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How to Prevent Employee Fraud in Your Medical Practice

It’s a sad reality: People sometimes steal from their employers. Know the red flags & get strategies for combatting employee fraud in a medical practice.

It’s the last thing most physicians think could ever happen to them: Being victimized by your own employees. But every year, numerous medical practices discover that employees they thought they could trust have been stealing money right out from under their noses.


According to a report from KPMG, Global Profiles of the Fraudster, internal fraudsters are usually experienced and trusted employees who are colluding with others both inside and outside the organization. 


And the vast majority of them — 95 percent, according to the Association of Certified Fraud Examiners — have never been previously convicted of a fraud-related offense. This makes catching fraudsters before they embezzle money even more difficult.


Strategies to combat employee fraud

Certain types of fraud are more common in the health care industry. For example, asset misappropriation is one of the most common fraud schemes, and schemes targeting incoming revenue tend to be more common in health care, according to the ACFE. 


With more patients paying higher deductibles and copays at the time of service, there are now more opportunities for front office employees to skim cash and credit/debit card payments and tamper with checks. The best way to prevent such skimming and tampering is to implement cash controls that ensure proper handling of copayments, deductibles and coinsurance. 


For example, receipts should be generated for all cash transactions and matched to the patient log at the end of the day. And the cash drawer should be reconciled at the end of each shift. Here are more strategies that can help prevent employee fraud:


  • Close out the point-of-sale terminal at the end of the day and make sure a practice manager approves all refunds and voids.
  • Segregate financial duties among staff members so the employee who handles cash is different from the employee who posts charges and payments and who makes cash deposits at the bank.
  • Use fraud prevention services from your bank. These include Positive Pay, which compares checks presented for payment with a check-issued list and only pays exact matches, and ACH Positive Pay, a similar fraud prevention tool that monitors electronic funds transactions. 
  • Keep all cash on hand in a secure locked location overnight and restrict access to this location to select employees.
  • Conduct random financial audits, paying especially close attention to copays, refunds and cash disbursements.
  • Create an employee hot line where employees can anonymously report suspected fraud. According to the ACFE, employee tips are the most common internal fraud detection method.

Anatomy of employee fraud

So why would a trusted employee decide to steal from their employer? Experts have identified three elements that are usually present when fraud occurs, which are sometimes referred to as the fraud triangle:


1. Motivation. This often takes the form of heavy financial pressure, such as overwhelming credit card debt, medical expenses or a divorce that has left the employee in dire financial straits.

2. Rationalization. This is where otherwise honest employees make the critical decision that their circumstances justify stealing from their employer. Maybe they tell themselves they’ll eventually pay the money back, or that they deserve the money because they’ve been underpaid in the past.

3. Opportunity. This is the one element of the fraud triangle that you can control. Implement the steps discussed here to limit opportunities for employee fraud. 


Be on the lookout for red flags that could indicate employee fraud. For example, an office manager or practice administrator who insists on handling routine clerical tasks themselves could be trying to cover up their tracks.


Keep a close eye on employees who are experiencing heavy financial pressure, as well as those who are experiencing negative events in their personal lives such as divorce or substance abuse. And take notice of any employees who appear to be living a lifestyle beyond their means. Red flags like these were present in 79 percent of fraud cases examined by the ACFE.


Set the proper tone at the top

One of the most important keys to deterring employee fraud is the active involvement of practice ownership. By setting the proper tone at the top of the organization, you communicate to your employees that your practice takes fraud seriously and will not tolerate it.


Want more information and strategies to combat fraud? Download our free ebook, How to Minimize the Risks of Fraud. And contact Cadence Bank if you have questions about how we can help prevent fraud in your medical practice.



This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.

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