Early Diagnosis and Treatment Can Protect Your Medical Practice from Employee Fraud

Wed, 06 Jun 2012

Amazingly, nearly one trillion dollars – an amount equal to about six percent of the national debt – is lost annually in the United States to employee fraud, according to the ACFE. A recent study done by the Association of Certified Fraud Examiners (ACFE) and published in ModernPhysician.com shows that the healthcare industry is the third most likely to be affected by employee theft, after financial services and government. Though there may be many reasons for healthcare’s high ranking on this list, one common theme is that doctors become business managers by default rather than by design. Simply put, they are not as practiced in business management as they might be if they were in business primarily to make a profit.   Healthcare providers face a “perfect storm” of high business costs and low rate of return. Increasingly, they have to deliver essential services in a business climate where payment for services is limited by legislation, insurance reimbursement contracts, and/or the patient’s ability to pay. On top of that, the costs of malpractice insurance, technology and supplies are on the rise. While it can be difficult, if not impossible, for providers to control these two factors, they can take steps to minimize losses due to employee theft.

Most Common Types of Employee Theft

Healthcare providers experience these basic types of employee theft:

  • Stolen cash from patients’ co-payments
  • Payments made to fictitious vendors
  • Double-billing and vendor kick-backs

How to Protect Your Practice from Employee Theft

While it might seem daunting, there are simple things providers can do to help detect and prevent fraud including:

  1. Know Your Employees  - First and foremost, know who you hire. Early warning signs include a person who is experiencing financial difficulties or who makes purchases that are out of context with their earnings.
  2. Let Employees Know You’re Watching - Employee perception is a very powerful deterrent. If you tell them that you have installed an office security system, they will almost certainly take you at your word.
  3. Segregate Financial Duties - Give payment collections and payment processing to different employees.
  4. Run a Weekly Financial Report - Be sure that it includes the number of patients seen, and break that number down by physician if there is more than one doctor in the office. Understand how your patients pay what they owe. Devise a simple coding method that identifies whether the patient paid anything at the time of service and how they paid (i.e. cash, check, credit card, or debit card). Know how your balance is collected, whether it’s by check, wire or an automated deposit to your business account. Compare that to the weekly debits (deposits) to the business account.
  5. Know Your Vendors - Create a vendor list and compare that to your weekly payments. Vet new vendors, and collect their federal tax ID information. Meet your vendors and speak with them regularly to ensure that you know what you are paying them to do for you.

Tools You Can Use to Detect & Reduce Fraud

In addition to the steps outlined, above, your bank can provide online tools to help detect and reduce fraud including:

  1. Online Banking - Check your account(s) daily. Once a month, reconcile your checking account statement and know everyone you have paid by credit card.
  2. Understand Your Average Monthly Collections and Expenses - Most banks allow you to go online and sort your monthly statement by total debits (cash in flows) and credits (what monies left the account). Know your average monthly debits and credits and understand any change in that pattern.
  3. Develop Payment Patterns on Vendors & Pay Them Electronically - Pay the majority of your vendors via a credit card, online bill payment or through the bank’s Automated Clearing House (ACH) network. Make one staff person in charge of making payments and another with reviewing and approving them. Verify that only your business expenses are being paid. Look at payments as a percentage of total monthly expense and examine changes in the percentage.
  4. Increase Security via a Dedicated Computer - Using one computer to manage your business and payments will help increase your security. Have high quality passwords, turn on audit trails, check the usage history, and install quality software that protects the data. For more info on how to protect your business from cyber-fraud, read Larry Selnick’s previous blog post.
  5. Use Dual Authorization as a Control - This method requires two people to approve an outgoing wire or payment.
  6. Work with a Bank that has Alerts for your Business Accounts - Elect email or telephone alerts for certain account activities, such as withdrawals over a pre-set dollar amount.Click here for information about Webster’s alerts.
  7. Know Your Banker - Talk to your banker, preferably in person, about the products and services they offer to help detect internal fraud and protect yourpractice from external fraud.   Do you have other methods you use to help prevent employee fraud?