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Friends with benefits

By David Malamed

Technology is a two-edged sword when it comes to benefits fraud: it makes it easier to defraud the system, but it also helps to detect fraud.

In February, the Toronto Transit Commission (TTC) said it had dismissed 73 employees in connection with a multimillion-dollar benefits fraud scheme. The announcement was made about a year after the agency fired 12 employees and revealed it was investigating some 600 others in connection with a scam it said could cost the city more than $5 million.
The case was first investigated in early 2015. Four months later, in July, police arrested Adam Smith, the owner of Toronto orthotics shop Healthy Fit, and two of its employees. The three were charged with fraud over $5,000 and laundering the proceeds of crime. Police were also investigating a few Toronto-area doctors in connection with the alleged frauds, according to Det.- Sgt. Robert Stewart.

Healthy Fit’s website encouraged visitors to shop there. “Most services and products are covered under your Extended Health Benefits plan,” the website said. “No referral required.”
Benefits fraud is an incredibly easy scam to perpetrate and, perhaps as a result, all too common. In this instance, a large number of TTC employees purchased items from Healthy Fit, such as orthotics, knee and back braces, cervical pillows and compression stockings — the type of products many TTC workers could conceivably require, considering the manual labour involved in many of their jobs. Although some claims were legitimate, many were not. The employees involved in the scheme submitted fraudulent invoices, created by the store, for unnecessary products and, after being reimbursed, “split the cash with Healthy Fit,” Stewart said.

At the time the charges were laid, Stewart said the police were examining some 500 claims. “It’s a bit of a nightmare for investigators to untangle it all,” he said. “I can’t begin to give you numbers. We’re just not there yet; we’ve got mounds of paperwork to go through.”

In some cases, employees never actually received the item that Manulife Financial, the TTC’s insurer, reimbursed them for, the National Post reported. In other cases, the receipts for the items were allegedly inflated.

Of note to companies unsure of the usefulness of an employee hotline, the investigation came about following a tip that came through on the TTC’s whistleblower program, TTC CEO Andy Byford said.

Also of note, TTC spokesman Brad Ross said the TTC saw a $5-million reduction in benefits claims from 2015 to 2016, but added the decrease could not all necessarily be attributed to the alleged fraud. While that is likely true, some of the reduction likely resulted from potential abusers fearing that they, too, could fall under suspicion and possibly have to face charges if their fraudulent claims were discovered. It’s a compelling argument for the power of deterrents, especially one that sends a message that offenders will face serious consequences.

Benefit fraud in Canada

How extensive is benefits fraud in Canada? In “The Abuse of Benefits” (October, 2014) Joel Alleyne, then executive director of the Canadian Health Care Anti-Fraud Association, said, “We spend about $200 billion yearly on healthcare in Canada, of which $140 billion is in the public sector and $60 billion in the private one,” he said. “Fraud represents anywhere between 2% and 10% of that total, which translates to between $4 billion and $20 billion in dollar amounts.”

Further evidence of the prevalence of benefits fraud in Canada was demonstrated by the news of two other public cases that came to light in February. One focused on St. Michael’s Hospital in Toronto, which announced it had fired 31 employees in relation to “irregularities in some employee health benefit claims,” hospital spokesperson Leslie Shepherd told Benefits Canada. The hospital wouldn’t disclose details other than to confirm that a routine audit uncovered the irregularities in some claims, totalling about $200,000.

That same month, York Regional Police terminated Const. Salwa Husseini, who had been charged along with another officer with benefits fraud several years earlier. According to an agreed statement of facts, Husseini had submitted more than 15 fraudulent claims to her police insurance firm.

Also in February, two veteran firefighters, each in their 50s and members of the Toronto and Hamilton fire departments, were charged with fraud and money laundering in relation to the misappropriation of workers’ compensation awards to widows and families of retirees. They are also being sued for $4 million by their union in relation to the alleged offences.

“The charges, including fraud over $5,000, are in relation to ‘advocacy work’ [the firefighters] did to help families of firefighters killed or injured in the line of duty in applying for Workplace Safety Insurance Board benefits for job-related diseases between May 2011 and February 2014,” The Toronto Star reported. The families, it is alleged, “didn’t receive the benefits of those donations.”

Technology: a two-edged sword

One reason why benefits fraud seems commonplace, says Benefits Canada, is due to technology. The ease of submitting benefit claims was identified as a leading factor in the rise of this problem. “Need to get reimbursed for your chiropractic appointment this morning? No problem: your healthcare provider can submit your claim electronically right after your visit. Or you can use your smartphone or tablet to do it yourself — all in a matter of minutes,” editor Alyssa Hodder wrote. “An interconnected world makes it easier and more efficient to manage health insurance claims, but that faceless interaction with technology may also make it more tempting for people to abuse the system.”

Brent Allen, director of sales and service with insurer Green Shield Canada, told Hodder that about 95% of Canadian plan sponsors have been victimized by fraudulent claims, citing the 2004 Canadian Health Care Fraud Survey. The most common types of benefits fraud include submitting false claims for services that aren’t received and increasing the number or dollar amount of services provided, he said.

Technology is a two-edged sword when it comes to benefits fraud, however. It makes it easier to defraud the system but it also helps to detect fraud. “Data-crunching technology is increasingly being used to complement the human eye, looking at predictive analytics and other analytics to scrutinize incoming claims, identify potential problems, create alerts and even assign risk scores to claims coming in,” Alleyne says.

For example, Benefits Canada reported “insurers can estimate a particular provider’s revenue or capacity — based on factors such as its size and location — and put an algorithm in place to identify the trend line for that provider,” says Stuart Monteith, senior vice-president of group benefits with Sun Life Financial. “If claim patterns move off that trend line, it triggers an investigation.”

Pattern-recognition technology is another tool to detect benefits fraud. Just as banks look at changes in credit or debit card use and flag unusual activity, “we’re now applying some of that as well to healthcare cards and healthcare fraud,” says Alleyne.

The best deterrents

Combating benefits fraud is no easy task, because the sheer volume of claims — especially in large organizations — makes it difficult to identify abuses. And education remains the best deterrent. Employees need to understand that fraud is not a victimless crime and that they can end up paying for fraud through higher premiums or reduced coverage.
They also need to be aware that sophisticated processes are in place to detect fraudulent claims. Most people are aware that technology can accomplish in a few seconds what it used to take a lot of man-hours to do, if it could be done at all.

But as the reduction in claims at the TTC seems to suggest, the most powerful deterrent could be the threat of prosecution if caught. In the US, some fraudsters receive lengthy jail sentences for offences that in Canada would likely bring them a fraction of the time behind bars.

In February, a man in Naples, Fla., was sentenced to 14 years in jail for his role in a US$2-million benefits fraud case. He was convicted of conspiring to commit mail fraud for having helped operate unlicensed chiropractic clinics and billing automobile insurance companies for personal injury protection benefits, the Naples Daily News reported. He and his co-conspirators “also paid patients to induce them to seek treatment at the unlicensed clinics so the insurance companies could be billed for their PIP [personal independence payments] benefits, the US attorney’s office in the Middle District of Florida reported.”

Although Canadian penalties do not need to be that harsh, it’s possible that many Canadians see little risk in the occasional false or inflated benefits claim, which might lead a small number to believe that a large-scale fraud of the same ilk will not likely bring about a lengthy sentence, if they’re caught.

For forensic accountants retained to advise companies or insurers on how to reduce this prevalent type of fraud, perhaps the most powerful message to convey is that while the fraud might profit the perpetrators in the short term, if they’re caught the chances are considerable they will spend time in a place that has few benefits to their health or overall well-being.

David Malamed, CPA, CA•IFA, CPA (Ill.), CCF, CFE, CFI, is a partner in forensic accounting at Grant Thornton LLP in Toronto.

This article was originally published in the May 2017 edition of CPA Magazine.