ARE YOU ALREADY A VICTIM?
Minimize your risk of fraud and embezzlement
By Jean Murray, MBA, PhD

One phrase you hope you never have to shout is “I’ve been embezzled!” Despite the caring nature of chiropractic, many chiropractors become victims of embezzlement by trusted employees.

Chiropractors generally discuss risk management only in terms of malpractice insurance. But the risk of being sued for malpractice is just one risk associated with running a chiropractic practice. You are more at risk for employee theft and embezzlement than you are for malpractice.

Essentially, your chiropractic business faces two risks of loss: External (robbery and theft) and internal (employee theft and embezzlement).

Internal risks far outweigh external risks. A recent report by the Association of Certified Fraud Examiners found employees helping themselves to company funds cost U.S. businesses about $660 billion annually.

If you think embezzlement only happens in big companies, think again. The same report found more than 46 percent of all workplace fraud happens to small businesses, and another survey by Auditors, Inc. found as many as 40 percent of small business owners are embezzlement victims.

The risk to your practice from these losses is greater than you might imagine. According to the U.S. Chamber of Commerce, one-third of all business bankruptcies are due to employee theft.

That’s pretty serious.

Many small business owners think they can avoid this risk by hiring friends and relatives, but that is not necessarily true. One chiropractor hired his best friend’s wife as his office manager and she embezzled more than $10,000 before he found out what she was doing and fired her. He never recovered the money — or the friendship.

In another case, the doctor’s sister-in-law embezzled money, literally in front of the doctor and his wife (her sister).

Employees steal in many ways (see sidebar, “How do employees steal?”). In the first example, the woman wrote checks from the company checking account to herself and then used blank credit-card checks to replace the money. The doctor didn’t notice until the credit-card company denied a purchase because he was over his limit.

In the second case, the employee took cash co-pays and wrote them off so no one would notice the discrepancies.

In many cases, the employee starts small by stealing stamps or small amounts of money. When no one notices, the employee moves to larger amounts.

Why do people steal? One study found that 10 percent of people would never steal under any circumstances, 10 percent would steal no matter what, and the remaining 80 percent would steal given the right motive.

Remember, motive may not be rational or explainable. A staff member may feel slighted because his pay increase wasn’t as much as he wanted or because another employee was given a privilege. Or, the person may think you are charging too much or your collections practices are too aggressive.

Who knows how a thief justifies his or her actions?

How do you minimize your risk of employee theft and embezzlement? Risk-management consultants recommend these strategies:

1. Cultivate honesty and ethics. Put an ethics statement in your employee handbook and tell employees you expect them to adhere to it.

Monitor your own ethics and honesty. If employees hear you saying you expect them to be honest, and then they see you doing something that could be seen as dishonest, you will not be promoting the kind of climate you want.

Be as fair and equitable as possible in your treatment of employees. Encourage them to communicate with you when they see something suspicious.

2. Prescreen staff. Check references from previous employers and do background checks.

Ask potential employees to fill out a background-check authorization and then check for convictions. Although many employers are reluctant to discuss previous employees, you may get one to talk to you.

3. Divide and conquer. Divide up duties, particularly those involving cash, which is the easiest to steal.

Don’t give one person control of the checkbook or receivables. The person who writes the checks should not reconcile the bank statement.

Separate purchasing and bookkeeping functions, and rotate duties every few months — both to cross-train staff and to keep one person from having continuous control of a key part of your bookkeeping system.

4. MBWA (manage by walking around). Let your staff know you will check computers and files. Keep track of your inventory of office and clinic supplies.

If you sell products, be sure your inventory is decreasing at the same rate sales are increasing. Review your bank statements and accounts-receivable aging reports. Conduct surprise inspections. Keep checking on employees. If this bothers them, ask why.

5. Establish personnel policies. Require all employees to take a vacation, and then check their work when they leave.

One office manager was taking money for many years. She always refused vacation and the doctor thought she was a dedicated employee. She was finally discovered when she became ill and someone else started doing her work.

Don’t allow employees to take work home, particularly bookkeeping work.

6. Tighten your cash, checking, and credit-card policies. Restrict petty cash to a minimum amount and require petty-cash slips for every disbursal.

Limit check signers to yourself and your spouse or a trusted employee, and keep blank checks locked up and accounted for. Restrict access to your business credit-card number, and keep the card locked up in a safe place. 

7. Purchase employee theft insurance. Most commercial business insurance doesn’t cover the theft of money and securities unless you purchase a special crime policy. A special employee theft policy can cover you inside your office as well as outside (such as when an employee keeps money instead of delivering it to the bank for deposit).

This extra effort sounds like a lot of work, but if you set up your internal control systems and follow them, you will find they work well.

Don’t rely on your CPA to find theft and embezzlement; that’s not his or her job. As the business owner, it’s your responsibility and your right to protect yourself from your biggest risk of loss.

Jean Murray, MBA, PhD, is a business professor at Palmer College of Chiropractic and principal of Planning for Practice Success (P4PS). She can be contacted at 866-940-7526 or through her Web site, www.dcpracticesuccess.com.