Protecting Your Practice: Fraud, Theft, & Embezzlement

By: Kara D. Kelley, SHRM-CP, Parkhurst & Associates CPA PC —

Take a minute to Google the search phrase “Receptionist forging prescriptions.” You should pull up about 614,000 results. Now search for “office manager theft.” You’ll likely get about 1.2 million results. The first pages of both of these searches are filled with articles about the discovery of employees committing illegal acts and stealing thousands, sometimes hundreds of thousands – or more – of dollars from their employers. Notice that many of the employers are private medical practices.
Employee fraud is something practice owners think will never happen to them… until it does. It is critical for a practice owner to be able to identify the areas of their practice that are must susceptible to fraud and implement measures that serve to protect their practice.

How – and why – are employees stealing all of this money?

There are several obvious ways employees can steal from your practice. Taking cash out of the cash drawer, pocketing cash payments from patients, going home with office supplies, etc. Unfortunately, employee fraud is getting much more sophisticated, and the more likely scenario in which employees will steal from a practice is by using practice software to alter collections amounts, write refund checks to themselves, pad payroll numbers, making adjustments to patient accounts, and altering financial statements.
Employees commit theft for various reasons. Some cases are due to an unexpected financial hardship that makes the employee – wrongly – feel like there’s no other option. Other cases involve disgruntled employees who are retaliating for one reason or another. Still others are due to misguided employees who had good intentions when they hired on, then realized that the practice would be completely oblivious if they just made one little adjustment to an account… and then end up stealing massive amounts of money simply because they felt they could get away with it. Some cases are a combination of these reasons.

Red flags an employee may be contemplating – or actively engaging in – fraud or theft.

Regardless of motive, staying alert for red flags that may indicate employee fraud or theft is often the first line of defense.
Here are some key metrics to look out for:
• A sudden dip in practice profits or collections for reasons that can’t be explained by typical fluctuations.
• The employee appears unreasonably resistant to any change to the accounting system, practice management system, or practice’s computer.
• The employee in charge of handling patient payments – or one has access to practice accounts – is extremely hesitant about using PTO and refuses to let anyone train on or take over his or her job duties for any amount of time. (Use it-or-lose-it PTO policies can highlight this behavior, as it would be strange for an employee not to make use of this benefit.)
• The employee in charge of producing financial statements constantly delays providing documents
• A sudden increase in patient and/or vendor complaints about the billing, payment, or refund process
• An unexpected uptick in practice overhead that isn’t explained by practice growth and may exceed the benchmarked
ratios projected based on similarly producing practices.
• An employee who experiences financial crisis – loss of spouse’s job, divorce, medical emergency, etc.
• An inexplicable increase in an employee’s lifestyle (ex: purchase of an expensive car or jewelry that can’t be explained
by a recent inheritance, winning the lottery, etc.)

Steps to protecting your practice:

1.) First, the basics – security systems. It’s a no-brainer that you should have a security system installed, with unique access codes for each individual that you monitor frequently to determine who accessed the office at what times. It’s also pretty basic to only distribute keys to employees who a) can be trusted, and b) need to have them. Sometimes practices get lax about these policies, or don’t take steps they deem unnecessary because they cost time and money – such as changing security codes on a regular basis or re-keying locks when employees are fired.

2.) Install a camera at the cash drawer. While this might seem like overkill, having a motion activated camera at the cash drawer that streams video and sound to a cloud storage drive or server serves two purposes. One, the obvious, it will capture every person who opens the drawer for whatever purpose and can effectively deter employees from obvious theft. Secondly, it serves as security for your employees in case of a break in or robbery, both to help discourage theft and assist in identifying the criminal.

3.) Ban petty cash. Keep cash on hand for making changes for patients, but do not allow your cash drawer to be used as “petty cash” for small purchases or office supplies. It’s too easy for employees to “forget” to submit a receipt, and too difficult to keep track of. Maintain a practice credit card that is used for purchasing office supplies and used only by designated card holders. Reimburse employees for any expenses occurred with their personal funds, such as parking at a convention, and require them to be submitted within a few days. Count down your cash drawer at the end of each day and mark the balance on a ledger; make sure the amount matches with your practice software’s account of cash collections. Have a written policy that includes these steps.

4.) Know your employees. You don’t have to obsessively follow every detail of your employees’ personal lives, but you
should at least be able to cover the basics. Conduct pre-employment background checks (staying inside federal guidelines). Call at least two or three references before extending an offer of employment. Check in with your employees regularly to see if they’re satisfied with their job, or if there’s something you can do to support them.

5.) Checks and balances. Never have one employee responsible for all duties associated with the collections process and/or practice finances. Even your trusted office manager of 30 years should not be responsible for opening the mail, posting checks, closing books, running payroll, calculating deposit totals, and making bank deposits. Divide those duties among other front desk employees (or yourself, if you’re a small practice), even if your office manager insists he or she is capable of handling all of the work. Additionally, cross train multiple employees on front desk duties so that the individuals responsible for handling collections can take time off, which you should require.

6.) Audit – every system, at random. Conducting random audits (at least once per month, but not on any kind of regular schedule) in the presence of employees so that they see you taking your financial systems seriously.

7.) Create a fraud policy. This is probably the step that’s skipped most often, because practice owners may not see the value in a written policy. However, having a section in your handbook dedicated to fraud and theft alerts your employees to the notion that you are indeed on the lookout for fraud potential, and lets them know that any discoveries of theft or embezzlement will be grounds for immediate termination and prosecution. Encourage those experiencing financial difficulties to seek assistance from you directly, rather than engage in criminal activity. Your serious, sincere approach to these policies can help to deter those who may consider participating in acts of theft.

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