10 tips to avoid embezzlement at your medical practice

Family members working at private medical practices are not an unusual case, but physicians need to be as diligent in keeping an eye on their kin as they are with other employees. Here’s a case in point.

A-51-year-old woman in Aspen Colo., pled guilty to theft after serving nine years as the office manager and bookkeeper of a medical private practice.  From July 2015 to December 2016, the 51-year- old stole $663,000; the woman was only prosecuted for the crimes she committed during this period. However, she confessed to police that she'd been taking money from her sister’s private practice since 2010.

The money mishandling was first discovered by a business co-owner and verified by an outside accounting firm. The woman also admitted spending the money on plastic surgery, groceries, airline flights, shopping at Neiman Marcus, and on jewelry at Tiffany’s. 

The office's financials were tracked by QuickBooks accounting software which allowed the woman to hide the money coming out the practice’s bank account as office supplies; these activities continued without anyone noticing because the business owners only saw the QuickBooks reports. The woman was the only person who was responsible for bookkeeping.

What is embezzlement?

According to the 2011 Marquet Report on Embezzlement, physician practices suffer from some of the highest money mishandling amongst service industries; this is more so true for smaller and busier operations. In fact, three in out of four providers will suffer embezzlement in their professional career.

Under common law, per Black’s Law Dictionary, embezzlement is defined as the fraudulent appropriation to his own use or benefit of property or money entrusted to him by another, by a clerk, agent, trustee, public officer or other person acting in a fiduciary character.

How does embezzlement occur in medicine?

Employee embezzlement can result from employees:

• creating fake companies;
• stealing petty cash;
• handling payroll and giving themselves bonuses;
• giving themselves raises;
• overstating hours worked;
• having access to credit cards and using it for personal expenses; and
• writing checks on your behalf.

What’s the profile of an employee who steals?

• Female 64 percent, according to the Marquet Report  

• In healthcare, 66 percent of employees who embezzle are office managers, according to a 2016 Hiscox study

How can medical practices keep embezzlement at bay?

• Conduct a detailed background check and drug testing on all employees regardless of prior relationships with employees. This includes a detailed credit check on any employee who will have access to money. It’s important to note that many embezzlers have no criminal history.

• Invest the time and resources in creating company policies and procedures and inform your staff that you take a zero-tolerance policy on theft –i.e., the employee will be terminated immediately.

• Inform your staff that all thefts will be reported to law enforcement.

• Create an office policy where staff members must provide all bills/envelopes unopened to the practice’s owners.

• Consider having all bills come to the practice owner’s home to prevent employees tampering with billing statements.

• Monitor cash co-payments and review the cash brought in daily.

• Don’t allow employees to take work home.

• Mandate employees’ vacation offsite to have an opportunity to review bookkeeping.

• Separate bookkeeping, accounting, and all financial duties.

• Watch out for behavior changes in your employees. Do they suddenly have a flux of cash? Do they try to prevent other employees from handling money? These are red flags.

The bottom line

Anytime you suspect that you are the victim of embezzlement-breathe.  You should seek legal advice immediately. Your attorney should prepare a legal and investigation strategy, which should include working closely with your practice CPA, or an outside forensic accountant. 

Employee embezzlement happens frequently in medicine, especially in small practices.  However, there are a lot of steps practices can take to prevent it from occurring in the first place.

Doris Dike, Esq., is the founder and principal the Dike Law Group, a law firm focusing on employment, regulatory, and healthcare transactional law in Frisco, Texas.  

The information presented reflects general information that is current as of the date it was first published.  In light of changes that may occur in the health care regulatory and compliance environments, the author’s presentation of this information might become outdated.  Please check with your individual legal and/or compliance advisor(s)or contact the DIKE LAW GROUP  prior to taking any significant actions based upon the information and advice presented.