This article originally appeared in Catalyst Magazine.

According to the Association of Certified Fraud Examiners, the average business loses five percent of revenues to fraud every year. Misappropriation of funds could simply involve use of a business credit card for personal benefit. At the other extreme, it could entail elaborate schemes to defraud insurance carriers and/or manipulate billing and payment records to generate surreptitious revenue streams for personal consumption.

For companies who pride themselves on exhibiting exemplary moral standards, these operational guidelines can help identify potential weak spots and minimize the potential for loss.

The number one defense against fraud and embezzlement is active participation in managing your business affairs. It means taking the time to set up an effective system of internal controls and paying close attention to your financial affairs thereafter. While a comprehensive set of recommendations is beyond the scope of this article, here’s our Top 10 list of things you can do to protect your financial resources:

1. Establish effective hiring practices to minimize your exposure to dishonest (or desperate) employees and contractors. Conduct thorough background checks including educational achievements, work history, criminal background, and credit references to the extent permitted by law. Your search may reveal important information about their ethics, circumstances, and sense of responsibility. Consider using a third party expert to help you mine all relevant sources of information and provide guidance regarding actions arising out of them.
2. Adopt a code of conduct that includes a fraud policy. Educate your employees on out-of-bounds behavior, including but not limited to: stealing; falsifying patient records, insurance claims, time sheets, or expense reports; appropriating company assets for personal use – e.g., telephone, postage, office supplies, etc. Set a good example by tending to your personal affairs outside the office. Make sure everyone knows how to report suspicious behavior.
3. Separate your money management duties across two or more employees so they can monitor and cross-check each other’s work. For example:
   • The person who handles patient payments should not be the same as the person who updates patient records.
   • The person who orders goods and services should not be the same as the person who manages payment for them.
   • The person who prepares checks should not have the ability to sign them. Ideally, you should sign all checks upon careful review of the associated documentation (invoices, packing slips, payroll sheets). Never sign blank checks!
   • The person who receives or disperses cash should not be the same as the person who reconciles the bank statement.

   This arrangement enables employees to catch one another’s possible mistakes. It also reduces the likelihood that an employee could manipulate circumstances for personal advantage. If the size of your office staff makes it impractical to separate duties among employees, consider using a part-time bookkeeper for certain functions.

4. Cross-train employees and shift responsibilities periodically. This practice adds to your checks and balances while affording coverage for sick, personal, and vacation days. With that in mind, make sure employees use their vacation time – at least one full week annually when someone else covers their responsibilities.
5. Use pre-numbered checks and duplicate, preprinted deposit slips. Stamp all incoming checks “For Deposit Only” immediately upon receipt. During the monthly bank reconciliation, make sure there have been no alterations to check or deposit amounts, and that there are no missing items. Lock up blank checks and deposit slips when not in use.
6. Run a daily schedule and check it against charges, insurance claims, and payments. Make sure that you are staying current on insurance filings and that all covered services are reported accurately. “Creative” insurance filings – e.g., billing for services not rendered, misrepresenting services to increase claim reimbursement, billing for fictitious patients – are a common form of embezzlement and could expose you to civil liability.
7. Pay attention to accounts receivables. Make sure each patient understands coverage and fees before treatment so that they’re fully informed of their financial obligations. Provide a printed “walk-out” statement showing the amount and type of payment made or owed after each visit. Send out monthly statements on unpaid balances and review all aged accounts with staff. Provide oversight and approval of unusual discounts, debt write-offs, and adjustments, and include an explanation for each transaction in the patient management system.
8. Mail credit card statements to your home and review each line item on the bill. Shred unsolicited credit card applications. Submit a Permanent Opt Out Election Form to the three large credit-reporting agencies to eliminate unwanted solicitations. Your business is not immune to identity theft!
9. Pay close attention to your monthly profit and loss records and take note of things that seem out of line. For example, if dental supplies typically run 10 percent of income and you’ve spent 12 percent during the prior period, find out what caused the unexpected increase.
10. Take personal responsibility for your practice management software. Make sure employees have unique IDs/passwords, and grant (or limit) access to information on a need-to-know basis. Direct them to use their own IDs/passwords when accessing the system or posting transactions. Leverage your system’s reports to spot “red flags” in your financial transactions and/or perform random spot checks on activities.

We hope you’re among the practitioners who remain untouched by this threat. In that case, please take advantage of our recommendations to improve the efficiency and effectiveness of your front office.