Is your practice protected against embezzlement?

This article provides suggestions that every practice can and should implement to prevent employee theft. The advice is based on an interview with Robert Katz, a certified public accountant whose business focuses on medical practice.

How to recognize embezzlement

Clues that embezzlement may be occurring in a practice include irregularities in audits or inconsistent monthly reports. A fall in the collection ratio, an increase in accounts receivables, or an increase in expenses for supplies should be investigated by the accountant.

Unusual employee behavior may also be a tip-off that embezzlement is taking place. An employee who handles all incoming checks and writes outgoing checks is especially susceptible to temptation; a refusal to delegate part of the incoming or outgoing process to others may stem from fear of discovery. The emotionally unstable employee or one who is living in a style beyond what his or her salary allows should be watched.

Finally, the loyal employee, who works long hours (often alone), never takes vacations long enough to turn over finances to someone else, and comes to work even when sick may be hiding something.

How to prevent embezzlement

Implementing proper safeguards and internal controls is critical, especially in smaller practices, to protect against the ever-increasing risk of embezzlement. Here are some ways to prevent employee theft:

Divide and conquer. This is the easiest and perhaps best method of preventing employee theft. No individual should be allowed to both open the mail (ie, initially handle the money) and post payment to the computer. Dividing the two duties prevents an employee from stealing money from the practice and then manipulating patients' accounts on the computer, usually by writing off balances as contractual adjustments or bad debts. If the same person is responsible for multiple duties, the natural check and balance of the system is removed.

Giving a single person unquestioned authority over your finances is not a wise business practice.

Closely monitor bank statements. All monthly bank statements should be sent to the physician or the physician's post office box. All bank statements should be given to the physician unopened. The physician should open the statements, carefully review them, and question anything that is unfamiliar. Separate responsibilities so that the same employee does not receive money and deposit money, or the same employee does not handle payables and reconcile bank accounts, or the same employee does not prepare billings for customers/clients and record receivables.

Reconcile bank statements monthly. Bank statements can only flag discrepancies if they are reconciled on a timely basis. Segregating duties is also important in this area. Reconciliations should be performed by one person and reviewed by another. Also, the person who writes the checks should not have the authority to sign checks.

Implement a strong theft policy. Disseminate a strong policy that denounces employee theft of any nature and declares the company's absolute intention to pursue any and all thefts, both criminally and civilly, to the fullest extent of the law.

Bottom line: There is no guarantee that employee embezzlement, fraud, or similar actions will be caught. A practice can minimize these activities, however, by implementing sound internal controls. It is our duty as physicians in charge of the practice to make certain that these controls are in place.

Modern Medicine

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Neil H. Baum, MDDr. Baum is a urologist in private practice in New Orleans. He is the author of Marketing Your Clinical Practice-Ethically, Effectively, and Economically.

Robert A. Dowling, MDDr. Dowling is medical director of Urology Associates of North Texas, a 49-physician, community- based, single-specialty group in the Dallas-Fort Worth metroplex.