Cooper Health System sustained at least $21.8 million in losses over a seven-year period through an elaborate embezzlement scheme organized by two former executives of the Camden, N.J.-based healthcare provider, according to an internal audit report released last week.
The 261-page report provides the first detailed accounting of "known losses" incurred from 1988 to 1994 but says the financial toll could be higher. Cooper previously estimated its losses at $13 million.
The report describes how executives and outside agents bilked the hospital for millions using fake companies, fictitious invoices and improper cash transfers. No less than 17 companies, accounts and individuals are identified in connection with the multimillion-dollar rip-off.
"In the context of dishonest people who are in trusted positions, it's pretty clear you can be victimized," said Kevin Halpern, Cooper's chief executive officer. "That's a tragic and painful lesson to learn." Other healthcare systems should take a lesson and have tight compliance and control mechanisms in place, as Cooper now does, he said.
Details of the scheme unfolded through a 28-month investigation led by an ad hoc internal control committee created by trustees of the boards of Cooper and its Camden-based flagship, Cooper Hospital-University health system. The committee was formed July 25, 1994-five days after the hospital's top executives pleaded guilty to criminal charges of fraud and embezzlement.
John Sullivan, Cooper's former executive vice president for finance, and P. John Lashkevich, former comptroller, are serving time in federal prison. Five other individuals pleaded guilty to various charges in connection with the fraud. John Crispo Jr., an outside vendor and key conspirator, died before sentencing.
Cooper has recovered about $5 million but continues to pursue litigation in the matter. It chose to make the audit public last week after being ordered by a federal judge to turn over the report to defendants in a related lawsuit against its former auditor KPMG Peat Marwick.
Cooper's board of trustees has since adopted an internal control and compliance program to prevent losses (See chart). Halpern said those controls may not prevent fraud but will help the system catch fraud earlier. "If anyone's dumb enough to try it, alarms are going to go off pretty early," he said.