had stolen over the 20-year period.

    The damage Brian’s fraud caused went much deeper than just lost revenue for the physicians in the practice.

    The damage Brian’s fraud caused went much deeper than just lost revenue for the physicians in the practice. These physicians were all exploited for two decades as the money they earned was systematically skimmed and embezzled. At the same time, they stressed about being able to take care of their families and were required to keep paying more and more money to the practice under the guise of expenses owed. Ewan stated that whenever any of the physicians asked why they were not making any money, they were told to "work harder." Of course, the harder they worked, the more money was stolen from them. Many of the physicians even took on part-time jobs to help support their families.

    By the time the fraud was discovered, Brian had taken total control of the administrative and financial leadership of the practice. He alone made all decisions regarding administrative and financial matters. Ewan took the results of the investigation straight to Brian and asked to be reimbursed for the losses Brian had caused. In turn, Brian used the practice’s legal counsel to file a civil case against Ewan, which was eventually dismissed. Civil and criminal charges are currently in process, especially criminal tax fraud regarding the fraudulent losses reported for the corporation and embezzlement. The cases are still pending.

    Lessons from the CFE: It is important that we do not succumb to the charm and charisma of individuals associated with our investigations. This is more difficult than it sounds because it is human nature to want to trust someone and have an internal confidant during the investigation. Additionally, just because the current circumstances of an organization have existed for a long period of time does not mean that there is nothing of importance to investigate. You might assume that if a fraud scheme had been going on for 20 years, somebody would have caught it. This case proves that is not true.

    Fraud against physicians, dentists and small medical practices is rampant because these professionals often do not have the means to hire qualified financial administrators, the knowledge to establish internal controls or the skepticism to spot charismatic, yet duplicitous, individuals. We have seen this pattern repeated with many medical and dental practices. Most physicians, dentists and other medical professionals are not trained during medical or dental school to handle the business side of their practices. Thus, they become prime targets for fraudsters. We investigated one case in which the office manager’s control of the financial data of the practice crippled the physician’s ability to deal with the fraud for fear of losing all his medical records. So, he allowed the office manager’s fraud to continue and hoped for the best.

    Lastly, follow your training. It is essential to always make your own financial documents from outside sources rather than relying on those provided internally. Assume nothing, take nothing for granted and approach any investigation objectively.