Has a trusted employee ever stolen from you, or perhaps you know of a colleague to whom this has happened? Discovering a theft can be especially troublesome; more times than not it’s someone you’ve come to rely on and trust emphatically. Doctors are particularly susceptible because embezzlers exploit the very traits that make effective doctors: compassion, humanitarianism, and a desire to help.
It is estimated that embezzlement in some form occurs in over 80% of practices, and that an average of 8% to 10% of income is diverted. It is also estimated that 70% of embezzlers are repeat offenders, move from one practice to another, and are seldom reported to the authorities. Many times doctors deny that it could happen to them, or believe it was an isolated incident and feel sorry for the embezzler.
It is impossible to stop determined individuals from stealing, but knowing some of the warning signs and instituting a few internal measures may help deter such activity.
Potential Red Flags:
- A rise in clerical errors
- Missing or excessive use of inventory without an increase in patients
- Account receivables increase quickly without reason
- Collections decrease quickly without reason
- New or unknown vendors or unusual vendor activity (nighttime, non-operating hours)
- A rise in patient complaints about billing issues
- Sloppy bookkeeping (erasures, jumbled data)
- Checks without supporting documentation
- Bank statements that don’t reconcile with checkbook balances
- Questionable purchases/petty cash issues
- Excessive overtime charges
- Declining or stagnant revenue stream with increased business
- Sudden employee income difficulties or bad credit history
- Heightened employee stressors (divorce, alcoholic spouse, gambling problems, etc)
- Excuses about the computerized bookkeeping system losing information
- An employee resistant to change (using computerized accounting or hiring a CPA)
- An employee resentful of any oversight of his/her work
- An employee suddenly living beyond his/her means
- An employee who won’t take vacations or sick days
- An employee who’s the first at work and the last to leave
- An employee who handles the finances suddenly quits or disappears unexplainably
Creating Internal Controls:
- Separation of power: Set up a system of checks and balances. Divide responsibilities between at least 2 people. One person should receive cash/checks and another should prepare the deposit slips and post payments.
- EFTs and “lock boxes”: When possible, use electronic funds transfers (EFTs) with participating insurers, and/or a bank “lock box” where checks and EFTs are deposited by a third party.
- Write-offs and adjustments: Bad patient debt should be judged on a case-by-case basis; never write off an entire debt as a whole. Contractual adjustments should be broken down into specific categories; credit adjustment: Medicare, Medicaid, workers’ comp, and for individual insurers.
- Limits with account payables: A physician should be the only signee. Don’t use rubber signature stamps and know your vendors! If possible, have all bank statements and canceled checks mailed to the physician’s home.
- Reconcile all payments/collections to source documents: Deposits should be made daily. All appointments, sign-in sheets, as well as deposit slips should be reconciled daily or at least weekly.
- Mandatory vacation time/rotating duties: Have mandatory vacation time of at least a week in duration and rotate employee duties once or twice a year for a 2-week period.
- Surprise audits: Utilizing surprise audits can be an excellent theft deterrent.
- Check references: Always check every reference of potential new hires.
- Fidelity bonds: Purchase an umbrella fidelity bond. The insurance company will perform background checks on everyone who handles financial transactions and will reimburse losses from a theft.
Other controls at a quick glance:
- Have a CPA do a fiscal audit every quarter.
- Be able to analyze your current finances at any given moment.
- Establish an operational budget .
- Know your computer system, and the roles of every employee on that system.
- Have individual passwords for the computer system (no sharing of passwords).
- Have a separate audit trail for your accounting system (physician access only).
- Don’t discuss your finances, investments, or purchases with employees.
- Don’t take petty cash for personal use; treat the business as if you are an employee.
- Best Practices: 12 Steps to Avoid Embezzlement in Your Medical Practice. Capko J., Getting Paid. http://www.kareo.com/gettingpaid/2011/06/best-practices-12-steps-to-avoid-embezzlement-in-your-medical-practice.
- Don’t Let it Happen to You: Fraud and Embezzlement in Physician Practices. Carter LR, Lang A., Nashville Medical News. http://nashville.medicalnewsinc.com/don-t-let-it-happen-to-you-fraud-and-embezzlement-in-physician-practices-cms-2683.
- Avoiding Medical Practice Embezzlement. Derry, Nolan & Associates. http://www.derrynolan.com/wp/2010/07/avoiding-medical-practice-embezzlement.
- Employee Embezzlement: How to Tighten The Loopholes. Frost CN., The Hekman Group. http://www.hekmangroup.com/articles/Article_EmployeeEmbezzlement.pdf.
- Doctor, Is Your Practice Embezzlement-Proof? Keller J., Dentistry IQ. http://www.dentistryiq.com/index/display/article-display.articles.dentisryiq.practice-management.2011.9.doctor_-is_your_practice.QP129867.dcmp=rss.page=1.html.
- Protecting Your Practice From Fraud and Embezzlement. Martin KL., Physicians Practice. http://www.physicianspractice.com/conference-insider/mgma2010/content/article/1462168/1705019.
- Fraud 101: What You Didn’t Learn in Medical School. Setty K., Modern Medicine. http://www.modernmedicine.com/modernmedicine/Modern+Medicine+Now/Fraud-101-What-you-didnt-learn-in-medical-school/ArticleStandard/Article/detail/700605.
- Medical Office Embezzlement Risk Heightens at Beginning of Year. Stagg Elliott V., American Medical News. http://www.ama-assn.org/amednews/2011/01/17/bica0117.htm.
- Internal Controls in a Medical Practice – Part I. Tinsley R. http://rtacpa.blogs.com/reedtinsley/2011/02/internal-controls-in-a-medical-practice-part-i.html.
Internal Controls in a Medical Practice – Part II. Tinsley R.