Employee Theft

Are Any of your Employees Robbing you?

Perhaps even one who smiles at you, seems like a team player, and is the last one you’d suspect? Although many physicians think it can’t happen to them, embezzlement and theft at medical practices of all sizes have been a constant drain for decades. Thefts can range anywhere from an office worker pocketing a $20 copay or stealing medical supplies to a large group practice administrator scheming to divert millions of dollars. The following are a few examples of employee theft and how it’s done.

Payroll and Ghost Employees

“Ghost” employees are individuals who receive paychecks but do not exist, or exist but are not legitimate employees. In the first instance, they are fictitious employees who are entered into the
payroll file. In the latter, they may be associates of an existing employee or former employees who continue to receive checks after their employment is terminated. For this fraud to occur, employment files are created or altered. Work activity records (like time cards) are maintained. Payroll checks, or more conveniently, direct deposits, are diverted to an account controlled by the perpetrator. The following is an actual case study:

Payroll specialist pleads guilty to embezzling from a Washington, DC, consulting firm: In April 2017, KaShaun Perkins of Upper Marlboro, MD, was sentenced to 21 months in prison for embezzling $275,000 from a global consulting firm through a payroll scheme. Perkins managed external payroll records and had access to employee salaries, bank accounts, and Social Security numbers. Perkins admitted that between January and July of 2015, he created “ghost” employees by altering files of terminated workers. Automatic salary payments to these ghost employees were deposited directly into two of Perkins’ personal bank accounts. SOURCE: United States Attorney’s Office — District of Maryland.

Billing and Fictitious Vendors

This fraud scheme is perpetrated by issuing disbursements to either a fictitious vendor or to a legitimate vendor for fictitious goods/services. The fictitious vendor is entered into the vendor master file and receives payment for goods and services not actually provided. Legitimate vendor accounts may also be used to commit fraud. Payments to legitimate vendors for fictitious goods/services may be intercepted and converted, or employees can collude with existing vendors to create inflated invoices or false invoices and provide kickbacks or bribes to the employee. The following is an actual case study:

Former administrator of Los Angeles law firm sentenced for embezzlement: In December 2015, Esterlina Santos was sentenced to 60 months in prison and ordered to pay $3,300,000 to her former employer and $781,000 to the IRS. While working as the firm administrator of a law firm, Santos used QuickBooks software to generate checks from the law firm to her personal credit card accounts. She altered the accounting records to indicate that the money was paid to vendors of the law firm for services provided. Santos admitted to receiving more than $2,400,000 between 2007 and 2010. SOURCE: IRS.

Expense Reimbursement Theft

Expense reimbursement is one of the most prevalent forms of theft because it is so easy to commit compared to other frauds. Some common examples include:

  • Submitting personal expenses as business expenses (for example, dinner with a spouse is submitted as dinner with a client)
  • Writing in overstated amounts for blanks on a receipt (for example, a $20 taxi ride from the airport is submitted as a $40 ride)
  • Duplicating reimbursement (for example, a board member is reimbursed mileage from the organization and from their employer)
  • Masking true nature of expense to one that is allowed by company policy (for example, submitting “discrete receipt” from a “gentlemen’s club,” to make an outing appear to be dining, rather than non-allowed adult entertainment)

The following is an actual case study:

Former Johns Hopkins University School of Medicine physician defrauds employers: On July 7, 2017, Dr. Jean-Francois Geschwind pleaded guilty to federal mail fraud charges for illegally obtaining travel expense reimbursements from the Johns Hopkins University School of Medicine. Geschwind admitted that, between 2007 and 2015, he made misrepresentations and omissions in expense reports to get reimbursements to which he was not entitled. He would declare family vacations and meals as business expenses. Additionally, he was seeking two, sometimes three, reimbursements for the same expense. In one instance, Geschwind traveled to a conference in Japan and obtained reimbursements for the same expenses from the Johns Hopkins University School of Medicine, a French life sciences firm, and the Yale School of Medicine, which he had recently joined as chair of their Department of Diagnostic Radiology. Prosecutors say the aggregate proceeds of Geschwind’s scheme totaled hundreds of thousands of dollars. His scheme was discovered during an extensive internal audit at Johns Hopkins University. He faces up to 20 years in prison. SOURCE: United States Attorney’s Office —District of Maryland.

Internal Controls

So, the big question to ask here is – How good are your physician practice internal controls currently in place to prevent and detect employee theft? When was the last time you had an independent review of your internal controls? Now may be a good time.

Additional Resources on Embezzlement and Theft Prevention

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