Introduction
Just as surely as squirrels can reach the most well-protected bird feeder, a determined employee will find a way to steal from you, experts say.
And not just once.
The office manager of a Kansas cardiologist charged roughly $323,000 in personal expenses over 9 years on a practice credit card before she was caught, convicted, and sentenced to 27 months in prison last year. In addition, an employee of an Ohio practice was recently convicted of stealing $361,000 from her employer over 5 years by altering bank deposit slips.
Such stories are common because healthcare ranks as the third-most embezzled industry after banking and financial services and then government, according to the Association of Certified Fraud Examiners. “Physician offices are particularly ripe targets,” says certified public account Stephen Pedneault, owner of ForensicAccountingServices.com in Glastonbury, Connecticut.
“Unlike retailers, medical practices enjoy a constant stream of money,” says Pedneault. “And most physicians are business owners who don’t have their hands in the business end — it’s someone else’s job.” In other words, they are not paying enough attention.
“Even the banking industry has learned there’s no foolproof way to eliminate embezzlement,” said Robert Scroggins, JD, a practice-management consultant with Clayton L. Scroggins Associates in Cincinnati, Ohio. “They just hope to detect it early on.”
With good business practices, you can catch in-house larceny before it goes on month after month, year after year, racking up 6-figure losses. The same practices will greatly reduce — but not eliminate — the risk of getting embezzled in the place. To be sure, going into anti-embezzlement mode requires a little time and effort on your part, but not as much as working extra hours because your bank account is dangerously close to zero, thanks to an unseen thief.
Tip-offs That an Employee May Be Stealing
In news accounts of embezzled physicians, descriptions of the embezzler often include the words “long-time” and “trusted,” with the physician quoted as expressing a sense of shock and betrayal. Many embezzlers are indeed experts at flying underneath the radar for years, but their behavior sometimes tips them off. Warning signs of theft include:
Employees who appear to live beyond their means. “They have two homes, with one on the beach,” says Pedneault. “They dress better than their boss, and eat out all the time.”
Employees who won’t go on vacation: An office manager who never takes time off may look like a model of responsibility, but he or she may be staying on the job to cover up theft. Accordingly, physicians should require employees with key financial responsibilities to take regular vacations so others can perform their tasks and spot any past irregularities.
Employees who aren’t team players: When an office manager or billing supervisor fends off assistance in solving a work-related problem, it may be a sign that they have got something to hide.
More patient complaints about billing mistakes: Some embezzlement schemes depend on not posting a patient’s payment in the practice-management system, which usually triggers a past-due statement for that patient. An unusually high number of patients who complain about erroneous bills may indicate that an employee is siphoning off revenue.
Set Up Internal Controls
A good system for handling cash, checks, and credit cards will go a long way in discouraging employees from stealing, especially the normally trustworthy staffer who is tempted to swipe a few hundred dollars to make an overdue mortgage payment. Ask your accountant or practice-management consultant to help you set up the necessary internal controls, which should include the following:
1. Be careful about billing and collections. The risk for embezzlement decreases when you separate financial duties among several employees instead of consolidating them in one, all-powerful person, experts say. For example, whoever collects money at the front desk should not post these payments in the practice-management software system as well, says Judy Bee, a consultant with Practice Performance Group in La Jolla, California.
“If one employee has both jobs, he or she can steal some of the patient’s payment, or all of it, and then conceal the theft by cooking the books. That can be done by recording a smaller payment, or indicating that the patient wasn’t charged anything because of ‘professional courtesy.’”
In a solo practice with perhaps only 3 employees, such a separation of duties might not always be possible. However, at the very least, you can cross train employees to take turns at payment posting and other duties, which tends to keep everybody honest.
Some embezzlers cover their tracks by swiping the charge ticket or super bill that lists the charges and payments to be posted in the practice-management system. To deter — or detect — this fraud, print out prenumbered charge tickets for each day’s schedule of patients and then run a “missing ticket report” — a common function in practice-management systems — at day’s end, says Robert Scroggins. Track charge tickets issued for walk-ins as well.
In addition, be sure to give the patient a copy of the charge ticket, which doubles as a receipt for any point-of-service payment. “If an embezzler keeps the amount out of the billing system and the patient is dunned for it again, he has proof that he paid,” says Scroggins. “The patient is the final step in the control process.”
2. Keep an eye on your bank statements.Stephen Pedneault recommends reconciling the amount of money collected, the amount of money posted, and the amount deposited in the bank on a daily basis. The figures ideally should be identical, although a portion of one day’s collections may get posted the next, occasionally, if staffers fall behind. “But at least your records can indicate that.”
A larcenous employee making a bank deposit can falsify the deposit slip en route — perhaps by changing the figures or substituting a new slip — to hide what he or she skims off.
The solution? “Create a duplicate of the deposit slip so you can compare it to the deposit receipt and make sure none of the money disappeared in transit,” says Judy Bee.
To reduce the risk for deposit fraud, have all patient and insurer checks mailed directly to the bank through a lockbox service instead of the practice; insurers may be able to transmit their payments electronically to your account.
3. Take precautions with accounts payable. “A doctor — and not an office manager or some other employee — should signs all checks made out to vendors,” says Judy Bee. Of course, an employee can prepare the checks, but the doctor should not sign any of them unless they are accompanied by an invoice and other supporting documentation. Never sign blank checks, and never allow an employee to use a stamp bearing your John Hancock, ie, signature.
To play it safe, do not authorize an employee to make purchases with a company credit card. “But if that’s not practical, make sure you review every credit-card statement, and don’t sign a check to pay the balance until you see an invoice for every line item,” says Bee. Otherwise, you might miss a pair of movie tickets, or a Caribbean cruise.
Some embezzling office managers insist on opening every piece of mail, including credit card statements, so they can hide the evidence of their crime. Accordingly, make sure all credit card statements — and all bank statements, for that matter — come to you unopened. As an extra precaution, have such statements mailed to your home.
Bee also recommends getting a credit report once a year to see whether an employee has secretly obtained a credit card in your name.
For yet another check and balance, ask your accountant to conduct spot checks of all your internal controls. In addition, consider paying him or her to perform a comprehensive audit of your practice every few years. Such bright-light scrutiny may deter would-be embezzlers from ever snatching their first $20 bill.
Get Background Checks and Bonding for New Hires
Embezzled physicians sometimes skip the basic step of performing a criminal background check on new hires. The Association of Certified Fraud Examiners reports that about 7% of embezzlers have been convicted of a previous crime.
“A criminal background check, however, may not flush out someone who’s been charged with a crime, but never convicted, or someone whose conviction was expunged for some reason,” says Stephen Pedneault.
Pedneault advises, “To cover all the bases, just Google the person’s name. You may find news articles online about an arrest.”
The screening process also should include a credit check, especially when you are hiring someone who will handle your money. “You should know if someone was bankrupt before you give them this responsibility,” says Pedneault. About one third of embezzlers, in fact, have financial problems, according to the Association of Certified Fraud Examiners.
“You’ll need to ask a job applicant for permission to run a credit check,” says Pedneault. If a person refuses or responds defensively, you have already spotted a red flag.
Employment screening companies such as Credential Check and Employment Background Investigations can perform a criminal background check, run a credit report, and make other inquiries, such as verifying a Social Security number, in a package deal for usually less than $100.
To find such companies, look under “Employment Screening” in the Yellow Pages, or Google that term or “employment background check” online.
Once you have hired what looks to be a trustworthy employee, you still need to keep up your guard. Take out a fidelity or employee dishonesty bond that will cover your losses in the event that you are embezzled.
You can buy $100,000 worth of this insurance coverage for several hundred dollars per year, says Pedneault. It is usually available from the same company that sold you property and casualty insurance for your practice.
What to Do If You Suspect Embezzlement
If you come across evidence suggesting that an employee is stealing, ask an accountant to ferret out the truth. Going immediately to the police is not a smart move because “they’re not going to be good at investigating who stole what,” says Judy Bee.
Once you confirm the thievery, confront the employee with the facts, and ask for an explanation. Your accountant and attorney should attend the meeting as well. At this point, the employee may come clean and sign a confession as well as agree to pay you back.
If the employee denies any wrongdoing, you must decide whether to press criminal charges. Some insurance companies that issue fidelity bonds will not cover your losses unless there is an admission of guilt or a court conviction.
“Many embezzled physicians decline to press charges to avoid public embarrassment or else to protect their ‘long-time’ employee, whom they may still hold in high regard,” says Stephen Pedneault. “Doctors are very sympathetic people.” However, Pedneault and other experts contend that when the legal evidence is overwhelming, you should hold an embezzler accountable for his or her actions through the court system.
“Unless, of course, you want him to work for the practice down the street,” says Pedneault.
Read more articles at Medscape.com.
