AE July/August 2018 Vol 27 No 4 - 34

RUNNING THE PRACTICE // HUMAN RESOURCES

T

heft in medical practices is far more common
than you might think. The perpetrators are often
trusted employees.
Small and medium-sized medical practices are
particularly susceptible to fraud and embezzlement because too few employees are involved in
financial processes to segregate duties. Medical
practices also tend to be more trusting workplace
environments.
Practices lose an average of 5-10% of revenue to
fraud each year.1 According to the AAO, the average
net collections for a small two-doctor general ophthalmology practice is around $2,200,000, so 10% would
mean $220,000 of lost revenue. This is certainly not
insignificant. Since 86% of perpetrators are first-time
offenders, theft might be hard to prevent even if a
practice conducts criminal background checks before
hiring employees.2
HOW COMMON IS EMPLOYEE THEFT?
The MGMA study of 945 practices found 83% (782)
practices had been victims of employee theft.3 However, the study asked the following question: "Have you
ever been affiliated with a medical practice that has
been the victim of employee theft or embezzlement?"
The wording of this question in and of itself has flaws,
which makes me believe that the 83% could certainly
be closer to 100%. In addition, theft does not always
involve cash; "theft" could mean pens, equipment,
drugs, toilet paper, and even time.
How to mitigate risk? Trust but verify. The purpose of this article is not to make you paranoid or
untrusting of your employees, but rather to educate
and help you set up checks and balances to prevent
any risk of theft.
It is impossible to completely prevent employee
theft. However, medical practices can and should assess
their vulnerabilities and take steps to mitigate the risks.
AREAS OF RISK
The greatest areas of vulnerability within a medical
practice are cash receipts, taking cash before or after
it is recorded on the books and disbursements, forging checks, submitting invoices for fictitious goods,
or submitting inflated invoices. These areas account
for about 70% of theft.4 Petty cash, non-cash, and
payroll (such as creating a fictitious employee, an
unauthorized bonus, or an inflated pay rate), each
make up 10%.5 Focusing your efforts on preventing

34

AE // July/Aug 18

The rule of thumb among
forensic accountants and
auditors is the 10-10-80
rule: 10% of employees
will always steal, 10%
will never steal, and 80%
will steal under the right
set of circumstances.
the most vulnerable areas within a practice can help
reduce the majority of theft.
HOW AND WHY DO HONEST PEOPLE STEAL?
The rule of thumb among forensic accountants and
auditors is the 10-10-80 rule: 10% of employees will
always steal, 10% will never steal, and 80% will steal
under the right set of circumstances. So, what are the
right circumstances?
* Financial pressure: Could be an addiction, loss of
household income, medical bills, debt, accident,
or greed.
* Rationalization: Begins with "just borrowing" and
the intention of paying it back.
* Opportunity: Perception of borrowing or stealing
without getting caught. This is why theft can spiral
out of control in a short amount of time and is the
reason that checks and balances are so vital.
ASSESSING POTENTIAL EMPLOYEES
How do you assess potential employees and attempt to
prevent any type of theft? All potential employees must
be thoroughly screened.
1. Verify past employment. It is not uncommon for
potential employees to exaggerate on their résumé,
so be sure to verify past employment.
2. Call references. Check three to five professional
and personal references.
3. Check criminal history. In the MGMA study, 86%
of perpetrators were terminated. The challenge is
that 62% were not prosecuted, so most perpetrators
would not have any type of criminal record.6



Table of Contents for the Digital Edition of AE July/August 2018 Vol 27 No 4

AE July/August 2018 Vol 27 No 4 - Cover1
AE July/August 2018 Vol 27 No 4 - Cover2
AE July/August 2018 Vol 27 No 4 - 1
AE July/August 2018 Vol 27 No 4 - 2
AE July/August 2018 Vol 27 No 4 - 3
AE July/August 2018 Vol 27 No 4 - 4
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AE July/August 2018 Vol 27 No 4 - Cover3
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http://www.nxtbook.com/ygsreprints/ASOA/g105962_ae_mayjun19
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http://www.nxtbook.com/ygsreprints/ASOA/asoa_mayjune2015
http://www.nxtbook.com/ygsreprints/ASOA/asoa_marapr2015
http://www.nxtbook.com/ygsreprints/ASOA/asoa_janfeb15
http://www.nxtbook.com/ygsreprints/ASOA/asoa_novdec14
http://www.nxtbook.com/ygsreprints/ASOA/asoa_sepoct14_AE
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http://www.nxtbook.com/ygsreprints/ASOA/ehr_cust_survey_Apr2013
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