$25 Billion was lost from medical practices last year due to fraud or theft.  $25 billion*.

That’s a pretty high number, right.  Certainly to account for $25B, a lot of that had to come from large practices, right?  Wrong.  70% of all fraud comes from practices with fewer than 10 physicians*.

Why so high with small practices?  The fraud triangle is a standard framework used to help identify high-risk fraud situations (the three factors that lead to most fraud).  Let’s see how this applies to a small medical practice:
  • Opportunity: Could an employee execute a fraud scheme with limited change for getting caught?  In a small medical practice with one practice manager handling the books with no oversight, the opportunity is definitely there.
  • Rationalization: Can an employee justify a dishonest action?  How do otherwise honest people end up stealing from their employers?  Well, with a medical practice, you often have staff in charge of the practices finances who make 1/10th or less than the physicians make, and because they maintain the books, they see every penny the physicians make.  Does it make fraud right, no.  Does it help explain how someone could take some extra cash here and there, yes.
  • Pressure: Is there financial or emotional pressure on an employee that may push them towards fraud?  This is the one that isn’t that obvious, but it can also change.  An employee may have been loyal for years, in spite of the opportunity to commit fraud, but what if they run into a tough patch?  Now they have the pressure that may cause them to act.

So, now that you’re all a little depressed, or at least apprehensive, let’s take a look at the most common types of fraud schemes:

  • Expense reimbursements – inflated or fictitious expense reports (remember, internet receipts are extremely easy to edit.  We found an employee ordering stereo equipment from Amazon, but just editing the receipts to look like office supplies in MS Word)
  • Improper payments – altered checks or  checks  to fictitious vendors
  • Payroll – inflated hours, adjusted pay rates, unauthorized bonuses, fake employees (some are easier to spot than others)

A couple of examples of fraud that we found in new clients:

  • Medical Office: one member of the front desk staff had access to QuickBooks.  They received cash payments.  Later they would pocket the cash and delete the receivable in QB.  Each one was small and no one noticed discrepancies between services rendered and total billings.  Eventually they took thousands over the course of a year.
  • Optometry Clinic: Without proper inventory management, an employee realized they could adjust the received amount and no one noticed.  They started to siphon off a few high-end frames at a time and sold them to friends and family.  The fraud was easy to spot once the inventory accounts were reviewed by an accounting professional.

Is there hope?  Yes.  Here are a few simple steps you can take towards safeguarding your practice:

  • Separate key duties across different people: one simple example, employees who handle money and deposits should not be responsible for accounts payable or receivables.
  • Develop some key reports that are reviewed on a regular basis.  Understand which anomalies may be cause for concern and further investigation.
  • Keep an eye on check runs and accounts receivable.  On the checks, look for checks to vendors who aren’t familiar.  On receivables, watch for refunds or late payments that don’t make sense.
  • Set up some basic safeguards and processes and never deviate.  Even if there are times when the right process is inconvenient, just stick too it every time.
  • Don’t assume your accounting software will protect you!  Software is a helpful tool, but it can be manipulated and changed.  3rd party oversight good accounting software is the best protection.

If you would like to discuss your accounting or get some ideas on how to implement safeguards, please reach out to us anytime.


*Source: Association of Certified Fraud Examiners