Physiatry Practice Management Resources

Prohibit pre-signed checks and signature stamps

Neither large nor small practices should pre-sign checks or use signature stamps. This violates the policy of reviewing documentation before signing checks. While this may seem like an elementary precaution, you can never be too careful. Payments should be made only by properly authorized people and only when there is adequate documentation. You and your designated employees need to set aside a regular time to review expenses and sign checks. Once this practice becomes routine, you will encounter fewer situations where someone asks you to pre-sign a check.

Enforce job rotation and vacation policies

It is smart office policy to require your employees to take at least five consecutive days of vacation annually and assign someone else to do their job while they are gone. Rotating responsibilities on occasion can also benefit your practice. This not only ensures that you have someone who can step into a job in the event of an emergency, but it also deters fraud when potential perpetrators know that someone else will do their job for a period of time. If fraud is occurring, another person reviewing the work is likely to expose that fraud. Most fraud requires a great deal of attention and rarely stands up to scrutiny by outsiders, particularly during a week or more of vacation. Even in medical practices where there is no fraud, this policy helps detect ongoing errors and inefficiencies.

Small practices. At first, this policy may seem difficult to implement in smaller practices. There may be only one person in the administrative area, so you may not be able to rotate all tasks. Concentrate on tasks that relate to cash because cash is the asset most susceptible to financial misconduct. The easiest tasks to rotate are opening the mail and making bank deposits. They require very little training, so you can ask a receptionist or assistant to complete these tasks temporarily. You will be protecting checks that come through the mail and assuring that all cash receipts are deposited.

Another job rotation involves you. Occasionally, do your own bank reconciliation. This will assure you that only the checks that you reviewed and signed are presented to the bank for payment.

Large practices. Job rotation and enforced vacations are less important in a setting with enough employees to segregate accounting functions. However, they are inexpensive and will reveal any hidden weaknesses in your internal control. If you choose not to implement this policy, be sure that your staff is organized to provide sufficient independent checks on a daily basis.

Bonding employees

Employee bonds are insurance policies that reimburse you for your loss if the employee commits fraud or embezzlement. Bonding also serves as a deterrent to financial crime because bonding companies prosecute perpetrators.

Small practices. Small practices may want to provide bonding for all employees. This reflects the actual risk in a small practice where many employees share duties. The cost for all of the employees in a small practice is likely to be similar to that of an individual bond, since the main cost of bonding is the initial policy. In some cases, employee bonding may be available as part of the umbrella liability policy for your office.

Larger practices. In practices with large numbers of staff, it may become too costly to provide bonding for all employees. Assess individual positions to determine the potential risk of financial loss through financial misconduct. Because positions with financial responsibilities pose the greatest risk, it may be more cost-effective to bond only these employees.

Issue receipts for cash collected

Nothing is easier to steal, or harder to prove ownership of, than cash. Not long ago, it was rare to issue receipts for cash collected in a medical office. However, with more co-payments now required at the time of service, practices of all sizes collect substantial amounts of cash during the course of a day. Issuing receipts for cash collected reduces the likelihood that an unscrupulous employee will take the cash. A receipt records the amount of cash collected, when it was collected and the patient account to which it is applied. Many integrated accounting systems have a cash receipt function that can be used to record payments and issue receipts. If your system does not have this feature, you can use a cash receipts book that makes a carbon copy of the receipt as it is prepared. Additionally, if your practice collects a significant amount of cash each day, consider taking the time to account for all cash and receipts daily.

"Preventive medicine" for your practice

Whether your practice is large or small, the internal controls described in this article require involvement and diligence on the part of the practice owners. Internal controls can't help your practice if you don't take the time to make them work. We recently examined the differences in internal controls between medical practices that had experienced fraud and embezzlement and those that had not. We found that all medical practices in the study followed basic internal control processes, but those medical practices that had not experienced fraud completed the internal control processes more regularly.

It isn't enough for your practice to simply make money; the money must be protected once it enters the practice. All practices underwrite losses, either by investing some time and money in financial controls, or by paying the full cost of missing funds out of the practice's daily revenue. Just as you encourage patients to make smart lifestyle choices to stay healthy and avoid illness, you should takes steps daily to prevent and detect financial fraud. In the long run, it will be the cheaper and less painful way to keep your practice's bottom line healthy.

Dr. Snyder is associate professor of accounting and Dr. Dietz is assistant professor of accounting at North Dakota State University in Fargo. Conflicts of interest: none reported.

Implementing internal controls in your practice will help you stop embezzlement and keep what you earn.

Herbert Snyder, PhD, CFE, and Donna K. Dietz, PhD, CMA, CPA
Source: American Academy of Family Physicians