Seven ideas to detect, deter embezzlement

If your practice is safe from embezzlement, it’s in the minority. Over a five-year span, about 80% of medical practices will experience embezzlement in some form.1 The Association of Certified Fraud Examiners (ACFE) estimates the average organization will lose 5% of revenues each year to embezzlement.2

These thieves take real money. In November, a former office manager pleaded guilty to taking $800,000 from a Michigan pulmonary practice, and there are many more cases (see “Embezzlement in the news,” page 28).

What follows are seven tips to help detect and deter the behavior. Some are tried-and-true techniques; others spring from the digital revolution.


Tip 1: Don’t make all software functions available to everyone in the department.

Not all employees need full access to the practice management software; give them rights only to features needed to fulfill their duties. For example, front-office receptionists do not need access to the accounting portions of the software that allow for patient write-offs. This blocks them from pocketing money from patients and then logging it into the system as a write-off. Management should approve all write-offs, and owners should okay larger write-offs.

Tip 2: Use patient portals, EFTs and lock boxes.

With industries digitizing all aspects of their business, including accounts payable and accounts receivable, many insurance companies prefer to send payments by electronic funds transfer (EFT) because it reduces printing and check mailing costs. Batch payments are deposited directly into the practice’s bank account, and notice is sent to the practice’s billing department. A team member logs in to the insurance company’s portal, downloads the Explanation of Benefits (EOB) for the batch and posts payments to corresponding patient accounts. One benefit is that checks are recorded in the bank account sooner, because there’s a reduction in “float” time. Another benefit is that fewer checks pass through the office — which, in turn, minimizes the opportunity for unethical conduct.

Establish a lock box with your bank for patient payments and for insurance companies that do not offer EFTs. The bank will provide a remittance address. Payments go directly to the bank where bank employees deposit the checks into the company’s account and scan EOBs or payment stubs and send the images to the practice. The billing department uses the images to post payments without needing the physical check. Patient portals allow patients to make payments online through a secured link, thereby eliminating funds passing through employees’ hands. For checks that do, use a “for deposit only” stamp along with the bank name and account number to prevent the check from being cashed or deposited into any other account.

Embrace the technology. It is designed for your benefit.

Tip 3: Encourage anonymous reporting.

Coworkers often report office theft. In fact, 39.1% of cases are revealed through “tips.”2 However, coworkers may hesitate to report suspicious behavior if they cannot do so anonymously.

Your IT department can establish a link through which employees can anonymously e-mail management or the owner directly. Practices can also establish a hotline service for their team members. Organizations using hotlines have found more fraud (47%) than organizations without such methods (28%).2

Embezzlement in the news

In September, a former ophthalmic administrator was indicted in Virginia for allegedly taking more than $500,000 from her ex-employer. That same month, a Tallahassee woman was sentenced for wire fraud for taking $116,813.77 from two health care providers.

In June, the ex-office manager of a family physician’s office near Seattle got a five-year sentence for stealing more than $719,000. The year before, an ex-office manager was indicted on federal charges that she allegedly took $1.2 million from a Georgia surgical center.

Embezzlers like ASCs, too. In November, according to the Wichita Eagle, the long-time administrator of two physician-owned facilities in that city admitted, according to a lawsuit filed by the ASC’s owners, to taking $4 million between 2006 and 2017.


Tip 4: Employee verification.

As physicians with busy schedules and high demands, we delegate the business end of our practices to team members — at least until we realize the numbers aren’t adding up. “Fun” fact: Approximately 70% of employees who embezzle honed their skills at a prior medical practice.2 So, although the demand on our time is great, it’s worth the investment to acquire a better understanding of the employees entrusted with the finances. Performing a background check, confirming references and credentials, and running a credit history will reveal red flags in a potential hire. These are simple, quick, inexpensive ways to avoid bad hiring decisions.

An example from another industry illustrates the value of employee verification. A residential building company decided that adding an inspections division would complement the current course of business and raise revenues. The firm’s vice president knew an experienced, charismatic guy, James, who would be the perfect hire to oversee the new division. James assured the vice president he held the certifications required to perform the inspections. He was hired and went to work recruiting and training field staff, buying equipment and lining up contracts.

Because it was a new division, the firm wasn’t overly concerned when James started submitting large reimbursements requests and invoices. Approximately 10 months later, inspection reports were filed with the city’s building department. After the first report was filed, the building department called to let the firm know the inspection documents James submitted were forged. Not only that, it turned out that James was falsifying invoices and receipts to the company as well. The division was shut down, its employees were let go, and the firm had to hire its competitor to redo the inspections and finish out contracts.

An internal investigation revealed that James had a history of embezzlement and fraud with previous employers; he had even been on parole for such behavior. The whole costly debacle could have been averted had the company performed a simple $50 background check.

Tip 5: Separate responsibilities.

Team members entrusted with the company’s finances may not initially intend to embezzle. It usually starts when the employee experiences outside pressures, such as an unforeseen expense. The employee begins to rationalize the idea of “borrowing” money from the practice and starts looking for the right opportunity.

The most common type of embezzlement involves unauthorized use of company checks; the next most common method is theft and conversion of cash receipts.1 A front-office or accounts-receivable employee posting payments to patient accounts should not be the same person who prepares the daily bank deposits or closing reports for the day.

Run reports on what copays or over-the-counter payments should have been collected that day against what was actually collected (taking into account no-show or rescheduled patients). All payments should be kept under lock and key and deposited the same day. Petty cash should be kept separate from patient payments and locked away as well.

Use consecutive prenumbered company checks, and consider requiring two signatures for checks written over a certain dollar amount (with the owner being one signature). Never allow signature stamps on checks.

Tip 6: Carefully time reconciliations and audits.

Routine reconciliation reports should be standard procedure for any practice, along with periodic audits performed by the accountant. However, team members involved with practice finances know the system and will be prepared for scheduled reports and audits. If they are embezzling, they will be aware of workarounds for a scheduled audit. Behavior consistent with unethical employees includes becoming overly protective of their job responsibilities and taking total control of their “corner.” They’re also highly proficient at their job, they often work extra hours and take work home, and they rarely take vacation time.3,4

Insist that employees who have access to the practice’s finances take periodic vacations and use that time to run unscheduled audits and examine records. If you have misgivings, enlist the help of your accountant to discuss the diverse types of audits available to verify accounting records.

Tip 7: Set a tone, and stick to the policy.

Cultivate a positive work environment with open communication and employee recognition. Happy employees are less likely to steal and commit fraud. Establish and define expectations from the beginning, and have a zero-tolerance policy regarding unethical behavior. Write those expectations in your company’s policy manual, outlining what constitutes stealing and unethical behavior, including consistent tardiness, long lunches, docking incorrect hours on timecards or leaving early. Have all team members sign a form indicating they read and understood the policies, then have the policy manual accessible to your employees for reference. Employees who believe they will be caught are less likely to steal.

Once policies have been established, don’t get lax. Remember that the policies were established for protection of the business. Follow through with your zero-tolerance policy by immediately terminating an employee found stealing, and report the incident to authorities.


Consider insurance policies that cover employee theft as a safety net, and be alert to your team members. While no single methodology will prevent embezzlement in all cases, putting these safeguards into place will help minimize the risk. OM


  1. Frost C. Embezzlement in the Medical Practice – Are you at Risk? The Employee Profile, Methodology and Processes. Accessed Oct. 1, 2017.
  2. Association of Certified Fraud Examiners 2016 Report to the Nations on Occupational Fraud and Abuse. . Accessed Oct. 3, 2017.
  3. Marquet C. The 2013 Marquet Report on Embezzlement – A White Collar Fraud Study of Major Embezzlement Cases Active in the U.S. In 2013 . Accessed Oct. 1, 2017.
  4. Protecting your dental office from fraud and embezzlement. America Dental Association. Page 17. Accessed Oct. 12, 2017.

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