To avoid an incorrect claim of income, the financial investigation
must obtain all relevant documentation during the analysis of
the defendant’s income.
JOE EPPS, CPA/CFF/ABV, CFE, CVA, PRESIDENT
EPPS FORENSIC CONSULTING PLLC
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article or to discuss your financial expert witness needs.
Medical Insurance Fraud Defense
According to the criminal complaint, the
defendant allegedly materially misrepresented his annual income on official government records in order to qualify for the
The detective concluded, based on his
“Bank Deposit” analysis, the defendant’s
actual income exceeded the statutory maximum, which would have disqualified the
defendant’s participation in the program.
After reviewing copious amounts of documentation, our opinion was that the detective’s bank deposit analysis was flawed,
misleading, and ignored potentially exculpatory evidence without justification.
We performed a ‘Specific Items Method’
analysis and determined the defendant’s
income did not exceed the statutory requirement. At trial, we provided expert
testimony, which assisted the trier of fact
and ultimately lead to the defendant being
found not guilty of the fraud.
Methods To Prove Income
Defense attorneys need to be aware of the
issues and methods commonly considered
by investigators to prove income on the part
of the defendant.
It is important to first understand that
medical insurance fraud cases are different
from other types of criminal cases. Consider
for a moment, a simple assault case. Inves-
tigators respond to the scene and observe
a victim who has significant physical injury.
The existence of the crime is self-evident
and the government’s main task at that point
is to prove who perpetrated the crime.
In medical insurance member fraud cas-
es, the government has the difficult task of
proving the existence of a crime hinged on
the defendant’s subjective culpable mental
state (e.g. intent, knowledge, recklessly, or
with criminal negligence). A complete in-
vestigation should seek to obtain all rele-
vant documentation in order to perform an
analysis of the defendant’s income.
The two general methods commonly used
in this type of analysis:
n Direct Method (aka Specific Item Method):
m Individuals report income and expen-
ses by specific items based on con-
temporaneous transactions recorded
in books and records.
m This method seeks to reconcile in-
come transactions contained in the
books and records to the tax returns
and/or financial statements.
m This is the preferred method, as it is
easily presented and juries can easily
understand the issues.
n Indirect Methods – the following meth-
ods rely on circumstantial evidence to
prove an individual’s income:
m Net Worth Analysis
m Expenditures (aka Source and
m Bank Deposit Analysis
m Cash Method
Inherent Flaw in ‘Bank Deposit
In the above case, the detective attempted
to use the bank deposit analysis method.
This method reconstructs income by analyzing bank deposits made into the defendant’s bank accounts.
The detective assumed total deposits
made by the defendant into the bank accounts were the defendant’s income. The
detective failed to recognize that “income”
is after deducting all business expenses. By
not deducting business expenses, the detective substantially overstated income.
‘Specific Item Method’ Analysis Yields
More Accurate Result
Based on our analysis using the “Specific
Item Method”, we determined the defendant’s actual income was less than the statutory maximum for AHCCCS members for
each year included in the detective’s analysis, which contradicted the detective’s conclusions.
Defense attorneys should be aware that
detectives, with the most honest of intentions, can arrive at erroneous conclusions
due to their lack of technical knowledge on
financial and accounting issues. A financial
expert can identify such errors and, if necessary, testify in the trial for the defense.
Case Study – Arizona Health Care Cost Containment System (AHCCCS) Alleged Member Fraud
Our firm was engaged by a defense attorney to provide financial forensic services in an Arizona Health Care
Cost Containment System (AHCCCS) case related to a member’s alleged fraud.
We were asked to review and evaluate the case, which was built by the investigating police detective. As background,
the defendant was a small business owner and had been a member of AHCCCS for several years.