Fraud in your practice calls for tough measures


In these tough economic times, physicians need to be more diligent than ever when protecting their practices from fraud and embezzlement.

Unfortunately, the instability of the current economy has created significant financial pressure for some employees. Medical practices are not insulated from the potential threat posed by employees who may be unable to pay their bills or meet the financial needs of their families.

medical records theft

For a fraud or theft event to occur, three things must be present: financial pressure, opportunity and the individual’s ability to rationalize their behavior.

How you can protect your practice

There are several steps a physician business owner can take to help minimize the risk of loss in their practices.

Awareness is the number one key to protecting your assets. Physicians should be involved in the finances of their business.

By knowing what vendors they use and monitoring daily deposits and cash receipts, physicians are more likely to spot a problem at the inception of an embezzlement scheme. They should listen to their employees when they complain about a spouse’s loss of work, increasing debt obligations or substance abuse issues, because these can be important clues if a problem develops.

A family medical practice recently suffered a loss in excess of $300,000 when the practice’s office manager of more than 10 years embezzled through a variety of schemes. These schemes included:

  • Opening credit cards in the name of the practice and subsequently paying personal expenses with practice funds
  • Using a signature stamp to endorse checks made out to the practice manager and then changing the “payee” in the bookkeeping records of the practice
  • Creating two payroll checks, one manual and one direct deposit, for each pay period and claiming that the payroll company made an error

Unfortunately, the physician in this practice was not aware that his expenses were running 81 percent of revenue, a sure indication that the practice’s overhead was not in line with other medical practices in the same specialty.

Implementing internal controls is another step practices can take to help to reduce the likelihood of a financial loss due to fraud or theft. Internal controls are a system of checks and balances, policies and procedures that, when put into place, can minimize the opportunity for embezzlement.

Some common examples of basic internal controls for medical practices include:

  • Segregate duties – If possible, the individual opening the mail should not be the person making up the deposit slip.
  • Minimize access to financial records – In today’s world, technology makes access to financial records more difficult to detect. However, medical practices can limit access to banking and other financial systems through login and password security.
  • Have bank statements mailed to the physician’s home address – Physicians should make a habit of reviewing the transactions on their practices’ bank statement, including deposits and payments. They should be critical of unauthorized electronic transactions and checks to vendors in round dollar amounts.
  • Review canceled checks – It’s important to review both sides of canceled checks. Even if the practice’s bank no longer includes these with statements, most banks have the images available to view online.
  • Review payroll registers – In most medical practices, the physician is not the individual creating the payroll. Doctors should review all payroll registers to look for multiple payments to the same employee, fictitious employees or unauthorized overtime.

While fraud or embezzlement is more likely to occur in the disbursement cycle, the revenue cycle of a medical practice can also be vulnerable. Rising co-pays and high-deductible health plans require patients to pay more out of pocket at the time of service than ever before. The opportunity is present for medical staff to divert these funds – especially cash. Practices should make a policy to issue a receipt when collecting any funds at the time of service, and the receipt should indicate the payment method. They should beware of patients calling to complain that they paid at the time of service and either didn’t receive a receipt or later received a bill in the mail for their visit.

Practices that provide cosmetic or “cash only” services, which are not covered under insurance, may also be susceptible to misappropriation of funds. It is critical that practices reconcile all deposits per the bank to the payments posted to the billing or practice management system.

All discrepancies should be investigated. This is the single most important step a practice should take, and many fail to do it.

Some experts predict that three out of four physicians will suffer a loss from fraud or embezzlement. Creating an environment of awareness within a practice and implementing minimal internal controls may be just enough to discourage employees from taking advantage of hard-earned revenue.