Medical Practice Embezzlement: An Ounce of Prevention…

LINDA LOGAN

Does your practice’s revenue seem be dwindling down from where it once was? Undoubtedly some of it is due to reduced reimbursement rates, but there may be a different reason. Your practice could be a victim of embezzlement. According to a March 2008 report from Medico Unlimited, in addition to the reality practices face with declining reimbursement, inefficient operations, and other general “practice decay,” during any five-year period, more than 80 percent of all medical practices will experience embezzlement in one form or another. Additionally, of the offenders committing embezzlement, it is estimated that 70 percent have practiced their theft skills with a previous medical practice.

Some examples of employee theft or embezzlement

  • Checks made payable to the practice being deposited into bank accounts that do not belong to the practice, or ones being adjusted off a patient account(s);
  • Refunds written to fictitious patients;
  • Checks made payable to the practice, being endorsed and cashed by employees with the charges either never being entered into the practice management system or being adjusted off;
  • Employee payroll checks for hours not worked; and
  • Accounts payable for checks for bills that are not legitimate expenses of the practice.

An uncommon tactic is for the embezzler is to steal the insurance checks by one of the methods above, but instead of adjusting off the patient charges, the charges are left unpaid in the practice management system. Unpaid claims continue to increase which the accounts receivable culprit can explain away by blaming the insurance company for not paying, or by maintaining that A/R hasn’t received the claims. This method goes undetected until someone wises up, calls the insurance company themselves and discovers that the claims have, in fact, been paid. At that point it is a simple matter of obtaining copies of the canceled checks from the insurance company and determining where the checks were deposited or cashed and by whom.

Other signs of theft and embezzlement include fluctuations in the general ledger expense accounts and practice revenue; unusual employee relationships with vendors; questionable purchases; increased patient complaints about billing; increased clerical errors and unusual employee behavior.

As reported in 2003 by the Medical Group Management Association (MGMA), employees who devise a scheme to embezzle from the practice will plan carefully, and then test the strategy. The person will usually start small and if goes uncaught, will increase the amounts stolen. The following real-life scenarios reveal the creativity of these plans:
  • One administrator was prosecuted for writing checks to himself for cash for trips, petty cash and payroll, alternating among physicians for signatures to avoid suspicion. He then altered entries in the electronic accounting records by spreading them out over various other expenses until he had taken about $250,000.
  • An accounts receivable manager adjusted account balances and had his physicians endorse the insurance checks that came in. He then deposited these checks into an account in his name. In the large practice, it was easy for the manager to find a doctor in a hurry who would endorse a check, believing payment was going to a patient. The manager gained more than $400,000 by this scheme.



Prevention Measures

Steps that physicians should take to prevent embezzlement have been written about in many articles, books and other publications. Therefore, it is puzzling that embezzlement can still occur with such abandon.

The following is a list of customary recommendations for preventing medical practice embezzlement:
  • Hire carefully by checking references, performing background checks, bonding employees who have access to practice funds;
  • Direct all checks coming via the mail to a bank lock box;
  • Establish strong internal controls to protect revenues by insisting that all transactions by documented whether accounts payable, accounts receivable, refunds, adjustments, co-payments or write-offs;
  • Reconcile receivables every day;
  • Segregate duties and cross-train employees;
  • Engage someone to conduct periodic independent audits ;
  • Make sure checks are stamped immediately with “For Deposit Only”; and
  • Periodically review accounting entries rather than just checking totals.



What to do if you suspect your revenue stream is at risk?

If physicians suspect embezzlement, they should take the initiative to find the truth. One can begin by taking a closer look at the practice’s revenue stream from appointment to bank deposit for any given period. Many physicians are too busy or lack the experience to do this as efficiently as someone who is trained in performing independent audits of the practice. Consultants continue to report that while physicians were reluctant to “dig in” to see why practice revenue was declining, they often are greatly relieved when they find out the truth. In many cases employees are making costly errors. Unfortunately in many other cases, embezzlement has been going on right before the owners eyes—meaning individuals who appeared to be loyal employees turned out to be embezzlers.





Resources for additional reading

Medical Group Management Association’s (MGMA) website is an excellent resource for embezzlement prevention tips. www.mgma.com

For more information, visit: http://www.medicounlimited.com/services.htm




Linda Logan, FACMPE, BS HCM, a medical practice management consultant, is a past president of Mid South MGMA and is board certified by American College of Medical Practice Executives. lindalogan@comcast.net




April 2008