Avoiding Embezzlement at Your Medical Practice

Medical practices work hard to earn and collect payment for services. So physicians need to devote at least some energy to defending themselves from employee dishonesty. Developing an eye for potential embezzlers can be a good place to start.

Why does someone steal from an employer?

Some people steal because they are in desperate need of money. Others grab a little cash from the drawer because they need it for the weekend. Some are disgruntled and feel wronged - either by compensation they think is too low or what they perceive as unfair treatment. Their theft at least starts out as an attempt at equity. The hardest reason to understand is entertainment: It is just fun and exciting.

How does it start?

Embezzlement starts small. The thief identifies an opportunity and exploits it. With time and lack of detection, the aggregate amount of the theft grows, and the thief becomes bolder.

Experts say that employee theft is rarely, if ever, discovered before it has gone on for some time.

Red Flags

Here are a few strong indications that a physician needs to be concerned about possible embezzlement:

1. It is a medical office.

In 2010, the Medical Group Management Association published the results of a survey in which 83 percent of the respondents reported being a victim of employee theft. More than 18 percent of the respondents reported experiencing a theft in excess of $100,000.
Medical offices are prime targets because they are small and it is more difficult to separate duties related to financial transactions. The problem is exacerbated because physicians tend not to be familiar with or interested in standard financial practices that can mitigate the risk of employee theft.

2. Patients are complaining about errors in their accounts.

Numerous patient complaints that payments were not credited to their accounts is the most common symptom associated with embezzlement.

3. Some or all of the staff has been with the practice a long time. They are just like family.

Embezzlement requires trust. If a person is not trusted, the opportunities to steal are severely limited.

4. An employee is completely devoted. She does not want to inconvenience anyone, so she comes early, stays late, and continues to do some of her work even when she is on vacation.

There is a reason the FDIC recommends to banks that "active officers and employees be absent from their duties for an uninterrupted period of not less than two consecutive weeks" and the absent individual's duties performed by someone else. "Embezzlement of any substantial size usually requires the constant presence of the embezzler in order to manipulate records, respond to inquiries from customers or other employees, and otherwise prevent detection."

NOTE: Strictly enforced rotation of duties can achieve the same objective as the uninterrupted two-week absence from duties.

5. An insurance company is withholding payment for an extended period of time and a significant sum of money.

A prospect once complained to me that an insurance company was holding up over $100,000 of payments for no good reason. The billing manager was in constant contact with them and could never get a better response than "The check is in the mail." I offered to look into the situation. The physician agreed. The billing manager initially agreed, but called me later to cancel. When I asked the physician, she told me the billing manager did not think I would be able to find anything. See #3 above.

6. An employee clearly does not need the money, but she is at work every day and is one of the best employees in the office.

Many people work for the sheer joy of it, but it is only prudent to be concerned about employees who appear to be living well above their means. It is also prudent to be somewhat skeptical about stories of "family money."

Next week, we will look at controls that can be put in place to discourage embezzlement in the first place and detect it more quickly if it does occur.

Find out more about Carol Stryker and our other Practice Notes bloggers.