Six Ways to Protect Medical Practice Funds from Embezzlement

Some basic principles, when followed, can help protect funds coming into a practice from embezzlement and -failing prevention - detect employee fraud sooner rather than later.

Independent Verification

A transaction is most vulnerable before it has officially been recorded. Copays and deductibles collected at check-in are good examples because a receptionist can simply pocket the cash without recording the payment.

Some consultants recommend posting a sign that reminds patients to ask for a receipt for all payments. I disagree for two reasons:

• It is not all that hard for a receptionist to supply a completed receipt from her very own receipt book.

• The message sent to patients and employees by such a sign is that the employees are not trusted. Employees have a tendency to perform to expectations - positive and negative.

My preference is to have one person collect the copay and another post the payment. One way to achieve the separation is to have the front desk receive the copay or deductible, prepare a receipt, and attach the receipt to the super bill or give it to the patient to present at checkout. Then a different person can post the copay at the same time as the charges for the visit. Different controls are necessary for payments made at checkout.

The risk for this type of fraud is highest at the beginning of each calendar year, as patients' deductibles reset and the practice handles more payments from patients at the time of service.

Reconcile Activity as Well as Money

It is both reasonable and dangerous to assume that a bill or claim will be prepared for each patient seen. One of the best ways to keep the pocketing of a copay from being detected is to destroy the super bill before the charges are captured.

Reconcile the number of patients seen each day against the total number of bills and claims prepared for the day. If still using paper super bills, consider having them printed with sequential serial numbers and controlling super bills in the same way as check stock, accounting for voided super bills.

Prepare Daily Deposits

The obvious objective is to get checks and cash into the bank as soon as possible. A secondary objective is to clarify daily reconciliation of receipts to deposits by making the time frames coincide. It may be useful to prepare three separate deposits, or simply to have three sections to a single deposit:

• Patient point-of-service payments

• Third-party payments

• Patient payments on accounts

Utilize an Automated Clearinghouse for Third-party Reimbursements

Whenever possible, have third party payments deposited directly into the practice's bank account via ACH. It is less work for the practice; the funds are immediately available; and there is no opportunity for the payment to be intercepted.

Keep Records Up to Date

The more often reconciliations are performed, the fewer items are involved and the easier it is to identify errors and anomalies. If the records are in good shape, reconciliation is relatively painless.

Do not be sympathetic to pleas to let things slide because the office is too busy to worry about bean counting. If the books are always a mess and there is no time to reconcile them properly, be alert to possible malfeasance.

Review Account Adjustments

Consider two separate general ledger accounts for patient balance adjustments: one for adjustments resulting from contractual arrangements with third-party payers; and another for adjustments because of errors and agreements with individual patients.

Spot-check the contractual adjustments to confirm they are consistent with the agreements, as you understand them. It is possible that employees are redirecting funds and overstating these adjustments. It is also possible that the third party is not reimbursing properly.

Review each adjustment stemming from an error or an arrangement with an individual patient, and match it to the supporting documentation. Adjustments are a common method of make patient balances be what they would have been if payments had been properly applied.

Embezzlement of incoming funds cannot be eliminated, but good procedures executed with discipline can discourage it and limit the damage.