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How You Can Avoid Being the Unwitting Victim of Employee Theft

Employee theft is estimated to affect three out of four physicians at one time or another. When I inquired about experience with theft on a listserv of business-savvy neurologists, the response was overwhelming. Almost everyone had been a victim or knew someone who had been victimized.

Indeed, most cases have involved loyal employees who work the longest hours (often alone), never take sick leave or vacations (long enough to delegate financial responsibilities to someone else), and who may, in fact, have something to hide. Edward J. Orecchio, MD, a solo practice neurologist in Claremont, NH, had employed the same office manager for seven years before he realized that he had been embezzled for $110,000. Like many neurologists, he loved medicine and had no interest in the business, which he left for her to manage.

“She was like a daughter to me,” said Dr. Orecchio, who had invited the employee to his house for dinner over the years and at one point had even given her a car. “When you hire people you trust, you just don't think that anything like this could happen,” he said

The neurophysiology technician and accounts payable clerk who worked for neurologist Shailesh D. Vora, MD, of the Neurology and Sleep Disorder Center in El Dorado, AZ, embezzled more than $500,000 over the course of his 10-year employment. “He gained my confidence by doing a perfect job,” Dr. Vora said. “I treated him like a son and feel hurt, betrayed and angry.”

Studies show that employee theft robs small business owners, including physicians, of $20 to $40 billion a year, with 75 percent of crimes going unnoticed. About half of those who commit fraud earn less than $50,000 annually, and most have worked for the victim for at least five years, according to the Association of Certified Fraud Examiners. When you include petty theft— postage, personal copies, supplies, personal long distance calls, and padding of time cards—it's estimated that 70 percent of all employees will steal once or twice a year.

It's not just small businesses that are affected. Earlier this year the manager of the Pediatric Neurosciences Department of the Neurological Institute at Columbia University pleaded guilty to charges relating to a scheme to defraud the university of more than $180,000 through the submission of phony invoices for expenses and purchases purportedly related to department services. He also submitted $112,500 worth of reimbursement requests for spinal muscular atrophy studies that were never performed, diverting the funds to his personal accounts. So audacious was his behavior that he submitted reimbursement requests for more than $25,000 of his own wedding expenses and $40,000 of Amazon charges.

Experts predict that during these recessionary times, an increase in employee embezzlement can be expected. So what can we do to avoid it?


Carefully screen employee resumes, ask for a list of previous employers and references, and inquire about gaps in employment and brief employment periods. Speak to previous employers, verify length of employment, and relationships to the applicant. Do background checks for any employee who handles funds. Dr. Orrechio's office manager immediately went to work for a dentist after she was fired (and before she was indicted); although she resigned before her theft was identified the dentist had never called to check her reference.


The office manager at Kansas Neurological Consultants embezzled $126,000 in 2007 by stealing cash and checks made to the office and depositing them in an account with a similar name. Giving one person unquestioned authority over your finances is a foolish business practice, but nevertheless one that's relatively commonplace, especially in small neurology practices. The person who is opening your mail, for example, should not be posting payments. Dividing the two responsibilities is more likely to prevent someone from stealing money from your practice and then manipulating patients' computerized accounts by writing off balances as insurance adjustments or uncollectible items.



Neurologists in small practices who may not have enough staff to consider dividing responsibilities should consider outsourcing their payroll functions. The bottom line: They will need to take a more active role in their practice — writing their own checks and reviewing bank statements with their accountants on a more frequent basis.


Only you should open and review bank statements. Question anything that looks unfamiliar. Bank statements can often flag discrepancies and are best reconciled by you with your accountant. If not possible, reconciliations should be performed by one person and reviewed by another. Also, the person who writes the checks should not have the authority to sign checks. Better yet, always sign your own checks, and if you're in a group practice rotate check-signing responsibility weekly among neurologists so that everyone becomes familiar with the vendors. Inspect canceled checks to look for fictitious employees or questionable vendors. Verify each month that the checks have not been altered, that all checks have been accounted for, and have the required supporting documentation.


Insist that all transactions—refunds, adjustments, write-offs, accounts payable and accounts receivables—are supported by documentation. Photocopy or scan checks as they are received and before they are posted. Ensure that all checks are stamped “for deposit only” as soon as they're received. Keep duplicates of all deposit slips. Reconcile charges and receipts on a daily basis, and maintain patient encounter forms and explanations of benefits to support the daily transactions. Match all payments to purchase orders and original invoices.

Don't share your credit card, and if you have a signature stamp, destroy it. When Henry Ford Hospital epileptologist Gregory L. Barkley, MD, served as treasurer of the Michigan Neurologic Association (MNA) ten years ago, the person who worked on his department's anticonvulsant clinical trials also helped him to keep the books for the MNA. He discovered that she had embezzled most of the MNA bank account after she took another position at a pharmaceutical company and the departmental grants manager who had taken over the MNA bookkeeping caught her double dipping on some travel expenses. It took months to sort things out. “She used a number of tricks including the use of my signature that had been reportedly ‘lost,’” Dr. Barkley said.


Make sure that your computer provides an audit trail that tracks both credit and cash payments and adjustments, and tracks which employee made them. “Telling your employees in no uncertain terms that regular audits are being performed often will deter theft,” said Bruce H. Cohen, MD, a pediatric neurologist at the Cleveland Clinic who is a member of the AAN Medical Economics and Management Committee.


Look for evidence of a sudden accrual of material wealth, as well as fluctuations in expense accounts, increased write-offs, refunds or adjustments, questionable purchases, unusual relationships with vendors, increased clerical errors, missing inventory and drops in revenues. Dr. Orecchio's salary dropped at an increasing rate over the years. He ultimately discovered that his office manager used his signature stamp to endorse his insurance checks and cosigned them with her name to cash them. “Despite what is supposed to happen in a commercial institution, the bank continued to cash third party checks without any substantiation from me,” said Dr. Orechhio.


STUDIES SHOW that employee theft robs small business owners, including physicians, of $20 to $40 billion a year, with 75 percent of crimes going unnoticed.istockphoto


The questions may indicate that accounts are being falsified. Make sure that these calls are directed to you by the front desk and not transferred to the person in charge of finances.


Employees who have drug, alcohol, or debt problems may be more tempted to embezzle funds. Experts recommend watching for the 10 D's: dalliance, death, debt, depression, deviancy, dice, disease, divorce, drinking, and drugs.

One prominent neurologist who preferred not to be named was embezzled for $172,000 by his 72-year-old office manager who had gotten into debt from gambling losses at the local casino. It turned out that she was making regular credit card withdrawals at the casino ATM's to the tune of $10,000 at a time. “I wasn't suspicious because she had worked for so many years with other doctors in the community, was a grandmother, was conspicuously religious, and came to my house with her husband for dinners,” he recalled. The employee was eventually caught by his stepdaughter when she came to work at the practice as a receptionist.


Employee Dishonesty Coverage insures against employee theft of money, securities or property, and can be written with a per loss limit, a per employee limit, or a per position limit. It won't protect a practice against theft of items other than cash or securities such as medication or other supplies it has purchased. Those are property losses that would be covered under a practice's Business Owner's Policy.

Fidelity Bonds are insurance products that also indemnify an insured person against losses caused by theft from an employee or third party, such as an independent contractor providing billing, management or accounting services to a practice. This is what San Francisco bay area child neurologist Robert L. Sieben, MD, did after he was first embezzled by an employee. When it occurred for the second time 20 years later, he had a bond to recoup his losses, having made sure that his property and casualty insurance had included one.


If you discover possible employee theft, do not take matters into your own hands. All suspicions of criminal activity should be reported to proper authorities— your employer's human resources department or the police. If you offer a civil solution to an employee whom you suspect (or know) has committed a crime, it could be construed as extortion or blackmail, all crimes.


For more about cases of employee embezzlement:

Source: NIH