Protecting Your Medical Practice from Fraud and Abuse

October 25, 2011

Fraud happens ― to the tune of $994 billion dollars annually in the United States. Perhaps it is time to take a look at your medical practice and decide how to avoid becoming part of that total.

No doubt your practice has some hard workers: the 20-year billing clerk, the front-desk employee who never takes a vacation day, and the claims processor who knows her system in and out - luckily for the rest of you who'd rather not be bothered with the system. While these people are great, they also fit the profile of employees who are most likely to steal from you.

At this year's MGMA11 Conference in Las Vegas, attendees learned to recognize red flags - both in terms of employees and situations - at their practice that are most likely to lead to lost revenue from an employee committing fraud. Karen Mosteller, a CPA and consulting partner with Florida-based Markham Norton Mosteller Wright and Co., and Kerri Gantt, administrative director with Gastroenterology Associates of SW Florida in Fort Myers, provided their insight during an educational session.

"Sixty-seven percent of your employees will steal from you given the chance," Mosteller said. "Are we seeing this more? Yes, because of the economy."

Mosteller described three elements of the "Fraud Triangle": pressure (from work-related to personal finances); opportunity (either through lack of controls at your practice or lack of disciplinary action); and rationalization (beliefs that your company owes money to employees or that employees are just "borrowing" money).

Who would be most likely to commit fraud at your practice? Some characteristics are obvious: employees who are dissatisfied with their job. But more likely, you are probably not aware of major stressors in your employees' personal lives; from compulsive behavior (with drugs or gambling, for example) to just wanting to "beat the system" as an intellectual challenge, Mosteller said. "They just aren't going to tell you about these things," she said, adding that many post-fraud discussions involve a practice owner saying they were unaware of the issue prompting theft.

Mosteller noted a study showing that 70 percent of employees who commit fraud are long-time employees (with four to 35 years of employment) and know the ins and outs of their employer. As for the employee who never takes a day off or keeps her accounting system to herself, look closely, she most likely doesn't want another person looking into her work and because she is committing fraud.

Now in terms of trends at your practice that might indicate fraud, Mosteller gave the following list of issues that should raise some red flags and call for immediate attention:

• Diminishing cash flow when receipts are strong
• Receipts do not seem congruent with patient visits
• Increasing accounts payable and A/R balances
• Transactions lacking documentation or approval
• Patient and payer complaints about recording of payments
• Significant number of year-end adjustment journal entries
• Poor accounting records

You may also have what Mosteller dubbed a "fraud-prone" practice, which includes the following characteristics:

• Week or loosely enforced internal controls
• Profit is the only practice objective and the lone criteria for performance appraisal
• Employees are placed under great stress to accomplish unrealistic objectives
• Complaints from patients, vendors, and employees are ignored
• Poor employee morale and practice loyalty
• Lack of monitoring and oversight

Part of righting the ship, Mosteller added, is having a CPA or another professional come into your practice and conduct an operational review, a multi-day, top-to-bottom review of practices and procedures at your office to identify these issues and suggest improvements.

More likely than not, your employees are great and would never steal from you. But just remember that, according to the Association of Certified Fraud Examiners, fraud and abuse costs U.S. businesses $994 billion annually, or 7 percent of your revenues. So perhaps it is time to be proactive and make sure your practice is as fraud-proof as possible.

"The studies show that the average [business] will lose $9 a day per employee due to fraud and abuse," Mosteller said. "Now add up your staff and add up those days … Scammers are getting smarter and smarter and smarter these days."