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Preventing an employee or partner from stealing from you.
By Stuart Oberman, Esq.
May 29, 2024
Statistically, 50-70 percent of all optometry practices will be the victim of employee embezzlement. Embezzlement, the fraudulent misappropriation of funds or assets by employees, poses a significant threat to the financial health and integrity of a practice.
While trust is paramount in fostering a positive work environment, it is essential that practices implement robust measures to prevent and detect employee embezzlement. By adopting proactive strategies and implementing internal controls, a practice can substantially mitigate the risk of employee embezzlement and safeguard the financial assets.
Below are some effective ways that practice owners can prevent embezzlement:
Establish Clear Policies and Procedures
Start by establishing clear policies and procedures governing financial transactions, record-keeping and internal controls within the practice. Documented policies should outline specific roles and responsibilities of all employees, as well as the segregation of duties, authorization protocols and guidelines for handling cash, checks and electronic payments.
Implement Segregation of Duties
Segregation of duties involves dividing key financial tasks among multiple employees to prevent any single employee from having exclusive control over critical operational and accounting functions.
For example, practice owners should separate responsibilities for receiving payments, recording transactions and reconciling accounts to minimize the risk of fraud and collusion.
Conduct Background Checks and Screening
Prior to hiring any new employees, practice owners should conduct thorough background checks, reference checks and employment screenings to verify the credentials and employment history of potential employees. The proactive screening of potential employees may identify red flags and potentially lessen the risks of hiring individuals who have a history of dishonesty or financial misconduct.
Provide Ongoing Training and Supervision
Practice owners should invest in ongoing training and educational programs for employees to promote awareness of ethical standards, fraud prevention techniques and the importance of adhering to established internal policies and procedures.
Additionally, practice owners should provide regular supervision and oversight to monitor employee behavior, as well as ensure employee compliance with internal controls.
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Implement Strict Access Controls
To limit access to sensitive financial information, accounting systems and physical assets, practice owners should implement strict access controls and user permissions.
Internally, practice owners should utilize password protection, encryption and authentication mechanisms to restrict unauthorized access by employees, and also prevent unauthorized alterations or deletions of financial data.
Implement Financial Controls and Audits
It is imperative that practice owners implement internal controls and periodic audits to monitor financial transactions, identify anomalies and detect potential signs of employee embezzlement.
In addition, practice owners should regularly review bank statements, cash receipts and accounts receivable reports to reconcile transactions and identify discrepancies or irregularities within the practice.
Encourage Whistleblower Reporting
It is extremely important for practice owners to foster a culture of transparency and accountability by encouraging employees to report suspicious activities or concerns related to potential financial misconduct.
Also, it is critical that practices establish confidential reporting mechanisms, such as anonymous hotlines or whistleblower policies, which enable employees to report concerns without fear of retaliation.
Conduct Regular Financial Reviews
Needless to say, it is important that practice owners conduct financial reviews and performance evaluations to assess the overall financial health and integrity of the practice.
On a regular basis, practice owners should review key performance indicators, financial statements and operational metrics to identify trends, deviations, or areas of concern that may identify potential employee embezzlement or accounting irregularities.
While there are effective ways to prevent employee embezzlement, there are certain red flags within a practice that indicate an employee may be embezzling, such as employees who:
- Arrive early for work and stay late on a regular basis.
- Constantly work overtime and take work home with them.
- Refuse to take a vacation.
- Stir dissension within the practice.
- Have a challenging financial condition, such as a spouse who is unemployed.
- Have emotional stress or financial problems outside of the practice.
- Are going through a separation or divorce.
- Have a spouse, significant other, or close family member, with an alcohol or drug problem.
- Exercise exclusive and unusual control over financial matters within the practice.
- Are resistant to change and become openly resentful to any change to the accounting system within the practice.
Be Proactive
In conclusion, preventing employee embezzlement requires a proactive and multi-faceted approach that encompasses clear policies and procedures, segregation of duties, background checks, ongoing training, access controls, financial controls, whistleblower reporting and regular financial reviews.
By implementing these preventive measures and creating a culture of integrity and accountability, practice owners can minimize the risk of employee embezzlement and protect their financial assets and reputation.
Stuart Oberman, Esq., is the founder and president of Oberman Law Firm in Cumming, Ga. To contact him: stuart@obermanlaw.com.
