Avoid Embezzlement at Your Medical Practice

Over the course of seven years, a Buffalo-area bookkeeper stole approximately $723,000 in cash from the dermatology practice where she worked.

In another practice, a wife working in the office was found to be stealing to set up a cash cushion before filing for divorce from her physician husband.

Despite sophisticated cash management and billing software, embezzlement still happens with alarming regularity in physicians' offices, experts say.

"It happens all the time," says Vicki Rackner, a former general surgeon who founded Medical Bridges, a consulting firm. Rackner recalled a friend, a fellow surgeon, who was so distraught by an act of embezzlement that she had to take a mental health leave from her practice. "Some of us are so bad as business people that we don't take a look at the numbers to make sure they make sense."

Staying vigilant about protecting your practice from all forms of embezzlement is a must, Rackner and other experts say.

"Every doctor right now is looking at how to generate more revenue, but the first thing they should be thinking about is not losing money" to fraudsters and inaccurate claim denials, Rackner says.

A majority of embezzlement cases in medical practices involve a trusted employee who has been with a practice for a number of years, says Carl Frost, founder of Frost & Co., a healthcare consulting and accounting firm.

"There will be others, but doctors in particular will say, 'She's been with me for years and I trust her implicitly,' and there's the problem," says Frost. "It was President Reagan who said it: 'Trust but verify.'"

Count the ways

So, how are thieves plying their trade at your practice?

Stealing from the petty cash drawer is one of the most common offenses, said George Indest, a Florida attorney and president of The Health Law Firm. That may be changing, however, as consumers' use of credit and debit cards grows, he says.

"If you can minimize cash handling in the office, that's good because it's just an invitation to steal. Employees, [contract] janitors, night staff - they all find out where the cash is kept," he says.

Another fairly common method involves staffers who prepare checks for invoices but never submit them and then use the money for their own expenses.

"A bill will come in, say for a $3,000 medical malpractice insurance premium. The person in the office prepares the check and the doctor signs it," he says. "Then the office person destroys the check, [and] starts writing other checks for personal expenses that add up to $3,000. The doctor doesn't realize the money hasn't gone to pay the premium and the office person is throwing away the past-due notices."

Using practice credit cards for personal purchases, creating false invoices and diverting the payments, and applying for company credit cards for themselves are a few other ways employees may be stealing from the practice, Indest says.

"I once had a client who had a staff person who was stealing in five different ways," says Frost. "If these people spent as much time and energy on work they would be phenomenal employees."

And it may not just be employees you need to watch, Rackner says. "The truth is there are just a lot of ways doctors can be taken advantage of," she says, noting a time she gave some money to someone who approached her in the parking lot of her hospital saying his son was in the hospital and someone had stolen his wallet. The next day when she mentioned it to colleagues, they told her the same person frequents the lot with the same story.

She says she felt foolish because it's such an old scam, but her story illustrates a point that physicians should keep in mind: Patients - and even partners - can present real threats.

A partner who mentions a questionably aggressive tax-deduction strategy, or in some other way demonstrates a comfort level with stretching the rules could put other partners in jeopardy, she says.

Frost agreed.

"I've seen situations where a physician partner was stealing from the practice retirement plan," he says. Also not uncommon: Partners who run their own home utility bills through the practice or overuse a company credit card.

Ounce of prevention

So what can physicians do to protect themselves?

Measures to diligently protect a practice from embezzlement can be costly and take away precious billable time, but they're worth it, experts say.

"Open all of your own mail and don't give away check-writing privileges," Rackner says.

Delegating such routine tasks is tempting, but a low-level staff member probably won't know enough about the practice to recognize when something coming through the mail is amiss, such as overdue notices if a bookkeeper is diverting funds.

"Also, take a critical look at your profit and loss statement and make sure the numbers make sense to you," says Rackner.

Third-party billing is an option to consider, she says, and could have positive side benefits, such as practice efficiencies.

If you have an in-house financial staffer, consider having him bonded, says Frost. The process will insure the practice against losses due to theft. First, a thorough background check will be conducted on the staff member, Indest says. The process isn't cheap, he says, but is worth it.

At the very least, be sure to do background checks separately if you don't go the bonding route, experts say.

"You can have background screening done on all employees through online services," Indest says. Just remember to disclose this on your employment application. And if current employees never went through these checks, consider doing them retroactively. It is an expense, but a necessary one, he says.

On the employment applications, be sure to ask about prior convictions and any other names or versions of names that applicants may go by, Indest says.

"Often physicians don't care about all the paperwork and don't look at financial statements because they just want to treat patients," he says. "It's admirable, but at some point you have to be careful and be aware of every penny."

Embezzlement prevention tips

1. Move it or …

Remove temptation by depositing petty cash into a bank on a nightly basis, suggests George Indest, a Florida attorney and president of The Health Law Firm.

2. Separate tasks.

Don't make the same person responsible for both opening the mail and paying bills, Indest says. This makes it too easy to hide evidence of embezzlement.

3. Don't be shy about these measures.

"There's an old saying that a friend does not put a friend in a position to do wrong. You shouldn't put employees in a position where they could be tempted to do wrong," says Carl Frost, founder of Frost & Co., a healthcare consulting and accounting firm. That means establishing a strong and watchful stance on all handling of money in a practice.

Janet Kidd Stewartis a freelance writer based in Marshfield, Wis. She holds a bachelor's degree and master's degree from the Medill School of Journalism at Northwestern University. She can be reached at editor@physicianspractice.com.

This article originally appeared in the June 2015 issue of Physicians Practice.