Practice Vendor Guide
How to Reduce the Risk of Theft and Embezzlement in Your Practice
Mark Divino, CPA (National Billing Partners, LLC)
As the economy continues to struggle, theft and embezzlement have been on the rise in physician-based practices. In a recent case, an office manager of a family practice embezzled more than $450,000 over a six-year period.
Three elements are generally present in theft and embezzlement cases:
1. Opportunity. The opportunity to steal is just too great for some people to resist. Situations that increase this opportunity include physicians not engaged in the day- to-day business, large amount of daily transactions (including cash), or practices that tend to have a “trusted, loyal” employee whom no one would suspect. Perhaps the biggest opportunity to steal involves a weakness in internal controls.
2. Pressure. Mounting debt or living beyond one’s means can add pressure to steal. Maybe a spouse has lost a job. Also, drug, gambling, and other addictions can be a factor in someone deciding to steal.
3. Rationalization. People generally will rationalize their reasons for theft. An employee may think, “I deserve a raise, so I am going to give myself one!” or “I am only borrowing the money, and I’ll pay it back.”
How Theft and
Embezzlement Occur Employees can steal from a practice in numerous ways. They can steal cash, property, or even data. Below are a few common ways that employees can steal from a practice:
Recording of Patient Payments In one common scheme, the employee will not record the patient cash payment
or may record only part of it. The employee then pockets the money and adjusts the account in the practice management system to show a zero balance due. Another scheme involves an employee opening a bank account with a name similar to that of the practice and depositing the payments in the fraudulent account for his or her own use.
Payments Made to Vendors The employee sets up phony vendor accounts, and the payments are actually deposited into the employee’s bank account. In another scheme involving vendors, the vendor is overpaid and the employee receives a kickback.
Credit Card and Identity Theft Employees who have access to a patient’s credit card and Social Security number can steal this information and sell it to a third party.
How a Practice Can
Mitigate Risk The first thing a practice can do is look for red flags or warning signs that point to potential improprieties. Common clues to look out for include:
• An employee who never takes a vacation,
• An employee who is clearly living beyond his or her means, or
• An increase in patient complaints regarding billing errors.
Some ways a practice can mitigate the risk of theft and embezzlement are as follows.
1. For any potential new hires, perform a background check that includes state criminal records, Social Security number check, and national felony searches. You also may consider a credit check for
employees who handle money or perform other fiscal duties.
2. Perform daily reconciliation of bank deposits against receipts in the billing system, then monthly reconciliation against bank statements and the accounting system.
3. Conduct periodic surprise audits using an outside accounting or consulting firm.
4. Consider outsourcing the billing and collections functions; a reputable firm should have strong internal controls in place.
5. Monitor billing and collections activity and review key performance indicators such as collections ratios, days in accounts receivable, refund activity, denial rates, and patient volumes.
6. One of the most important things a practice can do is segregate duties wherever possible. For example, one employee may open and endorse checks while someone else prepares the bank deposit. The bottom line is to never have one person in complete control over the receipt, disbursement and recording of cash, and related transactions.
Is Your Practice at Risk? Please contact Mark Divino, CPA, at (888) 608-7999 or mdivino@
mybillingpartner.com for more information
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