Internal medicine subspecialist Susannah Blue* in Chicago used to be impressed by the dedication of her former office manager, Maude Rizzi.*
This employee once hobbled into the office on crutches when she should have been home recovering from knee surgery. But then, Rizzi always insisted on being there to open the practice’s mail.
“I have no life,” she’d tell Blue. “Your office is my life.”
But it turned out to be a double life. Shortly after Rizzi left in January for another job, Blue discovered that her dedicated office manager had stolen $80,000 from the practice. Rizzi now faces criminal charges and Blue feels ashamed and humiliated. “I thought I had good internal controls,” she says. “I thought I was watching the store.”
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She needn’t beat up on herself, however, says practice management consultant Keith Borglum in Santa Rosa, Calif. “Anybody can get embezzled,” says Borglum. “You can do things to discourage embezzlement, and to discover it early once it happens, but you’ll never totally prevent it.”
While Blue committed some classic mistakes that made it easier for Rizzi to raid the till, she has since learned a few lessons about minimizing the risk of another inside job.
Cash was king
Blue hired Rizzi as a receptionist when she launched a solo practice in 2004 and promoted her to office manager when she took on a second physician and enlarged the staff. The practice grew quickly, but despite a full waiting room, Blue struggled to cover her expenses and take home a consistent salary. The financial picture became so bleak she even considered quitting medicine.
Meanwhile, Rizzi was stealing her money, mostly by skimming cash that patients paid at the front desk, about $55,000 in all. The cash was posted in Blue’s practice management system, but it never was deposited in the bank — and Rizzi made sure that she was the only one making deposits. She went through the charade of sitting down with Blue and comparing the bank deposit to a tally of the day’s collections. The numbers always matched, says Blue, because Rizzi cooked up her own collection numbers — always minus the cash — on a custom-made spreadsheet instead of printing out an accurate report from the practice management system. And she also falsified accounts receivable reports to further squelch suspicions.
For Rizzi, cash was king. “She told the front desk that all new patients must pay in cash, even if they had a check or credit card,” says Blue. “She’d send new patients to the ATM machine.”
Rizzi stole another $12,000 or so by plumping up her paycheck, at first by $20 or $50, small increments that didn’t attract much attention when Blue inspected individual wages. At the end, Rizzi was giving herself $500 raises, which went unnoticed because she was now showing Blue only the grand total for payroll. Plus, she misrepresented what other employees earned.
The rest of the losses resulted from Rizzi using a practice credit card to buy paper products and office supplies for her personal use. She’d tell Blue, however, that they were purchased for the practice.
Blue says that in addition to embezzling, Rizzi saddled her practice with more than $120,000 in losses. She wasn’t just a thief; she was a lousy manager. Insurance claims were submitted past the filing deadline, if at all. Patients weren’t billed. Worse yet, Blue would write checks to vendors, but Rizzi would either mail them in late or sit on them. That’s why Blue’s bank was charging her late fees and higher interest for tardy payments on a loan and a line of credit (a problem that Rizzi hid from her boss until close to the end by intercepting bank statements).
While Blue has wondered if Rizzi was trying to destroy her practice, it was probably nothing personal, says Angela Morelock, an accountant and fraud specialist at the CPA and advisory firm of BKD, in Springfield, Mo. Embezzlers, she adds, routinely stiff vendors to mask the damage they do to an employer’s bank account. “By not paying bills, the embezzler makes the bank account look normal and avoids the problem of checks bouncing if the balance gets too low.”
Blue could have given Rizzi less opportunity to disguise her theft by outsourcing her accounts payable to a part-time bookkeeper, notes Keith Borglum. “You’d only need to use one about four hours every two weeks.”
Ignoring tip-offs
Blue admits making one big mistake in the Rizzi affair — she didn’t run a criminal background check before hiring her. “I got a glowing reference from her previous employer,” says Blue. “I thought that was good enough.” If she had run the check, she would have learned that Rizzi had been charged with stealing from two previous employers.
The trouble with trusting a reference, says Morelock, is that an embezzler’s most recent employer may have been embezzled himself without knowing it. “The theft is often found long after someone leaves,” she says.
Another mistake was ignoring common warning signs of fraud. Morelock says that embezzlers often upgrade their lifestyle, and Rizzi fit the bill. “She became more interested in shopping for shoes, clothes, and purses,” says Blue. “She also leased a condo that was probably beyond her price range.”
A second tip-off was Rizzi’s obsession about opening the practice’s mail. “Before she went on vacation, she said, ‘I’ll open the mail when I get back,’” says Blue. “And then she’d cut short her vacation to do that.” Adds Morelock: “If embezzlers lose control of the mail, they’re dead in the water.”
