Human Resource Executive Online published an interesting article- “Corporate Fraud Cases Decreasing?”, that’s based on the findings and conclusions of the release of the 2009 fourth quarter results of The Network’s Quarterly Corporate Fraud Index. There are a few different ways to look at the decline in reported workplace incidents- is there actually a decrease in the number of incidents taking place or are people becoming afraid to report fraud?

Fraud and workplace misconduct tend to make headline news stories now in the post Enron days- which makes it hard for some to believe that workplace fraud could be on the decline. Another issue that has made its way into headlines as well is the treatment of whistleblowers and the actions taken against them for reporting observed misconduct. Regardless of the established protections and company policies that aim to fight retaliation against whistleblowers, the backlash that they face could lead many to think twice before blowing the whistle in their company.

The Quarterly Corporate Fraud Index

In 2008, the Index reported a rise in the number of reported internal fraud issues, however, the findings for both the third and fourth quarters of 2009 show a slight decrease in the number of internal issues reported. The results of the Quarterly Corporate Fraud Index for the fourth quarter of 2009 state that the reporting of fraud/ workplace incidents accounted for 20.3% of all compliance hotline related activity from more than 1,000 organizations around the world. However, there are a number of different reasons that could contribute to the decrease in fraud reporting.

“In the wake of an economic recovery, this leveling, even slight declining, of in-house fraud marks progress,” said Luis Ramos, chief executive officer of The Network. “Yet, fraud reporting only tells part of the story. A leveling of the percentage of fraud reports could be the sign of a rebounding economy, a strong compliance program, or, in contrast, mean that employees are not aware of or comfortable with anonymous whistleblower reporting systems.”

Compliance programs, codes of ethical conduct and the installment of anonymous reporting systems in the workplace have been a focal point for companies in recent years. Companies have invested a significant amount of time installing these reporting systems and training employees on how to use them. The success of reporting systems ultimately boils down to the ability for management to communicate and train employees to make the right decision to report fraud and misconduct. Employers must also make sure that every employee is aware of the system and has the ability to access it and report issues in an anonymous manner.

Understanding the impact that ethics and corporate culture can have on a company has altered company goals and in some cases has even resulted in workplaces that encourage employees to report observed misconduct and reward employees (and executives) for making ethical decisions. Companies are gaining recognition for the development of “best in class” ethics programs and codes of conduct that govern the workplace- one example is Ethisphere, a think tank in New York City that publishes lists and rankings for ethical businesses, people and grades corporate codes of conduct.

Companies strive to be placed on these lists and recognized for their contribution to the creation of an ethical workplace because it communicates their ethical mission to consumers and can even lead to financial benefits- for example, Ethisphere listed Ford Motor Company as one of the companies on their 2010 World’s Most Ethical Companies list, since the release of this list last week, Ford’s shares have hit a 5 year high.

Some contribute the decrease in reported fraud to the success of these programs and the shift towards an ethical “tone at the top”. Many companies that have faced misconduct allegations in the public eye, such as Cisco Systems, have been quick to rid the company of executives and other employees who work against the ethical culture of the company and replace them in order to decrease the risk of going through a similar event in the future.

Reporting Dilemma

A report from BDO LLP, The Network’s partner on the Quarterly Corporate Fraud Index, has discovered that:

“9 out of 10 larger frauds are not reported to authorities. As Timothy Mohr, Certified Fraud Examiner and partner at BDO Consulting, explains, “companies need to continue to protect themselves from fraud regardless of where the fraud incident reporting percentages fall. This will build a stronger ethical foundation that will pay off for companies as the economy recovers.”

This statistic raises the point that some employees may not feel comfortable reporting misconduct or fraud that they observe in the workplace. Employers can establish anonymous reporting systems to gather tips and other information, however, chances are, once a case warrants an investigation, the claimant usually needs to be involved in the process in order to bring forward evidence and reasoning to support their claim- therefore, the ability to conceal their identity becomes sacrificed. In many cases whistleblowers tend to lose their jobs for making a complaint or they face retaliation which makes their workplace intolerable, forcing them to quit- we discussed these whistleblower situations in our post “Who is Most Likely to Uncover Workplace Fraud?”

Either way, there are many ways to interpret the causes of the decrease in reported misconduct. If anything, the study and the articles written about it send a message that committing to ethics is something that all companies need to work on in order to reduce risks for your company, its employees, the public and society in general.

When it comes to workplace compliance and ethics policies, many people feel that the policies don’t go far enough. On March 17th, ERC President Patricia J. Harned,  testified before US Sentencing Commission in Washington, D.C. Harned testified in support of the proposed amendment to sentencing guidelines that would make it possible for a company to receive a reduced penalty for ethics and compliance violations should the company prove that they have actively taken measures to prevent these violations in the workplace and that there is direct access to the company’s board of directors by their ethics or compliance officers.  

Harned also calls for some minor modifications to the original amendment proposed, based on research from the ERC that would make the rules more effective and reach further for companies.

Harned’s Three Key Points:

1. Preventing Future Misconduct Through Culture- Harned addresses the need for companies to not only evaluate their policies and programs once misconduct has been detected, but they should also re-evaluate the culture of the company. She states that “it’s often a finding after the fact that a culture existed where employees felt they were unable to report what they knew was going on.  In other cases, we find out later that employees felt pressured to engage in criminal activity in order to do their jobs. ”Companies with weaker cultures tend to be at risk of experiencing greater levels of misconduct. One of the major benefits for a company with a strong culture, as pointed out by the ERC is that:

“In its research, the ERC has found that when an organization implements the seven elements of an effective ethics and compliance program (per the guidelines) and establishes a strong ethical culture, misconduct is reduced by as much as 75%, reporting doubles and retaliation against whistleblowers is essentially eliminated.”

2. Ethics and Compliance Schedule- Harned stresses the important of not only creating a schedule for the implementation of a company’s ethics and compliance program, however, they feel that more should be expected of companies on probation and that they should also have to outline and develop measures for assessing the effects of their ethics and compliance programs once they are implemented. Many companies can measure their programs easily by comparing the number and nature of complaints from previous years against the number and nature of complaints received once an ethics and compliance program has been established in their workplace. Harned also notes that federal officials should hold companies accountable for using and disclosing the metrics used to measure policy/ program effectiveness.

3. Credit for Implementing Effective Ethics and Compliance Programs- The US Sentencing Commission asked Harned if companies should be given credit for implementing effective ethics and compliance programs even if their top level executives are involved in workplace fraud/ misconduct. This matter brings to light the case of considering who you place in these positions of authority within the workplace. You want to select leaders that will wind up committing criminal acts and who personally believe in ethics and compliance in all aspects of their life, as this will make it easier for them to make better decisions in difficult situations. The roles in a company’s ethics and compliance department are not suited for everyone- you will want to consider the skill set and personal beliefs of the individuals before placing them in these roles to ensure compliance within your company.

The Takeaway:

The three points addressed by Harned are all areas that need to be made a priority in top level decision making. Employers need to take all of the necessary precautions to reduce the level of risk associated with fraud and misconduct in the workplace- companies need to make sure that they have all of their bases covered, as it’ becoming increasingly common for companies to be found liable or negligent in court based on their lack of commitment to workplace compliance and ethics.

Culture sets the tone within an organization. You need to make sure that your corporate culture and the actions by those at the top remain inline with the desired culture in order for employees to follow and adopt the desired set of beliefs and actions. You want to strive to have a workplace filled with people who share your passion about your brand and their work- you want to make sure that there is consistency in the culture at all levels of your organization, as there are greater chances of risk if the rules change depending on specific areas within your company. Just like people, no two organizations are exactly alike.

The other major component to Harned’s advice is to choose your team wisely. You want to pick the right people to handle you compliance and ethics ventures within the workplace, therefore, you don’t want to place corrupt thinkers in these powerful positions. This type of thinking should also be applied when selecting employees at all levels within your company as both skill and personality should fit into the established corporate culture. The ERC has released a paper called “Leading Corporate Integrity: Defining the Role of the Chief Ethics and Compliance Officer“, in which they discuss the impact that the Chief Ethics and Compliance Officer has on your company. In the executive summary of the paper, the ERC states:

“The challenge before all executives is to achieve a balance between tailoring the CECO job to an organization’s unique characteristics while also providing the CECO with the necessary authority and tools universal to all those holding such positions.” 

“More than $60 billion in public and private healthcare spending was lost to fraud each year. That’s more than the net worth of America’s eight largest private foundations. And it’s 33 times the amount of money that Avatar – now the highest-earning movie of all time- has made at the box office”- Attorney General Eric Holder, National Healthcare Summit.

As amendments continue to be made to the Healthcare Reform bill that was signed by US President Barack Obama, there continues to be discussion about the need for a crackdown on healthcare fraud in the US.

In a daily e-mail I receive from Ethisphere and Corpedia, they write that the bill will “dramatically boost fraud enforcement by increasing anti-fraud spending by $250M and even more importantly, it will now be easier to bring criminal and civil prosecutions forward. ” They also suggest that now is the time for healthcare companies to evaluate and improve their existing compliance and ethics programs in order to prepare for the coming changes. President Obama has suggested that the reduction in fraud costs could help pay for the national health care program.

Some Implications for Employers

The Society for Human Resource Management has created a “Healthcare Reform“ page on their website that follows the updates and issues surrounding the passing of the US Healthcare Reform Bill. The SHRM states some of the implications that the health bill will have on employers, consisting of:

“Penalties would be assessed on employers with 50 or more employees who fail to offer coverage to employees.  The penalty would be assessed if even one employee receives a subsidy to purchase coverage through a health insurance exchange.  Employers would also incur penalties if the coverage they offer is considered “unaffordable” to the employee or if the health plan has an actuarial value of less than 60% or pays less than 60% of covered health care expenses.”

Right now it’s approximated that the penalties will be $2000 per employee should the employer opt out of purchasing medical coverage plans for their workplace.  Another feature that affects the plans offered by employers is the change in dependent coverage. There has been an increase in the age of a child dependent- up to age 26, for which a parent or legal guardian can now provide medical coverage for. As it currently stands, placing lifetime limits on coverage will also be banned by law. Another component that is currently included in the bill is the use of automatic enrollment for businesses that employe more than 200 employees. Regarding automatic enrollment, hr.blr.com reports that:

“Legislation will require that employers with more than 200 employees automatically enroll full-time employees in health coverage. The legislation will allow employees to opt-out of the coverage after automatic enrollment.”

In the case of small businesses that choose to offer medical coverage to their employees, hr.blr.com reports that:

“Beginning in 2010, tax credits of up to 35% of premiums will be available to firms that choose to offer coverage. The full credit will be available to firms with 10 or fewer employees with average annual wages of $25,000, while larger small employers will see smaller tax credits. In 2014, tax credits will be up to 50% of premiums for the smallest employers.”

It’s expected that amendments will continue to be made to the bill, as there is a lot of debate over certain elements included in the original bill. As an employer in the US, it will be important to remain up to date on all of the changes made and gain a solid understanding of what your obligations are to your employees regarding the healthcare coverage changes.

The success of an investigation relies heavily on reducing the risk of error during the investigation process- this requires paying attention to detail and careful planning. When preparing for and conducting internal investigations, there are many factors to consider. We covered some of them in the post “8 Internal Investigation Tips” but discovered that 8 tips were simply not enough.

You are held liable for reacting promptly and conducting thorough investigations once a complaint is made. This means that you need to complete your investigations properly the first time around- make the investigation a priority, collect all pieces of evidence, ask questions that cover all areas of the investigation and determine an appropriate consequence for the misconduct that was made.  

Here are some additional internal investigation techniques to consider when planning the process of your next workplace investigation:

1. Avoid Making Pre Judgments

It’s important to approach each investigation in a non-judgmental manner.  Avoid assuming whether the subject (the accused) is guilty or innocent until all of the facts have been gathered and all sides of the story have been heard. Jumping to conclusions before understanding the facts of the case make it difficult to conduct a fair investigation.

2. Determine if Temporary Dismissal is Required

There are some situations that require the consideration of interim dismissal of the subject while an investigation takes place. Temporary dismissal (with pay) or reassignment to another department in the workplace should only be considered if it’s decided that the presence of the subject hinders or influences key elements of the investigation (ie. evidence, witnesses, etc.). Should this decision be made, it’s important to provide reasoning to the subject for the temporary situation and explain that it isn’t a disciplinary action against them regarding the alleged misconduct. In the article “10 Steps to an Effective Investigation” on hr.blr.com, they state that

“Taking action before the investigation is complete may be necessary for health or safety reasons, or in situations that are very disruptive or emotionally charged. Temporary transfers, reassignments, or paid leave are examples of interim relief employers can use when necessary.”

3. Interviewee Signatures

The Personneltoday.com article “Trade Secrets: Conducting Internal Investigations” suggests that “at the end of each of the investigation interviews, it is best practice for interviewees to be invited to read through any notes the investigator has made and then sign them.” This allows for further clarification of statements made should there be a misunderstanding on behalf of either party. This also makes it difficult for the interviewees to try and go back on their word and aims to avoid future changes to their story.

4. Information Control

Create and follow a policy that limits the spread of investigation information. In the CSO article “Internal Investigations: The Basics“, they make it clear that ”employees’ reputations and relationship to the organization are on the line in an investigation. Careless disclosure of information causes rumors, damages productivity, and creates liability for the company and the investigator.” Disclose information only when necessary- which, in many cases, is only between the investigators on the team that is assigned to the particular case. With case management systems such as i-Sight Investigations Software, it makes it easy to manage cases and ensure that investigation information remains confidential, as it has customizable case assignment rules for that allow you to control case access. By keeping all pertinent case information in one easy to access place, i-Sight reduces the chance for information leaks during the investigation as you establish the access capabilities for each case for the members of your team.

5. Separation of Roles

It’s wise to have an individual or team working on the investigation process and then have a different individual or team make the final decision regarding the action to be taken regarding the misconduct. In many cases, a team of investigators will conduct the interviews, collect the evidence and other elements in the investigation process and then create a report that will be submitted to a specific department for review and decision making regarding the punishment decision. The investigation team can include suggestions that they see fit for reprimanding the subject in the report to be passed on.

Preparing investigation reports the old-fashioned way often requires a major time commitment.  With i-Sight, we have created drag and drop reporting, allowing investigators to simply click a button that generates a MS Word document- containing a comprehensive chronology of events/activities, the contacts that were made, the evidence that was gathered and the investigators’ recommendations that are pulled from the case information stored in i-Sight.

An investigation technique that will save your company both time and money is an investment in investigation software. Investigation software, such as i-Sight, allows you to effectively manage your case workflow, track the progress of case investigations and it also includes a feature that prioritizes and ranks the escalated risk associated with specific cases.

Other processes, such as spreadsheets and Excel templates make it difficult for collaboration during investigations and are difficult to modify as policies and regulations change- all of which are key features of internal affairs investigation software. In the article “Sarbanes-Oxley Compliance: GRC Technology vs. Spreadsheets“, expert Michael Rasmussen states

“Spreadsheets are a thorn in the flesh of risk and compliance. I have seen organizations with upwards of 40,000 spreadsheets collected for Sarbanes-Oxley, as control questionnaires are sent to nearly everyone in the organization. The questionnaires come back and the compliance team scratches their heads and says Now what? How do we manage and report on this data?”

When using an investigation software system, reporting is made simple- and faster, as all of the information in the case is populated and inserted into a custom investigation report template. i-Sight reports can quickly be exported in a variety of formats including MS Excel, MS Word, PDF, or CSV. These exported versions of your reports can be downloaded or emailed as an attachment. “The number one benefit of automating compliance activities is that you also streamline and standardize business activities. Technology reduces ambiguity, makes processes cleaner and makes you more efficient,” says John Hagerty in the article “Compliance Software Essentials: Build a Technology Toolbox“

It seems to be that each week is busier than the last. Here are some of the things we blogged about this week- as well as some other pieces that caught our attention regarding internal investigation, human resources and ethics:

Monday:

• Blog Post- SEC Investigations: The Enforcement Cooperation Initiative

“On January 13, 2010, the US Securities and Exchange Commission went public with a new initiative they have created in hopes of encouraging individuals and companies to cooperate with investigations. The plans from the SEC outline changes that could affect (for the better) the speed and efficiency of handling investigations and enforcement actions. As a response to these allegations, the SEC has created policies for both the cooperation of individuals and companies in order to better their investigation process. Some of these changes include the addition of new units to its Division of Enforcement, as well as the Enforcement Cooperation Initiative, in order to become more receptive to making deals with insiders/ witnesses to better understand potential violations.”

• Blog Post- Integrating Ethics Into The Core Of Your Startup – TechCrunch Article

“The article “Integrating Ethics Into The Core Of Your Startups: Why and How” was published on TechCrunch on March 20th. The article focuses on the importance of being ethical from day 1 when launching your startup company. Referencing the dramatic changes in businesses found on the S&P 500 and the Fortune 100, Vivek Wadhwa brings forward information from Michael Beer’s book “High Commitment, High Performance” to emphasize the importance that ethics plays in the business world today. There is a ton of great information in the article, so if you have a few minutes and are looking for a great read, check the article out here.”

Tuesday:

• Blog Post- Investigation Techniques: Employee and Witness Surveys

“Surveys are a great investigation tool when conducting witness interviews and gathering additional information from larger groups of employees. Although creating surveys can initially be time consuming and difficult to formulate, surveys can be used in a variety of situations within your workplace investigations to efficiently generate valuable information. The advantages of survey use for investigations are: objectivity, number of respondents, time, money and range. When preparing surveys, you must consider the purpose of the survey, who your audience is, the types and variety of questions to ask, completion time and the amount of writing required by the respondent.”

• Blog Post- Ethisphere: World’s Most Ethical Companies 2010

“Yesterday Ethisphere released their list of the World’s Most Ethical Companies for 2010. The businesses that made the list for 2010 received recognition for being leaders in their industry when it comes to their ethics and compliance programs. The number of businesses that make the list varies each year- this year there are 100 listed to the World’s Most Ethical Companies. Ethisphere reports that “of these companies, 26 are new to the list in 2010 and 24 companies dropped off from the 2009 list. These “drop offs” generally occurred because of litigation and ethics violations, as well as increased competition from within their industry.” Click here to see the methodology for determining the rankings for 2010.”

Wednesday:

• Blog Post- Medicare & Medicaid Fraud Investigations: Health Reform in the US

“An estimated $54 billion was lost through improper Medicare and Medicaid payments in 2009. In 2009, Bernie Sanders, US Senator for Vermont pushed hard to include the “fraud crackdown” in the healthcare reform bill. Sanders wanted to significantly increase, and even double the fines faced for those facing penalties for committing health care fraud. The White House claims that correcting the fraud that surrounds Medicare and Medicaid claims could double taxpayer savings over the next 3 years- providing a savings of at least $2 billion. The New York Times reports that “White House officials said that a pilot program run by Medicare in California, New York and Texas recaptured $900 million in taxpayer money between 2005 and 2008.”

Thursday:

• Blog Post- Employee Relations Best Practices: Costco’s Approach to HR

“When employees are happy, they are your very best ambassadors.”- Jim Sinegal, CEO, Costco. In 2008, Ethisphere named Sinegal to their list of the 100 Most Influential People in Business Ethics- he was ranked #37. The emphasis on employees at Costco is the key to the company’s success and ability to consistently provide a better shopping experience for its members. Jim Sinegal is the perfect example of how the tone at the top sets the tone for the entire company. Costco has developed a reputation as an employer of choice and has maintained a positive public image, all thanks to their brand ambassadors- their employees. Costco pays workers an average of $17 an hour and covers 90% of health-insurance costs for both full-timers and part-timers. Yet revenues have grown by 70% in the past five years, and its stock has doubled.”

Friday:

• Blog Post- Who is Most Likely to Uncover Workplace Fraud?

“There are lots of different ways that fraud is uncovered in the workplace. It may surprise many of you that it’s not the SEC you should fear- it’s your own employees. Employee whistleblowing continues to rise and has uncovered major fraud cases such as Enron, Pfizer and WorldCom. In the Dallasnews.com article “Whistleblowers Find More Corporate Fraud Than Regulators” they have reported that in the healthcare field, 41% of fraud cases are uncovered thanks to employees making the decision to blow the whistle. When it comes to reporting workplace fraud, the study reported that overall, 17% of the 216 cases they reviewed were uncovered thanks to employees within the company. SEC regulators only accounted for reporting 6.6% of the fraudulent cases reviewed.”

There are lots of different ways that fraud is uncovered in the workplace. It may surprise many of you that it’s not the SEC you should fear- it’s your own employees. Employee whistleblowing continues to rise and has uncovered major fraud cases such as Enron, Pfizer and WorldCom. In the Dallasnews.com article “Whistleblowers Find More Corporate Fraud Than Regulators” they have reported that in the healthcare field, 41% of fraud cases are uncovered thanks to employees making the decision to blow the whistle. Today, many companies are encouraging their employees to report cases of fraud that they discover in the workplace, the only problem is, when employees step up to the plate, many of them still end up losing their jobs and facing retaliation the leads to them quitting. Many whistleblowers have been asked if they would do it again- most of them have said no.

The Rise of the Whistleblower

A recent study that was released in The Journal of Finance, “Who Blows the Whistle on Corporate Fraud?” has reported that Securities and Exchange Commissioners aren’t necessarily the ones that corrupt executives and employees should be afraid of. When it comes to reporting workplace fraud, the study reported that overall, 17% of the 216 cases they reviewed were uncovered thanks to employees within the company. SEC regulators only accounted for reporting 6.6% of the fraudulent cases reviewed.

The report gives two very different reasons regarding incentives or reasoning behind a whistleblowers decision to bring fraudulent actions public:

One reason is the fact that

“On occasion, employees can gain from whistleblowing. When employees can bring a qui tam suit that the company has defrauded the government, whistleblowers stand to win big time: on average our sample of successful qui tam whistleblowers collect $46.7 million.”

On the other end of the spectrum, the decision to blow the whistle has more to do with ethics rather than monetary gain.

“For many employee whistleblowers the more important benefit to avoiding the potential legal liability which arises from being involved in a fraud. These types of employee whistleblowers face significant costs. In 45% of the cases, the whistle-blower doesn’t identify themselves individually to avoid the penalties associated with bringing bad news to light. In 82% of cases with named employees, the individual alleges that they were fired, quit under duress, or had significantly altered responsibilities as a result of bringing the fraud to light. “

Implications for Your Business

If you want to know if there are any fraudulent acts occurring within your company- your employees are usually the ones to ask. Since employees are the ones who deal with certain tasks on a day-to-day basis, being on the front lines puts them in a better position to know what is happening in each area of the company. The best whistleblower protection comes from company policies and practices once fraud has been uncovered and the whistle has been blown.

These protections tend to be left in the hands of employers, as there are too many grey areas surrounding whistleblower protection laws based on the nature of the fraud detected, the industry in which the employee works and the state in which the fraud was detected. It’s also important to consider the backlash your company takes when they develop a reputation for mistreating whistleblowers and employees who try to correct company wrongdoings in order to protect the public and the investors.

Business Intelligence at Work discusses the importance of internal investigations and their impact on a whistleblower case:

“Whether your firm is publicly- or privately-held, a well-run internal investigation designed to produce credible results can turn a potential corporate crisis into a valuable opportunity to enhance a company’s reputation. The credibility of the result of the investigation depends in large measure on the credibility of the process used, including 1) the process used in-house by HR, 2) that used by outside counsel and/or investigators, and 3) in-house HR’s coordination of both internal and external processes.”

As an employer or a member of your company’s human resource or audit committee, the way in which a whistleblower situation is handled greatly impacts the image of your company. Many businesses claim that they encourage their employees to come forward and report fraud that they detect in the workplace. Encouraging employees to help you in your fight against corporate fraud is good and all, however, many companies still don’t stand behind their employees when they actually come forward with an issue of fraud.

Solutions for Employers

Employers should consider establishing hotlines or other systems that allow for anonymous employee reporting, should they uncover fraud or other workplace violations. These systems make it easier for employees to build up the courage to bring these issues forward- without having to worry about losing their job or facing other forms of retaliation. Anonymous reporting systems make it easier for your investigations team to look into these claims and stop fraud and other violations from carrying on any longer. In many cases that have made it to public attention, it was noted that the fraud schemes had been taking place for a number of years without being reported.

Early detection and reporting of fraud is what allows many businesses under investigation to salvage their reputation in the public eye. When the public is aware that there was internal knowledge of fraud and it had been going on for some time, the public backlash is likely to cripple your company. Make anonymous reporting  of fraud accessible and possible for your employees- in your company’s workplace ethics and compliance policy, address the issue of reporting fraud in the workplace. Outline the steps to anonymous reporting, include hotline or ombudsman contact information and ensure that confidentiality will be upheld to the highest degree possible.

Look into investigation systems such as i-Sight Investigation Software- it sends alerts when a new complaint or issue is made and it can be used along with your hotline system. i-Sight makes it less expensive and more efficient for conducting internal investigations and allows you to react to cases based on their ranking of importance. i-Sight is a great solution for reacting to allegations in a timely manner and tracks repeat offenders.

“When employees are happy, they are your very best ambassadors.”- Jim Sinegal, CEO, Costco.

In 2008, Ethisphere named Sinegal to their list of the 100 Most Influential People in Business Ethics- he was ranked #37. The emphasis on employees at Costco is the key to the company’s success and ability to consistently provide a better shopping experience for its members. Jim Sinegal is the perfect example of how the tone at the top sets the tone for the entire company. Costco has developed a reputation as an employer of choice and has maintained a positive public image, all thanks to their brand ambassadors- their employees.

The Costco Way

There a many lessons learned when looking at the Costco story. Many executives once believed that it would be impossible to keep prices low if a company was paying employees high wages and paying for majority of the employee benefits package- Costco is proof that this isn’t always the case. Costco executives understand the impact and importance that good employees can have in an organization. In the Fast Company CEO Interview with Sinegal, they stated that:

“Wall Street grumbles that Costco cares more about its customers and employees than its shareholders; it pays workers an average of $17 an hour and covers 90% of health-insurance costs for both full-timers and part-timers. Yet revenues have grown by 70% in the past five years, and its stock has doubled.”

At Costco, there is a desire to always perform better. Perks such as higher wages, benefits and opportunity for growth allow Costco to attract a large pool of candidates that are of higher quality and are more committed to their job. In the Workforce article, “Welcome to the Club“, they reported that:

“In addition to offering some of the best wages and benefits in the retail industry, Costco rewards employees with bonuses and other incentives. It promotes from within, encourages workers to make suggestions and to air grievances and gives managers autonomy to experiment with their departments or stores to boost sales or shave expenses as they see fit.”

All About the Employees

Much of the emphasis on culture and values at Costco is attributed to the personal interests of Sinegal, their CEO. During the Fast Company interview, they asked Sinegal for his opinion on the rising gas prices- his response:

“Even employees who work at Costco- who make the type of wages that we pay- are being hit at the gas pump. We’re working very hard to schedule people from the same part of town so they can drive together. We’re encouraging van pools. We’re even testing 10-hour days, something we’ve never done in the past. If we can schedule some employees for four 10-hour days, that’s one day they don’t have to drive to work. They’ve got a 20% savings in their gas right there.”

His response to the question really shouldn’t be surprising- I think the shock factor is the fact that a CEO actually takes these types of external factors into consideration when planning for their business. These types of responses paint a clear picture of the culture at Costco. Costco focuses on putting their employees first, which has lead to low employee turnover rates. In the long run, this increased rate of retention has allowed Costco to save on labour costs while continuing to provide employees with significant wages and benefit packages.

When employees feel important and that there is value in the work that they do, it makes it harder to leave their current position and seek out new work. Front-line employees are the ones that interact with your company’s customers each day and are ultimately the ones that communicate the values and culture of your brand to the public. When employees are not passionate about their work or their brand, their attitudes have the ability to influence the customer’s shopping experience. Sinegal started out his retail career as a bagger, working through the ranks to VP Merchandising and Operations at FedMart- eventually co-founding Costco in 1983. Since he has worked in a variety of retail positions throughout his career, Sinegal understands the motivators and impact that every position has on the overall success of Costco.

Tech Crunch discusses the factors of success at Costco in the article “Integrating Ethics Into The Core Of Your Startups: Why And How“, stating that:

“The company’s per-employee sales are considerably higher than those of key rivals such as Target and Wal-Mart; customer service at the stores is phenomenal and fast; and Costco continues to expand, both in number of warehouses and in products and services for business and consumer customers.”

The Costco story teaches us all a few lessons that can be applied to our own workplaces: think of the long-term impact of your actions, reduce employee turnover and at all times- let your employees know they matter.

Medicare and Medicaid fraud in the US has been growing in dollars for many years and is now receiving a lot of discussion- especially with the signing of the Universal Health Care bill by President Barack Obama. Medicare is a government program that provides medical coverage to the elderly in the US and Medicaid provides for the poorest in the country.

As stated in the Presidential Memorandum Regarding Finding and Recapturing Improper Payments, on March 10, 2010, there was an expansion in the use of “Payment Recapture Audits,” which is a process where highly skilled accounting specialists and fraud examiners use different tools and technology to examine payment records and uncover problems such as duplicate payments, payments for services not rendered, overpayments, and fictitious vendors.

Reported in the Reuters article “Obama Backs Bipartisan Crackdown on Healthcare Cheats”:

“An estimated $54 billion was lost through improper Medicare and Medicaid payments in 2009. Obama is seeking to crack down on waste and fraud as his administration strives to secure an overhaul of the $2.5 trillion healthcare system to contain costs and expand coverage to tens of millions of more Americans.”

Medicare/ Medicaid Abuse

In 2009, Bernie Sanders, US Senator for Vermont pushed hard to include the “fraud crackdown” in the healthcare reform bill. Sanders wanted to significantly increase, and even double the fines faced for those facing penalties for committing health care fraud. Sanders outlined the following cases that made it to court and contribute to the need for tighter restrictions on the medical insurance industry in the US:

• Earlier this year, a jury found Pfizer owed Wisconsin $9 million for violating the state Medicaid fraud law more than 1.4 million times by purposely overcharging the state for prescription drugs. The company faces potential fines from $140 million to $21 billion.
• Also in 2009, UnitedHealth, a leading insurance company, paid $350 million to settle lawsuits brought by the American Medical Association and other physician groups for shortchanging consumers and physicians for medical services outside its preferred network.
• In 2003, GlaxoSmithKline paid $88 million in civil fines for overcharging Medicaid for its anti-depressant Paxil.
• Also in 2000, Humana paid $14.5 million to settle federal charges of overcharging government health programs.
• In 2000, the Hospital Corporation of America agreed to pay $745 million to settle civil charges that it systematically defrauded Medicare, Medicaid and other federally-funded health programs.

Easy Target

Reviewing various fraud cases involving Medicare and Medicaid makes me wonder how these people are getting away with stealing large sums of money- until I learned this:

“Medicaid and private insurance companies are also struggling with fraud. But there are a few factors that make Medicare almost a perfect target. One is that it’s a trusting system, set up to serve honest physicians — with few safeguards designed to weed out false claims. Also, most claims are paid automatically, so there’s little or no person-to-person contact.”

Verification of fraudulent claims has become sacrificed due to the goal of providing faster turnaround times for processing claims and getting money back to claimants- this makes it easier for fraudulent claims to go unnoticed. These types of fraud make health care more expensive than it already is in the US, forcing the government to take action and crackdown on those abusing the system in order to ensure that these costs are no longer passed on to the public.

Here is a list of the common types of  Medicare fraud:

• A health care provider bills Medicare for services you never got.
• A supplier bills Medicare for equipment you never got.
• Someone uses another person’s Medicare card to get medical care, supplies, or equipment.
• Someone bills Medicare for home medical equipment after it has been returned.
• A company offers a Medicare drug plan that hasn’t been approved by Medicare.
• A company uses false information to mislead you into joining a Medicare plan.

Solutions

The White House claims that correcting the fraud that surrounds Medicare and Medicaid claims could double taxpayer savings over the next 3 years- providing a savings of at least $2 billion. The New York Times reports that “White House officials said that a pilot program run by Medicare in California, New York and Texas recaptured $900 million in taxpayer money between 2005 and 2008.” A common trend that links the proposed investigation solutions is the increased use of technology to detect suspicious billing patterns and keep track of service providers with a track record of problems. Technology upgrades also extend to patient files, as another part of the healthcare reform is to computerize patient charts to allow for electronic filing as opposed to paper systems.

The focus on integrating technology into the fraud and insurance claims industry is not new- as you can see this is an urgent matter and some cities have already started targeting medical insurance fraud. There are time and money saving solutions, such as i-Sight Investigation Software, that make it easier to conduct inquiries and investigations into fraudulent claims. The “Payment Recapture Audits,” that will be conducted by highly skilled accounting specialists and fraud examiners, can become a less daunting task when an investigation software solution is implemented. Some of the features of i-Sight, such as the ability to identify and track repeat offenders, make it easier to catch and stop those committing the fraud before it’s too late. If the same individuals, groups or businesses have a history of submitting false or bogus claims, each time a case is made involving them, you will have to tools to refer back to previous events and put an end to their actions.

Success With i-Sight

With i-Sight, we provide investigations case management solutions for insurance companies to assist in catching fraudulent claims before they are processed and paid out. One of our clients, the TriZetto Group, Inc. has implemented i-Sight Investigation Software to improve their ability to track, manage and analyze investigations of insurance fraud and abuse in the healthcare industry. According to the General Accounting Office, approximately one-tenth of all U.S. spending on healthcare is lost to fraudulent insurance claims and other forms of abuse. The TriZetto Group realized that i-Sight was a perfect solution for tracking insurance based investigations as it’s fully customizable, conforms to laws and regulations that guide specific industries and saves them time and money through faster, more accurate investigations.

Yesterday Ethisphere released their list of the World’s Most Ethical Companies for 2010. The businesses that made the list for 2010 received recognition for being leaders in their industry when it comes to their ethics and compliance programs. The number of businesses that make the list varies each year- this year there are 100 listed to the World’s Most Ethical Companies. Ethisphere reports that “of these companies, 26 are new to the list in 2010 and 24 companies dropped off from the 2009 list. These “drop offs” generally occurred because of litigation and ethics violations, as well as increased competition from within their industry.” Click here to see the methodology for determining the rankings for 2010.

Here is the list of the World’s Most Ethical Companies for 2010: