More on Embezzle-Proofing Your Practice: Advanced Strategies for Medical Professionals

Episode 70: More on Embezzle-Proofing Your Practice: Advanced Strategies for Medical Professionals

Welcome to today’s episode, which is where we take a second dive into a critical aspect of practice – protecting your hard-earned assets from the clutches of embezzlement. This is a follow on to Episodes 7 and 8, where we first introduced the concept of embezzlement in medical practices, and how prevalent it is. Given the complexities of medical group finance and operations, we wanted to bring you some advanced strategies, and today’s discussion is about empowering you, the physicians and medical group administrators, with additional strategies to fortify your practices against financial fraud.

The unfortunate reality is that embezzlement in the healthcare sector is on the rise. These aren’t just numbers on a page; they’re significant breaches that can drain your resources, demoralize your team, and damage the trust you’ve worked so hard to build with your patients. As we said in our earlier episodes, a startling 83% of medical practices will experience some loss due to embezzlement at some point in their history. So,if you and four physician friends are out for a beer, look around the table. All but one of you will be a victim of embezzlement. That’s why we want to tackle this head-on, equipping you with the knowledge and tools to create an impenetrable financial fortress around your practice.

Part 1: Understanding Embezzlement in Healthcare

Embezzlement can often be a shadow lurking in the less scrutinized corners of your practice. It’s the unauthorized diversion of funds for personal use, and it can manifest in various ways – from skimming cash payments to falsifying expense reports or manipulating payroll or retirement contributions. And the statistics are alarming. Studies show that healthcare organizations are particularly vulnerable, with a huge percentage reporting incidents of embezzlement annually. This isn’t just a breach of trust; it’s a blow to the financial health and reputation of your practice.

What makes this even more difficult is that the typical embezzler in a healthcare setting might not fit the stereotype of a criminal mastermind. They’re often trusted employees who’ve found themselves in a dire financial situation or those who believe they can outsmart the system. They’re the people you’d never suspect. Understanding these profiles is the first step in fortifying your defenses.

Part 2: Fundamental Controls and Best Practices

The foundation of a secure practice is built on solid internal controls. And, that’s an accounting term, which may give you an eye roll, and make you wonder what the heck is an “internal control,” and how do I create some? Let’s start with the basics: segregation of duties. This is a crucial control mechanism that ensures no single individual has control over all aspects of a financial transaction. It’s about checks and balances, making sure that the person who authorizes payments is different from the one who writes the checks.

Access controls are equally important. Limiting access to financial systems and sensitive information to only those who need it not only minimizes risk but also helps in tracing transactions back to specific individuals when necessary. Regular audits, both internal and external, act as a deterrent to potential embezzlers. Knowing that the books can be reviewed at any time encourages transparency and honesty among your staff. This is an exercise that you can delegate to your CPA or an external bookkeeping service. We recommend that you hire them to review a limited number of transactions at least once a year. They should follow the money all the way through, and verify that vendors are legit. You can give them a budgeted number of hours that you’d like their focus. It does not have to be a huge expense if you manage it well. This is where we talk about an ounce of prevention….

If you’re engaging your accountant for an audit, it’s best to call it a “spot audit” when talking with them. To an accountant “an audit” is a long term engagement that lasts several months and costs tens or even hundreds of dollars. Those are for really large entitites, and likely overkill for what you need. Calling it a “spot audit” will give them a much better sense of your scope.

The importance of employee background checks cannot be overstated. In a field where trust is paramount, knowing who you’re bringing into your team is critical. Comprehensive background checks can reveal past transgressions that might indicate a risk. And, if you find that a potential employee who has all the right skills has a bankruptcy or some other worrying thing in their past, it’s not a foregone conclusion that you don’t hire them, just don’t put them in a position where they are responsible for any financial transactions.

Lastly, a robust financial policy that delineates authorization requirements for transactions is your first line of defense. It sets the rules of engagement for everyone, leaving no room for ambiguity. If you’d like a review on the use of those, see episode #33 about the successful use of a Decision Matrix in your practice. If you don’t have one, it’s a great place to start.

Part 3: Advanced Strategies for Safeguarding Your Practice

As we delve deeper into safeguarding strategies, technology is your friend. Automated fraud detection systems can monitor transactions for unusual patterns that might indicate embezzlement, flagging them for further investigation. Advanced accounting software tailored for medical practices offers features that not only streamline your financial operations but also provide an additional layer of security. These systems can enforce segregation of duties, limit access to sensitive information, and automatically conduct regular audits. This is a great place to work with your banker – they have quite a few tools at their disposal within your banking software that can assist with setting limits and privileges to safeguard your cash.

Legal and ethical considerations come into play when implementing surveillance measures to prevent fraud. It’s a delicate balance between ensuring security and respecting privacy. Transparent policies regarding the monitoring of financial transactions can help navigate these waters. I generally like to be open about what we’re doing in setting up internal controls, and I always state that it is for everyone’s protection. Good internal controls keep anyone from being suspected of embezzlement. And, it’s simply good business practice.

Real-world examples bring these strategies to life. Consider the case of a small medical practice that thwarted a sophisticated embezzlement scheme by implementing advanced fraud detection software. Through real-time monitoring and alerts, they were able to detect irregularities in their billing system, leading to the identification and prosecution of the perpetrator.

Expert insights underscore the importance of a proactive approach. Financial security experts specializing in healthcare emphasize the value of ongoing education and awareness programs for staff. By fostering an environment where everyone is vigilant and knowledgeable about the signs of embezzlement, practices can significantly lower their risk.

Part 4: Building a Culture of Integrity and Transparency

In the fight against embezzlement, technology and checks and balances play critical roles, but the foundation of any secure medical practice is its culture. A culture of integrity and transparency not only deters potential embezzlers but also fosters a more honest, open, and productive workplace.

Creating an Ethical Workplace Environment
Leadership is pivotal. The tone set by practice managers and senior physicians influences the entire staff. By prioritizing ethical behavior and transparency, leaders can embed these values into the organization. Communicating the importance of integrity, and the consequences of dishonest actions, establishes clear expectations.

Transparency as a Deterrent
Transparency in financial and operational processes ensures that actions are above board and easily scrutinized. Openness about the practice’s financial health, including sharing successes and challenges, can build trust and dissuade potential fraudsters who operate best in secretive environments.

Engaging Employees in Fraud Prevention
Empowering employees through training programs on ethics and fraud awareness is crucial. Such programs should cover how to recognize potential embezzlement signs and the correct ways to report suspicions. An open-door policy, where employees feel safe voicing concerns without fear of reprisal, reinforces a culture where integrity thrives. When we ask them to participate in the internal control activities, this brings it to life. As an example, we always recommend that someone review the Adjustments or write offs in the revenue cycle system to assure that no one has a significantly high proportion of write offs, or that there is a pattern of writing off entire claims. This can be an indicator that an employee has their own bank account set up in the practice’s name, and is depositing checks into that account, but writing it off in your billing system to cover their tracks. We’ve seen it happen.

Part 5: Recovery and Damage Control

Discovering embezzlement within your practice can be a shock, but how you respond can determine the speed and extent of your recovery. Immediate, decisive action is necessary to mitigate damage and prevent future incidents.

Immediate Steps After Detection
First, secure your financial records and assets to prevent further loss. This often involves changing passwords and access codes and possibly even freezing bank accounts. Next, enlist legal and financial experts to conduct a thorough investigation. This may include a forensic accountant, and it will help you to understand the scope of the embezzlement and gather evidence for potential legal action.

Legal Action and Insurance Claims
Depending on the investigation’s findings, legal action against the perpetrator may be necessary. We see many medical practices who do not prosecute the perpetrators, and in that case, the embezzlers just wind up circulating in the community. In our market alone, we can identify six active embezzlers who routinely apply for leadership roles when we recruit, and because we know who they are, we can eliminate them as candidates. Many practices hire them unknowingly, and they just repeat their crimes. Please, if you’ve identified an embezzler in your practice, take the time, take the energy, take the stand to be sure they are out of circulation. Your colleagues will thank you.

Concurrently, if your practice has insurance covering employee theft or fraud, begin the claims process to cover financial losses. Many Business Owner Policies or BOPs cover some losses due to employee theft. It may be wise to check and see how much coverage your current policy affords you.

Communicating with Stakeholders
Honesty is crucial in maintaining trust. Inform stakeholders, including partners, employees, and–if necessary–patients, about the situation in a controlled and measured way, focusing on the steps being taken to address the issue and prevent future occurrences.

Protecting your medical practice from embezzlement requires diligence, awareness, and the right set of tools and strategies. Today, we’ve outlined fundamental practices and advanced strategies that, when implemented, create a robust defense against financial fraud. From understanding the threat to integrating technology and fostering a culture of transparency, each step is vital in safeguarding the financial health of your practice. Remember, the cost of prevention is always less than the cost of recovery.

As we conclude today’s podcast on embezzle-proofing your medical practice, remember that the fight against embezzlement is ongoing. It requires vigilance, commitment, and a proactive stance. By implementing the strategies we’ve discussed, from establishing robust internal controls to fostering a culture of integrity and taking decisive action when needed, you can significantly reduce your practice’s vulnerability to financial fraud.

As a Call to Action, we invite you to take a closer look at your current practices, consider the strategies discussed, and take the necessary steps to safeguard your practice’s future. You can find tools to help with this on the Medical Money Matters content website at For personalized advice and support, reach out to a trusted advisor or external consultant. Together, you can build a more secure, transparent, and successful medical practice.

Thank you for joining us today. If you’ve found this podcast helpful, share it with your colleagues, and join us for the next episode, where we delve into the ongoing issue of keeping your office well staffed, and we pose the question: why is this so hard?

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