All Things Internal Audit: Fraud Podcast: Uncontrolled Substances

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Hello, I'm Grant Wallstrom, contributing editor to internal auditor magazines, fraud department and senior manager of fraud, forensics and investigations at ADT in Boca Raton, FL. I'm pleased to introduce this episode of fraud on the All Things Internal Audit Podcast, which provides fictionalized accounts of fraud based on actual.

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That.

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Uncontrolled substances.

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Part 1, the bitter pill.

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In his first week as CAE at Berkshire Healthcare, Trevor Smith was hit with a serious issue. An employee was allegedly stealing pain medication Smith hired to set up Berkshires.

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First internal audit function took the claim seriously.

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Through the companies well established whistleblower hotline.

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The suspect was identified as Chris Basil, a respected hospital director with over 20 years working in Berkshires hospital system. Smith followed protocol and quickly informed Dana Owens, the Audit committee chair. Owens was shocked to hear about Basil, a trusted figure, but she gave Smith the go ahead to begin.

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Investigating.

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Part 2 prescription for disaster.

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Smith's investigation uncovered glaring deficiencies in Berkshires internal controls. There was little security around storage of controlled substances and basal personally reviewed the medication inventory without oversight.

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Basil also controlled the entire procurement process from purchase to approval, allowing him to manipulate orders without detection. Additionally, there was no variance analysis comparing medication used to patient prescriptions and the finance team wasn't monitoring cost discrepancies.

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These weaknesses appear to have enabled Basil to still pain medications for over 2 years without anyone noticing.

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Part 3A hard pill to swallow during interviews, several employees mentioned that the pain medication in question frequently ran out and basil was the only one authorized to reorder it. However, no one had spoken up due to Basil's long tenure.

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And authority armed with enough evidence, Smith presented his findings to the CEO's Audit Committee Chair and Chief People Officer at the next audit Committee.

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Meeting.

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They were shocked by Smith's findings. Basil admitted to the theft, explaining his addiction to painkillers led him down this path, which started as a one time act, became a repeated offense as he realized no one was tracking the missing drugs. Basil was terminated for gross misconduct.

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And the police launched an investigation.

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Part for a dose of reality, Berkshires leadership have relied on external auditors to detect fraud risks. But as Smith pointed out, this wasn't a typical financial fraud. The damage here was reputational and regulatory, not purely financial.

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Smith's work proved the value of independent internal auditing, and the audit committee tasked them with conducting a review of medicine management across all hospitals. After the CEO and Owens gained a better understanding of the risks fraud posed to the organization, they were eager to work closely with Smith to focus on counter.

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Fraud. It became a regular agenda item in audit committee meetings.

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Want to learn more about fraud related topics? Don't miss the IAS 2025 Fraud Virtual Conference on February 20th, visit thecia.org or check the show notes to register now and secure your spot.

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This has been the all things internal audit fraud podcast. Fictionalized accounts based on actual events brought to you by the Institute of Internal Auditors. IRA members can access the full story in this month's issue of Internal Auditor magazine, including bonus materials on lessons.

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Learned to read more? Visit internalauditor.theia.org for more fraud related resources, including guidance and thought leadership from the IEA and the ACF E visit theiea.org/ACF E fraud.