Embezzlement Poses a Serious Threat to Your Medical Practice

March 11, 2014

While embezzlement is a common problem for medical practices, there are ways to spot and foil theft.

Internal theft and embezzlement poses a serious threat to physicians and healthcare organizations. Fortunately, there are practical ways to spot and prevent employees from helping themselves to your practice's revenue.

I've previously addressed a variety of serious legal and financial exposures related to medical practice employees including the ways to protect yourself  from a variety of employment related lawsuits, the importance of a professionally drafted employment manual, and the right kinds of insurance your HR program must include. Over the last few years, in particular, we've sadly seen an increase in exposure to internal theft and related crimes in a variety of businesses - including medical practices - ranging from executive embezzlement to theft by entry-level admin personnel.

For some practical help on this issue I turned to my friend attorney Charlie Davis, the founding partner of the multi-state law firm of Davis Miles McGuire Gardner* in Phoenix, Ariz. Davis has 40 years of experience in business law and has seen just about every scam out there. I knew it was a big problem, but he informed me that small businesses have been especially vulnerable due to accounting systems that lack many of the formal checks and balances found in bigger businesses to protect them from embezzlement losses. According to recent reports, these losses cost American businesses like yours $120 billion a year. In just one of many specific examples Davis shared, (we'll provide a full round up of specific examples next week) one of his own clients discovered that a clerical employee had stolen over $250,000 over three years through a variety of invoicing scams, and put the small business in financial jeopardy.

Here is an outline of "best practices" to protect your practice from embezzlement:

1. Specific behavioral issues practices should look out for with partners and employees:

• Unusual interest in practice finances unrelated to an employee's job or compensation

• Personal financial problems (including divorce, bankruptcy, signs of substance abuse, debt issues, etc.)

• Inappropriate social relationships with customers or suppliers

• Changes in lifestyle and spending (up or down)

2. Specific accounting and record keeping issues practices should look out for with partners and employees:

• Unusual inventory changes; issues and expenses

• Sudden or unseasonal drops in profits

• Unreasonable travel expenses

• Sudden slow down in receivables

• Multiple white-out corrections and changes to sales slips, accounts payable, accounts receivable, inventory figures, etc.

• Lost, damaged, or missing documents

• Unusual credits to patients on a recurring basis

• Discrepancies between daily receipts and daily bank deposits

• Increased purchases in disposable supplies

• Identical account or invoice numbers used in duplicate billings and/or invoices (or numbers that follow an unusual pattern)

The human mind knows no bounds, including the criminal one, so this list is ever growing and has many variations on a theme. Next week I'll discuss a very specific list of scams and techniques Davis has seen and that complements the warnings we provide above.

*In the interest of full disclosure, after working with Mr. Davis' firm on a variety of issues, I am recently of-counsel with Davis Miles McGuire Garden, where I have helped establish formal practice groups in the areas of asset protection and wealth preservation.