Internal fraud can be devastating for a medical practice and it can be easier than you might think to steal in some offices. Fraud schemes may be prevented if the following steps had been implemented:
Require separation of duties. When an employee is able to control multiple elements of a task or process, the probability of fraud occurring rises dramatically. For example, if an employee has access to accounting software and is also able to get into the practice's checks and return returned checks. Although separating duties can increase labor costs, the reduction in fraud losses can be well worth the effort.
Stop using signature stamps. The perpetrator in this case used the dentist's signature blocks to "sign" each check. The risk of fraud is dramatically increased when employees are provided with blank check stock and a signature stamp. If it is not possible to remove signature stamps entirely in your practice, consider implementing "dual control" where one employee is allowed to stamp checks, while another must review each check once it is stamped. After all of the checks for that day have been issued, the stamp should be returned to a locked cabinet that can only be opened by the manager or owner.
Reconcile account activity frequently. To detect fraud activity quickly, it is crucial that account activity is reviewed and reconciled, ideally on a daily basis to payments issued. Early detection is vital because check fraud losses can balloon within a matter of days. Although it is time consuming, reconciling account activity can dramatically decrease the chances that your practice will become a victim of check fraud.
Designate accounts by type of transactions. To help your practice detect unusual check activity, consider opening different accounts dedicated to certain types of payments. For example, many businesses create separate payroll accounts. Since payroll account information is visible to your entire employee population, these accounts are often subject to check, Automated Clearing House (ACH) and wire fraud. Opening a dedicated account to process payroll can concentrate both internal and external fraud attempts in one account that can be frequently monitored. If it becomes subject to fraud, the account can be closed, then subsequently reopened with a new account number and additional bank fraud controls in place.
Send returned checks to another address. Once checks have been paid, if requested, your bank will mail a copy or image of the cancelled checks with your bank statement. Send returned checks to another address or access them online, which many banks now provide. In either event, accounts can be reconciled. For an added level of security, consider engaging a third party, such as your accountant, to perform a monthly review of your checking account activity.
Review all adjusting entries. Adjustments made in your accounting system should be reviewed at least weekly by someone other than the individual making the adjustments.
Ask your bank for help. Most banks offer services that can help combat check fraud. These services often include:
Positive pay - The bank reconciles checks issued by your practice against checks presented for payment.
Reverse positive pay - The bank provides your practice with a list of checks presented in the last 24 hours that you can then approve for payment or return.
Signature verification - The bank verifies the signatures on checks presented for payment against the signatures the bank has on file for your practice. The bank can also include a review to confirm that the appropriate signatures are present on high-dollar checks.
Each service is normally provided for a small fee per check. If you maintain a significant relationship with your bank, or you plan to switch banks, you can try requesting that fraud services be included for free or at a discounted rate.
Preventing check fraud requires a multi-layered approach. These are just some of the steps your practice can take. Most of the steps described above can be implemented with minimal effort yet provide significant protection against both internal and external check fraud.