Specific Embezzlement Schemes in Medical Practices

Today, we continue last week’s examination of embezzlement and theft in medical practice settings. We started with some specific best practices for supervisors and practice owners and provided some important red flags of embezzlement. This week, we outline some important management techniques that can help reduce both the temptation and the opportunity to steal and examples of very specific known internal theft scams.

Charlie Davis, an Arizona business attorney with decades of experience shared some more of the patterns he has identified in his legal practice and as the founding partner of Davis Miles McGuire Gardner.

Davis advises using pre-numbered documents for all checks, purchases, sales, shipments, receipts, billings, and collections. Alternately, if your accounting system generates those numbers or prints internally, employees should not be able to alter the numbering process. He also said that many employees get away with theft simply because they are confident that no one is actually looking at the books and doing simple things like comparing receipts, bank deposits, invoices, etc. Simple spot checks or random audits are always encouraged to deter a would-be thief and to act as a stop loss in case something bad is actually discovered, even if just an informal one by your CPA.

He also stressed the role of simple old-fashioned management skills, like segregating the duties of employees to create a system of checks and balances and to separate those who have custody of assets, record keeping, and authority to conduct financial transactions. Being a good manager also means hiring well and doing your homework on issues like employee screening, background checks, actually calling references, etc. Davis has even suggested that some clients have their employees with significant responsibilities and financial authority fully bonded and insured.

A few known rackets

Overt Theft: Dipping into the till is commonly accomplished in two ways: failing to record cash sales and pocketing the money or simply stealing from the cash register, and making changes on the printouts or tapes. Of course, patient payments may also be intercepted and stolen before you ever see them as well, so watch for unusual offsets in discounts and credits. If your practice sells or dispenses anything of significant value, inventory controls are obviously important as well, but we’ve seen a variety of things you wouldn’t have thought of stolen with the help of an employee, from office equipment to office and medical supplies, and even construction materials.

Financial Fraud: Another common scheme Davis shared is likewise a variation on a theme, "overwriting." In this scam an employee either overwrites checks to vendors and pockets the refunds or they will overwrite the invoice itself and keep the overage to the vendor, often with vendor participation.

Wage Theft: This is another very common form of fraud and mid-sized and larger providers must continually be alert to attacks on their payrolls with padded hours, false pay rates, and even phony employees, where one employee can punch two or more time cards.

As we discussed, this is a question of awareness and an unfortunately common issue in many medical practices on at least some scale. The specific tips we’ve shared are a good starting point to implementing controls that will help proactively eliminate these exposures, or at least limit them to a specific period in time.