Have checks and balances in place, or open the door for embezzlement
September 1, 2009 7 minutes read
Have checks and balances in place, or open the door for embezzlement
$178,000 stolen from surgery center gets attention of managers
The administrative manager of a surgery center had been asking to have access to the banking account, but the business manager said that the center was "maxed out on users" and he couldn't give her access. Later, when a vendor needed a check, the business manager maintained that the check had been cut; however, the administrative manager couldn't see that it was cashed.
She asked the medical director, who did have access to the center's banking account, to pull it up on the computer. She noticed the account had a negative balance a few weeks previously. She started to poke around, and she looked at the credit card withdrawals.
"The first think I clicked on was vacation purchases," said the administrative manager, who requested anonymity for herself and her center. When she looked back at the credit card purchases for the previous six months, she discovered shopping sprees to a video game store, payments for home cable and cell phone bills, and even a personal ad on Yahoo.
"I went into his office and confronted him," she said. When she showed him the first questionable charge, he said he must have pulled out the wrong credit card. However, the business manager became visibly uncomfortable. "I knew I had him, but I needed proof," the administrative manager says.
The subsequent investigation indicated 45 wire transfers totaling $71,243.25 into the employee's personal account, plus shopping sprees and cash withdrawals. The administrative manager called the police that night to file a report. After the staff spent five days pulling proof, including receipts with his signature, the business manager was arrested. He is charged with embezzling more than $178,000 from his employer's accounts. In the meantime, the surgery center is receiving legal bills totaling tens of thousands.
"We know we're not going to get paid back, because most of the items he bought are already used," she said.
Losing money isn't the only reason to avoid financial crimes such as embezzlement and identity theft. "Red-flag" rules from the Federal Trade Commission (FTC) that will take effect Nov. 1 require covered facilities to have programs that can detect, prevent, and mitigate medical identity theft. [A policy on "Red Flags Rule Compliance" is available.]
Warning signs of embezzlement can include cash deposits that are lower than projected net revenues, says Stuart Katz, FACHE, CASC, executive director of Tucson (AZ) Orthopaedic Surgery Center. Or "a patient or several call and ask why they are still being billed when they 'have paid the darn bill!'" he says.
Other warning signs? The employees ask off from work a lot, they become withdrawn, or "you catch them in lies," says Beverly A. Kirchner, RN, BSN, CNOR, CASC, president of Genesee Associates in Dallas, which develops, manages, and consults with freestanding surgery centers.
What procedures can help avoid embezzlement? "Everybody should be checking everybody else," says the administrative manager of the center where money was embezzled.
Catherine M. Weaver, CASC, CMPE, CHFA, senior manager and a member of the health care team at Somerset CPAs in Indianapolis, says in health care, there can be the problem of "allowing a long-time employee responsibility in too many areas and not providing oversight or checks and balances. Many identified embezzlers have been long-time, trusted employees," she reports.
One common mistake, according to Mandi M. Clossey, CPA, manager and a member of the health care team at Somerset CPAs, is "allowing kindness and friendship to get in the way of managing and questioning employees when something doesn't feel right."
No single person should collect cash, enter charges, or enter payments and make adjustments, she warns. "If this segregation is not possible with a lean staff, then approvals and retrospective reviews should be conducted by management," Weaver says.
Katz says, "People can be cross-trained to do many functions, but they should never be allowed to do more than one portion of the revenue cycle in a day." At his center, one staff member does all of the coding and billing, and another does all of the posting. Another staff member opens the mail, makes deposits, and copies about five members of the staff with the information.
"Our accounting staff then reconciles the postings to the deposit on a daily basis," Katz says. The chances for embezzlement? Not zero, "but by separating the functions of the business office to several people, the risk is minimized," he says.
Duties also are separated at facilities managed by Genesee Associates. A receptionist or office assistant opens all mail and makes deposits, Kirchner says. "Administrators check the deposit slip, review it against handwritten deposit receipts and the check log," which they initial, she says. The check log goes to collectors, along with explanations of benefits (EOBs) attached, she says. "Collectors key in payments and make sure we were paid correctly," Kirchner says. "If not, we start the appeal process immediately."
Once all payments have been confirmed, the check log goes to the business manager, she says. She records cash payments into the general ledger/accounting system, Kirchner says. "She never touches live cash," she says. "She pays the bills. She reconciles the bank statements at the end of the month."
One more tip from Clossey: "Make sure employees responsible for ordering supplies are not the same ones responsible for receiving them or paying for them."
The administrative manager at the center that suffered embezzlement advises others to use accountants or another outside company to review the financial books on a monthly or quarterly basis. Others suggest that all account statements (both electronic and hard copy) be sent to two individuals to avoid tampering with statements.
Have a CPA firm conduct an internal control review that will identify any areas of weakness and provide recommendations for corrective action, Clossey says. Accountants also compare the budget to the actual finances and investigate significant variances, she says.
Kirchner says, "The bottom line is that at the end of the month, you want an independent accountant that does a full review, which costs about $600 a month."
The accountants can review all cash and all financial reports before they are presented to the board or to the partners. Their role is to verify that the cash is matching and to confirm what was spent, Kirchner says. They also conduct random audits and ensure policies and procedures were followed, he says. "If not, they give us a report so we can follow through with PI [performance improvement]," Kirchner says. (For more on embezzlement, see list of warning signs.)
10 pieces of advice to stop embezzlers Patient refunds are a prime area targeted by embezzlers, warns Beverly A. Kirchner, RN, BSN, CNOR, CASC, president of Genesee Associates in Dallas, which develops, manages, and consults with freestanding surgery centers. One surgery center that Kirchner heard about had a policy of having two people sign checks and double-check them. However, a business office manager and administrator collaborated to embezzle patient refund checks, she says. "They were cutting patient refund checks to imaginary patients and depositing them in their personal account," Kirchner says. As a result, Kirchner's facilities use a policy for refunds that requires a collector to identify the need for a refund. A form is completed, and all relevant data are attached. (A copy of the policy is included in a business manual excerpt.) "That goes to the business manager, who goes into system, reviews all that data to confirm it, and signs off on it," Kirchner says. The form and data then go to the administrator, who also confirms and approves them. The business office manager cuts the refund check. The refund check comes to the administrator, who signs and mails it. The refund files are kept in the administrator's office in a locked cabinet, Kirchner says. Consider these additionally suggestions: • Carry crime insurance for embezzlement. For about $1,000 a year, you can obtain a million dollars' worth of coverage, Kirchner says. "It's a very good investment," she adds. • Perform criminal and credit background checks on employees. "A background check will highlight prior convictions the person may have," says Mandi M. Clossey, CPA, manager and a member of the health care team at Somerset CPAs, Indianapolis. "A credit check will help you identify the indebtedness of an individual. Someone struggling to pay their bills due to debt-related issues might be more eager to steal." Kirchner says, "We do criminal background check on every employee — state, local, and federal background checks." • Put a spending limit on credit cards. In California, a business office manager furnished her entire house with furniture using a credit card from her facility, Kirchner says. "We caught it, because she couldn't produce the receipt." Set a spending limit of no more than $5,000, and audit the limit, she advises. • Have a company policy that requires employees to take vacations. "Employees may be less likely to attempt fraudulent behavior if they think it will be uncovered while they are off duty," Clossey says. • Use a lockbox for petty cash. • Bond employees who handle cash. • Limit the endorsement of checks to one or two responsible officials. Do not use rubber stamp signatures. • Checks received should be marked with a restrictive endorsement such as "for deposit only" marked on the check immediately upon receipt. • Follow up on unexpected transactions and unusual amounts. |
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