November 15, 2018
2 min read

Take steps now to avoid embezzlement later

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It is the opinion of many practice advisers that there are only three types of physicians when it comes to embezzlement: those who have had some of their assets stolen by an employee and know it, those who are currently having assets stolen and are as yet unaware, and a small number who have not yet experienced the tragedy of embezzlement by a trusted employee but will in the future. It is easy to project, looking at the incidence and prevalence of this financial malady, that over a 30 or more year career every practicing ophthalmologist will be victimized at one time or another, or in the rarer case be the perpetrator.

Meaningful embezzlement is nearly always a premeditated crime, performed methodically and concealed carefully. It can continue for years and in select cases reach staggering amounts in a large successful practice before it is discovered. It often takes a complete, independent third-party audit to discover embezzlement, and the more casual annual audits done by most practices will not suffice.

There are a few steps that can be taken to reduce the likelihood of being a victim of embezzlement. First, the practice leadership, including the doctors, must be aware of the potential problem and let their employees know that they are monitoring for it and that stealing from the practice, whether it be money, products or hours, is cause for immediate dismissal and, if meaningful, prosecution. This needs to be a near-zero-tolerance policy.

Second, the internal control called separation of duties is critical. The individual who bills and collects the money should be different from the individual who tabulates the proceeds and banks them, and if possible, a third individual should do accounts payable. Then all three must balance the accounts daily, weekly and monthly, with a fourth individual reviewing the outcomes. It is hard to get two or more independent individuals to collaborate together in a conspiracy to defraud a practice.

Third, a more intense so-called forensic audit can be performed every few years to look in greater detail for any evidence of embezzlement or fraud. Fourth, employees who handle money or other valuable assets routinely can be bonded to protect against losses caused by fraud.

Finally, if embezzlement is discovered, immediate dismissal and, if meaningful, prosecution of the offender must be pursued. State penalties vary, but for significant amounts of embezzlement fines, incarceration and hopefully some form of restitution can be ordered by the court. The physician is far more likely to experience embezzlement during his or her career than a malpractice lawsuit. Both can be an extremely painful experience and are preferably avoided rather than managed.

Disclosure: Lindstrom reports no relevant financial disclosures.