Healthcare Practice Strategies – Spring 2012 - Fraud in a Down Economy: Is Your Practice at Risk?

During an economic downturn, all of the elements necessary for workplace fraud to occur are amplified. Financial difficulties at home may motivate an otherwise honest employee to steal. At the same time, strained budgets may result in staff cutbacks and less oversight and segregation of financial duties.


It’s critical to understand the three elements that experts agree are necessary for fraud to occur - the so-called “fraud triangle”:

  1. Motivation. Typically referred to as “unbearable financial pressure,” this is, of course, different for different people. For example: “I’d really like to have that convertible,” or “I’m way over my head in debt and can’t bear the humiliation of declaring bankruptcy.”
  2. Rationalization. This is the thought process that makes fraud acceptable in the perpetrator’s mind. For example: “I’m not stealing - I’m just borrowing the money and I’ll pay it back,” or “I’m just taking what they owe me … everybody does it.”
  3. Opportunity. This is the occurrence of a situation the thief feels he or she can exploit without getting caught. For example, without proper internal controls, cash from patient copays (an increasingly substantial amount at many practices) is easy for a motivated perpetrator to pocket.


The good news is that the “opportunity” leg is the one point on the fraud triangle that you actually can manage. With solid internal controls - the checks and balances you incorporate into your everyday practice management - you can eliminate many of the opportunities for fraud to occur. Consider these steps:

  • Segregate financial duties. For example, ensure that staffers who enter cash are not the same ones creating the deposit tickets. And use processes that provide an audit trail so you can track who is doing what, see when they are doing it, and retrace the process from invoice or receipt entry through approval, posting and payment. This could be paper logs/ledgers or a software solution.
  • Monitor regularly. Establish certain predefined financial parameters for your practice and regularly monitor that you are within them. For example, if you track your copay collection percentage, use a system that allows you to constantly monitor that ratio. Randomly conduct spot-checks every few days and compare your schedule with your day sheet to verify that all the treatment delivered was posted. Routinely scan adjustments to ensure there was a valid reason for making them.
  • Review bank statements. Another no-cost control measure is for management to closely review bank statements and accounts payable and receivable. 
  • Require signatures on large checks. Consider requiring a physician owner’s signature on checks written over a certain amount.
  • Engage staff. The majority of fraud is uncovered via a tip from someone who’s seen something suspicious. The Association of Certified Fraud Examiners (ACFE) reports that organizations with anti-fraud training for employees and managers experience lower fraud losses. Likewise, consider instituting a “fraud hotline.” Whether handled internally or outsourced, a confidential means for employees to report suspected fraud can be a wise investment.
  • Consider insurance. Employee dishonesty insurance, also known as an employee fidelity bond, protects you if an employee embezzles or steals something from your office. Ask your insurance provider whether you can purchase a “blanket bond,” which will cover everyone in the office and will preclude you from having to update the names on the policy every time someone new comes aboard.


Establish a baseline for your practice’s fraud prevention efforts with a thorough internal controls study - either conducted in-house or with the help of a third party specializing in fraud prevention or detection.

According to the Association of Certified Fraud Examiners (ACFE), these are the most commonly perpetrated workplace frauds:

  • Skimming and cash larceny
  • Abuse of company credit cards 
  • Payroll schemes (payments to non-existent employees)
  • Vendor schemes (kickbacks and duplicate payments to a valid vendor or payments to a fictitious vendor)
  • Check tampering (forgery, altering payees or amounts, or creating phony checks)
  • Electronic funds transfer fraud (involving someone with transfer authority and bank reconciliation responsibilities)

 Healthcare Practice Strategies – Spring 2012 

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