How to detect and prevent financial fraud in your practice

Running a busy medical practice usually means entrusting your staff with financial transactions — but what happens if that trust is misplaced? Financial fraud can pose significant risks to your practice, including reputational damage as well as lost revenue.

A growing concern

We’re seeing an increasing number of financial fraud cases involving practice staff, some of them quite sophisticated. The following provides a summary of some of the financial fraud cases we have come across recently. 

Reversing payments and pocketing the surplus 

A receptionist reverses a patient’s payment after they leave, then bulk bills the same patient. Because they also reconcile the EFTPOS at the end of the day, they can take any surplus cash.

Manipulating MBS item numbers 

A staff member alters MBS item numbers without the doctor’s knowledge or consent. The doctor receives the expected payment, while the staff member keeps the difference.

Skimming gap payments 

A receptionist bulk bills the patient but still charges them a gap. The gap often has no digital trail, so the receptionist is able to keep the gap payment.

Charging separately for extras 

A receptionist asks the patient to make a separate payment for ‘extras’, such as $15 for a script or $25 for a dressing. These small additional costs are directed to the receptionist’s own bank account. 

Misuse of credit card 

A practice manager uses the company credit card, which has no set expenditure limit, for personal purchases. This goes unnoticed until the quarterly accounts are reviewed.

Payroll fraud 

The person responsible for payroll adds unauthorised overtime or ‘forgets’ to deduct leave from their balance. In some cases, employees have given themselves a pay rise.

Without proper auditing and reconciliation, these types of fraud can remain undetected for months.

Owner of the provider number is responsible

Beyond financial losses, fraudulent activity — especially Medicare-related fraud — can have serious legal and professional consequences. It’s important to realise that in cases of Medicare fraud, the owner of the provider number is ultimately responsible, even if the fraudulent activity was carried out by a staff member.

How to protect your practice

Implementing preventative measures is crucial to safeguarding your practice. 

One preventative measure is to outsource bookkeeping and payroll to an experienced and BAS-accredited medical bookkeeping and payroll service. Doing this ensures you maintain compliance with financial reporting obligations as well as creating a separation of duties that limits the opportunity for fraud.

There are also some key steps you can take to tighten up your internal processes:

1. Two-person check for refunds and reversals
   One of the most effective ways to prevent fraud is to require two staff members to approve any refund or reversal transaction. Ensuring no single individual has complete control significantly reduces the risk of unauthorised activity. It also promotes accountability and transparency within the practice.
2. Restrict post-consultation item number changes
   To prevent billing code manipulation, restrict changes to item numbers made after the day of consultation. And require the doctor who saw the patient to approve any necessary changes. Consistent billing records that accurately reflect the services provided are essential for compliance and financial integrity.
3. Reconciling practice bank accounts and internal reporting
   Reconciling bank and credit card statements with accounting software is a fundamental safeguard. Conduct weekly, monthly, and quarterly reconciliations to identify any discrepancies between the practice’s financial records, bank statements and internal reports.
4. Monitor changes in Medicare billings
   Generate regular reports that are reviewed by a designated staff member or external auditor to pick up changes in Medicare billing patterns. Detecting unusual or suspicious activity allows you to investigate potential fraud before it escalates.
5. Implement strong internal controls
   Access controls: Limit access to financial systems to authorised personnel only, ideally practice owners and the practice manager. Medical software systems should restrict access to accounting functions, such as changing bank account details and authorising refunds.
   
   Regular audits: Historical reconciliation audits can detect discrepancies in item numbers and financial transactions. Implementing a daily checklist for each doctor to review, approve and sign, confirming the item numbers billed for their sessions, provides a record to check any inconsistencies against.
   
   Staff training: Educate staff about the importance of financial integrity and the consequences of fraud. Provide training on how to recognise and report suspicious activity.
   
   Payroll: Maintain oversight of the staff member responsible for payroll. This includes requiring written approval for overtime hours worked and evidence that leave hours have been deducted.
   
   Cash: Any cash held in the practice should be banked regularly to minimise the risk of theft.

Above all, maintaining a culture of transparency and accountability is key to protecting the practice’s financial health and reputation.

Useful resources

Financial administration support services

Practice manager ‘borrows’ $100,000 from employer

Michelle Graham, registered BAS Agent, Bookkeeping & Payroll Manager, Avant Practice Solutions

This cautionary tale of financial fraud involves a trusted practice manager who embezzled almost $100,000 over several years. The theft was only uncovered when the practice manager took three months’ long service leave, prompting the practice owners to seek bookkeeping assistance.

When the owners of a thriving regional general practice contacted Avant Practice Solutions for bookkeeping support during their practice manager's absence, they had no idea they were about to uncover a significant breach of trust. But once the Bookkeeping and Payroll Managers from Avant started looking at the practice manager’s financial processes it didn’t take long to spot a few red flags.

The first concerning sign was that the MYOB files weren't set up with a live bank feed. Instead, at month end, the practice manager was manually importing financial information, which created an opportunity for manipulation.

Initial unusual transactions the tip of the iceberg

An initial review of credit card statements then revealed several unusual purchases, including home gym equipment, an Apple watch and other apparently non-business expenses. When presented with these, the practice owners confirmed they were unauthorised transactions that should never have been going through the business account.

As the audit of financial reports continued, more troubling transactions emerged. These included a $60,000 withdrawal labelled ‘share purchase’ and payments for several overseas flights. Funds to repay these larger debits had then been deposited a few weeks later, with the practice manager seemingly confident these short-term unauthorised loans would not be picked up.

Once the severity of the situation was realised, the practice contacted the police. Subsequent detailed investigation by a forensic auditor revealed the full extent of the fraud: approximately $97,000 had been misappropriated over several years.

Serious repercussions for all involved

When the practice owners spoke to their regular accountant about the situation, he admitted he had simply relied on basic Excel reports provided by the practice manager when lodging the quarterly business activity statements (BAS). Critically, he had failed to reconcile these reports against bank or credit card statements – a basic accounting safeguard that would likely have detected the fraud much earlier.

The accountant’s services were immediately terminated. But criminal proceedings against the practice manager dragged out over several months, ultimately resulting in a guilty verdict and a criminal record. While some of the embezzled funds have been recovered, a significant portion remains outstanding.

Additionally, the stress of dealing with the whole situation led to one of the practice owners giving up his share in the business, and returning to work in a corporate practice where he would no longer have the responsibility of running the business.

This article was originally published in Connect magazine Issue 24.