Stay Sharp and Aware: Employee Embezzlement in the Medical Field - Part 2

Tuesday, August 5, 2014
By George F. Indest III, J.D., M.P.A., LL.M., Board Certified by The Florida Bar in Health Law

Embezzlement should be a concern to all healthcare facilities, medical practices and business owners. Part one of my embezzlement blog discussed the extent of embezzlement in the medical field, financial indicators of fraud, and the office criteria that fosters fraudulent activities. To read part one, click here.

Embezzlement is rarely always a complex crime. This type of fraud is actually quite simple to perform and to get away with. We aren't talking high-tech masterminds with advanced technologic tools who pull off these crimes. Your everyday employee that you would never second-guess is typically the most likely to cheat you.
Various Schemes of a Successful Embezzlement Plan.

The process in which an employee embezzles funds from you is usually the result of the policies and procedures you have in your workplace. The following are a few examples of how occupational embezzlement can occur right under your nose:

    -    Cash payments that never make it to the company bank account: the embezzler  reduces the amount charged as reflected in the patient's record but collects the higher amount from the patient, especially if the patient pays cash.
    -    Charges are posted but the employee keeps the payment made: the balance sits in the account as an uncollected receivable to be eventually written off.
    -    Fictitious invoices from vendors are created and the payments made to the vendors are diverted into the employee's pocket on phony bank account.
    -    Refunds are issued to fictitious patients; the employee takes them.
    -    Fictitious customers, transactions or vendors are created by the employee.
    -    Company checks or credit cards are used for personal use (to pay the employee's bills).
    -    The mail, bills, or payments are directed to a different address that the employee controls.
    -    The employee submits payroll checks for hours not worked.
    -    Checks payable to the practice are endorsed and cashed by employees and never recorded or the payment is adjusted off.
    -    Checks are made payable to the practice and are deposited into a bank account that does not belong to the practice.
    -    A phony bank account is created, in a name that is similar to the employer's; checks and payments are then diverted into the phony account controlled by the employee.

These actions can happen right under the nose of an unsuspecting office manager, owner, or doctor. With a quick sleight of hand, an employee can lay claim to a large portion of your profits. Setting up policies and procedures that prevent such opportunities is critical.

Create a Fool Proof Plan of Action.

Arming yourself with security measures is the best possible way to prevent fraudulent activities. For the purposes of this blog, I will summarize major office elements that you should incorporate into your security plan. To read my previous blog that expands more on preventive steps, click here.

    Hire the Right People.
    Make smart hiring decisions. These people will be subject to highly classified and sensitive documents on a regular basis. References and background checks weed out potentially dangerous employees. In addition, screen all applicants. Nepotism is a common hiring trend that can lead to serious conflicts of interests, disruptions in your organizational checks and balances, and potential criminal activity. Verifying as much information about potential employees may be an investment, but it's most certainly better than risking business-crippling embezzlement.

    Preventive Procedures = Internal Controls.
    In a financial security plan of action, the objective is to discourage temptation by eliminating the opportunity to easily steal without being detected. This can be done in a number of ways:
    -    Segregate your employees' financial and bookkeeping duties. The same employee that collects payments should not be taking the deposits to the bank. The employee that pays the bills should not be opening the mail;
    -    Eliminate both signature stamps AND petty cash;
    -    Direct all billing related mail to a lockbox or your private home address;
    -    Do not allow employee access to patient credit card numbers and company credit cards;
    -    Have a security code installed on your merchant terminal for refunds;
    -    Have an independent certified public accountant (CPA) do periodic random audits;
    -    Control inventory with cameras and a log; and
    -    Comprehensively review and compare accounting materials such as billing statements, time sheets, receipts, deposits, and all other entities involved in the monetary running of your office. Look for unusual patterns or discrepancies.

    Monitor Employee Behavior.
    Employees guilty of embezzlement typically give themselves away. As an owner or manager, you should always be double checking your employees' work habits. Here are some tips to incorporate into an employment plan:
    -    Cross-train all employees and rotate the responsibilities to prevent an employee from refusing to allow anyone else to perform his or her job.
    -    Mandate that all employees are required to take their vacation time.
    -    Enforce a policy that does not allow any employee to be left alone at the office (note: there are other safety and liability reasons for this, as well).
    -    Monitor the time clock to ensure proper employee time tracking.
    -    Do not leave any cash in the office unless it is locked up in an actual safe.
    -    Utilize cameras and report logs as they are your best defense mechanisms in monitoring your business.

A Knee-Jerk Reaction to Potential Embezzlement Is Not Smart.

Should you find yourself the potential victim of occupational embezzlement, it's beneficial to know the appropriate plan of action in pursuing such allegations. It is easy to quickly react to suspected criminal activity in your office. However, it is critical to remember that you should be very guarded about discussing your suspicions. Do not immediately call the police. Do not immediately place bait or confront the suspected employee. Do not make any major immediate changes to financial protocols. Strict confidentiality is the best way to avoid potential defamation lawsuits. If the suspected employee gets word that you are onto his or her criminal activity, the chance of destruction of necessary evidence is high.

As soon as you suspect potential fraudulent activity, you should contact an independent CPA not affiliated with your office. This will provide you with an unbiased audit of your financial records. This could be used as hard evidence.

When interviewing the employee you suspect, ensure that a witness is present. However, never directly accuse him or her of any crime in front of someone else. Use this a time to ask for explanations and detail the discrepancies you found. If the embezzlement is confirmed, immediately suspend the employee. Follow through with the law and prosecute any employee found to be taking part in illegal embezzlement activities. Set an example with this employee and make it known that you have a zero-tolerance policy for such criminal behavior.


Have you been victimized by embezzlement? Why do you think occupational embezzlement is so frequent in the healthcare industry? Please leave any thoughtful comments below.

Contact Health Law Attorneys Experienced with Investigations of Health Professionals and Providers.

The attorneys of The Health Law Firm provide legal representation to physicians, nurses, nurse practitioners, CRNAs, dentists, pharmacists, psychologists and other health providers in accusations of disruptive behavior, Department of Health (DOH) investigations, Drug Enforcement Administration (DEA) investigations, FBI investigations, Medicare investigations, Medicaid investigations and other types of investigations of health professionals and providers.

To contact The Health Law Firm please call (407) 331-6620 or (850) 439-1001 and visit our website at


Holt, Jeff. "How a Practice is Embezzled From." PNC Healthcare Business Banking. (July 24, 2014). From: Lecture to Medical Office Resources of Florida.

About the Author: George F. Indest III, J.D., M.P.A., LL.M., is Board Certified by The Florida Bar in Health Law. He is the President and Managing Partner of The Health Law Firm, which has a national practice. Its main office is in the Orlando, Florida, area. The Health Law Firm, 1101 Douglas Ave., Altamonte Springs, FL 32714, Phone: (407) 331-6620.

Keywords: Embezzlement, health care embezzlement, occupational embezzlement, employee embezzlement, fraud, health care fraud, certified public accountant, CPA, employee fraud, health care business, health care banking, indicators of embezzlement, indicators of health care embezzlement, health attorney, defense attorney, defense lawyer

The Health Law Firm" is a registered fictitious business name of George F. Indest III, P.A. - The Health Law Firm, a Florida professional service corporation, since 1999.
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George F. Indest III 8/5/2014

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