Beginner’s Guide to Fraud, Waste, and Abuse (FWA): What It Is, Examples, and How to Report It

Definition of Fraud

Fraud is intentional deception or misrepresentation used to obtain an unauthorized benefit, such as money, services, or access. It requires knowledge of falsity or reckless disregard for the truth and a purpose to gain something of value.

Key elements

• Intentional Deception: a knowing false statement, concealment, or scheme.
• Material gain: an attempted or actual benefit for the actor or another party.
• Knowledge or willfulness: awareness that the conduct is wrong or likely false.
• Reliance and harm: the organization or payer is misled, causing loss or risk.

Fraud is distinct from error. Mistakes lack intent; fraud includes a deliberate plan to mislead.

Definition of Waste

Waste is the Over-utilization of Services or the inefficient use of people, time, supplies, or funds. It often stems from poor processes, weak controls, or lack of training rather than intent to deceive.

Common sources of waste

• Redundant activities, rework, or unnecessary handoffs that slow delivery.
• Over-ordering, idle inventory, or supplies expiring on the shelf.
• Choosing high-cost options without added value or clear justification.
• Inefficient scheduling, excessive overtime, or low-yield meetings.

Definition of Abuse

Abuse involves practices inconsistent with sound fiscal, business, or clinical standards that lead to unnecessary costs or payments. Intent may be unclear, but the behavior reflects Improper Use of Resources or rules.

Key characteristics

• Unreasonable charges, frequency, or levels of service without justification.
• Failure to follow policy, coding, or documentation norms that protect payers.
• Patterns that push boundaries of compliance even if not overtly fraudulent.

Examples of Fraud

• Billing Fraud: submitting claims for services not rendered or for ineligible recipients.
• Upcoding and unbundling: reporting higher-paying codes or splitting bundled services to inflate payment.
• Falsifying records: altering dates, signatures, or clinical documentation to justify payment.
• Kickbacks and Bribery: offering or accepting anything of value to influence referrals or purchasing decisions.
• Phantom entities: fake vendors, ghost employees, or sham invoices siphoning funds.
• Identity misuse: using another person’s credentials or numbers to obtain services or bill payers.

Examples of Waste

• Over-utilization of Services: duplicative tests or procedures when recent results exist.
• Inefficient purchasing: choosing premium supplies or rush shipping without need.
• Poor inventory control: stockpiling items that expire or go unused.
• Workflow inefficiencies: manual, error-prone steps that require frequent rework.
• Staffing mismatches: persistent overstaffing or overtime due to avoidable scheduling gaps.

Examples of Abuse

• Excessive frequency: billing more often than medically or operationally necessary.
• Unreasonable charges: prices far above typical rates without valid justification.
• Policy circumvention: routinely waiving required cost shares or ignoring approval thresholds.
• Improper Use of Resources: personal use of company assets, cards, vehicles, or travel funds.
• Inappropriate inducements: gifts or perks that improperly influence choices within the organization.

How to Report Fraud Waste and Abuse

Step-by-step reporting

• Observe and document: record dates, times, people involved, and what you saw. Preserve emails, invoices, and screenshots without accessing anything you are not authorized to view.
• Use internal channels first when safe: speak with your supervisor or compliance officer, or use your organization’s Compliance Hotline Reporting option (often anonymous and 24/7).
• Escalate externally if needed: if internal options are compromised or unresponsive, use appropriate government hotlines or industry regulators. For healthcare matters, follow Medicare Fraud Prevention guidance for suspected Medicare-related issues.
• Include essentials: who, what, when, where, how, amounts involved, and any witnesses. Stick to facts and avoid speculation.
• Protect yourself: follow non-retaliation procedures, keep your report confidential, and do not confront alleged actors directly.
• Cooperate in follow-up: respond to investigator questions and provide additional documentation promptly.

Prevention tips

• Strengthen controls: segregation of duties, approvals, and audit trails for high-risk processes.
• Use data analytics: monitor outliers in claims, payments, vendor spend, and timekeeping.
• Train regularly: ensure staff understand policies, coding rules, and reporting avenues.
• Promote a speak-up culture: make it safe and easy to raise concerns early.
• Healthcare specifics: apply medical-necessity criteria, correct coding, and Medicare Fraud Prevention best practices.

Conclusion

Fraud is intentional, waste is inefficient use, and abuse violates sound practices—yet all raise costs and risks. Know the signs, act promptly, and report concerns through trusted channels to protect your organization and the people it serves.

FAQs.

What constitutes fraud in healthcare?

Fraud in healthcare is intentional deception aimed at securing payment or other benefits. Examples include Billing Fraud for services not rendered, falsifying documentation, upcoding, unbundling, and schemes involving Kickbacks and Bribery to steer referrals or purchases.

How can waste be identified in organizations?

Look for Over-utilization of Services, persistent rework, excess inventory, unnecessary premium purchasing, and scheduling patterns that drive overtime. Trend data over time, compare to benchmarks, and review processes where approvals, inventory, or documentation frequently fail.

What are examples of abuse in business practices?

Abuse includes unreasonable charges, excessive frequency of services, routine waiver of required cost shares, and Improper Use of Resources such as personal use of company funds or assets. These practices violate policy and sound standards even without clear intent to defraud.

How do I report suspected fraud waste and abuse?

Document what you observed, then use internal options like your manager, compliance office, or Compliance Hotline Reporting. If internal paths are unsafe or ineffective, use appropriate external hotlines and follow Medicare Fraud Prevention guidance for Medicare-related concerns. Provide objective facts and cooperate with follow-up.