In most every instance that is reported regarding embezzlement or theft, the owner of the business is stunned that his or her trusted employee would have committed such an act.
Many times the situation could have been avoided if the opportunities were never present. This is usually more common in medical practices due to the fact that the physician or physicians are extremely busy treating patients and the business end of the practice is not reviewed as thoroughly as it should be. While most physicians have very good business sense, they’re often occupied in the day-to-day practice of medicine versus the management of the practice. Often the physicians will hire a trusted person to look after their practice, be it a family member or friend. The physician would never expect to have to oversee this person with regard to theft, and the trusted employee usually does not start with the intent for theft. There are methods to eliminate the temptation and opportunity.
Segregation of duties is a method of avoiding the temptation of malfeasance even in the most trusted employee. A policy can be established so that the opportunity is much more limited. The policy can include such tasks as one person opening the mail and creating a schedule of checks received, another being responsible for reconciling the accounts receivable that these checks represent and a third responsible for the bank deposits. Another segregation that would be important would be to separate the check-writing responsibilities from the bank reconciliation duties. This would help eliminate the ability to falsify invoices or vendors or to record the transactions differently from the actual checks written. While hiring an outside CPA to review the books and records of the practice provides some comfort as to the accuracy of the records, most CPAs are not hired to audit the books and records or to look for fraud or malfeasance.
This segregation of duties policy can be established even after the practice has been in operation for years. If the practice opens initially as a single physician office with few employees, the separation of duties will be more difficult since there are fewer employees to utilize. As the practice grows, the segregation of duties becomes more important as there are more patients and revenue for which to account. Also, there will be more employees, which could help to separate duties.
Another aspect that may help alleviate the temptation would be to make sure you are relying on the proper people to handle the duties assigned. Many times we have seen where the office manager, or other management positions, started employment in another position. Often these “promotions” are not followed by the proper training for the new role and the employee may not be able to handle the pressure and responsibilities assigned. Along with the new practice management responsibilities is the management of employees who were contemporaries before the promotion. This can be a difficult transition. Our recommendation is to make sure you hire the best person for the position and make sure that he or she has proper training and support. The bottom line is that if the temptation is limited, the opportunity is limited as well, and the bottom line of the practice will be healthier.
Jeff Jackson, CPA, is a shareholder at Sol Schwartz & Associates PC. Jackson has been a certified public accountant since 1992 and has been in public accounting since 1990. Jackson focuses on all areas of taxation and financial planning, including individual, partnership and corporate income taxation, along with estate, gift and retirement planning. He relies on his business and investment experience to identify the many issues his clients may face, particularly in working with high net-worth individuals, their families and closely-held businesses. Contact Jackson at 210-384-8000, ext. 144, or via email at email@example.com.