It is estimated that approximately one in six physicians will be the victim of embezzlement at least once during their practice's lifetime. This may be due to the trusting nature of physicians, a lack of business training about separating duties in transactions involving money, or employees' feeling overworked, underpaid, and/or underappreciated. The U.S. Chamber of Commerce estimates that 30 percent of business failures are directly related to employee theft.
Embezzlement may be the hardest event any business owner can face. Sympathy abounds when a business suffers a fire, natural disaster or the death of a partner. But being stolen from by someone you've trusted leaves you feeling betrayed and gullible. Victims of embezzlement often say things such as "I feel like the newest member of the deceived club," "But we trusted him completely" or "She was like a family member."
The Best Protection Against Embezzlement Is Prevention
It's important that you value your employees and make sure they know it. Here are some basic guidelines:
- Be sure your employees are paid at competitive wage levels for your area. To get an idea of what the current pay standards are, survey local offices yearly or refer to practice payroll benchmarks.
- Also provide usual and customary benefits for your locale. Employees who have pay and perks comparable to area norms may be less likely to feel they deserve more than they're getting and will be less like to "help themselves."
- Be familiar with your state's labor laws regarding exempt versus nonexempt employees, and pay overtime in accordance with your state law.
- Show appreciation with sincere compliments, surprise treats such as lattes or ice cream, or schedule parties or team-building events that include both physicians and staff. These types of efforts help create a sense of belonging and loyalty to the practice and thus deter company theft.
Have Policies and Procedures in Place
It's also important to develop written personnel procedures and policies. Clearly written policies and codes of conduct help imprint behavior requirements in the minds of employees. These rules should clearly state that stealing from the company is grounds for termination.
Screen Employees Carefully
The U.S. Department of Justice reports that one in every 32 adults has a criminal record. A recent report from ADP Screening and Selection Services found that 44 percent of applicants lied about their work histories, 41 percent lied about their education and 23 percent falsified credentials or licenses. Likewise, ResumeDoctor.com found that 42.7 percent of résumés have significant inaccuracies.
Perform a background check on all potential employees, and be sure the following are part of your screening and hiring process:
- Ask references if employee was ever convicted of embezzlement.
- Include the same question on your application form; that way, you have clear grounds for dismissal if the employee lied.
- In interviews, ask if the applicant is bondable, and clearly state that you will perform a background check.
- Perform a credit check and a criminal-record check on all employees who will handle money.
Be Discrete About Your Personal Wealth
Don't flaunt a high standard of living. Staff may come to feel jealous and think that they deserve what you have - and are entitled to take it.
Be Up Front about Expenses
Discuss your practice's overhead expenses in general terms and how they continue to increase. Staff who only see revenue coming in may have no concept of the cost of doing business and thus have an inflated idea of how much a physician actually takes home.
Pay attention to the following signs - they may signal a potential embezzlement issue:
- An employee does not take vacations, or does but insists that no one else handle billing or bookkeeping while they are away.
- Employee takes billing or bookkeeping home.
- Employee works long hours without complaint.
- Employee works odd hours: early mornings and/or late evenings.
- Employee's lifestyle changes: expensive car, jewelry, clothes, vacation.
- Employee talks about stress, family pressures, and financial problems.
- Employee behaves defensively when bookkeeping or billing is discussed.
- Employee suddenly volunteers to take on bookkeeping or billing.
- Employee quits suddenly, particularly when a CPA or consultant comes into the practice.
- Office morale suddenly changes.
- Patients or vendors complain about billing or bookkeeping errors.
- Vendors send past-due bills.
- Revenues drop or remain flat when an increase is expected.
- Expenses in one category increase or total overhead goes up.
- Checkbook is not current or does not balance.
- Accounts receivable is not balanced or days in accounts receivable are rising.
- Credit refunds increase.
- Petty cash checks are cut more frequently; i.e., funds are being spent more rapidly and need to be replaced.
Many physicians do not learn the basic principles of accounting control. As a result, it is too easy for staff to take money. Do not expect your CPA to catch embezzlement unless you have specifically requested that office systems be set up to prevent it. It's really your responsibility, since it's you who will suffer.
Most embezzlement in medical practices is carried out by someone working alone, so the two key principles are:
- No one person should have control over the entire cash transaction process.
- Duties involving money should be distributed to two or more people. That way, collusion would be required for embezzlement to occur, which is less likely.
For example, the same staff person should not open the mail, record the checks, balance out at the end of the day, post the payment, make the bank deposit and reconcile the bank statement. Even in a small office, these tasks can be given to two or more staff members. As a further safeguard, rotate the job of opening the mail.
Other precautions you can take include these:
- Have the bank statement go to your house, or if it comes to the practice, require it to be placed on your desk unopened.
- Have an outside bookkeeper, CPA or someone else reconcile the bank statement.
- Review electronic transfers carefully, and do not let anyone have access to online banking except a physician partner so that staff cannot transfer funds to a personal account. Online banking transfers result in the largest dollar amount embezzlement from managers.
- Think carefully about allowing anyone except a physician partner to have the authority to sign checks. Most groups also require two signatures on any check over a given amount, even when all signers are partners.
- Perform unannounced random spot checks by matching the daily scheduled patients against posting and deposit slips. Many computer programs have a "missing encounter" feature that will perform this function. (It is advisable to look this functionality when choosing new software.)
- Monitor the level of cash co-payments; if it drops dramatically, this may be a warning sign. Receipts for cash should be sequentially numbered and have carbon copies.
- Checks should be stamped "For deposit only." You may want to have a physician make deposits, have the bank pick them up and/or use a lock box for checks that goes directly to the bank. Explanation of benefits forms and check copies should either be scanned and available via the Internet or sent to the practice or its billing service.
- Accounts payable is another area of risk. The manager or bookkeeper should present all checks for payment along with the corresponding vendor invoice, and the physician should verify that the vendor is authentic. Review cancelled checks and credit card statements the same way.
- Do not allow staff to charge to items to the company credit card. Don't allow practice checks to be written for personal items or allow employees to use your practice as a bank and write checks for cash.
- Have an outside person double check the payroll. Managers are sometimes able to give themselves a "bonus" or increase their own pay without the physician knowing because the bank statement only shows the total payroll amount debited, not the individual payroll amounts. You must double check payroll reports.
Too Late For Prevention? Consider Prosecuting
Too many embezzlers hop from practice to practice because no one prosecutes. Don't let the crime go unpunished. If you do, to add insult to injury, the practice may have to report the stolen money as "phantom income" and pay taxes on it (consult with your CPA about this).
Contact an attorney who, after determining that there is concrete evidence, will assist you in confronting the embezzler and will prepare a confession and a restitution agreement. If the thief is remorseful, a repayment plan can be worked out or you may be able to repossess assets or garnish wages. But don't hesitate to send an embezzler to jail if it comes to that.
However, the adage "An ounce of prevention is worth a pound of cure" is probably the best advice. Take steps to stop embezzlement before it starts.
About the author:
Debra Phairas is the President of Practice & Liability Consultants and has over 20 years of healthcare administration and consulting experience. www.practiceconsultants.net
©Copyrighted 2012, updated 2016 Practice & Liability Consultants, LLC