Every Friday evening, Tom Girton, administrator of the Pediatric Center in Glen Allen, Va., e-mails a report of the week's financial activity to each physician in the group.
Preventing employee fraud
He doesn't ask doctors to sign checks when they are seeing patients, and he periodically provides a list of total disbursements by vendor for physicians to review.
These are only a few of the internal controls Girton implemented when he was hired to help the 12-physician medical group after his predecessor was caught embezzling. Girton's predecessor had worked for the practice for about 20 years and was a trusted member of the team, Girton says. It was not until one of the newer physicians in the group started asking questions that the fraud was discovered.
"One of the younger doctors said, ‘I am working way too hard; I can't believe I am not making more money than this,' " Girton says.
The former administrator was terminated in 2004 on suspicions of theft, according to Girton. Court records show that she was charged with mail fraud and aiding and abetting in December 2006 and that she pleaded guilty in January 2007 in U.S. District Court, Richmond, Va. She was sentenced in May 2007 to 15 months in prison and two years of supervised release and was ordered to pay $97,464 in restitution.
The physicians at the Pediatric Center aren't alone. Approximately $994 billion is lost annually to employee fraud in the United States, according to the latest data from the Association of Certified Fraud Examiners. After financial services and government, healthcare is the industry third most likely to be affected by employee theft, according to the most recent ACFE survey.
The Medical Group Management Association recently completed a survey to collect data on embezzlement in medical practice groups. According to the survey—the full results of which will be released this summer—44% of reported thefts occurred when employees stole cash receipts either before or after they were recorded on the practice's books. David Gans, MGMA's vice president of innovation and research, says the median amount of reported employee theft was $5,000 and was stolen over a median period of eight months.
"Employees are seeing hundreds or thousands of dollars go past them everyday," Gans says. "So, if you don't have good controls in place, a $20 here and a $20 there, and before long, it adds up."
Denise McClure, president of Boise, Idaho-based Averti Fraud Solutions, collaborated with the MGMA on the survey. She says medical practice groups are particularly susceptible to embezzlement because they typically operate with a small number of employees, which can create a familial subculture and a perception of mutual trust.
“Doctors want to practice medicine more than they want to practice business management,” McClure says. “So, they often believe the right thing to do is to hire someone and trust them.”
But that attitude, McClure says, can lead to problems. She believes in the so-called 10/10/80 rule: 10% of employees definitely will steal; 10% never will, and the remaining 80% may commit fraud if the right opportunity arises. With that in mind, McClure says, the most effective way to prevent employee theft is to properly segregate duties.
For example, the person who processes invoices should not also apply payments. And ideally, someone who has no responsibility for bank deposits or bill payment should review bank reconciliations. However, because many medical practices have one- or two-person accounting departments, separation of duties is often impossible.
"When you can't segregate, monitoring and oversight is the next best thing," McClure says.
That can mean implementing surprise audits, cross-training employees to do one another's jobs, or setting up an anonymous hot line through which employees can report suspected fraud.
"It doesn't really matter what it is, as long as employees know you are going to be looking at their work," McClure says.
Because employees who appear to be the most trustworthy are sometimes the ones who end up stealing money, it can be difficult for employers to identify perpetrators. However, New York attorney Preston Ricardo, who has worked on several occupational fraud cases, says some common indicators include extreme personal financial problems, lavish purchases that are beyond the employee's means, people who seem disgruntled about their salaries and workloads, and those who work odd hours or never take vacations.
Ricardo says small-business owners who are victims of employee theft frequently are reluctant to press charges for fear of attracting negative publicity or alarming investors. But, he says, victims should also consider the possibility that they may be able to recoup losses.
"There are ways in our legal system for getting a good portion of the money back," Ricardo says. "We've been able to get some good settlements for our clients."
Meghan Streit is a freelance writer based in Chicago. Reach her at [email protected]
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