Episode 069: Checks and Balances and Embezzlement

Speaker 1: You are listening to Your Practice Made Perfect; support, protection, and advice for practicing medical professionals. Brought to you by SVMIC.

Brian: Hello and thanks for joining us in today's podcast episode. I'm Brian Fortenberry and today we're going to be talking about embezzlement. And our topic is not how to do it and get away with it. It's why not to do it. Joining us today to help us talk about this is Laura Watkins. Laura, thanks for joining us.

Laura: Thank you Brian.

Brian: Well, before we get started talking about embezzlement and all of the pitfalls of that in the medical practice, tell us a little bit about yourself and your background.

Laura: Well, I have about 30 years in healthcare background, and I started off in basically a billing company and then ended up working in a physicians' office as an accounts receivable manager. Then I did join SVMIC originally as the medical analyst in doing medical practice service analyst. And then I went from there and moved on up to the consultant role.

Brian: And now you're in medical practice services as a consultant?

Laura: Yes.

Brian: And you guys do a fantastic job and provide invaluable information to the policyholders there at SVMIC.

Laura: Thank you.

Brian: So today we're going to be talking about embezzlement. People hear that and they go, “Wow, that scares me a little bit.” What is embezzlement for those of us that might not know?

Laura: It's a type of financial fraud where the employee literally steals or misappropriates the money or property that has been placed in their trust or actually belongs to the employer.

Brian: Whenever it comes to embezzlement, quite honestly the first thing I think about is big corporation embezzlement or in a bank or in big business America. I didn't really even think about it that much when it came to medical practices. So, why should medical practices be concerned with embezzlement? Is it something that's fairly common?

Laura: An MGMA study, the Medical Group Management Association, there was a study that said that of the practicing administrators that were surveyed, 83% of them had actually worked in a practice that had encountered embezzlement. So, medical practice is generally what we see there is they focus mostly on patient care.

Brian: Sure.

Laura: So there's literally an atmosphere of trust that goes on, that's a little unique to the medical practice overall that carries over into that practice. So, what we see a lot of times is that the finances tend to be handled a little more loosely.

Brian: I got you.

Laura: So the business side is a little more lax and we sometimes see weak or literally no internal controls in place, which would help prevent the embezzlement in the first place.

Brian: Of course, you have to make money. It is a business, you're selling a service and that service is healthcare and you've got these patients that come in and they have all this incredibly personal information and vulnerabilities within that information. So, I can see how it could be a way to get kind of mixed over in that healthcare setting. In that type of environment how do you keep it from happening? Or what can you do to minimize it, I guess?

Laura: Well basically, what you need to make sure you have in place are some internal controls. And those are otherwise known as checks and balances. And the other important step is to making sure you're monitoring that these internal controls are in place and are being followed. The internal controls actually allow for setting up a safeguard for those practice assets as well as it helps limit the temptation. And most employees are all very honest, but you want to make sure you're limiting that temptation for them as well.

Brian: Sometimes opportunity breeds problems, right?

Laura: Absolutely. And where there's opportunity we can see more of that. So you want to have that in place, you want to be able to monitor and have oversight as well. And monitor the reliability of the records, and the financial reports that you're actually receiving. And, you know, the staff needs to have structure, so you want to make sure you have policies and procedures in place and they know your expectations. And they know what your policy is, if someone were to steal or embezzle from the practice as well. So, expectations, setting those expectations.

Brian: Absolutely and them understanding that it is being looked at and that there are procedures in place to make sure this isn't happening. That could be a deterrent number one, but then you kind of talked about this checks and balances part. Like segregation of duties or oversight. Tell me a little bit more about that concept, this segregation of duties or this oversight.

Laura: Yeah, medical practices as well as any kind of business wants to make sure they're running as efficient as possible. So, if efficiency sometimes means we don't have as many employees on staff to do those functions, but they are being efficient, and with the segregation of duties the more people that are involved in a process or transaction that is dealing with money, the better off you are. So, that helps reduce the risk of embezzlement and also it allows, if we have oversight, whether through managerial process, through the physician or through another employee, then that would take literally for two employees to either conspire or collude to try to do something or hide an actual transaction as such.

So you want to have that in place and sometimes we have seen where CPA's can come in or other financial personnel and they still may not be able to stop the embezzlement, but by having this internal controls in place, like we were talking about, as well as these segregations of duties, where somebody doesn't have that entire process control, such as someone that actually receives the payment at the front desk, possibly post that payment as well, and then what if that individual takes it to the bank? We don't want all that in one step. You want to segregate or separate those duties of someone touching a transaction.

Brian: That makes complete sense, because if there's one person that is responsible for the transaction, the money and everything all the way through, and there’s no checks and balances, then that is a huge opportunity and knowing that it would be difficult for someone to know that you're doing that. It makes it much, much easier. In your experience with embezzlement and these types of issues, is it often more employees that are doing it? Or is it practice managers? I've heard that practice managers taking advantage sometimes of physicians as well, or maybe even a physician within the practice is taking advantage. Do you ever hear about one really more than the other? Or is it a vast difference?

Laura: I've seen it all across the board.

Brian: So it's kind of everywhere?

Laura: Yeah. You have it at all different levels, and sometimes we are surprised to see that it can be in the managerial level.

Brian: Give me a story, if you have one, about a situation that you guys have come across, maybe an example so our listeners will have an idea of something that you've had to deal with, with that.

Laura: Yeah, with a manager we have seen where the clinic had a corporate American Express card.

Brian: Okay.

Laura: And the manager also, of course, had her own personal American Express card as well.

Brian: Right.

Laura: What we found later on that was going on, is that in essence she was paying her own American Express bill with the actual clinic funds. The checks coming from the clinic as well. And so, basically she was handling all the accounts payable, but then she was also signing the checks as well. Which there we go, we don't have the segregation of duties going on there. And doing the bank statement as well. So you don't want that person handling all that. It was found out by the credit card company actually, contacting the practice and letting them know.

Brian: Wow. So yeah, I think that's a great example of how, if those duties had been split up or there were checks and balances there, that would have been much more difficult for the manager to have funneled funds that way to a personal account. Is that an outlier? Is there a lot going on out there that we really just don't know about?

Laura: What we've seen, at least, is on the smaller level or smaller scale. And often times it will be involving, say, the co-pay or someone taking from petty cash, or the smaller-type things. But we are seeing an increase in people working and using credit cards inappropriately.

Brian: And I guess with the world we have today, there are a lot more of these practices that have credit cards for whatever reason.

Laura: Absolutely.

Brian: From office supplies to conferences, business trips, whatever, that are floating around out there. So, if you're in a practice as a physician or a practice manager that does not actually have that card, you probably want to have checks and balances for that then. Correct?

Laura: You want to make sure you limit who actually has access to that credit card number, or is using that. Because we have seen a case also where an employee was using that and putting it toward paying their Amazon account. So as long as the credit card statement, when it does come back, there's that oversight we have to have. Somebody needs to be reviewing that actual detailed report or statement that comes back for your credit card to make sure all the purchases are in essence valid for the practice.

Brian: So if you've got a credit card issue, I'm assuming there could be issues with people maybe even just going to the bank with bank statements or making deposits or if that's the same person doing all of that, that could be another avenue. Correct?

Laura: Absolutely. You can have someone that will actually alter the deposit, before it actually gets to the bank. So you have to make sure that you have two processes going on there as well, making sure that everything gets to the bank.

Brian: My take away in all of this so far is, make sure you don't have one person dedicated to one process through the entire process, that does not have oversight. Because that seems like what's going to get you in trouble.

Laura: Yes, and the biggest challenge is, of course, for smaller practices.

Brian: That's what I was going to say. If you're maybe a one, two doctor, three doctor group, and you have an office manager and maybe one other staff, but maybe some of them–I know that there's the office manager and the office manager is the one that does all of the business part of it.

Laura: Absolutely. But that's sometimes where we ask either the physician or recommend that the physician or owner kind of step in, or have someone step in for that management oversight in looking over that information as well. Because sometimes you are very limited in your staffing. There is some level of trust, you have to go with in a medical practice, but trust is not your internal control.

Brian: I have heard of horror stories before of physicians that were in a smaller practice, like you're saying, they weren't as involved in the business side of it, they left that to someone else, and then one big event happens and that manager is gone. And then they start looking through and they go, “Man, look at all of this stuff that was either misused or not done."

Laura: Absolutely.

Brian: And so it can really save you a big headache to be involved on the front end to where you're not having all those issues on the backend.

Laura: Yes, absolutely. We recommend that.

Brian: So, you're a manager of a practice, and you have an employee or someone within that office, that you suspect may be involved in this in your practice. You kind of have to be careful in how you handle that person that you may suspect of embezzlement. Do you have any tips for us on that?

Laura: Once a physician suspects that there is embezzlement possibly going on, it's a very emotional hit. Because they really, truly trusted this person. Often times, we do find it can be a loyal employee.

Brian: And you feel like, wow I've been lax in my duty, because how did I not know this?

Laura: Right.

Brian: So it would be a shot to me.

Laura: And they feel victimized, because they have been blindsided by this individual. So what we recommend is take it slow, first of all, because it is quite a jolt. And then go and gather evidence first, because you don't want to confront that individual from the get-go.

Brian: Have all your ducks in a row, have all your cards there?

Laura: Yes. Whether it's hiring an attorney, or have some type of forensic auditor come in, or something such as that. And don't confront until you have the proof and have the backing. You also don't want to first share those suspicions with the employees or anyone else within the practice.

Brian: Right.

Laura: So then you want to determine what action do you want to take? In general, we see termination, confronting the person of course, and then figuring out some time of repayment plan if they promise to do so. Or actually notifying law enforcement. Even in surveys we see that often they will not prosecute.

Brian: Really?

Laura: That is a problem, because guess what? They generally go down the street to the next practice, and then they have no record. But we do recommend trying to do background checks, because we have heard of where someone has done a background check and then they find that there actually is a record, even though they really knew this person and they got the reference from another one of their colleagues in the area, and they find out this individual actually has a history. So, you want to be very careful in what you should do.

Brian: Why would you not prosecute?

Laura: They often feel like it's bad PR, and they often don't want everyone to know.

Brian: Now that makes sense, because then it gets out in the community that there was an embezzlement situation there, and then you have another hit in your PR, as far as your practice goes.

Laura:   dfWe have seen some practices do go forward and prosecute.

Brian: You said, well if they're confronted with it but not prosecuted, and they're terminated, they can always go right down the street and get another job at another practice and do the same thing. So how would you advise on the front end of an employment situation, how do you find out that this person might have been involved in this type of practice?

Laura: Well like we say, once the person's in there and you have permission, you can do the background check, which we totally recommend. But also making sure you're checking references as well. Check with their previous employers. The background check cannot be for sure answer to whether or not this person might be an embezzler or has had that history in the past. Or whether they might do it in the future, so there is no sure way.

Brian: Yeah, that is the unfortunate part. But I can see how if you had casual knowledge of this person, if you knew they were in the healthcare community, and they told you a story about why it just wasn't working out over there and got let go. You probably need to do due diligence just to check everything, cross all of your T's and dot your I's to make sure you get the full story, even though you think you might know. And at least looking into their references.

Laura: Yeah and I have actually heard of a case where that occurred. They got a referral from a colleague and they hired this individual, and they did not run all the processes. Didn't check the references, didn't do the background check, so it can occur.

Brian: So as we get ready to wrap up today, Laura, what would you say are just a couple of key points that we've hit on today, that people really need to be aware of, whenever they're thinking about embezzlement? The one that jumped out to me, is making sure you have oversight and a process. What are some other things or you can expand on that a little?

Laura: Yeah, you want to make sure you have your internal controls in place, and they are being monitored. We want to make sure you are not overriding those internal controls. Because often times we find management gets a little lax and once they have everything in place, and those internal controls are set, that they allow flexibility in that.

Brian: They get too comfortable.

Laura: It gets too comfortable and we start going back into that process. So, you don't want to have that. Making sure that that is being done as well as making sure there is some type of management overview, somehow, someway, whether through a CPA or through the actual practice owner, whoever. But making sure there's different levels of someone checking and segregation of those duties as well.

Brian: And even from the physician standpoint, don't just always assume somebody else is taking care of that. You gotta get involved, certainly if it's a smaller practice.

Laura: Absolutely.

Brian: Laura, thank you for this time. This has been a fascinating topic and one that I honestly had no idea it was as a big of an issue in healthcare as it is. So thanks for educating us and giving us some tips today.

Laura: Thank you, Brian.

Speaker 1: Thank you for listening to this episode of Your Practice Made Perfect, with your host Brian Fortenberry. Listen to more episodes, subscribe to the podcast and find show notes at SVMIC.com/podcast.

The contents of this podcast are intended for informational purposes only and do not constitute legal advice. Policyholders are urged to consult with their personal attorney for legal advice, as specific legal requirements may vary from state to state, and change over time.