Trustee Tools for Monitoring and Preventing Fraud

Kathy Bergstrom, CEBSApril 13, 2022April 21, 2022

Fraud occurs in all types of multiemployer benefit plans, and trustees have a responsibility to prevent and detect fraud as a part of their duty of oversight.

In their article “Three Essential Tools for Monitoring and Preventing Fraud” in the March/April issue of Benefits Magazine, authors Lawrence R. Beebe, CPA, and Michael Ledbetter, CEBS, provide an overview of three tools that are available to help in this effort. Beebe is a partner with the Bethesda, Maryland accounting firm of WithumSmith+Brown PC and Ledbetter is a partner in the Indianapolis, Indiana office of Ledbetter Parisi LLC.

Tool 1: Data

Analyzing and mining data can help plans find interesting or questionable patterns that may be a sign of fraud or waste. Examples include:

Looking at the lengths of stay at various hospitals. This may reveal which hospitals appear to be extending stays unnecessarily to generate revenue.

Grouping payments to physicians. This can show whether any physicians charge for a higher number than average of extended office visits when compared with their peers.

Identifying plan participants with the same addresses and/or phone numbers. These could be legitimate in the case of spouses, but three or more participants with the same addresses/phone numbers could indicate potential fraud.

Tool 2: Financial Statement Audits

External auditors should take certain steps to detect material errors and irregularities in the plan financial statements. Examples include:

Perform surprise tests in areas they don’t normally examine.

Review payments to vendors that are outside of the normal service contract.For example, payments to information technology vendors for additional, hard-to-define services, could be fraudulent.

Scan disbursement journals and select some payments, like unusual and large items, for testing.

Tool 3: Plan Policies

Multiemployer plan policies detail plan compliance with government regulations, mandate consistency in plan operations, help plans avoid legal liability and give assurance to others that that the plan is well run.

Examples include:

Conflict-of-interest policy. This policy helps to keep people honest by requiring full disclosure of any transactions that may influence a trustee’s independence.

Whistleblower policy. This policy encourages communication and protects plan employees who inform someone in authority about possible illegal or dishonest acts that have occurred within the plan.

Collection policy. This policy encourages prompt and accurate payment of contributions by employers and helps prevent collection issues that could be costly to the plan. An effective collection policy also provides for meaningful review of contributing employers by the plan’s auditor.

Expense reimbursement policy. This policy ensures that only reimbursable expenses that are reasonable and necessary are paid to plan trustees and employees.

“Trustees set the tone for their plans and must create an atmosphere in which all fiduciaries, staff and outside vendors are encouraged and supported to identify and report potential fraud, waste and abuse,” Beebe and Ledbetter write. “Harnessing the power of data analytics and focusing the efforts of the external auditor can help trustees meet their standard of care and preserve the plan’s assets.”