Protect Your Business or Medical Practice From Internal Fraud

Business and medical practice owners and managers must be aware of internal fraud and embezzlement that often capitalizes on recurring year-end cycles in revenue, spending and inventory and a lack of regular oversight.

I covered some of the external fraud scheme you face at year-end in another discussion including a detailed look at invoice fraud.  While I provided some specifics to help prevent external threats, that fraud may be even harder to prevent when instigated or assisted by an internal accomplice, an employee or even a partner in your practice (yes, doctors and executives steal from each other too) that can control or conceal orders, bill payment, inventory management or any number of other financial details.

One such scheme is generally referred to as “overwriting” which can take several different forms:

1. Overpaying. The scammer overpays invoices intentionally to generate refunds. Those refunds are then diverted back to an account controlled by thief, not the practice itself.

2. Over-ordering. An internal source at your practice orders materials that are billed to you and which are actually delivered but used and resold somewhere else while you receive no value.

3. Paying False invoices. The bill payer at your practice pays invoices to a company that that does not exist and that they or a partner created. Variations may include those with shipping and receiving authority that verify receipt and inventory for an accounting department that then, intentionally or unintentionally, pays these “confirmed” bills.

4. Kickbacks and undue influence. Less overt, but potentially just as serious is when an employee with purchasing authority chooses referral providers or vendors because they get something in return, often to the detriment of their employer. This ranges from “perks” like sports tickets and gift certificates to actual cash payments or even a percentage on what the refer to the 3^rd party, including in the worst cases, providers like specialty physicians, labs and imaging centers. This is an obvious problem for you as a medical practice manager or owner that has a duty to use only high quality supplies, drugs, appropriately credentialed employees and etc. and who does not want what should be an objective and competitive business transaction influenced by other factors.

These are just a few examples of many, so make sure you have the appropriate system of checks and balances in place in your management structure and that you’ve reviewed the list of specific financial and behavioral red flags I’ve provided previously. Even little details like using pre-numbered documents for checks, purchases, sales, shipments, receipts, billings, and collections that employees can’t alter can make these schemes harder to pull off and easier to spot.

Finally, don’t forget the basics, not every fraud or embezzlement scheme involves Oceans 11 complexity. Plain old theft of cash payments from clients and other receivables as well as theft of supplies, drugs, computers and equipment is still commonplace, especially in practices that allow temptation and opportunity to exist through lax management and record keeping practices; employees know who’s watching them and when, or if they are not watched at all. It’s vital that you have a good process to control cash and check payments and secure your mail, a key point of access scammers often need.

Likewise, wage theft, ranging from simply overpaying themselves or others by manipulating hours, abusing overtime and duplicating payments to paying employees (either direct employees or service vendors) that don’t exist is also still surprisingly common as is padding reimbursable expenses, mileage and expense accounts. Watch these issues carefully and have a procedure in place that includes required documentation for any employee to be reimbursed.

I hope this is a good start in identifying exposures in your own business and that addressing them proactively provides you some additional peace of mind of mind .