In November, the office manager of a San Antonio dermatology practice wasto 46 months in prison for defrauding the practice of nearly $350,000 from patient billings and employee profit sharing accounts.
Per the indictment, the practice conducted a nonprofit educational symposium in 2012. A bank account was established to collect contributions for that event, which was supposed to be closed at its conclusion; but the office manager kept it open, and deposited practice receipts into it. She then used the account as her slush fund for travel, property payments, meal purchases, and other personal expenses on credit cards she fraudulently opened in the practice’s name. This continued for several years.
Because this case has received national attention, I am republishing my column on embezzlement, which includes recommendations that could prevent such unfortunate situations from occurring.
Few crimes are more easily overlooked than theft from within.who think everything is fine. Most embezzlers are not skillful or discreet; but their transgressions may go undetected for years, simply because no one suspects it is happening.
Detecting fraud is an inexact science. There is no textbook approach that one can follow, but a few simple measures will prevent or expose the most common forms:
Make it more difficult. Theft and embezzlement are usually products of opportunity, so minimize those opportunities. No one person should be in charge of the entire bookkeeping process: the person who enters charges should be different from the one who enters payments. The one who writes checks or makes electronic fund transfers should not balance the books, and so on. Internal audits should be done on a regular basis, and all employees should know that. Your accountant can help.
Reconcile cash receipts daily. Embezzlement does not require sophisticated technology; the most common form is simply taking cash out of the till. In a typical scenario, a patient pays a copay of $15 in cash; the receptionist records the payment as $5, and pockets the rest. Make sure a receipt is generated for every cash transaction, and that someone other than the person accepting cash reconciles the charges, receipts, and cash totals daily.
Inventory your stock. Cash isn’t the only susceptible commodity. If you sell cosmetics or other products, inventory your stock frequently. And office personnel are not the only potential thieves: Over a year ago, a locum tenens physician down the street conspired with a receptionist to take cash transactions for cosmetic neurotoxins and fillers “off the books” and split the spoils. That office was being ripped off twice; first for the neurotoxin and filler materials themselves, and then for the cash proceeds.
Separate all accounting duties. Another popular ploy is false invoicing for imaginary supplies. A friend’s experience provides a good example (retold with his permission): His bookkeeper wrote sizable checks to herself, disguising them in the ledger as payments to vendors commonly used by his practice. Since the same employee also balanced the checkbook, she got away with it for years. “It wasn’t at all clever,” he told me, “and I’m embarrassed to admit that it happened to me.”
Once again, separation of duties is the key to prevention. One employee should enter invoices into the data system, another should issue the check or make the electronic transfer, and a third should match invoices to goods and services received.
Verify expense reports. False expense reporting is a subset of the fake invoice scam. When an employee asks for reimbursement of expenses, make sure those expenses are real.
Ask about computer safeguards. Computers facilitate a lot of financial chores, but they also consolidate financial data in one place, where it is potentially accessible to anybody, anywhere. Your computer vendor should be aware of this, and should have safeguards built into your system. Ask about them. If they aren’t there, ask why.
Hire honest employees. All applicants look great on paper, so check their references; and with their permission, you can run background checks for a few dollars on any of several public information websites. (See my previous columns on hiring at.)
Look for “red flags.” Examples are employees who refuse to take vacations, because someone else will have do their work; or who insist on posting expenses that are a coworker’s responsibility, “just to be nice.” Anyone obviously living beyond his or her means merits suspicion as well.
Consider bonding your employees. Dishonesty bonds are relatively inexpensive, and you will be assured of some measure of recovery should your safeguards fail. In addition, the mere knowledge that your staff is bonded will frighten off most dishonest applicants. One effective screen is a question on your employment application: “Would you object to being bonded?”
Dr. Eastern practices dermatology and dermatologic surgery in Belleville, N.J. He is the author of numerous articles and textbook chapters, and is a longtime monthly columnist for Dermatology News. Write to him at [email protected]