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Financial Fraud in Practice: This Manager Found Many Ways to Steal From a Clinic

Jun 25, 2019

Trust and a warm personality — it’s how so many fraudsters get away with their crime. These cases cut deep as owners are betrayed financially and personally by an employee they relied on.

That’s what happened in a plastic surgery skin care clinic where a physician owner was defrauded of more than $100,000 by a longtime, trusted employee.

By all accounts, the clinic’s practice administrator was personable and engaging. She’d worked for the practice for over 20 years, had taken vacations with the physician’s family and had even babysat his kids.

But at some point, she evidently decided the business owed her more, and she decided to take it.

Something Looked Off

The physician owner contacted Wipfli after he noticed some irregularities in the accounts. I did a preliminary investigation on a few transactions that seemed suspicious. Shortly thereafter, I made a in-person visit, with very little notice, telling staff I’d arrived to help on a special project.

The practice administrator greeted me helpfully and left me with the clinic records. It didn’t take long for several discrepancies to become apparent, even though the practice manager used a wide variety of tricks to embezzle money and cover her tracks.

Not Enough Controls

The practice administrator did not have check-writing authority and did not have a clinic credit card — and those limited controls likely prevented some measure of theft. But she had enough access and control over the rest of the system to do considerable harm. Here’s some of what we found:

  • Several patient receipts unaccounted for
  • Fictitious deposit slips used to skim cash deposits
  • Backdated changes to previous practice years to apply credits and discounts
  • Fictitious refunds
  • Dummy patient accounts
  • The physician’s user login and password had been used, on several occasions, to make account adjustments
  • Unauthorized purchases via electronic funds transfer
  • Vendor names edited in the account ledger to conceal personal purchases

We were later informed by another employee that the practice manager had been hosting Botox parties in her home and had been reselling stolen products. She also had a side business selling nutritionals and cosmetics and had used clinic funds to purchase some of her products.

When confronted with the evidence, the practice manager confessed and was arrested. Based on our limited investigation, we estimated over $100,000 in losses to the practice over a six-month period, and potentially more from previous years.

Corrective Action

After the fraud was discovered, we worked with the physician owner to review holes in the system and introduce better controls for the future. Here are some of the changes the practice made:

  • Implemented the audit trail feature in their accounting software
  • Locked the ability to make changes to previous years’ accounts
  • Separated staff responsibility for handling cash and managing accounts
  • Rotated inventory checks among multiple staffers

Of course, the clinic owner now takes a much closer look at monthly accounts. For him, the impact is emotional as well as financial, having been betrayed by someone he trusted for so long. He took little comfort in learning that this is the very kind of employee — those who are closest and most trusted —who are most often the culprits in small business and medical clinic fraud.

What to Do if You Suspect an Employee Is Stealing

If you believe an employee may be embezzling from your business, get qualified help right away. Do not confront your employee or share your suspicions. Contact a qualified investigator who can collect and preserve material evidence before the employee has an opportunity to tamper with your records any further.

In most cases, an investigator will also connect you with legal advice to help you adjudicate the matter in the smoothest manner possible. For more guidance, see our piece on What to Do When an Employee Steals From You.

Wipfli Can Help

Typically, hiring a fraud investigator to uncover employee theft is more expensive than utilizing different resources to prevent it. And when an employee theft does occur, about 70% of the assets lost are typically unrecoverable.

Wipfli has fraud investigators and risk assessment experts who help you evaluate risk and determine the safeguards your practice needs to deter fraud and embezzlement. Contact us to review your internal controls and protect your practice.

Author(s)

Michael Kritsmar, CPA, ABV
Manager
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