In December 2007, an employee of a Claremont, N.H., optometrist was indicted on two counts of credit card fraud. The Eagle Times, a local paper, reported that she would escort elderly patients into the exam room, prep them for their check-up and administer dilating drops. Once their eyes had dilated and the lights were turned out, shed remove a credit card from their purses and go shopping. This is just one example of employee theft. But, patients arent the only ones victimized.

Annually, employees steal more than $40 billion dollars from employers. A 2001 Business Banking survey found that at least 24% of small- to medium-sized businesses reported suffering an employee theft.1

Likewise, the National Restaurant Association estimates that 75% of inventory shortages are attributable to employees. The Department of Commerce reports that almost one-third of bankruptcies are related to employee theft.2

Such statistics are frighteningafter all, arent most optometric practices small- or medium-sized businesses that fall right into these statistics? What such numbers demonstrate is that you can have a wonderful chairside manner, a great business plan and a solid work ethicbut, your practice could still fail because of a dishonest staff.

 

Theft Schemes

The simplest employee theft scenario: An employee skims cash without making a record of the transaction.

For example, when a patient comes into the office with a broken frame, your staff member may fit the old lenses into a new frame. The staff member sells that new frame for $105 and just pockets the money. No receipt was generated, and no transaction was listed in your daily accounting system.

The lack of a paper trail makes this theft very difficult to detect, and it will only show up during inventorywell after the theft occurred. This is the type of theft that occurred in my optometric practice. A dishonest employee would collect funds from a patient and put the money directly in her wallet.

Another trick involves false refunds. In this scheme, a dishonest employee refunds a patient for faulty eyewear and splits the proceeds with the patient. This scheme usually requires the aid of a family member or close friend of the employee to work smoothly.

Another way that staff can take money out of the optometrists pocket is by over-ordering inventory. Many vendors offer incentives for large orders of inventory. A dishonest staff member could order 100 additional frames from a vendor and receive a significant rebate. They put the rebate in their pocket, and you pay for the extra 100 frames that you didnt need.

A little less common: Illegally selling contact lenses seems unusual, but it has happened. In one doctors office, two staff members over-ordered the contact lens inventory and sold the excess at a weekend flea market near the Texas/Mexico border. Some doctors have even caught their staff selling contact lenses to their own patients for cash. For example, a staffer might tell patients that their contacts cost $80; but, if they come back and pay cash at lunchtime, they will get them for $50.

Credit cards can be another source of loss for employers. One health care provider (a colleague of mine) fell victim to simple credit card fraud. His office manager signed for one of his company credit cards to be transferred to her home address. For months, the doctor never received a credit card statement. The bill was being redirected to the office managers house, and since he had multiple cards, he did not realize that this one statement was missing. Six months later, when he applied for a mortgage to buy a new home, the bank denied his mortgage because of his credit card debt. Upon investigation, he found that the office manager had charged more than $80,000 to his company credit card.

Dont forget that your inventory represents a significant investment. If a dishonest employee took one or two items off the top of your shipments, it would be easy to miss a couple of boxes of disposable contact lenses or a spectacle frame. Make certain to carefully check your inventory sheets and packing slips.

The bottom line: Anything that a devious mind can imagine can and willbe stolen from an unsuspecting employer.

 

Staff Warning Signs

Be aware of changes in your staff. A cheerful person that suddenly becomes sullen could be a staff member suffering with the stress of their secret theft. He or she becomes immersed in so many secrets, lies and deceptions that it becomes difficult to keep the act going all of the time.

Warning Signs of a Dishonest Employee ~Changes in personality. ~Avoidance of eye contact with the practice owner. ~Reduced interaction with other staff members. ~Sudden changes in financial status. ~Refusal to take vacations. ~Provides frequent discounts. ~Chronic tardiness. ~Keeps gifts and incentives.

Chronic tardiness is another common warning sign. A dishonest employee will often be five or 10 minutes late each day in order to avoid morning chitchat with the rest of the staff. Such employees protect themselves from having to create new lies by avoiding everyday conversations.

If you see a change in the organization within your office in which one person separates from the group, it could indicate a problem. If your other staff members believe that a coworker might be stealing, they will try to distance themselves from this employee.

Watch any employee who gives multiple refunds. Refunds are generally few and far between in an optometric practice. So, if you see multiple refunds given by the same staff member, consider that he or she may be defrauding the practice in some way. One way to control this: Handle any and all refunds personally. If you have patients upset enough to demand their money back, they need personal attention from the doctor.
 

Failure to maintain accurate records of returns or purchases is very problematic as well. A dishonest staff member may take advantage of your poor record keeping and skirt your accounting system.

Also, if a staff member refuses to take vacations, be very suspicious. Thieves know that if they are on vacation, their schemes might become uncovered. Very often, when another staffer assumes responsibility for a dishonest staff members job, signs of theft will be evident.

Employees who stay late (without a good reason) should be monitored. This extra time may be used to cover the tracks of their dishonesty. If an employee shows little regard for office expenses, be concerned. For example, if they use the office postage meter for personal use or give discounts to friends without your consent, watch them closely. Such actions demonstrate that they have little regard for the amount of money that it costs you to keep the practice running.

The same goes for taking the little vendor gifts that arrive at the office. If one particular staff member ends up with all of it, he or she certainly has little regard for the thousands of dollars that you, the practice owner, had to spend to get that little trinket.

 

Business Warning Signs

Carefully watch your practices cost of goods sold. In general, this amount stays constant over many years. It may range from 28% to 40% of the gross sales of an optometric practice.

Monitor the ratio of your cost of goods sold to your gross sales. If, for one month or one quarter, this number suddenly jumps, consider that it may be the result of theft. If money is leaving your office due to theft, your gross sales will decrease while your cost of goods remains constanta leak in your boat.

The daily accounting report that your office generates should show some human error. From time to time, the cash register should be a little short or a little over. If the daily accounting is perfect everyday, be suspicious of manipulation.

Petty cash is necessary in every optometric practice, from cash transactions to assorted expenses. But remember, petty cash represents a real temptation to a dishonest staff member.

Do not ignore your instincts if you feel that something is wrong. You may be right, and you may be able to prevent a significant lossif you investigate your hunch. Take any irregular activities reported to you by patients, friends or other staff members seriously, and investigate their claims thoroughly.

 

Be an Investigator

First, do not jump to any unwarranted conclusions. Sometimes, there are logical and reasonable explanations for changes in your staffs behavior or your feelings. A false accusation could result in a civil liability suit against you as the business owner, so take things slowly. Your goal: to prove that a theft occurred in you office. This is sometimes difficult to do, but absolutely necessary.

To prove that a theft occurred in your practice, you must investigate. This task cannot be delegated to your office manager or anyone else, because strict confidentiality is critical to avoid any defamation. You also want to avoid alerting the thief and any accomplices.

But, outside sources may be of great assistance when conducting your investigation. I first called my lawyer, who steered me along the right path to prove that a theft was occurring, and later, on the path to obtain restitution. Likewise, my accountant became involved in the investigation to estimate how much money was missing. He found the leak in my practice by looking at the changes in my cost of goods sold.

Start with your financial documents. Establish a paper trail to determine who had access to the missing money or inventory. Evaluate your records and financial software. Your accountant may be able to assist you in this analysis. See who signed onto the computer prior to each transaction or whose handwriting is on each receipt. A meticulous review of all receipts is very important. In fact, in my investigation, this process of going through each receipt by hand uncovered additional irregularities and loss.

When looking at handwritten receipts, ledger cards or patient accounts, check the transaction date. Make sure that the date matches your daily accounting statement. Look carefully at the handwriting. It is very distinctive. Often, investigators use handwriting samples to show who created each document. This process is tedious, but necessary. If you are able to uncover the full amount of the theft, then you may be able to recover more in restitution.

Remember, as you gain evidence with regard to the theft, keep the information to yourself.

The next step: Interview all of your employees. Ask them if they are aware of any theft within the office. Also, ask open ended questions, and allow them the opportunity to speak without interruption. You may be surprised by what you hear. Give each a clear warning that they are to maintain the strictest confidentiality with regard to this interview. They must tell no one what is discussed. There are several reasons for this, but primarily, you do not want them to tip off the suspect. Document what was said at each employee interview. Give employees the opportunity to tell you of any suspicions they have had and/or any irregularities they have observed.

Consider having a lawyer present at these interviews as a witness. It is not necessary that employees sign a summary of this interview; if the theft goes to court, they will have to write out a statement in their own words in the form of a deposition.

Once you have enough evidence to be sure that a theft occurred, its time to interview the suspected employee. I strongly recommend that your lawyer or other third party be present during this meeting, which can be very stressful. Document everything that is said. Also, record the starting time of the interview and who was present. In my situation, I took over six pages of notes. Inform the participants that the session will be recorded or documented before you begin.

Be careful what you say to the suspect employee. Do not insist on a confession. Ask some open-ended questions, and give them the opportunity to speak. But, be sure not to make any promises. Do not say, If you pay it back, Ill forget about it, or anything similar to that. The employee might say, I am sorry. Ill pay back the $500 that I borrowed from you. Later, you find out that they really stole $5,000! If the employee offers to make restitution, accept it, but make no promises. Remember: It is your money that was stolen, so you dont have to negotiate to get it back!

Take Steps to Prevent Employee Theft ~Screen job applicants thoroughly. ~Check in new merchandise personally. ~Divide office financial responsibilities. ~Balance your bank statements monthly. ~Provide staff incentives. ~Ensure that employees have a safe way to speak with you when necessary. ~Set a good example.

Restitution

Discipline or terminate the employee as you see fit. If the employee stole, terminate him or her. Again, dont negotiate with a dishonest staff member. When your decision is made, speak to the rest of your staff. Let everyone know what occurred, but spare them the details. Keep that information to yourself.

Dont punish the remaining honest employees. Dont let this bad incident color your treatment and interactions with them. This is certainly easier said than done. As a result of a dishonest staff members actions, its easy to develop a suspicious attitude because your trust has been violated.

Pursue restitution for your loss. Call your business insurer. Often, there is an employee dishonesty component of business insurance that allows you to recoup some of your loss. But, this wont be an option if you dont also pursue prosecution through the criminal justice system.

Consult with your local law enforcement. The district attorneys office and your local police or sheriffs office are both good places to start. When it came time for me to seek restitution, my lawyer recommended, and actually scheduled, a meeting with the district attorney on the day that I confronted my dishonest staff member.

If the district attorney accepts your case, its no longer you against the defendant. The case becomes the State vs. the Defendant, and the district attorney will work to restore you to your original position through restitution and punishment of the defendant. I was able to collect several thousand dollars in restitution and my staff member was given 12 months of a modified probation.

Encourage Staff Honesty ~Always respect staff members. ~Take interest in personal concerns. ~Set clear policies and procedures. ~Strive to improve staff communication. ~Conduct thorough investigations. ~Always be honest.

Prevention

Theft prevention starts before employees are even hired. Screen all applicants, and check their references. But, references are not nearly as valuable as they once were, so you might want to consider using a staffing agency. If you hire staff through an agency, you have 90 days to evaluate the prospective employee, and you know that the applicants references have been thoroughly checked. If you decide that you do not want that employee during this period, simply send him or her back to the agency. These services can cost a premium, but it may be money well spent.

Check in new merchandise personally. Frames and contact lenses represent a lot of money in your practice. Make it your policy to check all inventory lists when things arrive. Investigate all inventory shortages. If a frame worth $100 is missing, find out whyimmediately. If your staff knows that this is your normal routine, you may discourage them from taking any frames.

Prevent employees from ringing up their own sales. You can ask them to hand off all sales to the receptionist or another staff member to collect the money. This sharing of responsibility limits the opportunity to divert cash that comes into the office.

Make daily bank deposits. This prevents larger sums of cash from being held in the office and lets you examine the deposit amount each night. Do not let the same employee complete the daily accounting report each night. When the same employee does the daily accounting, that person has the opportunity to hide the money that comes into your office. Rotating or dividing responsibilities is important because it eliminates the opportunity for inside theft. Two or more staff members would have to be working together to steal, which is much less common and much more complex.

Establish a practitioner-based refund policy. In other words, all refunds come through you, the owner. Again, if you have patients so unhappy that they deserve a refund, they need to deal directly with you.

Make sure to balance all bank accounts monthly. It is a good idea to have the bank statements sent directly to you, either at your house or marked personal if they are delivered to your office. You should be the only person with access to all of your account information. If these statements are readily available, it easily opens doors for embezzlement and fraud.

Collect and distribute mail personally. Make it office policy that all mail is to be deposited on your desk and that youll distribute it as necessary. This way, you can be sure that all bills, checks and rebates are seen by you.

Watch all refund slips and gift certificates. Remember, gift certificates are as good as cash. So if you have some stored in your office, make sure that they are numbered and monitored from time to time. Likewise, control petty cash. Make sure it balances once a month with the paid out receipts.

When an employee leaves or is terminated, make sure to protect your property. Have your locks changed and reset the combination of your safe. It cost only $60 for my office to have two locks changedmoney well spent.

After the theft occurred in my office, I realized that I did not know who came through the front door each day. I knew who was on the schedule, but I didnt have any idea of who else came in. (I was busy seeing patients!) So, I installed an electronic sign-in system. Every person that walked into the office signed in on an electronic pad and chose the service that they were there to receive, such as: Doctors Appointment, Pick-up Eyewear, Repair/Adjust Eyewear, Schedule an Appointment, Insurance Inquiry, or Other Service. I was amazed to find out that if we had 20 patients scheduled on an average day, we had between 40 and 50 people come through the doors. And, this system is HIPAA compliant and well accepted by my patients.

 

Discourage Dishonesty

The key to discouraging staff dishonesty is respect. Treat all employees with respect. There was a police officer that I knew who was about 5ft., 4in. tall and weighed about 135 pounds. I often wondered why he didnt get beat up all of the time. In the 20 years that he was on the force, he had only been hit once.

He attributed his success and safety record to treating people with respect. He spoke calmly to people and never threatened them. He told me, If you leave a man with some dignity, hell cooperate with you. Instead of trying to physically overpower offenders, he treated them with respect. In return, even the biggest and meanest criminals showed him respect.

Pay special attention to employees who may be having personal or financial problems. For example, if a staff member is going through a divorce, make sure that he or she is doing all right. If you know that an employees spouse has lost a job, ask if there is anything that you can do to help.

Be there for your employees when they need you. Your compassion and assistance wont be forgotten.

Also, give your staff incentives. If you have a particularly stressful week, take them all to lunch to show appreciation for their hard work. You can combine staff training into these incentives. For example, once a year, we have a nurse come to our office to renew our CPR/first aid certification. We dont see any patients on this day, and we order in pizza for lunch. We turn this obligation into a fun event.

But, instill strict policies in your office to deal with staff dishonesty. Make it very clear in your practice that any dishonesty, no matter how small, will be pursued and prosecuted. Actually, strict policies in all areas of staff management are beneficial. Staff members will know exactly what they are expected to do and what they can expect as benefits. Dont be afraid to implement new policies that make sense for your practice. If they are enforced uniformly, they will be accepted.

It is extremely important that every one of your employees has an avenue to communicate with you in confidence. It doesnt matter if they call you into an exam room, send you an e-mail or call you at home. They must know that if they need to talk, youll keep it in confidence.

You must always set a good example for the staff. If you exhibit any signs of loose business practices, your employees will think that such behavior is acceptable. Never dip into the petty cash drawer for lunch money. Do not adjust a patients bill at your whim. If you exhibit prejudice or favoritism, your staff will do so as well.

Employees watch your habits and imitate them. Hold yourself to the highest standards of honesty, and you can do the same with your staff.

Staff dishonesty always causes severe personal and financial stress. One-third of all new-business bankruptcies are related to employee theft.2 Be vigilant. Watch for warning signs in your staff, and watch for warning signs in your business. By identifying problems early, youll avoid or minimize losses.

If a theft does occur in your office, investigate and pursue it, no matter how big or small. Make sure that you have policies in place to discourage theft. Strict policies are not insulting to staff members. Rather, they are clear guidelines about the way your business should be conducted.

Always strive to create an environment in your practice that encourages honesty based upon respect and appreciation. Be a good example for your staff in both your personal and business interactions. Theyll follow your lead!

Dr. Bacigalupi was in private optometric practice in Texas for 12 years before joining the faculty of Nova Southeastern University College of Optometry. He teaches Current Topics in Practice Management and serves as a clinical preceptor in the primary care service of the Nova Southeastern University Eye Care Institute.

1. Paulsell M. The Problem with Employee Theft. Missouri Small Business Development Centers. Available at: www.missouribusiness.net/docs/problem_employee_theft.asp (Accessed November 2007.)
2. Case, J. Employee Theft: The Profit Killer. Business Security Publications; Del Mar, CA: 2004.