Data-mining techniques helped uncover a ten-year $1 million scam perpetrated by the top officials of the Sugardale Medical Center according to a special issue of the Journal of Forensic and Investigative Accounting (JFIA).

Brent Carter and his forensic accounting team used data mining techniques to pin down Executive Director Eleanor Ingalls and Business Manager Mark Nyland for the misappropriation of over $300,000 in assets over the two-year period covered by the fraud examination. Total losses for the ten-year period in which Ingalls and Nyland controlled Sugardale Medical Center are estimated to exceed $1 million.

The investigation into Sugardale’s accounts was triggered Jacob Welsh who became business manager after Ingalls and Nyland resigned shortly after January 2012. Welsh was tipped off by the unusual pattern of corporate credit card use by Ingalls and Nyland.

Carter’s team found anomalies in Ingalls’ and Nyland’s credit card use to the amount of $65,000 over two years. They also found that Ingalls embezzled another $54,000 by debiting “a variety of general ledger accounts for small uneven amounts, thereby spreading the fraud throughout the entire accounting system.” Nyland had used his credit card to pay for airline tickets, hotels, and meals in his family’s trips to his daughter’s athletic meets.

Data mining allowed Carter’s team to execute a “weekend and holiday analysis” on Nyland’s credit card while Ingalls’ scam was discovered when a system-wide query was made for payee’s names in cards other than Wells Fargo, issuer of Sugardale’s company cards. From the article:

It is recognized that legitimate expenses can occur outside of the normal five-day workweek; however, any use outside these days is flagged for further scrutiny. In this case, there was an extensive amount of weekend and holiday activity on the credit card statements. These particular transactions were analyzed to determine possible legitimate business purposes. They were also matched to known behaviors of the Manager. For example, the investigators were told through interviews with other employees that Mark’s daughter competed in athletic events across the country. They matched the dates and locales of these athletic competitions with the weekend credit card 938 transactions and found charges involving out-of-town restaurants and hotels in Mark’s name or in the names of his family members. They also searched for and found charges to the Center’s credit card for related airline tickets.

The JFIA article revealed that Carter and his team found further anomalies when they did an “employee-vendor matching technique to detect fictitious vendor fraud.” Dubious over the counter withdrawals by Ingalls and Nyland were detected when the accounting team queried all round-number cash disbursement transactions. Fluctuations in the account balances indicated problems with Sugardale’s Paid-Time-Off policies and frequency analysis pointed out further potential discrepancies in the scrip programs.

The JFIA report concluded:

The ED and Manager were cunning in how they implemented schemes in ways that minimized the risk of detection. They rarely, if ever, charged the general ledger accounts for round numbers or large amounts. As the ED, Eleanor also effectively manipulated key employees by creating a culture of complacency as a benevolent dictator. Employees loved and respected her. Consequently, they were either blinded to the realities of suspicious behaviors in the first place or they outright looked the other way in the face of evidence contradicting their perceptions.

The Center was good at what it did, and the ED and Manager managed it seemingly very well. As long as the business continued its successes and remained a small portion of the larger hospital pie, no one felt the need to challenge local policies and decisions. One major red flag occurred when the hospital sought to take the back-office accounting from the medical center as it had done successfully with other similar operations. This move met staunch resistance from Eleanor and Mark. The hospital system relented, and no one ever pursued the underlying reasons why the opposition existed in the first place. Again, the Center was making money and the path of least resistance was to let them continue to do what they seemed to be doing well—“if it ain’t broke, don’t fix it.