• David Sutherland

White-Collar Crimes: Defending Allegations of Medical Insurance Fraud

Our firm was engaged by a defense attorney to provide financial forensic services in a Medicaid related member fraud case. We were asked to review and evaluate the case, which was built by the investigating criminal investigator.

As background, the defendant was a small business owner and, based on her annual income, had qualified as a Medicaid member for many years. According to the criminal complaint, the defendant allegedly materially misrepresented her annual income on official government records in order to qualify for the program. Based on his “Bank Deposit” analysis, the criminal investigator concluded 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 investigator’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.


Defense attorneys need to be aware of the issues and methods commonly considered by criminal 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. Investigators 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 cases, 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, recklessness or with criminal negligence).


A complete investigation should seek to obtain all relevant information and documentation, in order to perform an analysis of the defendant’s income. The following are the two general methods commonly used in this type of analysis:


Direct Method (aka Specific Item Method)

  • Individuals report income and expenses by specific items based on contemporaneous transactions recorded in books and records

  • This method seeks to reconcile income transactions contained in the books and records to the tax returns and/or financial statements

  • This is the preferred method, as it is easily presented, and juries can easily understand the issues


Indirect Methods – the following methods rely on circumstantial evidence to prove an individual’s income

  • Net Worth Analysis

  • Expenditures (aka Source and Application)

  • Bank Deposit Analysis

  • Cash Method


In the above case, the criminal investigator attempted to use the bank deposit analysis method. This method reconstructs income by analyzing bank deposits made into the defendant’s bank accounts. The investigator assumed total deposits made by the defendant into the bank accounts were the defendant’s income. The investigator failed to recognize that “income” is after deducting all business expenses. By not deducting business expenses, the investigator substantially overstated income. Based on our analysis using the Specific Item Method, we determined the defendant’s actual income was less than the statutory maximum for each year included in the investigator’s analysis, which contradicted his conclusions.


Defense attorneys need to understand that criminal investigators, with the most honest of intentions, can arrive at erroneous conclusions due to their lack of technical knowledge on accounting issues. A financial expert can identify such errors and, if necessary, testify in the trial for the defense.


If you find yourself in a situation where you are defending allegations of medical insurance fraud, please do not hesitate to call us as we are happy to help you with your case.