An office manager steals $120,000 from a Florida pulmonologist who claimed that his bookkeeping system was "foolproof." A
veteran, trusted bookkeeper embezzles $330,000 from a Connecticut surgeon by forging his signature on checks and depositing
them in her own account. A Texas clinic discovers too late that its business manager has siphoned off $262,000 by setting
up phony accounts at local financial institutions. A new office manager with a "knack for numbers" steals $10,000 in copays
and other cash receipts in one year with a Miami internist. A pediatric group discovers that their longtime bookkeeper has
pocketed $150,000 in cash receipts over three years.
Think such disasters couldn't happen to you? Think again. Think your practice has a foolproof financial system? It may not
be good enough to stop a determined thief.
"Every year I discover embezzlement in otherwise well-run medical practices," says Keith Borglum, a consultant with Professional
Management & Marketing in Santa Rosa, CA. "It usually starts small, and mushrooms over time. A staff person gets into financial
trouble and 'borrows' some money, fully intending to pay it back. But once the employee crosses that line, it's easy to keep
going."
Power Points
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For example, when one internist finally realized that his cash receipts had fallen off sharply, he discovered that his trusted
billing clerk had been "cooking the books"—even with a computerized billing system. When patients made cash copayments, she
would pocket the money and give them fake receipts. She'd then balance the books by recording an "adjustment" for uncollectable
accounts. She'd started by taking only $50 a week or so. But when those petty thefts went undetected, she'd gotten greedy,
and upped the ante until she was caught.
The best way to prevent this kind of embezzlement is to set up rigid protocols for handling office finances, says Judy Bee,
a practice management consultant with Practice Performance Group in La Jolla, CA. If your practice finances are computerized,
be sure the system can run software that creates an audit trail that tracks which employee posts each payment or adjustment.
You or someone you trust should then monitor the office's financial systems periodically so you can make sure that practice
accounts are regularly reconciled.
"If you can't check them once a week, at least do it once a month," says Bee, "particularly if you have a new employee handling
office finances."(For a monthly checklist to insure proper financial controls see, "Clip and Copy: Keeping tabs on your practice finances," June 6, 2003).
For doctors who say they just don't have the time to monitor their books after a long day in the office, Bee suggests spending
an hour or two on occasional weekends when you're on call anyway. She also recommends asking your accountant to conduct periodic
spot reviews of your financial systems. "If you let your staffers know that you've put these safeguards in place," she says,
"they're less likely to consider dipping into the till."
The following 10 steps, recommended by Borglum, Bee, and other practice management experts, should help you protect your practice
against employee theft:
1. Review daily records
The good news is that cash theft can be easy to spot—if you bother to look for it. The first line of defense is to carry a
copy of the daily roster of your scheduled appointments. After each office visit, jot down the fee next to the patient's name
on the roster. (If you don't know the fees, ask your bookkeeper, or whoever keeps track of them, for a set of the most common
ones.) Then, after those charges have been posted, compare the fees you noted on the roster with the charges listed on the
office daysheet to make sure they match. Do this randomly for a week every month or so.
2. Insure database integrity
If your billing is computerized, you—or a trusted staffer—should total on a printing calculator all the charges, payments,
and adjustments that were posted to the billing system each day. The resulting paper-tape sum can then be compared to the
computer's A/R total. Your computer system should be set up to provide an audit trail that tracks each payment and adjustment,
tells which employee entered it, and provides built-in cross-checks for office visits, payments, and deposits.
3. Monitor charges and payments
The daily total of payments received at the counter and in the mail each day should be compared with and match the amount
that's been entered in the computer for that day (or on the daysheet if your office isn't computerized) plus what's been deposited
in the bank.
In spot checks, you or your CPA should make sure all charges are being properly recorded. That means sampling office and hospital
charge batches, and comparing them with computer postings. It also means confirming that all serially-numbered office charge
slips are present, and that the numbers are continuous from day to day.
4. Control your cash flow
With typical copays now ranging from $20 to $30, there's a lot of cash pouring into doctors' offices; it could prove irresistible
to dishonest employees. You or your office manager should check the cash deposits each day or so to make sure they correspond
to the copay totals for those days. Also check the petty cash drawer periodically to verify that all withdrawals are supported
by proper receipts or vouchers. The total of cash on hand, plus receipts and vouchers, should equal the original petty cash
balance. The change fund for office cash payments should also be checked at the end of each day to confirm that the cash total
equals the day's original balance plus payments taken in.
5. Watch your accounts payable
If any of your staffers are authorized to write checks on the office account, you should set a maximum—say $500—beyond which
your approval is required. Even if you're the only one authorized to sign checks on the office account, you—or someone you
trust—should review all canceled checks to make sure they're legitimate. Confirm that the signature on the checks is actually
yours, that the endorsements on the back are made by the payee, and that the amounts are supported by appropriate invoices
or other documentation. Also make sure that the payee on the check matches the information on the check stub or check register.
6. Check credit card bills and payments
Some card issuers are surprisingly careless in soliciting and administering these accounts. For example, some "pre-approved"
accounts can be activated by anyone—authorized or not—simply by responding to the offer by mail, or even by phone.
One Texas FP was shocked when she received a call from a credit card company verifying a change of address on her business
account. The account, which was news to her, had been opened in her name two weeks before, and already had $7,500 in accrued
charges. She eventually discovered that her office manager had opened the account, listing herself as an authorized card user.
A four-doctor group in Gainesville, FL, noticed that their overhead expenses had jumped very high for no apparent reason.
They eventually discovered that their office manager, who paid the bills for the group's credit card, had also been paying
her own credit card bills out of the same group account, for a total loss of more than $100,000.
7. Separate the office's financial functions
No single staffer should control all of the practice's financial functions. In fact, no individual should be involved in the
entire account cycle of charge, payment, and adjustment. One employee should post charges from batches totaled by another.
One should post payments from a deposit prepared by another. Adjustments shouldn't be authorized by the employee responsible
for challenging inadequate payments from insurers.
"If unscrupulous employees know that someone else will be checking their work, they'll think twice before trying anything,"
says Judy Bee. "I've rarely heard of an embezzlement that involved more than one employee."
Every so often, make a point of retrieving your office mail yourself. You might be surprised to find bills for equipment or
services you haven't ordered, or warning notices for unpaid bills.
Insist that each employee take a real vacation at least once a year, particularly those with responsibility for or access
to office finances. Often, it's only when an embezzler isn't around to control information that her thefts become apparent.
8. Don't overestimate your computer
As more and more practices become computerized, and more insurance claims are filed and paid electronically, many groups'
financial statements are now generated by their own computer systems. But just because a report comes from your computer,
don't assume that it must be correct, or that it doesn't need your careful review.
The same caution applies to your practice's bank statements, and the photocopies they often send now instead of cancelled
checks. You still need to review and reconcile those statements each month, and the photocopies deserve the same attention
you should have been giving to the cancelled checks to make sure they're legitimate.
9. Use your accountant wisely
Your accountant can help establish your office's financial systems, and he should review the regular monthly reports. But
don't simply turn over all financial responsibilities to him. You also need to review the practice's monthly financial statements
yourself—and understand them. Ask your accountant for monthly or quarterly financial summaries. Then examine them carefully,
looking for unusual increases in overhead or adjustments, or decreases in collections—all possible tip-offs to employee theft.
10. Don't neglect background checks and bonding
Regardless of how carefully you protect your office finances, a determined thief might still be tempted. So in addition to
all the checks and balances you install in your financial systems, be sure to conduct a thorough background check on any employees
who will have access to office cash receipts, checks, credit cards, or bank accounts. (See "Practice Pointers: Checking out job applicants," March 3, 2006). And let them know you're doing it. That may make them think twice before stealing.
For extra protection, ask your insurance broker about purchasing fidelity bonds for those staffers; that means they'll
be vetted by the insurer and the insurer will repay your verifiable losses up to the amount of the bond.
