Protect your Professional Practice from Theft with Adequate Internal Controls

share this article

We’ve previously published several articles in our blog, Practice Elevations, related to the need for adequate internal controls to prevent theft in medical and dental practices.  Because of evidence that theft is increasingly common in small businesses, including professional practices, with the amount of losses also on the rise, we are returning to this subject again this month.

The 2016 report of the Association of Certified Fraud Examiners (ACPE) share reveals some sobering statistics:

  • The survey results show that most businesses lose 5% of revenues each year as a result of theft, and much of that loss of revenues is to employees. Lost revenues have a particularly significant impact on the economic success of small businesses, including dental and medical practices.
  • The median loss for all cases in the 2016 ACFE report was $150,000, up from $145,000 in the 2014 report. The median loss incurred by small businesses was the same as for largest businesses.
  • The most frequent forms of theft involved billing and check tampering schemes.

Medical and dental practices are particularly susceptible to fraud and theft. It is estimated that fraud and theft account for three to 10 percent of total health care costs in the United States.  Why are medical and dental practices particularly susceptible?  In many cases, the practice, due to limited staffing resources and the existence of long-term employees and centralized accounting functions, has not implemented or deemed internal controls to be necessary in the past.

What practice and business circumstances lead most frequently to employee theft?  Here are three elements that are usually present when employees commit theft:

  • Pressure – work related pressures or personal finance pressures
  • Opportunity – lack of basic accounting and internal controls; prior lack of disciplinary action; misplaced trust of the employer
  • Rationalization – the employee believes that the employer owes money to the employee or that the employee is just “borrowing” the money

What are some financial red flags that could indicate possible fraud or theft in your medical or dental practice?

  • Increase in accounts receivable
  • Decrease in collection ratio
  • Increase in accounts payable
  • Increase in over-time, but work output remains behind or not current
  • Poor accounting records
  • Large increase in supply expenses over prior periods
  • Patient and payer complaints about recording of payments

What basic internal controls are a must for every medical and dental practice?

  • Segregation of job duties
  • Mandatory vacations
  • Institute employee fidelity bonding, a form of insurance protection

Where are the potential weak spots in your practice that need internal controls and extra attention from practice management?

  • Front desk
  • Billing and collections
  • Accounts payable
  • Payroll

Below are basic internal controls for each of the areas that need controls and extra attention from management:

Front desk internal controls:

  • 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 day.

Billing and collections internal controls:

  • Segregate duties and cross train employees
  • Consider a lockbox
  • The total receipts in the general ledger (posted from the deposit slip) just agree to the total receipts posted in the billing system daily. If receipts are received at month end, before explanation of benefits, reconcile deferred revenue on a monthly basis so that cash collections in the financials agrees to cash collections in the practice management system.
  • Randomly conduct spot checks every few days and routinely review adjustments to ensure there was a valid reason for making them. No charges can be written off without written consent by the manager. Often, just the knowledge that someone may be looking over their shoulder is enough to keep would-be fraudsters in line.
  • Determine if the practice management system can block a 100% write-off.
  • Monitor contractual adjustments
  • Monitor bad debt write-offs

Accounts payable internal controls:

  • Throw away all signature stamps!
  • Ensure there is a regular check signer in the practice
  • Develop a list of approved vendors
  • There should be an invoice, stamped “paid” with each check so that the invoice cannot be paid a second time – either accidentally or deliberately, attached to each check. Signer should review each invoice for reasonableness
  • Set bank account controls so that transfers can be made only between specified accounts at the same bank and only by authorized individuals
  • Bank statements should be opened by an owner or by a manager who has no check writing/signing responsibilities. Review cancelled check payees
  • Bank reconciliation should be prepared by someone who has no check writing or billing/collection/deposit responsibilities
  • Regular and frequent review of general ledger detail
  • Regular and frequent review of practice overhead

Payroll internal controls

  • Managers approve payroll hours before submitted for payment
  • All overtime must be approved by a manager in advance
  • Periodically review year-to-date gross wages for individual employees to ensure that compensation is reasonable

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 today to learn more. 

SKR+CO Expert
Blog Administrator