Do you know what to do if you find evidence of fraud?
In most states you have only 14 days after receiving a bank statement to report evidence of fraud such as forgeries. However, be careful not to falsely accuse and end up with a civil trial against you!
Use these ten steps to prepare against fraud and reduce your chances of having to deal with the aftermath.
Picture this: your most trusted employee, your office manager Carol, has been a mainstay of your chiropractic practice for years. Carol bakes cookies at Christmas time, dresses for Halloween and is considered a friend of the family. Since Carol long ago earned your trust, you now let her single-handedly take care of the books. You feel that it would be unseemly to check after her, implying you don’t trust her and besides, she does a good job.
Carol has continual opportunities to steal from your chiropractic practice, but resists. However, one day the need for convenience allows her to justify using office postage. Soon this becomes routine. Eventually, the day comes when Carol decides to forge a check, “just this once,” knowing that your practice’s internal control procedures make it unlikely that the theft will be discoveredremember, she keeps the books. Before long, this too becomes habit. Does this scenario sound like a nightmare to you?
Nationwide, 1-2% of business profits are lost to internal theft. No business can afford to risk this type of loss. Preparing against fraud beforehand can reduce the chances of having to deal with it afterwards. Here is a simple check-list to help you secure your practice from the inside: reinvest in Fidelity Coverage. While you may think that your malpractice insurance is high enough without adding further insurance payments, office fraud conceivably could be drastic enough to imperil your practice. Add fidelity coverage to your practice’s over-all insurance package.
Hire the right people.
Guarantee that the people you employ are trustworthy by running extensive checks on them before you hire them. Call the references they provide and review their employment history, including verifying school records. These issues could become important if the staff member has financial duties or access to office funds.
Spread out duties among your staff. While staff size may be limited in your chiropractic practice, make sure you split bookkeeping tasks among your employees. Having the same person keep the books, track inventory, handle the billing and prepare checks is inviting trouble. Assign someone other than the preparer of checks to mail them. Ensure that different people track and order inventory.
Make it office policy for everyone to take vacations every year.
This policy obviously boosts your staff”s morale. It also prevents any one staff member from controlling in-formation flow because being off for an extended period of time seriously hampers the ability to cover up fraud.
Directly supervise your practice’s finances.
While it is important to keep your focus on performing chiropractic services, make sure to take the time to oversee the books. Your staff members will know the extent to which you supervise the practice’s finances and will respond likewise. Make sure to receive bank statements unopened, and inspect them without fail. Read over all incoming mail as soon as possible so you can investigate past due notices. Any fraud or embezzlement will show up eventually if you keep an eye on the practice’s finances. Checking the monthly bank statements will prevent staff members from having the opportunity to alter these records.
Look for common scams.
Verify that all of the suppliers you write checks to are legitimate. Have a system to confirm that all checks that are recorded in patient records end up in the account books. Keep a lookout for missing documentation, budget variances, cost overruns, discrepancies between checks received and checks deposited, adjustments to receivables or altered records. If this sounds overwhelming, delegate some of these tasks to staff members. Remember that some tasks like check signing should never be delegated however.
Look for any sudden changes in employee behavior. Check to see if any discrepancies in the practice’s finances coincide with employees who suddenly begin living beyond their means, speculating on the stock market, gambling or begin to have collection agencies calling for them.
Hire a CPA to audit your internal controls.
Many common scams are difficult to spot unless you know how to follow a paper trail. CPA’ s are trained to detect anomalies in financial records. The additional benefit to hiring a CPA is that your practice’s employees are much less likely to consider embezzling if they know that a CPA will be regularly inspecting the books. Sometimes what may initially look like fraud will turn out to only be error. A CPA will be able to help you determine the source of these anomalies.
Know what to do if you discover fraud in your practice.
In most states, you have only 14 days after receiving a bank statement to report evidence of fraud such as forgeries. Contact your bank and insurance company immediately upon discovery of fraud.
Try not to be a detective and sniff out the trail of any suspected misdeeds you find. Chances are that you have not been trained in the procedures and legal technicalities of theft investigation. Hire an attorney familiar with fraud cases so that no missteps are madesuch as an accusation of an employee leading to a civil suit against you. Bear in mind that the appearance of fraud does not always indicate fraud. Let someone who knows the ropes help you decide what action to take.
Consider the effects on staff morale.
Be sure that you institute any new internal controls in a sensitive manner. Employees who believe that they are being treated fairly are much less likely to steal from you. Deal with this issue delicately to avoid poisoning the atmosphere in your practice. If your staff feels unfairly treated or under constant suspicion, chances are that your patients will pick up on it and be less comfortable visiting your office. A side benefit to having internal controls is that everyone will need to follow them, making staff members feel that they have equal treatment.
Without making anyone feel accused, make it clear which types of misdeeds are grounds for dismissal and prosecution. While no embezzler anticipates getting caught, any expectation that there will be little or no punishment will encourage employees to try.
Terminate any employee caught embezzling regardless of position, seniority or performance level.
Worrying about fraud should never become a preoccupation. This will only get in the way of patient care. Put in proper internal control procedures so you can keep your focus where it belongsmaking your chiropractic practice successful.s
Kathryn Preston, CPA, is Vice President of Glenn Ingram & Company Ltd., an accounting firm serving service professionals including chiropractors and other privately held businesses. For additional information on cash flow management, please call Kathryn Preston at (312) 368-0220; FAX (312) 3684998.
10 Precautions to AVOID FRAUD
The procedures you use in your practice management greatly influence opportunity for fraud. Most fraud isn’t planned beforehand, but comes only after numerous passed opportunities. As an embezzler gets away with small-scale fraud, it becomes tempting to see how much else can be taken. These internal controls can be quite simple but effective in reducing the chances for fraud in your practice:
- Never sign a blank check.
- Purchase a PAID stamp for your practice and stamp bills as soon as they are paid to avoid double payment.
- Buy pre-numbered forms and make your staff accountable for missing forms.
- Insist that all of your staff members take their vacations fraud almost always requires maintaining consistent control over access to mail, financial records, files, etc…
- Only sign checks accompanied by proper documentation such as bills, invoices, etc…
- Make sure your checks cannot be altered or the ink you use erased.
- Require two signatures on all checks that exceed a certain dollar amount.
- Keep books and records posted currently.
- Have bank statements delivered directly to you unopened so you can review their contents first.
- Return over-shipments or over-payments to set the proper office standard.
