When Robin Good joined Plastic Surgery Center in South Bend, Ind., four years ago, there were no internal controls in place to prevent employee theft. No audits. No division of responsibilities. No review of collections and deposits. "I immediately put in processes to cross check everything," says Good, an office administrator who previously worked for a large hospital system and is well aware of how vulnerable medical practices are to embezzlement. "I installed a new accounting system, revamped posting procedures, created spreadsheets for each procedure so we now know down to the penny how much everything costs. It was like starting over."
It's not paranoia. It's prudence. Employee theft is rampant among medical practices, primarily because most physicians assign bookkeeping responsibilities to their staff while they remain focused on patient care. At smaller groups, the person who collects copays and deductibles is often the same person who posts charges and makes bank deposits. Temptation abounds, especially when work goes unchecked. A 2009 study by the Medical Group Management Association (MGMA) found that 83 percent of the 945 practices that responded had at some point been the victim of embezzlement.
Very few practices ever recover what was taken, says Denise McClure, a certified public accountant with Averti Fraud Solutions in Boise, Idaho, and a former medical practice administrator. "Typically, the people who embezzle spend the money," she says. "They don't put it in a savings account. They buy gifts for family or friends. They gamble it away. They tell themselves that they're just borrowing the money and that they'll pay it back, but that's an absurd rationalization."
Given the prevalence of such crimes in the healthcare setting, says Jim Arend, chief financial officer of TransforMed, a practice consulting firm in Leewood, Kan., practices should remain alert for signs that something may be amiss. That includes watching staff members — especial those handling collections, bookkeeping, and/or bank deposits — who refuse to take vacation (fearing they will be discovered by their replacement). Some even refuse promotions. It is also suspect if an employee gets defensive when you suggest that their work be independently reviewed. "That may mean they are afraid of someone looking over their shoulder," says Arend. A cluttered paper trail is another sign, he says. "If your petty cash fund is always unreconciled, there are no receipts, and the physician is having to put $100 in there every other month, that's a red flag," he says.
Where to look
There are countless opportunities for unscrupulous employees to misappropriate funds. Nearly half of the MGMA survey respondents indicated that theft occurred from cash payments — employees pocketed copays or deductibles either before or after they were recorded on the practice's books. A receptionist who takes a $30 copay from a patient, for example, can easily pocket the money and write it off as bad debt, says McClure. Such write-offs are often buried in accounts receivable among the contractual allowances from third-party payers. Employees may also write off the balances from office visits for friends or family — a less overt form of theft, but plenty costly to your practice.
Petty cash is another common target and often where stealing begins. According to Arend, embezzlers typically start small, taking $20 here and $10 there. When no one notices, they become more brazen. "Many smaller practices have drawers of money that staff members can use to buy stamps or other office supplies, and if you have more than one person who can get into petty cash, you don't know who's been in there and who took the $20," he says.
Practice owners and managers should also monitor payroll. When a physician doesn't know how much he's paying his staff, or doesn't bother to review paychecks before they are distributed, the staff person managing payroll can easily inflate her own hours, or create a paycheck for someone who doesn't work in your office — like their spouse, says Arend.