Managing Your Practice

Beware of embezzlement


As the economy continues its slow and uneven recovery, economic crime is on the rise, according to many law enforcement officials around the country.

Despite the current bull market, unemployment remains high and money remains tight.

Tight money increases embezzlement temptations, so this is an excellent time to review your bookkeeping procedures and remove any obvious opportunities for theft by your employees.

Embezzlement is more common than you might think. Discovering it is often easy, because most embezzlers are not particularly skillful at what they do, or adept at covering their tracks. But it often goes undetected, sometimes for years, simply because no one is looking for it.

The experience of a friend of mine was all too typical: His bookkeeper wrote sizable checks to herself, disguising them in the ledger as payments to vendors commonly used by his practice. Since she also balanced the checkbook, she got away with it for many months.

"It wasn’t at all clever," he told me. "And I’m somewhat chagrined to admit that it happened to me."

Is it happening to you, too? You won’t know unless you look.

Detecting fraud is an inexact science; there is no textbook approach that one can follow, but a few simple measures can uncover or prevent a large percentage of dishonest behavior:

Hire honest employees. Check applicants’ references; find out if they are really as good as they look on paper. And for a few dollars, you can screen prospective employees on one of several public information websites to find out whether they have criminal records, or have been sued (or are suing others). My columns on hiring and background checks are in the archives at

Minimize opportunities for dishonesty. Theft and embezzlement are often products of opportunity, and there are many ways to minimize those opportunities. No one person should be in charge of the entire bookkeeping process. The person who enters charges should not be the one who enters payments. The employee who writes the checks should not balance the checkbook, and so on. Internal audits should occur on a regular basis, and all employees should know that. Your accountant can help with this.

Reconcile receipts and cash daily. The most common form of embezzlement is simply employees taking cash out of the till. In a typical scenario, a patient pays a $15 copay 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 receipts and the cash daily.

Insist on separate accounting duties. Another common scam – the one to which my friend fell victim – is false invoices. You think you are paying for supplies and services, but the money is going to an employee. 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 reports are another common form of fraud. When an employee asks for reimbursement of expenses, make sure the expenses are real.

Safeguard your computers. Today’s technology has made embezzlement easier and more tempting. Data are usually concentrated in one place, accounts can be accessed from remote workstations or off-premises servers, and a paper trail is often eliminated. Your computer vendor should be aware of this, and should have safeguards built into your system. Ask about them.

Look for red flags. Do you have an employee who refuses to take vacations, because someone else will have to look at the books? Does someone insist on approving or entering expenses that are another employee’s responsibility? Is one employee suddenly living beyond his or her means?

Consider bonding your employees. The mere knowledge that your staff is bonded will frighten off most dishonest applicants, and you will be assured of some measure of recovery should your safeguards fail.

Most embezzlement is not ingenious, or even particularly well concealed. It often sits in full view of physicians who are convinced that theft from within cannot happen to them. It can, and it does, but a little awareness can go a long way toward keeping it from happening to you.

Dr. Eastern practices dermatology and dermatologic surgery in Belleville, N.J. He holds teaching positions at several hospitals and has delivered more than 500 academic speaking presentations. He is the author of numerous articles and textbook chapters, and is a long-time monthly columnist for Skin & Allergy News.

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