The Miami Beach Community Health Center (MBCHC) is suing its former accountants for failing to reveal a $6.8 million "theft" by its former chief executive officer.
The MBCHC, a federally-qualified health center, filed a civil suit against McGladrey LLP and CohnReznick LLP in the Miami-Dade Circuit Court on Jan. 24, alleging fraud and negligence.
[See also: Healthcare fraud recoveries set record in 2012.]
The suit alleges that the accounting firms and another defendant, Stephen Schwartz, a certified public accountant who supervised the McGladrey audits and then moved to CohnReznick, failed to bring to the attention of the health center’s board of directors suspicious payments made to the center’s then-CEO, Kathryn Abbate.
According to the health center’s filing, Abbate’s “theft” was discovered at the end of May 2012 when Schwartz brought to the board’s attention a single suspicious check. A subsequent investigation found that Abbate had “stolen” $6.8 million from the center from at least 2007 through 2012 – $3.2 million in unauthorized compensation and $3.6 million in more than 800 unauthorized checks.
“The thefts occurred right under the accountants’ nose,” the court filing reads. “The accountants knew about Abbate’s massive unauthorized compensation, and literally had their hands on at least some of the unauthorized checks during their audits of the Center’s financial statements. Abbate’s serial thefts continued because the accountants kept what they knew to themselves rather than informing the Center’s Board of Directors, in serious disregard of their most basic professional responsibilities and legal duties.”
MBCHC is seeking in damages the amount of money “stolen” by Abbate by the time the defendant had gained evidence through the investigation of the financial diversions; pre-judgment interest and costs; the costs incurred by the center in relation to the “theft”; and fees paid to the accounting firms for their professional accounting services.
“For many years, our former accountants not only failed the Center and the community it serves, but also failed the government agencies, foundations and other organizations that help fund its operations,” said Jane Gross, MBCHC chairwoman in a press release announcing the suit. “We have no choice but to turn to the courts in an effort to recover these very important dollars that will allow the Center to do even more for the community."
Spokespeople from both accounting firms declined to comment saying they do not comment on pending litigation.