Employee fraud is a risk in every business, and physician practices are no exception. One survey done by the MGMA found that 83% of respondents have been affiliated with a practice that has been victimized by employee theft or embezzlement. And with an Association of Certified Fraud Examiners (ACFE) survey estimating that a typical organization loses 5% of its revenues to fraud, you could take a real hit to your bottom line.


Small and midsize businesses, like medical practices, are often most vulnerable to employee fraud. Many employee thefts involve cash receipts, such as when staff members help themselves to patient copays or deductibles and simply write them off as bad debts. According to the MGMA survey, fraud in a medical practice may also involve:

  • Cash on hand (for example, sticky fingers in the petty cash box),
  • Disbursements (fraudulent invoices or forged checks),
  • Expense reimbursements (fictitious or inflated claims),
  • Payroll (fictitious employees, inflated hours or pay rates, or unauthorized bonuses), and
  • Misuse of a practice’s noncash assets (supplies, equip­ment or confidential information).

Employees could also write off the account balances of friends or family or take kickbacks from vendors.


A trained finan­cial specialist may be able to iden­tify red flags of fraud simply by reviewing your books. He or she would look at cash flow, receipts, accounts payable and receivable balances, transaction documentation, payments to ven­dors, and adjustment journal entries, among other things.

A starting point is a year-to-year comparison of income and expenses. A spread of five years is even better. This comparison will help spot changes that might indicate fraud but also give the physician a five-year trend, which will aid in expense management.

Many fraud schemes can be traced back to a practice’s failure to segre­gate accounting duties. For example, a practice might have the same employee responsible for collecting copays and deductibles, posting charges, reconciling accounts and making bank deposits. Practices can protect themselves with some simple internal controls, such as limiting the number of employees who can access the accounting database, have authority to cut checks or can use the practice credit card. If the practice uses QuickBooks™ or other accounting software, be sure the “audit trail” function is turned on. This will record all changes made and who made them.


In addition, have credit card and bank statements sent to a physician’s home so they can be reviewed and matched with receipts. Write-offs of patient accounts or adjustments to them should be approved by the practice manager and followed by a monthly review by the physician. And a doctor should sign every check and confirm that each has a legiti­mate invoice. 

Before bills are paid, purchase orders should be examined to verify that the correct products or services were provided, especially if the same employee authorized the purchase and approved the vendor invoice. After payment, all canceled checks should be reviewed to verify that they were deposited into a business account, rather than cashed or put into a personal account. Have a phy­sician review all bank statements and credit card statements for unusual activity before they’re turned over to accounting personnel.

Payroll demands close attention, too. Doctors who don’t know how much they pay their staff members or don’t review paychecks are opening the door to the possibility of inflated checks and checks to nonemployees. Also, separate the approval of payroll hours and rates from the person who prepares the payroll checks. Neither of these persons should be able to change the general ledger or recon­cile the bank accounts. Last, make sure your insurance includes an employee fidelity bond. Coverage should be commensurate with your practice size. And, have your CPA perform an internal control review of your practice. It will be money well spent!


Few doctors went to medical school so they could become mired in the nitty-gritty aspects of financial management. However, ignoring the costly risks of employee fraud could mean throwing money away. Fortunately, your financial advisor can provide assistance in combating fraud in your practice.