Fraud Prevention: Mitigate the Risk of Theft With Solid Controls

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Reconcile StatementThe active involvement of a physician owner is ultimately the most effective control against fraud. However, in the current demanding environment for physicians and dentists, the reality is that this responsibility may need to be delegated to a practice manager.  
Here, a savvy manager can implement solid internal controls — checks and balances incorporated into everyday practice management — and eliminate many of the opportunities for fraud to occur. Consider these steps:
  • Make sure that every patient encounter on the daily schedule has a charge and a payment. All payments received must be accounted for in the reconciliation at the end of the shift or end of the day. The total receipts in the general ledger (posted from the deposit slip) must agree to the total receipts posted in the billing system daily.
  • Randomly conduct spot checks every few days and routinely review adjustments to ensure there was a valid reason for making them. Often, just the knowledge that someone is looking over their shoulder is enough to keep would-be fraudsters in line.
  • Ensure that there is a regular check signer in the practice, preferably an owner, and that the authorized signer is familiar with approved vendors. There should be an invoice—stamped “paid” so it can’t be paid a second time either accidentally or deliberately—attached to each check, and the invoice should be reviewed by the signer for reasonableness before signing the check.  

Tip: Throw away all signature stamps!  

  • Bank accounts should be set up so that transfers can be made only between specified accounts at the same bank and only by authorized individuals.
  • Require that overtime be approved in advance by owners. Practice managers and/or owners should periodically review payroll rates to make certain that the agreed-upon rate is in use for each employee.
  • Require written annual competitive bid proposals from vendors. The process of obtaining written bid proposals prevents employees from entering into fraudulent, long-term relationships with vendors.

Who Is Opening Your Bank Statement?

One deceptively simple (and very effective) internal control is to ensure that a practice owner opens and reviews bank statements. If you’re an owner, what should you review on a bank statement?  
  • Scan the bank statement and look for unusual withdrawals during the month.
  • Review the cancelled checks and make sure they are signed by authorized signers.  
  • Review the payees on the cancelled checks to make sure the payees are familiar.  
  • For smaller practices, a CPA firm or outside bookkeeper could open the bank statements or download them directly from the bank and reconcile the cash to strengthen internal controls.
Stockman Kast Ryan + Co can help you take fraud prevention a step further by conducting an external review of internal controls. In addition, an operational audit may be commissioned to help ensure that the practice is enjoying efficient operations while minimizing the risk of fraud loss.
Contact our office for guidance on protecting your practice from fraud.
SKR+CO Expert
Judy Kaltenbacher, CPA, Tax Partner
Judy has been in public accounting since 1985, with significant experience serving medical practices, real estate partnerships, S-Corporations, financial institutions, nonprofit organizations and small business clients.