How to protect your practice against embezzlement

July 1, 2012
In these difficult economic times, the risk of embezzlement is on the rise. Thieves will always be among us, but ...

By John K. McGill, JD, CPA, MBA, and Bo Elliot, CPA

In these difficult economic times, the risk of embezzlement is on the rise. Thieves will always be among us, but some people recently hurt by the economic conditions might turn to theft to solve a financial problem.

The typical embezzler normally begins by assuming that the doctor would willingly loan funds to assist the employee, which in most cases is true. Unfortunately, many thieves do not ask before helping themselves. The process usually begins with a small amount. The thief realizes how easy it is to steal, so he or she does it again for a slightly larger amount. The amount increases with each theft. The thief finally abandons any intention of repayment and continues to steal.

Some thieves are motivated to assist others. For example, with control of the practice management software, it is easy for a front desk person to issue miscellaneous credits to friends and family members. This thief can cost the doctor thousands in lost fees and generate ill will as he or she attempts to collect the charges.

Who is the typical thief? What characteristics should alert the doctor? The typical embezzler is a long-time employee who has the full trust of the doctor. He or she seems to be a devoted employee. The person never takes a vacation. He or she is very protective of the job, works many hours of overtime, and never cross trains a substitute. The doctor often depends on this person in office emergencies.

We’ve seen some creative thieves. One office manager opened a second practice account for her exclusive use. Checks deposited into this account were used for the office manager’s needs. The manager included her credit card monthly bill in the check, which the practice paid. Another doctor had two employees who worked together to embezzle from the practice. The mother was the financial coordinator of the practice, and the daughter was an assistant. The mother paid the daughter a bonus a few times a year to start, and eventually those bonuses added up to more than $10,000.

What’s a doctor to do? A few basic steps are all that are needed to protect the doctor. The doctor must involve a trusted person in the collection of fees and the disbursement of expenses. The only people to be fully trusted are the doctor and his or her spouse. The doctor or spouse should:

  • Never use a signature stamp.
  • Never sign blank checks.
  • Never sign a check without the supporting invoices, shipping documents, etc., attached.
  • Have bank statements mailed to the doctor’s residence.
  • Open the statements and question a few transactions.
  • Deliver the bank deposits to the bank.
  • Open all mail.

QuickBooks accounting software can make protection of your practice easier. The software allows the doctor to set levels of security. For example, the doctor should have complete access to look at everything and print all reports. An office manager should be given the ability to make journal entries and prepare bank reconciliations, but not print reports. A clerk can print checks and record bank deposits, but nothing else. QuickBooks also has an audit function that will track all activity for each user if properly engaged.

Practice management software is also a valuable tool for the doctor. A daily report should be printed at the end of each day for the doctor’s review. Banking receipts should be compared to the deposit totals in the report. All miscellaneous credits should be reviewed and should have been previously approved by the doctor. The doctor should approve a list of all prescriptions written.

Doctors can protect themselves with a small amount of time and effort. A little time today can prevent the loss of thousands of dollars tomorrow!

John McGill, JD, CPA, MBA, provides tax and business planning exclusively for the dental profession, and publishes The McGill Advisory newsletter through John K. McGill & Company, Inc., a member of the McGill & Hill Group, LLC.

Bo Elliot provides accounting and CPA services through Elliott Davis, affiliate of the McGill & Hill Group, a one-stop resource for tax and business planning, practice transition, legal, retirement plan administration, CPA, and investment advisory services. Visit for more information.

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