Safeguarding Against Embezzlers

As the economy continues to founder, fraud and economic crime are on the rise, according to many law enforcement officials around the country.

Tight money increases embezzlement temptations, so this is an excellent time to review your bookkeeping procedures and remove any obvious opportunities for theft by your employees.

People who investigate embezzlement crimes for a living say that most cases are uncovered by accident. Finding it is usually relatively easy, because most embezzlers are not particularly skillful nor very good at covering their tracks, but many cases go undetected, sometimes for years, because no one is looking.

The experience of a friend of mine was all too typical: His bookkeeper wrote sizable checks to herself, entering them in the ledger as payments to vendors commonly used by his practice. Since she also balanced the checkbook, she got away with it for many months.

Detecting fraud is an inexact science. There is no textbook approach that one can follow, but a few simple measures will uncover or prevent a large percentage of dishonest behavior:

Hire honest employees. It is amazing how few doctors check applicants' references. Find out if the applicants are really as good as they look on paper. For a few dollars, you can screen prospective employees on public information Web sites to see if they have criminal records or if they have been sued or are suing others.

Minimize opportunities for dishonesty. Theft and embezzlement are the products of motivation and opportunity. It is hard to control motivation, but there ways to minimize opportunities for dishonesty. No one person should be in charge of the entire bookkeeping process. The person who enters charges should be different from the one who enters payments. The employee who writes the checks should not balance the checkbook, and so on. Internal audits should be done on a regular basis, and all employees should know that.

Reconcile receipts and cash daily. The most common form of embezzlement is simply taking cash out of the till. In a typical scenario, a patient pays a $15 copay in cash but the receptionist records the payment as $5 and pockets the rest. Make sure a receipt is generated, and that someone other than the person accepting cash reconciles the receipts and the cash daily.

Insist on separate accounting duties. Another common scam is false invoices: You think you are paying for supplies and services, but the money is going to an employee. One employee should enter invoices into the system, another should issue the check, and a third should match invoices to goods and services received.

Verify expense reports. False expense reports are another common form of fraud. When an employee asks for reimbursement of expenses, make sure they are real.

Safeguard your computer. Computers have made embezzlement easier and more tempting. Data are usually concentrated in one place, accounts can be accessed from remote workstations or off-premises servers, and a paper trail is often eliminated. Your computer vendor should be aware of this, and should have safeguards built into your system.

Look for red flags. Do you have an employee who refuses to take vacations, because someone else will have to look at the books? Does someone insist on approving or entering expenses that are another employee's responsibility?

Consider bonding your employees. The mere knowledge that your staff is bonded will scare away most applicants with a history of dishonesty, and you will be assured of some measure of recovery should the above safeguards fail.

To respond to this column, e-mail Dr. Eastern at [email protected]

As the economy continues to founder, fraud and economic crime are on the rise, according to many law enforcement officials around the country.

Tight money increases embezzlement temptations, so this is an excellent time to review your bookkeeping procedures and remove any obvious opportunities for theft by your employees.

People who investigate embezzlement crimes for a living say that most cases are uncovered by accident. Finding it is usually relatively easy, because most embezzlers are not particularly skillful nor very good at covering their tracks, but many cases go undetected, sometimes for years, because no one is looking.

The experience of a friend of mine was all too typical: His bookkeeper wrote sizable checks to herself, entering them in the ledger as payments to vendors commonly used by his practice. Since she also balanced the checkbook, she got away with it for many months.

Detecting fraud is an inexact science. There is no textbook approach that one can follow, but a few simple measures will uncover or prevent a large percentage of dishonest behavior:

Hire honest employees. It is amazing how few doctors check applicants' references. Find out if the applicants are really as good as they look on paper. For a few dollars, you can screen prospective employees on public information Web sites to see if they have criminal records or if they have been sued or are suing others.

Minimize opportunities for dishonesty. Theft and embezzlement are the products of motivation and opportunity. It is hard to control motivation, but there ways to minimize opportunities for dishonesty. No one person should be in charge of the entire bookkeeping process. The person who enters charges should be different from the one who enters payments. The employee who writes the checks should not balance the checkbook, and so on. Internal audits should be done on a regular basis, and all employees should know that.

Reconcile receipts and cash daily. The most common form of embezzlement is simply taking cash out of the till. In a typical scenario, a patient pays a $15 copay in cash but the receptionist records the payment as $5 and pockets the rest. Make sure a receipt is generated, and that someone other than the person accepting cash reconciles the receipts and the cash daily.

Insist on separate accounting duties. Another common scam is false invoices: You think you are paying for supplies and services, but the money is going to an employee. One employee should enter invoices into the system, another should issue the check, and a third should match invoices to goods and services received.

Verify expense reports. False expense reports are another common form of fraud. When an employee asks for reimbursement of expenses, make sure they are real.

Safeguard your computer. Computers have made embezzlement easier and more tempting. Data are usually concentrated in one place, accounts can be accessed from remote workstations or off-premises servers, and a paper trail is often eliminated. Your computer vendor should be aware of this, and should have safeguards built into your system.

Look for red flags. Do you have an employee who refuses to take vacations, because someone else will have to look at the books? Does someone insist on approving or entering expenses that are another employee's responsibility?

Consider bonding your employees. The mere knowledge that your staff is bonded will scare away most applicants with a history of dishonesty, and you will be assured of some measure of recovery should the above safeguards fail.

To respond to this column, e-mail Dr. Eastern at [email protected]

As the economy continues to founder, fraud and economic crime are on the rise, according to many law enforcement officials around the country.

Tight money increases embezzlement temptations, so this is an excellent time to review your bookkeeping procedures and remove any obvious opportunities for theft by your employees.

People who investigate embezzlement crimes for a living say that most cases are uncovered by accident. Finding it is usually relatively easy, because most embezzlers are not particularly skillful nor very good at covering their tracks, but many cases go undetected, sometimes for years, because no one is looking.

The experience of a friend of mine was all too typical: His bookkeeper wrote sizable checks to herself, entering them in the ledger as payments to vendors commonly used by his practice. Since she also balanced the checkbook, she got away with it for many months.

Detecting fraud is an inexact science. There is no textbook approach that one can follow, but a few simple measures will uncover or prevent a large percentage of dishonest behavior:

Hire honest employees. It is amazing how few doctors check applicants' references. Find out if the applicants are really as good as they look on paper. For a few dollars, you can screen prospective employees on public information Web sites to see if they have criminal records or if they have been sued or are suing others.

Minimize opportunities for dishonesty. Theft and embezzlement are the products of motivation and opportunity. It is hard to control motivation, but there ways to minimize opportunities for dishonesty. No one person should be in charge of the entire bookkeeping process. The person who enters charges should be different from the one who enters payments. The employee who writes the checks should not balance the checkbook, and so on. Internal audits should be done on a regular basis, and all employees should know that.

Reconcile receipts and cash daily. The most common form of embezzlement is simply taking cash out of the till. In a typical scenario, a patient pays a $15 copay in cash but the receptionist records the payment as $5 and pockets the rest. Make sure a receipt is generated, and that someone other than the person accepting cash reconciles the receipts and the cash daily.

Insist on separate accounting duties. Another common scam is false invoices: You think you are paying for supplies and services, but the money is going to an employee. One employee should enter invoices into the system, another should issue the check, and a third should match invoices to goods and services received.

Verify expense reports. False expense reports are another common form of fraud. When an employee asks for reimbursement of expenses, make sure they are real.

Safeguard your computer. Computers have made embezzlement easier and more tempting. Data are usually concentrated in one place, accounts can be accessed from remote workstations or off-premises servers, and a paper trail is often eliminated. Your computer vendor should be aware of this, and should have safeguards built into your system.

Look for red flags. Do you have an employee who refuses to take vacations, because someone else will have to look at the books? Does someone insist on approving or entering expenses that are another employee's responsibility?

Consider bonding your employees. The mere knowledge that your staff is bonded will scare away most applicants with a history of dishonesty, and you will be assured of some measure of recovery should the above safeguards fail.

To respond to this column, e-mail Dr. Eastern at [email protected]