Medical office embezzlement risk heightens at beginning of year

Did the $20 a patient handed to your receptionist to cover a co-pay go into the cash drawer -- or the staffer's pocket?

This type of theft is common at medical practices, and experts say the risk is especially high at the beginning of the year. Patients are paying an ever-larger share of their medical expenses, and, with most deductibles resetting on the first of the year, a significant amount of cash may pass through staffers' hands.

"There is so much money," said Susan Childs, founder and president of Evolution Healthcare Consulting in Rougemont, N.C. "There's money coming from insurance. There's so much money from patients, especially from those who have high-deductible plans."

Nearly 83% of 688 practice managers were affiliated at some point with medical offices where employee theft occurred, according to a survey released Nov. 5, 2010, by the Medical Group Management Assn. Nearly 45% of practice managers reported cash stolen before or after it was recorded on the books.

Experts say so much cash and minimal staff to check one another's work make small practices particularly vulnerable.

"Cash dispersion and cash receipts are typically the root of the problem, and the lack of audits at the practice makes it easy," said Kim Whitehurst, president and CEO of Commonwealth Medical Management Services in Richmond, Va. "And it's typically a trusted employee who has been around for multiple years and has been handed over the entire practice. They take a little bit of money every month."

Minimizing risk

Prevention strategies are particularly important to minimize the risk because a business's insurance may not cover the entire loss, which can be significant. In the MGMA survey, 18% of such incidents involved the theft of $100,000 or more, usually taken in dribs and drabs. Recovering the money from the embezzler is incredibly difficult.

"Most people who commit embezzlement spend it," said Denise McClure, president of Averti Fraud Solutions in Boise, Idaho. "There's usually nothing left. There often are not even assets that you can sell."

The first step to deter theft is to develop a system of checks and balances. Embezzlers usually work alone. When possible, financial duties should be divided among staffers to make it more likely that malfeasance will be deterred and come to light if it does occur.

"If you have good financial controls, and if people know they are being watched, that is the key," Childs said. "Trust but review. Trust but monitor."

For example, the person who collects money at the front desk probably should not reconcile the books at the end of the day or month. If possible, the person who prepares the bank deposit should not be the one who takes the money to the bank.

Such division of labor should be individualized for a practice but may be difficult for small ones. Other strategies may be effective for this setting.

"Sometimes it's almost impossible to segregate duties so that nobody is in control of a transaction from beginning to end," McClure said. "Then [physicians] have to do monitoring."

For instance, a physician can look at the accounts each day for any numbers that just don't seem right. This does not require going through the books line by line, and a physician is not necessarily looking for where money was embezzled. Rather, experts say, the exercise may provide clues to a problem that can later be detected by the practice's accountant.

"It's no fun, but it's really needed," Childs said.

Experts say practices should have a policy allowing for surprise audits. McClure said the staff should be informed that audits will come -- but not when they will come -- to deter theft.

Vacations can be mandated to allow another employee to cover a particular position, and any problems may become apparent then.

Phantom vendors

Voiding or refunding charges should be monitored carefully because embezzlers may conceal that they have stolen money by writing off bills from the books. One strategy they use is to process a credit card refund to their own -- rather than a patient's plastic. Physicians need to be familiar with the vendors servicing a practice to prevent payment to those who may be a front for an employee. The MGMA survey found that 18% of practice managers had worked with practices where an employee forged checks or submitted invoices from fake companies or for goods and services that were never received.

"Know all the vendors," McClure said. "If you cannot find them on Google, you have to wonder whether they really exist."

Theft of prescription pads and drugs may be an issue for practices, although this is less common. Misuse of noncash assets occurred in 8% of embezzlement cases, according to the MGMA survey. Experts recommend establishing inventory controls for equipment, prescription pads and drugs.

Experts say criminal background checks, while useful during the hiring process, have limited effectiveness in deterring embezzlement. Potential embezzlers may not have stolen in the past. Even if they did and were caught, they might have lost their job without any involvement by the police or other officials.

Slightly more than 29% of embezzlers at practices were prosecuted, although they weren't necessarily convicted, according to the MGMA survey. About 82% were terminated from their jobs, many without the involvement of the police or other authorities.

In many cases, Childs said, practices want to spare themselves any embarrassment if the embezzlement is made public. So, experts said, practices need to be vigilant about who is on staff -- no matter what their background.