What To Do When Employees Steal: Medical Practices Are a Ripe Target for Embezzlement
By Sean Price Texas Medicine September 2018


Employee embezzlement at medical practices usually starts with something small — a credit card charge here, a small amount of cash taken there. And it’s almost always done by someone the physician trusts.

“It’s very, very unsettling because you don’t think that somebody you work closely with is going to do that,” said Charlotte Smith, MD. The Austin physiatrist once had an employee use the practice’s account to write checks for personal expenses worth tens of thousands of dollars. “I probably never would have caught it except that I had an external party overseeing our billing and collections.”

How often do Texas physicians get swindled by their own employees? It’s difficult to quantify. Practices generally don’t want to advertise they’ve been ripped off. As a result, criminal charges are seldom filed in medical embezzlement cases, and instances rarely appear in the news. Further, the Federal Bureau of Investigation doesn’t track the crime specifically, so there are no real state or national statistics. 

But ask an accountant who works with doctors’ offices how common embezzlement is, and the answer is unsettling: Physicians, especially in small and medium-size practices, get cheated a lot.

“Unfortunately, that situation has occurred in about 50 percent of my practices — even though I will consult with them prior to an event happening,” says Jim Rice, a certified public accountant (CPA) who heads up the health services division at the accounting firm Sol Schwartz & Associates in San Antonio and who consults with TMA. “That ratio is extremely high compared to the other industries I work with.” 

Why physicians?

Those observations are borne out by the Austin-based Association of Certified Fraud Examiners’ 2018 “Report to the Nations” (tma.tips/FraudStudy), a global study on workplace fraud and abuse. Worldwide, it found that the health care industry had the fourth-highest incidence of fraud — behind financial services, manufacturing, and government — with a median loss of $100,000 for incidents ranging from billing fraud to skimming, stealing cash, and tampering with reimbursements, checks, and payments.

Based on these kinds of studies and his own business working with physicians and TMA, Reed Tinsley, a Houston-based CPA and health care consultant, estimates 50 percent of medical practice workers steal from their employers.

“I think it’s going on all the time,” he said. “Nobody’s catching it.”

Physicians are targets for this kind of theft for several reasons, says Mr. Rice, who has worked with physicians for more than 40 years. Most of them tie back to the old cliché that doctors see themselves as healers first and businesspeople second. 

One of the biggest problems Mr. Rice has seen: Many physicians do not hire well. They fail to do basic background checks, or they hire someone close to them and then fail to give them proper oversight.

“When physicians hire a relative or a good friend, you’d be surprised how often these people are the ones who are most likely to take money or use money for personal items,” Mr. Rice said. “They don’t think they’re stealing because ‘they’re going to pay it back,’ but they never do.”

Many medical practices also ignore employee attitudes, especially about pay, Mr. Rice says. Some physicians unfairly scrimp on employee salaries. Others pay well, but employees perceive — often incorrectly — that the physician could be paying much more. In both cases, employees feel justified in stealing. 

Many physicians don’t provide adequate guidelines for employees who handle financial matters, or they don’t enforce existing policies. 

Dr. Smith says that’s often because physicians today face increasing demands on their time.  

“When you’re working, you know, a 12- or 15-hour day, that’s not going to be the priority,” she said. “Business stuff is very interesting, but you don’t have the time to put the fires out.” 

Small practice, big target

Employee theft may be less a problem for physicians than it once was because a growing number of doctors are employed and the large practices or organizations under which they operate can afford financial checks and balances that make theft difficult.

But many smaller practices remain targets, and boutique practices are probably the most vulnerable, Mr. Rice says. Patients often pay hundreds of dollars in cash for each visit, meaning a dishonest employee can easily misreport a patient visit and pocket the cash. 

No matter their size or payment scheme, practices where just one person handles all financial matters are extremely vulnerable to fraud, Mr. Rice says. Without proper oversight, that one employee can steal cash, forge checks, and commit credit card fraud in the practice’s name.

“Even in a small practice, [physicians] really can try to segregate their [employees’] duties,” Mr. Rice said. “Don’t have the same person who writes the checks be the person who reconciles the bank accounts.”

Jacqueline Bloink is a California-based independent expert on health care fraud who has helped Texas physicians recover from incidents of employee embezzlement. Theft using insurance payments is harder to pull off but also quite common, she says. One of the easiest ways is to make a slight change in the current procedural terminology (CPT) insurance code used to report a patient’s condition. 

“Let’s say a provider selects a CPT code and the staff member wants to take money,” Ms. Bloink said. “They might increase the code to the next level without letting the doctor know, and then when the charges come through, they’re able to perhaps siphon that difference.”

Employees also can submit false insurance claims or have payments for real claims sent to their own bank accounts, Ms. Bloink says. They do this by setting up a bank account at the same bank under a name that’s similar to the practice’s, like Family Practice Inc. instead of Family Practice Associates. The money is misdirected to the phony bank account without raising any warning flags. 

“That would be hard to detect unless you had a forensic accountant actually come in and look at all the claims and bills, see what was paid, contact the insurance company and say, ‘Why didn’t you pay these?,’” Ms. Bloink said. “At that point, they would say, ‘We did pay them.’” 

An ounce of prevention …

Hiring a forensic accountant to assess and clean up the mess caused by employee theft is much more expensive than just preventing it, Mr. Rice says. A typical case could cost a physician tens of thousands of dollars in fees on top of the cost of the fraud. 

Physicians can take several simple steps to recognize and protect themselves from embezzlement. (See “Embezzlement Red Flags,” below.) One of the easiest ways is to make sure bank statements are mailed to the physician’s home, not business, Mr. Rice says. When the statements come in, the physician should go through them for about five minutes to learn transaction patterns.

“The first few times, they might not know what is normal or not,” he said. “But after a few months, they’ll start to know the typical expenses and deposits.” 

Another simple preventive measure: Ask questions of the people who handle financial matters in the practice. For instance, ask regularly for monthly balance sheets and profit-and-loss statements. Ideally, the physician should read them, too. 

But even if they don’t, “it gives [employees] the impression that the physician is on top of things, even if they’re not,” Mr. Rice said. “Just asking can go a long way.”

More than anything, he says, physicians should pay attention to employee attitudes and make sure they don’t simply hand over the business of the practice to their employees.

“Physicians don’t think of what they’re doing as a business, but it is very much a business.”


Embezzlement Red Flags

  • Diminishing cash flow when receipts are strong
  • Actual bank deposits in a month don’t agree with payments posted to the practice management system
  • Increasing accounts payable and accounts receivable balances
  • Transactions lacking documentation or approval
  • Patient and payer complaints about recording of payments
  • Significant number of year-end adjustment journal entries
  • Poor accounting records 


Find more resources on preventing embezzlement in your practice at www.texmed.org/EmbezzlementRedFlags.

TMA Can Help

TMA staff can help review your internal control systems, identify potential weaknesses, and outline the specific changes to safeguards, processes, and duty assignments your practice needs to shield you against embezzlement. An Embezzlement Risk Review from TMA Practice Consulting includes a detailed written report that lists opportunities for improvement. 

To learn more, contact TMA Practice Consulting at (800) 523-8776, practice.consulting[at]texmed[dot]org, or visit consulting.texmed.org.


Tex Med. 2018;114(9):28-30
September 2018 Texas Medicine Contents
Texas Medicine Main Page

Last Updated On

September 14, 2018

Originally Published On

August 27, 2018

Sean Price


(512) 370-1392

Sean Price is a reporter for Texas Medicine and Texas Medicine Today. He grew up in Fort Worth and graduated from the University of Texas at Austin. He's worked as an award-winning writer and editor for a variety of national magazine, book, and website publishers in New York and Washington. He's also helped produce Texas-based marketing campaigns designed to promote public health. Sean lives in Austin and enjoys hiking, photography, and spending time with his wife and two sons.

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