Keep an Eye on the Books
By Joey Berlin Texas Medicine September 2016

Physicians Jaded After Embezzlement by Trusted Employees

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Tex Med. 2016;112(9):55-59.

By Joey Berlin

After the office manager at a North Texas obstetrics-gynecology practice had logged nearly two decades of service, she had become more than just the person who kept the office functioning, a physician there says.

"We as physicians are trusting people," said the OB-Gyn, who asked not to be named. "We take care of people, and that includes our employees. Most days we spend more time at our office than we do with our own families, so our office staff becomes our family."

A little under two years ago, 17 years into her tenure, the office manager was diagnosed with breast cancer. The practice had taken care of her during her pregnancies years earlier, and members of her family were also patients. When she went through a nasty divorce five years previously, the physician says, the practice helped her through it. And after the office manager's breast cancer diagnosis, the practice handled her ensuing hysterectomy.

According to the physician, in early 2015, just a few weeks after that surgery — with the office manager on medical leave — the practice discovered she had been using the office credit card for a slew of items that "were clearly not medically related. They were personal."

A review of the practice's payroll revealed even more.

"We had our accountant look into things," the physician said. "And sure enough, there had been additional paychecks that she had distributed to herself, bonuses that she had given to herself, personal loans that she had taken out without authorization, all because she could."

The physician says the embezzlement had been going on for about five years.

"It's the violation of trust that's been the hardest thing," the physician said. "The money was hard, too; it was over $200,000. But even if we were to get that back, you never get back that violation of trust."

The billing and funds transfers of the modern medical world have become more often electronic, making shady financial practices more traceable. But physicians everywhere are still vulnerable to the whims of office staff who might embezzle or otherwise abuse their practice access. The cautionary tales of physician victims point to the importance of taking steps to prevent embezzlement. 

Competent Doesn't Equal Honest

The OB-Gyn said her practice discovered the embezzlement in February 2015. She says the practice gave the office manager the opportunity to own up to her misdeed and pay the money back, but she did not. The OB-Gyn says the practice turned the case over to the local district attorney's office in August 2015. Ten months later, the physician said the case was still in the district attorney's hands.

"We decided not to pursue a civil case because, obviously, if she had money to pay us back, she wouldn't have stolen it in the first place, so civilly, we know we're probably not going to get anything back," the physician said.

Fraud and abuse, which includes embezzlement, happens more often in health care than in most other industries, according to the Association of Certified Fraud Examiners' (ACFE's) 2016 Report to the Nations on Occupational Fraud and Abuse.

Health care ranked in the top five among industries where the cases occurred, accounting for 6.6 percent of them. The median loss for health care cases was $120,000. 

Private companies accounted for 37.7 percent of fraud and abuse cases in the report, more than publicly owned companies, government organizations, and not-for-profits. Organizations with fewer than 100 employees accounted for 30 percent of cases, ranking first among group sizes. 

Physiatrist Charlotte Smith, MD, a member of the Texas Medicine Editorial Board who now practices in Seattle, learned in the early 1990s how hard good help is to find and, ultimately, how sharp the distinction can be between competency and ethics.

After starting her solo practice in Austin, Dr. Smith struggled to find office staff who could meet her needs. 

"I was in the early years and went through quite a lot of different people, trying to figure out how to set up a practice. I was one of the people who went to the bank, got a loan, a line of credit, set up my own office, did my own employee manuals, bought furniture, the whole bit. And so a lot of this was trying to figure that out," she said.

She finally found an office manager who seemed to be an ideal fit, until, Dr. Smith says, an external billing company she was using caught the manager stealing checks from the practice, which ultimately totaled about $15,000. Dr. Smith says the staffer was also forging prescriptions for narcotics and amphetamines. 

"She was probably the best office manager I had in terms of competencies and in terms of being pleasant to work with and performing well on the job," Dr. Smith said. “So I was hit blind."

Although the money was important to Dr. Smith, she says the bigger concerns for her were the drugs the office manager prescribed in her name. But once authorities confronted the office manager with the evidence, Dr. Smith says, she "admitted to everything," eventually receiving probation.

Dr. Smith says she subsequently got "maybe three or four percent" of the stolen money back as restitution.

"I would get very small checks, like $17, $20," she said. "And every time I deposited it, it just made me mad."

Avoiding Fraud

As her own practice got bigger over time, Dr. Smith noticed how adding other physicians, nurse practitioners, physician assistants, and employees meant more sets of watchful eyes. As a result, it was easier to avoid one person having control of too much in the office. 

For smaller practices, external audits can provide a key check on potential abuse of power.

"She was basically the receptionist," Dr. Smith said of her former office manager. "She answered the phone. She prepared the billing stuff. She put charts together. She sent out medical records. It was a one-girl shop because it was a small practice, and it's very, very hard to have checks and balances in a circumstance like that."

"That's why, early on, I [realized] I need to have some external checks and balances," she added. "And thank goodness that I did."

Among the antifraud controls used by victim organizations in the ACFE report, external audits of financial systems were the most popular, with nearly 82 percent of organizations using an outside look at the financials. However, those external audits detected less than 4 percent of the fraud cases in the report. Tips, such as those submitted to an organizational hotline, were the most common method of detecting fraud, the report showed, responsible for picking up 39 percent of cases (37 percent in the United States). (See "Detecting Fraud.") Organizations with reporting hotlines were more likely to detect fraud than those without hotlines. 

The North Texas OB-Gyn's practice has enough employees to ensure one person doesn't have control over the practice's entire capital.

"You should have checks and balances so that if you receive checks from insurance companies, a different person opens the envelope, and a different person puts it into the computer, and a different person actually takes it physically to the bank," the OB-Gyn said. "You need to have multiple steps and internal controls."

Hiring trustworthy staff is never a guarantee, but practices can take steps to minimize their risk when bringing in someone new. The Texas Medical Association's staff recruitment service can help practices find the best, most trustworthy candidates. (See "TMA Staff Recruitment Help.")

TMA Practice Management Consultant Brad Davis says once a candidate receives a job offer, the background check that follows includes not only a criminal history, but also a credit check that would show whether the candidate is carrying a high amount of debt, which might serve as a motivator to embezzle.

"You do what you can and try to get all the information you can … and just try to ask the right questions," Mr. Davis said. "It's not a foolproof process, so even if you do the right thing, perform a background check and thoroughly vet the candidate out, there's always a chance that misappropriation could take place. But we try to cover all the bases before making a formal offer of employment."

In addition to TMA providing discounted recruiting services for members, some county medical societies maintain relationships with staffing agencies.

The North Texas OB-Gyn recommends physicians fill in the gaps in their knowledge by taking a business class, such as in the summer between medical school and residency, to develop the background physicians don't learn otherwise.

"I tell all the students I come in contact with and all the residents I come in contact with that you need to have at least an idea of what business is," she said. "It's not a part of the curriculum in medicine, unfortunately, and it's usually not part of the curriculum as an undergraduate. But I'm not a business person, and I had to learn the hard way. I would never wish that on anyone."

"Suspicious of Everybody"

A Dallas internist who requested not to be named warns physicians to stay vigilant after what he experienced about eight years ago. Working in a group practice, he says he first knew something was up after his credit card was declined and he found out he had hit his limit because of purchases he didn't recognize.

Once he disputed the charge, it occurred to him his office manager might've made the purchases. The manager had access to the practice physicians' personal credit cards to charge such expenses as continuing medical education and licensing. She had transferred there about 18 months earlier, coming highly recommended. 

"I called her and she [said], 'Oh yeah, I used your card to do that.' And then I was thinking, why did you use my personal card to buy office stuff? That goes on the corporate card, not my personal card," the physician said.

A member of the practice administration looked over the practice's books. The physician says that audit revealed the office manager had charged personal expenses to the physicians' own credit cards, then submitted reimbursement forms to direct the money back to her. 

The internist says he subsequently found out the office manager was deep in credit card debt "and was trying to get money to help herself. But with her reimbursement forms, she bought new couches for herself, clothes for her kids, and even bought a new car."

The physician was one of two in the practice who decided to press charges; most did not. He says the office manager was prosecuted and received probation.

"Everyone [in the practice] was worried because she had a family, etc. They didn't want [it to look like] they were hard-asses," he said. "But I was thinking to myself when I went ahead and pressed charges, 'This is not good. I don't want someone else to have this issue.'"

The internist says physicians can't get complacent about the office financials, no matter how well they know the person handling them.

"Even though you work with these people every day, no matter how close you are to them, you have to be on the ball to be watching for financial discrepancies because it could be someone you've worked with for a very long time or have a very trusting relationship with who may be taking money under the table," he said. "I don't want it to sound bad, because I don't want people to think they can't trust their managers. But it's very important for physicians to look at their bottom line."

The OB-Gyn says the positive that came out of her experience was her office's increased business savvy.

"We've gotten involved in the business side of things much more than we ever were, which is a good thing," she said. "This is not a good way to learn your lesson. We've gotten a lot more involved, which I think is good in the long run. But it makes you jaded. It makes you suspicious of everybody."

Joey Berlin can be reached by phone at (800) 880-1300, ext. 1393, or (512) 370-1393; by fax at (512) 370-1629; or by email.


TMA Staff Recruitment Help

TMA offers members personalized recruiting of qualified staff for front office, billing, clinical, and management positions at below-market rates. The service provides assistance with job descriptions, reviews and evaluation of resumes, background and reference checks, on-site interviews, and training.

A TMA consultant will determine the clinical and business staff appropriate for your practice and recruit qualified candidates to meet your needs. Your consultant will:  

  • Collect job-related information; 
  • Provide salary and benefit recommendations; 
  • Place employments ads; 
  • Conduct telephone screenings; 
  • Schedule and participate in interviews; 
  • Check references; and 
  • Initiate background checks for qualified candidates.  

For more information, contact TMA Practice Consulting at (800) 523-8776, or by email.

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Last Updated On

September 01, 2016

Originally Published On

August 17, 2016