Employee Embezzlement in your Practice A little prevention can go a long way

by Jamie Claypool J. Claypool Associates

It’s relatively cheap and easy to implement the infrastructure needed to make a practice “embezzlement proof.”

Although a physician does not want to rule his practice with an iron fist, he should make it clear to the staff that someone is always looking at the books—from the time the first copay is collected, to when the last dollar is taken in at the counter. This needs to be more than simply said; it has to be done and the staff needs to know it is done. Many office employees who embezzle when no systems and processes are in place to prevent it likely would not even consider stealing from their employer if they saw a real possibility of being caught. Just making it known that there is oversight when money is exchanged and that consequences will be substantial for any misuse of funds or office supplies, will deter a large number of employees from stealing.

To establish a system of oversight that will reduce the risk of embezzlement, physician offices should consider taking these steps:
• Third-party oversight—If a manager/administrator does the practice’s books, then have a CPA provide outside oversight. Ideally, the CPA will have knowledge in forensic accounting and should look periodically at bank statements and cancelled checks, ensuring consistency on the check endorsement.
• Make certain that a daily balancing routine is in place. All charges and payments always should be in balance. Accounts receivable totals for the day should be the sum total, or minus the previous day’s receipts. A “proof” of posting should be done. Bank receipts or copies should be attached to daily transaction journals.
• Have a rigid petty cash policy, and require that staff put vouchers or receipts in the petty cash fund when they withdraw money.
• Review your adjustments to ensure that the appropriate amounts are adjusted off. In one practice, a payment poster wrote off balances from his relatives who owed the practice money.
• Use a lockbox when feasible, so checks that clear from payers and patients are deposited directly through the lockbox. If not using a lockbox, make sure the person posting payments is not also responsible for opening the mail.
• Make sure you are paying the right people. Run a “vendor list” from your payables software and read it periodically. One physician routinely was paying $1000 to his office manager’s sister. It is reasonable to require exhaustive references, or even background checks, for vendors.
• If using superbills, make sure they are numbered and in sequential order. If one is missing, a valid explanation should be provided and an accountable individual determined.
• Run background checks for employees prior to employment.
• Perform random drug screening of employees.
• Consider carrying a fidelity bond. This will allow you to recover some of the money lost from fraud and removes the burden of whether to press charges against the offending party.

According to the US Department of Justice, employee theft accounts for several billions of dollars in lost
revenue annually. A physician practice is not immune. In fact, given how hectic many practices are run, employee embezzlement may be worse in physician practices than in many other fields. Regardless, adherence to the above steps can make an enormous difference in preventing employee embezzlement. Physicians have a responsibility to deter such impropriety—a responsibility not only to their own bottom line, but also to their loyal employees and to their patients.

Jamie Claypool can be contacted at jclaypoolassociates@texasdata.net.