Embezzlement How to protect your practice

by Shellie Pruden, DCMS director of medical practice relations

Although 99 percent of employees are honest, what about that 1 percent that figures out how to beat the system and embezzle from the practice? Without becoming a micro-manager or embarking on a witchhunt, you can take preventive measures to reduce risk.

Hire the right employees. Do a background check on new employees. A comprehensive background check costs $30 to $50 and is invaluable for revealing a tainted background. By disclosing your policy to perform background checks in the application process, most ill-intended job seekers will move on to a less-careful employer. If you believe a comprehensive check is impractical, the Texas Department of Public Safety can do a background check for $3.

Bond employees who handle money. A fidelity bond can be acquired through your property and casualty insurance carrier and typically can be quoted in the business owner's package. It is a relatively simple process and a good business practice.

Check references before hiring. Potential employees typically provide three references. Ask for two more. Often these additional references provide information that could save you from a potentially risky hire.

Have strong internal controls. "If you set up the policies and procedures well, there is no reason to be paranoid," says Nancy Bahr, CPA and medical practice consultant. "A culture of mistrust doesn't benefit a practice. Set rules and expectations with periodic checks. They don't raise suspicion if they're part of the process." In the daily operations of the practice, employees who keep accounting records should not be authorized to handle receipts or perform cash disbursements. If segregation is impractical, have an internal review of the work at least quarterly. No one employee should have complete control over the sequence of cash transactions. An employee designated to sign checks should not be permitted to make bank deposits. Limit cash access to designated employees. Have periodic test checks and financial statement reviews from an outside accounting agency that specializes in healthcare and practice management. Make sure accounts payable are always paid at the time they are due and by check. These practices help create a well-documented cash trail. Another tip is to separate petty cash from the cash used to make change.

Be the bad guy. "Sometimes physicians choose not to terminate the alleged embezzler," says Mike Malone, a partner in the Health Industry Group of Vinson and Elkins, LLP. "If so, the chances of recovering the money are greatly diminished. You may choose to institute measures to prevent another opportunity to embezzle while you recover the money from future wages." He says you may choose to recover the monies through a civil suit on the grounds of conversion. Or you can report the potential embezzlement to the district attorney. It will be investigated and possibly prosecuted as a crime. If a physician presses charges or files suit, it is important that the case is well-documented. Be careful not to alert the employee to prevent him from destroying evidence.

Most victims of embezzlement were caught by surprise. To avoid embarrassment and hassle, many physicians choose to terminate the employee and try to forget about the crime. The best protection is to follow strong business practice policies, have regular independent audits, and, if you find evidence of embezzlement, prosecute.