Recently, the Acting U.S. Attorney for the Southern District of New York announced that the senior manager of corporate benefits for Hitachi America Ltd. (“Hitachi”) pleaded guilty to defrauding the Hitachi Group Health and Welfare Plan (the “Plan”) of approximately $6.1 million.
In 1997, the benefits manager opened an unauthorized bank account. From 2000-2008, he deposited approximately $8 million into the account (approximately $4.9 million of which were payments from an excess insurer). He also deposited about $2.9 million from, among other entities, insurance companies and health care providers that were made payable to the Plan. The benefits manager used the unauthorized account to pay for personal and family expenses to include among other things: (1) at least $1 million dollars in credit card expenses, (2) $2 million dollars in payments to himself, (3) $42,000 for a car and (4) $625,000 to purchase a house in Florida. He is scheduled for sentencing in June 2009 and faces a total maximum sentence of 20 years in prison.
Frank Del Barto reminds employers of the importance of having multiple levels of oversight in plan administration. Here, for eight years, one employee was able to defraud the employer’s health plan of over $6 million. To avoid surprises and fiduciary liability, Frank recommends that employers conduct periodic reviews of their various plan premiums, claims experience and administrative fees with their broker/consultant and representatives of the insurance companies. By periodically conducting a review, companies are alerted to any issues or trends within the plan, better able to predict and budget for future premium increases and are able to reduce the possibility of fraud or theft of plan assets. Generally, the larger and more complex the plan, the more often the plan should be reviewed.