Warning signs to look for to avoid practice embezzlement

September 25, 2017

Theft and embezzlement is widespread, and it occurs more often in healthcare than in most other industries

Lisa Sundquist still remembers the moment she decided to steal money from her practice. A check for $8,000 had arrived in the mail from an insurance provider-a settlement for an old claim that had already been written off and was never entered into their new practice management system.

 

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“I remember thinking, ‘This money is not going to be missed by anyone,’” recalls Sundquist, who was administrator of a six-physician surgical practice in Portland, Oregon. 

She was right, and soon learned just how easy it was to steal from the practice. With responsibility over all receivables and payables in QuickBooks and a thick stack of signed, blank checks provided by the physician owners to pay bills, Sundquist had the unfettered ability to cook the books and line her pockets. 

Every few days she’d write a check out to herself and enter a valid vendor into the system to mask the spend. A $500 check here and a $3,000 check there quickly added up. By the time she resigned 18 months later, Sundquist had embezzled $257,000.  

Assisting her, unwittingly, was an accountant who had been with the practice for 36 years. 

“He got complacent,” says Sundquist. “If everything matched up, he would just sign off on the monthly reports and bank statements.” Like many practices, there were no safeguards built into the administrative workflow, so no one was looking over Sundquist’s shoulder. 

Embezzlement at practices is common

Theft and embezzlement is widespread, and it occurs more often in healthcare than in most other industries, amounting to $25 billion in annual losses for medical practices, according to the Association of Certified Fraud Examiners. 

 

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A 2009 survey by the Medical Group Management Association found that an astounding 83% of practice administrators have been associated with a practice where there was employee theft or embezzlement. 

“It’s happening every single day. People just aren’t catching it and aren’t taking the time to look for it,” says Reed Tinsley, CPA, a Houston-based accountant who specializes in working with physicians and medical practices.

Embezzlement can remain undetected for years-or longer. A practice administrator arrested in August 2016 was accused of embezzling more than $890,000 over 11 years from a North Carolina-based OB/GYN practice. 

Next: Embezzlement red flags

 

Sundquist’s theft wasn’t detected until six months after she resigned, when an outside accountant noticed that checks listed on bank statements didn’t match up with the practice’s records.

By then, all of the stolen money was gone. Sundquist pleaded guilty to 13 counts of aggravated first-degree theft in 2012 and was sentenced to 57 months in prison. She was released in 2015 and ordered to repay $250,000. But full restitution is unlikely. Sundquist now works odd jobs and doubts she’ll ever be able to pay back what she owes.

 

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Profile of an embezzler

Embezzlers tend to fit a certain profile, according to the “2013 Marquet Report on Embezzlement.” Often, they’re women with no criminal history who have worked their way up through the organization, perhaps starting as a receptionist and later moving into accounting or billing.

Sometimes their crime is triggered by an unexpected financial hardship, such as a spouse’s job loss or a sickness in the family. Other times, it’s driven by an addiction to drugs, alcohol or gambling-or simply a desire to live a lavish lifestyle.

This latter motivation was certainly the case for Sundquist. A 45-year-old mother and wife, Sundquist used the stolen money to spend lavishly on clothes, jewelry, tanning salons and fancy restaurants. She got breast enhancements and a tummy tuck, and treated friends and family to extravagant parties and vacations. Her family didn’t know she was financing this generosity with someone else’s money, she says.

 

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And while Sundquist began by stealing a sizeable amount, embezzlement often starts off small-perhaps with an employee “borrowing” a small sum of money from the cash drawer-and mushrooms from there. “If the money doesn’t get repaid and it goes undetected, the waters have been tested,” Tinsley says. 

Next: Why do few practices prosecute?

 

 

Few practices prosecute

People who embezzle are often set free to steal again. Practice owners, fearing negative publicity and the perception that they run a shoddy business, can be reticent to press charges, says Karen Mosteller, CPA, a partner at Markham Norton Mosteller Wright & Company, in Naples, Florida.

Instead, they may opt to settle the matter quietly through an attorney. She recalls a client who declined to prosecute a nurse that was stealing Botox from her employer, a pain management physician in solo practice.

“The nurse begged the doctor not to prosecute because she’d lose her nursing license,” she says. “They settled it; she was never prosecuted. So this person can go on to do it to someone else.” 

 

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Now 50, Sundquist doesn’t expect to work for a medical practice again, although she does want to work with them. She’s establishing herself as a consultant and wants to help physicians recognize the warning signs of embezzlement. 

“If I can protect just one person from being embezzled, it will be a good start” toward making amends, she says. “Doing some good will be the right thing to do.”

Today, she focuses on living her life honestly, even at the most basic level. 

“What I did was embarrassing. It’s shameful,” she says. “But I can’t live with that shame and remorse for the rest of my life. Now, if I even see a penny on the street, I just step over it.”