Embezzlement by employees has become more rampant than ever before. Whether you are a physician or a practice executive, you are at risk;

Judy Capko, a healthcare consultant for over 20 years, explains Best Practices: 12 Steps to Avoid Embezzlement in Your Medical Practice

We list the best practices suggestions as we have seen an increase in embezzlement in our insured medical practices.

She explains (or confirms) what all physicians and administrators have experienced, the loss is sometimes insurmountable because it takes any margin that physicians might have had to build their practice and invest in their own technology;

Plus it is emotionally devastating as it involves a breach of trust. In the situations that we have seen in the Northern California Doctors Insurance Agency, those caught embezzling almost always have the most trust of the physician owners.  The fact is that you simply must have automatic, routine, monthly and quarterly financial disciplines in order to stay ahead of this crime.

Eliminate casual handling of cash

I have observed a number of practices where finances are handled casually and create temptation for future embezzlement opportunities. For example; cash is loosely kept in drawers and not reconciled to practice records before it hits the bank deposit – in fact some physicians have made a habit of taking funds from the cash drawer when it is convenient. This is a sure fire way to compromise the ability to reconcile the money.  Direct deposits, when available eliminate any temptation to intercede and take what should be deposited.

Follow the money yourself – Read your bank statement

It is important for you to read those bank statements each month. This can be done on-line (or the old-fashioned paper copies) and should take less than one hour per month.  This is another area where you can involve a second party.  Two people reading the bank statements is just smart, financial practice.

 Secure system-wide audit trails

Next, make sure the computer system has a proper audit trail and that the financial procedures in the practice provide sufficient oversight for financial transactions including charges, adjustments and payment on patient accounts.  Your practice management system, accounting system, banking system and payroll records must provide the ability to track all transactions and identify which employee completed the transactions.   It’s not a matter of being suspicious; it’s a matter of being smart with money. 

Embezzlement almost always starts small, be ready to trust your intuition and to test any an all financial test points, from accounts payable to the cash drawer, the person may just test the waters with just an easy to justify amount taken; if it is not detected, or if there is no process to double check, then the ground work has been set to take more.

Divide duties and ensure accountability:

Efficiency of a medical office depends on avoiding duplication of tasks.  At the same time it is important that multiple people be involved in finances, creating a separation of duties. You don’t want the person to audit the cash drawer, post the charge and payment, and take the money to the bank. Create essential financial role diversity by requiring anyone handling finances to rotate out of their position for a period of at least two weeks each year.  Beyond having multiple people involved in financial transactions, it is equally important to have processes that ensure there is clear and appropriate documentation to support all financial transactions: money in and money out. This documentation is your audit trail.  It allows the practice to spot check to ensure the financial processes are being adhered to.  This is one case where duplicate efforts are a powerful financial tool. 

In a small practice, the doctor or an independent source such as the accountant or consultant can be the point person for accountability.  A larger practice may use an independent source or have an audit committee composed of employees from various departments.  Either way, a Protective Financial Review should be conducted periodically. 

Here are the simple Judy Capko rules to avoid embezzlement:

Apply these twelve steps to prevent embezzlement:

1.       Pay bills on-line or use an automated check-writing system that prints checks that leave no room for alteration;

2.       Use electronic remittance for payment from third party insurance companies where the service is available and have a bank drop box for receiving payments on patient accounts and insurance payments where electronic funds transfers (EFTs) are not available;

3.       Audit the cash drawer daily;

4.       Never borrow from the cash box (or others will);

5.       Get rid of signature stamps with the same names as the signers on bank accounts;

6.       Review bank statements on line or have bank statements come to the home of one of the physicians and have someone that neither writes the checks nor makes the bank deposits complete the reconciliation;

7.       If a non-owner of the practice is permitted to be a signer on the bank account, limit the dollar amount approved;

8.       Audit payroll records quarterly or at a minimum semi-annually to prevent potential unauthorized raises, bonuses or overtime pay;

9.       Conduct past references on all employees before you hire them;

10.    Obtain an insurance bond for the bookkeeper and the office manager, but keep in mind that does not cover financial neglect by the practice owners;

11.    Conduct occasional Protective Financial Reviews of each aspect of practice finances;

12.    Listen to your instincts.  If you become suspicious, start digging. If the person handling the money seems territorial and protective of his position or begins living a more extravagant lifestyle or avoids going on vacation, something is wrong and it’s important to dig deeper to make sure finances are in proper order.

Establish strong financial practices in your office and adhere to them. Existing employees and new hires will appreciate a solid foundation and a clear understanding of how things need to be done.

As a final note, during the employee orientation discuss the financial principles of the practice and let the new employee know you will not tolerate deceit, fraud or theft. Too many practices leave financial matters unspoken and too many physicians that who have been the victim of embezzlement fail to prosecute. Let your staff know you would!

Judy Capko is a healthcare consultant with more than 25 years’ experience. Her focus is practice operations and economics, staffing, practice development and strategic planning. She is the author of the popular books Secrets of the Best-Run Practice 1st and 2nd edition and Take Back Time – Bringing Time Management to Medicine.  Judy is a national lecturer for executive management and physician specialty conferences.  She is based in Thousand Oaks, CA, www.capko.com  or e mail: judy@capko.com.

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