Can You Recognize Embezzlement Red Flags?

It happens again and again: A physician is blind-sided by the discovery that a long-time, trusted employee has had his or her fingers in the practice till for several years, often to the tune of tens of thousands of dollars.

Often in retrospect, the signs were there, if only the physician had recognized them. They may be:

  • Behavioral red flags, or characteristics of people engaged in embezzlement or fraud. The Association of Certified Fraud Examiners (ACFE) says in 92 percent of the cases in one of its studies, the perpetrator exhibited at least one such behavior, and more than one in 57 percent of cases. The top five behavioral red flags in the study were:
    1. Living beyond means,
    2. Financial difficulties,
    3. Unusually close association with vendor/customer,
    4. Wheeler-dealer attitude, and
    5. Control issues, unwillingness to share duties.

See ACFE’s interactive chart showing the frequency of 17 common behavioral red flags in the study. See how these red flags vary based on the perpetrator’s position, sex, or type of fraud committed, plus find out the most common fraud schemes the study revealed.

  • Operational red flags, or trends in your practice that might indicate fraud. Houston CPA, author, and health care business consultant Reed Tinsley, recommends “immediate attention” to these signs:
    • Diminishing cash flow when receipts are strong,
    • Actual bank deposits in a month that don’t agree with payments posted to the practice management system,
    • Increasing accounts payable and account receivable balances,
    • Transactions lacking documentation or approval,
    • Patient and payer complaints about recording of payments,
    • Significant number of year-end adjustment journal entries, or
    • Poor accounting records.

In addition, Mr. Tinsley says, these characteristics may indicate your practice is “fraud-prone;”

  • Weak or loosely enforced internal controls,
  • Profit as the only practice objective and the lone criteria for performance appraisal,
  • Employees under great stress to accomplish unrealistic objectives,
  • Complaints from patients, vendors, and employees habitually ignored,
  • Poor employee morale and practice loyalty, or
  • Lack of monitoring and oversight.

Keys to preventing embezzlement in your practice are systems of checks and balances, regular review of financial documentation, and segregation of duties among staff so no single person has too much control.

For specific tactics, read Mr. Tinsley’s article, “Protecting Your Medical Practice From Theft.” See also the Texas Medicine article, “Keep an Eye on the Books,” and TMA Practice E-Tips on embezzlement prevention. For help in fraud-proofing your practice, call on TMA Practice Consulting for an Embezzlement Risk Review. Contact a consultant at (800) 523-8776 or[at]texmed[dot]org.

Published July 11, 2017

TMA Practice E-Tips main page

Last Updated On

June 28, 2018

Originally Published On

July 11, 2017

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