Protecting Your Medical Practice from Theft

June 5, 2017

No doubt your practice has some hard workers: the 20-year billing clerk, the front-desk employee who never takes a vacation day, and the claims processor who knows her system in and out luckily for the rest of you who’d rather not be bothered with the system. While these people are great, they also fit the profile of employees who are most likely to steal from you.

Sixty-seven percent of your employees will steal from you given the chance; am I seeing more of this – the answer is yes.

There are three elements of the “Fraud Triangle”: pressure (from work-related to personal finances); opportunity (either through lack of controls at your practice or lack of disciplinary action); and rationalization (beliefs that your company owes money to employees or that employees are just “borrowing” money).

Who would be most likely to commit fraud at your practice? Some characteristics are obvious: employees who are dissatisfied with their job. But more likely, you are probably not aware of major stressors in your employees’ personal lives; from compulsive behavior (with drugs or gambling, for example) to just wanting to “beat the system” as an intellectual challenge. Employees just aren’t going to tell you about these types of things. In fact, in many post-fraud discussions the practice owner has said they were unaware of the issue prompting the theft.

An embezzler or other workplace fraud perpetrator will often display certain telltale red flags. One of the many charts included in a report published by the Association of Certified Fraud Examiners, includes the following listing of these behavioral indicators:

  • Living beyond means (370 cases; 38.6% of 959 total cases in the study)
  • Financial difficulties (327; 34.1%)
  • Wheeler-dealer attitude (195; 20.3%)
  • Control issues, unwillingness to share duties (179; 18.7%)
  • Divorce/family problems (164; 17.1%)
  • Unusually close association with vendor/customer (146; 15.2%)
  • Irritability, suspiciousness, or defensiveness (130; 13.6%)
  • Addiction problems (128; 13.3%)
  • Past legal problems (83 cases; 8.7%)
  • Past employment-related problems (76; 7.9%)
  • Complaining about inadequate pay (70; 7.3%)
  • Refusal to take vacations (65; 6.8%)
  • Excessive pressure from within the organization (62; 6.5%)
  • Instability in life circumstances (47; 4.9%)
  • Excessive family/peer pressure for success (40; 4.2%)
  • Complaining about lack of authority (35; 3.6%)

Now in terms of trends at your practice that might indicate fraud, here are a few issues that should raise some red flags and call for immediate attention:

  • Diminishing cash flow when receipts are strong
  • Actual bank deposits in a month that don’t agree with payments posted to the PM system
  • Increasing accounts payable and A/R balances
  • Transactions lacking documentation or approval
  • Patient and payer complaints about recording of payments
  • Significant number of year-end adjustment journal entries
  • Poor accounting records

You may also have a “fraud-prone” practice if you have one or more of the following characteristics:

  • Week or loosely enforced internal controls
  • Profit is the only practice objective and the lone criteria for performance appraisal
  • Employees are placed under great stress to accomplish unrealistic objectives
  • Complaints from patients, vendors, and employees are ignored
  • Poor employee morale and practice loyalty
  • Lack of monitoring and oversight

Basic internal controls every practice needs are the following:

  • Division of Job Duties
  • Mandatory Vacation Leave
  • Employee Bonding (insurance policy)

Potential fraud weak spots to constantly look at are the following:

  • Front Desk
  • Billing/Collection
  • Accounts Payable
  • Management

The following are internal controls for each of these categories:

Front Desk Controls Needed

  • Daily Reconciliation
  • Review Missing Ticket Report (Accounting for All Charge Tickets)

Billing/Collection Controls Needed

  • Get a Lockbox
  • Segregate Duties
  • Reconcile Daily Postings to Daily Deposits
  • No Charge Write offs Without Consent
  • Compare financial statements to Monthly Receipt Posting
  • Can System Block a 100% Write Off?
  • Data Mine for 100% Write Offs
  • Monitor Contractual Adjustments
  • Monitor Bad Debt Write Offs
  • Keep Eye on Employee Lifestyle Changes – Both Ways

Accounts Payable Controls Needed

  • Do Not Use a Signature Stamp
  • Independent Preparation of Bank Rec.
  • Independent Review of Bank Statement
  • Limiting Check Signing Authority
  • Periodic Review of Endorsements
  • Compare Cancelled Check Payee to Disbursement Listing
  • Matching Purchase Orders with Invoices
  • Ongoing Review of General Ledger
  • Monitoring of Practice Overhead
  • Review Overtime Reports

Management Controls Needed

  • Independent oversight of management positions
  • Segregation of duties if possible

More likely than not, your employees are great and would never steal from you. But just remember that, according to the Association of Certified Fraud Examiners, fraud and abuse costs U.S. businesses $994 billion annually, or 7 percent of your revenues. So perhaps it is time to be proactive and make sure your practice is as fraud-proof as possible. Just remember, scammers are getting smarter and smarter and smarter these days.

Reed Tinsley, CPA is a Houston-based CPA, Certified Valuation Analyst, and Certified Healthcare Business Consultant. He works closely with physicians, medical groups, and other healthcare entities with managed care contracting issues, operational and financial management, strategic planning, and growth strategies. His entire practice is concentrated in the health care industry. Please visit

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