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Business Advisor
Is There a Thief on Your Payroll?
Annamarie Carey-York
Publish Date: August 7, 2008

We learned the hard way that surgery centers often don't have the same financial controls that larger companies do. In three successive months last year, we had brushes with fiscal impropriety at three of the centers I help manage.

Money for Nothing

Small companies such as surgery centers are very vulnerable to theft because employees have access to checks and cash. Some of the most common ways employees steal money are:

  • submitting a timecard that shows hours not worked;
  • taking cash meant for payment of services and fraudulently writing off balances;
  • taking cash from the bank deposit on the way to the bank;
  • stealing inventory such as office supplies;
  • creating company checks; and
  • using the company credit card for personal expenses.

Why would an employee steal? Often employees are disgruntled because of the work environment or may be having personal financial troubles. Employees who work in the front office are typically not highly paid. So they may become more tempted because they're around cash and checks all day. Whatever their motivation, unscrupulous employees find ways to rationalize their illegal actions.

— Annamarie C. York, MBA

  • Business office manager vanishes. One day our business office manager of two months just got up and announced that she was leaving. She handed in her IDs and was gone. No explanation of any kind besides, "I just have to go. Now." A few days later, FBI agents arrived. They said she was missing and that her former employer, an accounting firm, was fingering her for embezzlement.
  • The $18,000 advance. Next, we discovered that the medical director of a GI facility that we were in the process of selling had convinced the payables clerk to cut him a check for six months of his $3,000 monthly stipend. He told her that the board of managers had approved the advance. When we found out, the board of managers sent the physician a letter. He brushed it off as nothing. "For as long as I've been medical director, what's the big deal?" he said. We had to tell buyers about it, which made them think we might have other irregularities. We later found out that he was going through a costly divorce. The board didn't ask him to return the money, but he had to pay interest on it.
  • Personalized checks. More recently, we learned that a company that manufactures check supplies and check-making equipment had contacted our accounting firm. The manufacturer thought that it was unusual that an accounting firm wanted to buy this equipment. With the help of police, the check supply company discovered that a female employee in the accounting firm planned to create bogus checks. It doesn't take much. All you need is an account number and a routing number and you can start printing.

When you learn about crimes like this, at first you're shocked. Then you realize that a good employee anti-theft program could easily have prevented it all.

Crime fighting at work
So what can you do to prevent fraud at your center? Learn as much as you can about potential hires and put mechanisms in place that head off employees' temptation to steal.

  • Screen job applicants. Background checks are available through most payroll companies or through specialized firms that charge $50 to $75. They're worth the cost for any candidate you plan to offer a position. Legally, you must notify candidates that a background check will be done. Include a statement on your application that employment is contingent upon the findings of a background check. From these checks we've learned that people we were about to hire had been in jail for theft.
  • Develop a financial policy. This document should clearly define responsibility for financial management and protection of the assets of the surgery center. It should state that there is no tolerance for fraud. Read the policy to all office staff members at an annual meeting, where they'll sign a document that says that they've read and understand the policy.
  • Mind the store. Make sure that employees are closely supervised. The more an employee suspects she can be caught, the less likely she is to consider stealing. Create a way for employees to report suspicious behavior without fear of reprisal. In the case of the medical director securing an advance, the payables clerk said she was intimidated because she knew he was the most senior manager. She felt guilty for not mentioning the transaction to other board members, but she feared being fired.
  • Divvy up the work. Delegate financial responsibilities to several employees to ensure checks and balances. Require supervisors to sign off on time cards. If one individual controls all the processes, the chance of fraud increases significantly. For example, the person who collects cash and check co-pays should not have the ability to post these payments to the patient account. Seek advice from your accounting firm on how best to segregate duties. Require that all checks above a certain dollar amount have two signatures. This would have prevented the situation with the medical director. Require that checks have a signature instead of a company stamp. This lets the business owner review expenditures as well as ensure the validity of the payment.

On the Web

Download a template to create your financial management policy at www.outpatientsurgery.net/forms.

Remember that one of the prime means of control is the separation of those responsibilities of duties which, if combined, would let one person record and process a complete transaction. If duties are segregated, this reduces significantly the scope for errors and oversights, as well as deliberate manipulation or abuse, and builds in additional checks.

  • Work with your bank. A meeting with your banker will yield several options against fraud. Banks suffer along with the company in cases of fraud, so they've become extremely diligent in fraud prevention techniques. Use a "deposit only" stamp on all checks or consider a bank deposit lockbox where checks are sent for direct deposit. Many banks now provide their clients with software that alleviates the hassle of visiting a branch to deposit checks. You can instantly deposit checks via the Internet using a special scanner provided by the bank.
  • Keep tabs on spending. Take time to review payables and deposits. Establish a budget for supplies and require sign-offs for expenditures. Generate a report that compares payables month to month in order to identify changes. Don't be afraid to ask questions, because questions lead to a better understanding of your finances. Have an outside accounting firm review the books and bank statements no less than quarterly, but preferably monthly.

Be sure all expenditures are properly authorized and that there's supporting documentation (purchase order, shipping receipt or invoice) for all items of expenditure. Keep such instruments of payment as checks and credit cards in a locked drawer in your office, with access limited to authorized persons. Checks for payments should travel the following route: An administrative assistant generates them, the administrator reviews and approves them and the medical director or other authorized signatory signs them (all checks for more than $5,000 should require two signatures). Keep signed cancelled checks that are returned from the bank in a secure and preferably locked location. Finally, never use the center's credit cards for personal items — even if the user pays her share of the balance as soon as the statement comes due.

Beware: The Check's in the Mail

Here are simple tips that can limit the possibility of theft or any accusations of theft when working with cash and checks.

  • Open incoming mail as soon as possible in the presence of two responsible people.
  • Record all incoming checks and cash immediately. Someone other than the person who has made the entry should verify all entries.
  • Issue a receipt to patients who pay in person.
  • Present all checks and cash to the administrative assistant who will record the payment in accounting software and make the deposit into the banking account.
  • Deposit cash and checks daily. Otherwise, all checks and cash should be kept in a lockbox in the administrator's office.
  • Reconcile the receipts book, practice management software and accounting software every day. Any discrepancy should be fully explored and resolved.
  • Reconcile bank statements each month. This should be done by the administrative assistant and reviewed by the accounting firm.
  • Rotate the mail-opening staff when practical.
  • Ensure the security of unopened mail.

— Annamarie C. York, MBA

Stay a step ahead
Take the time to educate yourself about fraud and don't stop learning about it. You'll need to be as sharp as you can when it comes to identifying ways that employees can steal from your center. Thieves are successful because they're creative. You'll always need to be one step ahead.