When Employees Steal

By Kim Fernandez

Recuperating at home from injuries sustained in a head-on car collision, Teri Powers-Watts was spending her Easter Sunday going over routine paperwork and records when she noticed something that nearly made her leap out of bed. Nearly $1,500 was missing from the Alabama Prosthetics and Orthotics Inc. petty cash fund.

With only eight employees, it didn’t take long for Powers-Watts to figure out what had happened. Her bookkeeper was stealing from the company. “I got real mad,” she says two years after discovering the theft. “We had such trust in her. I called my husband and business partner and it was hard for him to believe. He said, ‘I hope you’re wrong.’ And I said ‘I hope so too, but I’m not.’”

Together, the couple started poring over their books. What they found was shocking: over the course of eight years, the bookkeeper had taken $250,000.

“She was stealing in numerous ways,” says Powers-Watts. “It was small stuff at first, but we found things from the first day she worked for us. Being the trusting mom-and-pop owners we were, we never did as much backtracking and double-checking as we should have.”

Unfortunately, it’s not a rare story. John Schulte of Hanger P&O in Washington, D.C., knows it all too well—he caught an employee stealing from his private practice several years ago.

“She opened up a bank account in the name of the facility and put herself on the signature card with nobody else,” he remembers. “It was different from our regular business account. I’d fill out a code sheet and she’d add a couple of codes and submit it to the insurance company. When the bill came back, she’d take the check, deposit it into her own company account, and then write a check from that account into our business account. She’d leave the difference in her account.”

This went on for more than a year, until Schulte happened to run into a bank executive—a friend of his—at a social event. “She asked me why we had two accounts, and I said, ‘What do you mean, two accounts?’” His best estimate is that the employee made off with about $100,000.

It’s not something many practitioners want to talk about. No one likes to admit they’ve been taken, especially by a trusted employee. But experts say that unless professionals begin sharing their experiences and taking concrete steps to avoid employee embezzlement, it will remain relatively easy for disgruntled or dishonest people to find jobs with companies, particularly smaller establishments.

“It’s very common in the industry,” says Powers-Watts. “Vendors especially can tell you. Every six months there’s someone else, and people I’ve known for years and years have had it happen and never said a word. It’s embarrassing to be that stupid, and yes, I was stupid. But if I don’t point out what happened to other practitioners and employers, I’m helping the theft.”

First signs
Looking back, Powers-Watts says there were signs that things were amiss, but since she was busy running the practice and seeing patients, she didn’t notice them.

“One thing that we learned is that embezzlers like to keep things going in the office to deflect attention from anything they may be doing,” she says. Her ex-bookkeeper consistently caused trouble between two technicians on staff, insinuating that one man’s pay was based on his race and that the man’s supervisor hated him.

Other employees suspected the woman of stealing from the company but kept their thoughts to themselves out of fear of reprisals.

“She was the alpha dog,” says Powers-Watts. “The other employees were worried we wouldn’t believe them. She was the most trusted employee, they thought, and nobody wanted to say anything against her. I believe we would have caught her sooner if other employees had come forward.”

Since the incident, Alabama Prosthetics & Orthotics has instituted a strict no-consequences, anonymous policy that governs the way employee suspicions are handled. Powers-Watts hopes the newly-established procedures will encourage her staff to speak up if they ever harbor similar suspicions about co-workers.

“Every employee now knows they can always come to us with this stuff, no reprisals,” says Powers-Watts.

Checks and balances
Schulte says that sort of policy can form the backbone of a system to keep embezzlers out of a company and catch the few who slip through the doors. He’s spent the last several years working with other Hanger employees to devise a complete system of checks, balances and rules to guard against employee theft.

“A lot of what we’re doing comes from SOX 404,” he says, referring to the Sarbanes-Oxley Act of 2002, which mandates that certain checks-and-balances procedures be established and followed by publicly-traded companies.

Sarbanes-Oxley (SOX) was passed by Congress in response to several large corporate scandals, including the Enron scandal. A complex piece of legislation, it demands accountability for funds and actions from companies that are held by stockholders, like Hanger. Section 404 of the act specifically requires an annual report by management on the company’s internal financial management procedures.

Most publicly-held companies will be required to comply with SOX 404 by the fiscal year ending July 15, 2007, but Hanger has implemented its requirements already. Schulte says they seem to be fairly watertight and common-sense rules that all companies should follow.

“If you have two front desk people, one should open the mail and make a register and copies of the checks, and then give the money to the second person,” says Hanger Office Administrator Tammy Schulte. “The second employee then posts the figures in the computer, takes it to the bank, and returns with a deposit slip, which is given to the first person for verification. All of that is then signed off on by the practice manager.”

“These are really good business practices,” says John Schulte. “It really is something that the smallest facility can do, to check on each other. Beyond helping prevent you from being burned, it helps with your profitability. Every code is reviewed, every bill is OK’d and sent out, every bill is checked against the receipt.”

Hanger also regularly pulls random files and calls patients to follow up, asking both if their device fits well and serves its purpose, and about the billing and payment procedure they followed during and after their office visits.

“If the patient says the device is great, we’ll confirm that it was delivered on X date [and] that it was a foot,” he says. “When it seems like records and notes are vague, we’ll literally have the patient come in for a follow-up check so we can see exactly what’s going on.”

That prevents employees from ordering components, pocketing the money, and altering records—which was another tactic followed by Powers-Watts’ bookkeeper.

As in many small companies, the bookkeeper was trained to do other things, including fitting mastectomy patients with devices. Often, the devices weren’t covered by Medicaid and patients paid cash. The bookkeeper would fit the patients, order the devices, pocket the cash, and divert letters and calls from vendors wanting to know where their money was.

“These patients were very hurt,” says Powers-Watts. “They felt violated.”

Tammy Schulte says something as simple as petty cash should be reviewed by more than one person. “I started with one office and when I started, there was a register receipt in the petty cash box for every single day for a month and a half. An employee was using it to buy lunch. Every day—$7.”

Powers-Watts says, “I question everything now, sometimes to the point of being ridiculous. I question things that are no big deal. Nobody touches my mail—if I see somebody even looking through the magazines before I’ve gone through the mail I start yelling about it.”

An ounce of prevention
One of the most shocking revelations to Powers-Watts after her bookkeeper was caught stealing was that she’d stolen before. Several times. In fact, she had three felony convictions for embezzling from other employers, and was arrested shortly after reporting to work at Alabama Prosthetics & Orthotics.

“We never knew she was arrested,” says Powers-Watts. “Her brother was an addict, and she said she was going to court for him.”

The three convictions didn’t show up on a routine background check; the company that hired her after Alabama Prosthetics & Orthotics later told Powers-Watts that their background check turned up nothing as well. The one thing that did show up was a wage garnishment from a nursing home, but the employee said that was to repay them for educational classes she’d taken while employed there.

Needless to say, Powers-Watts no longer relies on routine background checks to show everything. “New employees are required to go to the police department and get their records,” she says. “They have to bring me their own records. If they haven’t done anything, that’s not a problem. But those records show everything down to traffic tickets.”

Schulte says that’s not a bad policy to have—he’s learned that even a misdemeanor drug conviction can spell bad news for an O&P company.

“Our people are in the hospital,” he says. “We’re dealing with people who are under anesthesia, people with Alzheimer’s.”

He screens for crimes as simple as shoplifting, which, he says, can translate into patients’ wallets vanishing in the office, creating tremendous liability. It all goes hand-in-hand with embezzlement, he says—untrustworthiness in one area can spread to many others.

He’s also careful to call applicants’ previous employers and find out what kind of job they did and why they left the job.

“People jump around in this industry,” he says. “Sometimes it’s for personal gain, sometimes it’s because they were terminated for one reason or another. We as an industry don’t call one another. We go to school and see each other at different events, but we don’t call up and say, ‘Nancy Jane wants to work here and I see she only worked for you for nine months. Why is that?’”

“You have no idea what the background is there. If there’s something as simple as a DUI, we look at it very closely to find out what the history was. Because that person may be out on company business on a Saturday and if they have a DUI, they’re putting the whole company at risk.”

Tammy Schulte remembers a recent applicant whose qualifications were sparkling—in fact, he was overqualified. “He called me up four days in a row, saying he was excited to work for us, really happy, all of that,” she says. “On his first day, he didn’t show up. As it turns out, he failed our drug test. You would have never thought that. He was absolutely GQ. It proves that you never know who has a problem.”

When it happens
Schulte says police departments sometimes are reluctant to take on internal theft cases because they’re often hard to prove. Because Hanger is such a large company, employees who are suspected of such actions can be transferred to different offices or jobs and then monitored.

“If it’s something we suspect but is difficult to prove, we may switch positions for them,” he says. “We may install a camera and watch them.”

The company also contracts with an outside firm to provide a completely anonymous hotline for employees to call when they suspect co-workers of crimes. Schulte says the service is inexpensive and cost-effective for even small companies, and provides enough peace of mind that employees generally aren’t shy about using it.

Powers-Watts was lucky: she connected with a police department detective who did investigate her case and eventually arrested the crooked bookkeeper. She, in turn, was convicted and ordered to pay restitution to the company. But it hasn’t been an easy road despite the relatively happy outcome.

“I still have bills here from 2004,” she says. “It’s taken a long time for us to get halfway back up on our feet and we’re not 100 percent yet. The first thing we did was call our vendors and let them know, and more than one asked, ‘What took you so long?’”

Kim Fernandez is a freelance writer based in Bethesda, Md.