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Practice Pointers: Don't let lunch money bandits steal you blind


Some practices are losing a fortune, drip by drip, from embezzlement of $10 and $20 copays. Here's how to plug the leak.


Don't let lunch money bandits steal you blind

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Choose article section...Help employees become trustworthy How to discourage office thievery How to screen and hire honest employees Strategies to prevent theft Can you "embezzle-proof" your practice?

Some practices are losing a fortune, drip by drip, from embezzlement of $10 and $20 copays. Here's how to plug the leak.

By Dorothy L. Pennachio
Senior Editor

There's more cash than ever in physicians' offices as patients are digging deeper into their own pockets for higher copays and deductibles. All those $5, $10, or $20 bills may prove irresistible to dishonest employees—or lunch money bandits, as one practice administrator calls these penny-ante embezzlers.

Most physicians don't even notice these copay thefts. Or if they do, they see such losses as too insignificant to worry about. "It would cost me more to hire someone to track it down than it's worth," is a typical defeatist comment.

But those seemingly small losses can add up to big money when the embezzler has to cover her tracks. In the worst-case scenario, a dishonest staffer may pocket the copay, and then deep-six the encounter form altogether. That means it never gets processed for an insurance claim. One practice hit by this tactic lost not only $5,000 in copays, but $50,000 in claims that were never submitted.

Physicians need to be more vigilant. "Copay pilfering is entry-level embezzling," says Kathleen Sharp, director of Northampton Physician Services in Easton, PA. And more often than not, successful petty thieves go on to more ambitious endeavors.

Bruce E. Burnham, a plastic surgeon in Glastonbury, CT, learned that lesson the hard way. A woman who'd been the practice bookkeeper and office manager for 15 years was arrested last year for embezzling almost $330,000 over a two-year period, mainly by forging checks.

Burnham's wife and medical secretary, Debra, says they can't be sure if the bookkeeper started out taking copays. "Considering what she did, it would hardly surprise us. But unfortunately, we didn't have a tracking system in place at the time. Our bookkeeper was in total charge of the system. That was the problem. She'd been with us for so long, and we trusted her unreservedly."

Help employees become trustworthy

"Employers naturally want to trust the people who work for them," says Dennis L. DeMey, president of Adam Safeguard, a security consulting firm in Toms River, NJ. "But too many physicians trust automatically. Once that mindset is in place, they pay less attention to the financial details of their practices. 'We don't seem to have the profit we should, and we can't find the problem' is a typical call for help. Often, we'll find that the problem is that the doctor blindly trusted people before they'd earned it."

When copays go south, it doesn't always mean that someone on the staff has sticky fingers. It could be the office culture that's at fault. "If a doctor plays fast and loose with the cash, 'borrowing' a few bills from the cash drawer," says Steve Williams, a CPA and medical practice adviser with HMWC in Tustin, CA, "the staffers notice." When a physician slips out a $20 to pay the lunch delivery man, he's giving license to others to do the same thing. Even if he replaces the cash with a personal check, and the deposit slip remains intact, it still sets a bad example.

A good security system protects both the practice and the employees. "When you start from that premise," says Kathleen Sharp, "you're likely to make the right changes without making employees feel they have Big Brother looking over their shoulders. Employees are more likely to buy into a process if they understand how it benefits them as well."

How to discourage office thievery

Every office should have a system that lets you compare the copays actually collected on any given day to what should have been collected. If copays are not tied to encounter forms, you may find yourself saying, "Every day when we reconcile the books, we're short, but we don't know why." The copay may have been grabbed.

"I'm astonished at the number of doctors who come to us who haven't looked at their security procedures," says Stephen Pedneault, a certified public accountant and fraud consultant in Glastonbury, CT. "Physicians make sure they have systems in place to collect fees, but not to ensure that those fees are not stolen."

He recommends posting a sign next to the one that tells patients to pay at the time of visit: "Expect a receipt for any payment you make today." Receipts should be pre-numbered and designed to produce a carbon copy, says Pedneault. At the end of the day, each receipt carbon should be there. When you add up the amounts, the total should equal what's in the till.

Be obvious about periodically checking one against the other. That acts as a deterrent. "It says to the staff that someone is checking," he says.

Write the copay expected on the chart. "That has a sentinel effect," says Kathleen Sharp. "When staffers realize that there is an anticipated copay, they're less likely to steal."

Staple the copay to the pre-numbered encounter form. If the size of your practice makes this feasible, have a separate person remove the stapled cash. He or she should make sure it agrees with what should have been collected. That employee should post it, and make the deposit. If a copay wasn't collected, send a bill to the patient. If the patient already paid by cash, he'll call the office to complain. Keep track of those calls.

But don't sabotage your own efforts. Some practices keep an "over-under envelope" for when copays don't agree upon reconciliation, and the staff can't identify who paid and who didn't, says Sharp. These practices use that cash if patients protest when they get their bills and say they've already paid. "That's an open temptation," she says. "You have to protect employees from a bad impulse."

How to screen and hire honest employees

The best way to prevent theft is to carefully screen new employees and establish solid systems. Employers want to hire people they like rather than people who are best suited for the job, says Dennis DeMey. "Physicians should screen prospective hires, verify prior employment, and run criminal histories. There are no shortcuts."

"Dodge a bullet by having applicants for the job of bookkeeper fill out a fidelity bond application," says Karen Zupko, a practice management consultant in Chicago. "That's a disincentive to someone with a checkered past." Fidelity bonds cover all your employees and protect your practice against employee theft. If there's an embezzlement, the insurance company repays the practice to the extent that the loss can be verified. Some HMOs require that employees be bonded.

A computerized system also helps guard against theft. By integrating your practice's scheduling and billing functions, it offers built-in cross-checks. It can also provide you with an audit trail and a record of who did what when.

Following the $330,000 embezzlement, plastic surgeon Bruce Burnham has instituted what he hopes is a safe system. "Now we have a day sheet where we account for all payments for each patient who comes in. We record these payments more than once," says Debra Burnham. "We still don't have a computerized system, but we now give receipts to all patients. They aren't numbered, but I'm the one handling them."

That practice's solution—putting the spouse in charge—may produce a happy ending, but it's a fix not feasible for most practices. Experts agree that paying attention to your bookkeeper's activities in general, and handling of copays specifically, is essential to keeping the money that belongs to you.


Strategies to prevent theft

Increasing your index of suspicion could help you avoid embezzlement, says Dennis L. DeMey, president of Adam Safeguard of Toms River, NJ, a security consulting firm. Practices should routinely audit the activities of the bookkeeper. How? Insist that she take a vacation. Teach someone else to do her job. If you find discrepancies, you may have found your problem.

Here are some other tips.

• Computerize.
• Segregate duties. Never have the same staffer handle billing and receivables.
• Bond your employees.
• Don't let employees sign checks.
• Run background checks on prospective employees.
• Always issue numbered receipts.
• Use numbered encounter forms.
• Establish paper trails.
• Don't commingle cash. Have separate drawers for each cashier.
• Monitor write-off records.
• Review canceled checks yourself.
• Prosecute an offender as a warning to others.


Can you "embezzle-proof" your practice?

"I don't see how anyone could embezzle a copay at this office," boasts Sue Valvano, veteran patient account supervisor at Canandaigua Medical Group in Canandaigua, NY, a 21-physician multispecialty practice with 140 employees.

The group's "embezzle-proofing" system requires cashiers to log every copay or cash payment in a journal that's totaled at the end of the day. They keep carbon copies of the receipts given to patients. The log and receipts have to equal each other as well as the amount of money in the cash drawer.

But what if a staffer tries to take money by not logging the payment and not writing a receipt? "We have a protection against that," explains Valvano. "Every encounter form is numbered, and when the charge is posted to our system but there's no payment, the patient is sent a bill." If a patient pays cash for a visit, and then receives a bill, he's going to call and say he paid. He may even have a receipt.

What happens if an employee decides to pocket money and covers his tracks by destroying the encounter forms? "The safeguard is that the number of the form sits on the system until someone either posts a charge, a no-show, or a cancellation," she says.

"Every week, we generate a report for each patient who had an appointment with no charge posted," says Valvano, "and that report goes to the physicians." The people working at the cashier's station don't have the security code for access to reports, so they can't delete the appointment or no-show it.

Staffers in the accounts payable department can generate checks, but they're not allowed to sign them. "Only our CFO signs checks," says Valvano. Staffers who have access to the cash drawer can't cancel an appointment. Three staffers check patients in and out and collect money at a central check-in desk. Those three reconcile the cash drawer and create the deposit at the end of the day. After that, everything goes to the data processing department where reconciliation is done.


Dorothy Pennachio. Practice Pointers: Don't let lunch money bandits steal you blind. Medical Economics 2002;16:45.

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