Avoiding and Preventing Embezzlement

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:

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:

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.

Red Flags

Pay attention to the following signs - they may signal a potential embezzlement issue:

Accounting Control
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:
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:

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