By J. Alberto Martinez, MD & Carolina Clavijo Practice Administrator

1. J. ALBERTO MARTINEZ, MD
CAROLINA CLAVIJO
P R A C T I C E A D M I N I S T R A T O R
BORIS FOXMAN
P R E S I D E N T O F N B A C C O R P , C P A F I R M
How to Get
Embezzled

2. Discussion Topics
 How it happened at VO
 The scheme/ Search of evidence and aftermath
 New controls at VO
 How common is theft in medical practices?
 What are the greatest areas of vulnerability?
 How and why do honest people steal?
 How to assess potential employees.
 How to mitigate risk.
 Final remarks on prevention, by Boris Foxman

3. How it happened at VO
 Employee “EE” hired directly by DR 12 years+ ago. Lead
optician 9 years- promoted them to manager officially, but
always in control of all optical operations.
 EE: strong sales skills, attractive and innocent
appearance… The 6’s C’s of the ideal sales person:
caring, charming, commendable, considerate, cordial &
courteous.
 EE very close to DR, it felt like a family. EE was allowed to
employ family members for the optical. A case of
“complete trust”.

4. How it happened: Red flags we missed
DR gave full authority to EE to handle inventory, sales
pricing & discounts, ordering, hiring and training others.
Red flags:
 Constant tardiness in reporting, constant late
hours, few vacations taken, for 10+years min. audits of
EE work and processes, total control of
sales, ordering, pick ups, money collection &
posting, unproportionate A/R balance, Net profit in
P&L some years max 10% and as low as 3%. EE with
very unstable personal life.

5. How it happened: Discovering the embezzlement
 EE was manipulating other opticians with “cash
incentives” and commissions in advance. They could
mainly do “ sales” but all posting was reviewed or
done by EE later in the day, of course to be altered.
 Opticians were instructed to keep
“double accounting” in separate books.
 EE was immediately let go.

6. The clever scheme
 80% of all transactions in 2 different systems are
manipulated
 Security settings in software gave EE rights permission to
alter all transactions and enter adjustments.
 Pay plan “ scheme” unveiled more details.
 Fraud of cash and checks (even after fired)
 EE has a “business account”
 Some Credit cards sales were used to cover cash
transactions paid from pat. and not recorded in the
system.
 EE had plenty of time to get “sophisticated” in methods.

7. The search of evidence & aftermath… for now
 Find hard evidence, seek witnesses and
document, document & document
 Estimate of $250,000+
 Montgomery County Police/State Attorney’s office
 Felony Type G: 2-10 years in jail/order of restitution
 Claim to insurance- Insuring your
business against employee theft
 Change of Policies and Procedures
But Overall…..Loss of sense of trust

12. New Internal Controls at VO
 Extended analysis with accountants of current areas at
risk, change of policies and procedures.
 Centralized payments at front desk. Opticians sale and post
in but send pat. to FD to make payments. Limited employee
access and rights.
 Dual verification: both logs from FD and optical are
reconciled daily.
 Audits from External Accountants 4 times per year for all
areas of the practice.

13. New Internal Controls at VO
 System of Checks and Balances-Daily Receipt Log –
Balances with deposits
 Inventory control every 2 months and monthly physical
count
 Spot check lab invoices to match jobs
 Written protocols for internal and external discount
policies ( for employees also)
 Protocols with vendors, inventory of trials and centralized
CL ordering through ABB optical group.

14. Some of our hiring mistakes….
 Your gut feeling can be wrong more often than you
realize.
 Don’t hire for necessity, and if you must - do it in a for a
lower level position
 Check &document references, have a script of questions
and always include the infallible“ will you hire again”
Department of Labor currently estimates that the average
cost of a bad hiring decision can equal 30% of the
individual’s 1st year potential earnings. A bad hire with an
annual income of $30,000 can equal a potential $9,000 loss.

15. Employee screening: Do it yourself vs. have a
company do it for you
 Credit report for single use: Experian for free. It gives you
valuable insight into an individual's finances. Job applicant
fairness act in MD- in writing and must have “bona fide
job related reason to check credit.
 Criminal check: There is not a single national database that
contains all criminal records in the U.S. - Check by county
and obtain permission in writing.
 HireRight/Infocubic: cost of pre-screening packages
between $30 to $100. Results 1 day to up to week.

16. REALITY
 Medical practices lose $25B annually*
 Practices lose an average of 5%–10% of revenue to
fraud each year.*
 86% of perpetrators are first-time offenders*
 MGMA study of 945 practices found 83% (782)
practices had been victims of employee theft.**
 3 of the 4 practices with a loss of $100,000 or
more were from groups with <10 physicians.**

17. UTOPIA?
 “ It is better to trust and be disappointed once in a
while than not to trust and live in fear all the time”
 How do I reconcile a philosophy that increases my
inner peace with the reality of the marketplace?
 How do I fulfill my goal of making Visionary
Ophthalmology a “conscious corporation” And still
have a viable business?

18. What is a conscious corporation?
 Purpose beyond profit
 Humanized leadership
 Corporate consciousness--- contribution

19. These areas
account for about
70% of theft.
supplies or equipment
Noncash
Cash Receipts
taking cash before or after it is
recorded on the books (co-
pays, refraction fees)
Disbursements
forging checks, submitting invoices for
fictitious goods, submitting inflated invoices
Petty Cash
Payroll
creating a fictitious
employee, unauthorized
bonuses or inflated
pay rate
10%
10%
10%
Greatest Areas of Vulnerability
70%

20. Right set of circumstances for honest people to steal:
How and why do honest people steal?
Rule of thumb among forensic accountants and auditors:
10-10-80 Rule:
10% of employees will always steal,
10% will never steal,
80% will steal under the right set of circumstances
Financial pressure: Could be an addiction, loss of household
income, medical bills, debt, accident, or greed
Rationalization: Begins with “just borrowing”
Opportunity: Perception of borrowing or stealing without
getting caught
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2.
3.

21. How to Assess Potential Employees
*MGMA Study
The Challenge:
All potential employees must be screened:
86% of perpetrators were terminated*
62% were not prosecuted*
Verify past employment and references
Check criminal history
Check civil history
Driver license violations
Credit checks (76% of practices did not perform
credit checks*)

22. Employee screening: Do it yourself vs. have a
company do it for you
 Credit report for single use: Experian for free. It gives you
valuable insight into an individual's finances. Job applicant
fairness act in MD- in writing and must have “bona fide
job related reason to check credit.
 Criminal check: There is not a single national database that
contains all criminal records in the U.S. - Check by county
and obtain permission in writing.
 HireRight/Infocubic: cost of pre-screening packages
between $30 to $100. Results 1 day to up to week.

23. How to Mitigate Risk: Trust but Verify
Screen job applicants thoroughly.
Assess high-risk areas: co-pays, mail
receipts, disbursements, patient refunds, payroll.
Segregate duties. Never have same person doing deposits
and postings.
Conduct unscheduled audits: create a perception of detection
by monitoring employee work and testing compliance.
Be alert to disgruntled or stressed employees.
Outsource bookkeeping duties.
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24. What can you change today?
Allow only the physician owners to sign checks.
Maintain a receipt book for all cash payments.
Endorse all checks “for deposit only” to the business
account immediately upon receipt.
Balance funds in cash drawer and payment log daily.
Employees ordering supplies should be different than the
employee receiving or paying for them.
Examine payroll records on a regular basis.
Delegate the responsibility for receiving checks/cash to
someone other than the person who records incoming funds
to the ledger.

25. Solution:
 LIVE IN FEAR ALL THE TIME?
 Hire and utilize external auditors that will look at
your practice unemotionally and prevent/uncover
embezzlement.
 This way Visionary Ophthalmology can continue to
grow and fulfill its ultimate purpose: Contribution.

26. LBF International Tax LLC
 Motivation for embezzlement
 Approach to handling cash and finances in general
 Defining good and reliable accounting systems
Boris Foxman

27. “An Ounce of Prevention is
Worth a Pound of Cure”