Question

Harriet Knox, Ralph Patton, and Marcia Diamond work for a family physician, Dr. Gwen Contrad, who is in private practice. Dr. Contrad is knowledgeable about office management practices and has segregated the cash receipt duties as follows: Knox opens the mail and prepares a triplicate list of money received. She sends one copy of the list to Patton, the cashier, who deposits the receipts daily in the bank. Diamond, the recordkeeper, receives a copy of the list and posts payments to the patients' accounts. About once a month the office clerks have an expensive lunch they pay for as follows: First, Patton endorses a patient's check in Dr. Contrad's name and cashes it at the bank. Knox then destroys the remittance advice accompanying the check. Finally, Diamond posts payment to the customer's account as a miscellaneous credit. The three clerks justify their actions by their relatively low pay and the knowledge that Dr. Contrad will likely never miss the money.

QUESTION: Share your thoughts about the ethics scenario. What did you learn? What reports or procedures might help Dr. Conrad detect or prevent this type of fraud?

Answer 1

In the given scenario, the practice followed by all three physicians Harriet Knox, Ralph Patton and Marcia Diamond is completely unethical. It is totally unacceptable whether on the personal as well as professional note. It is breach of trust between the Dr Contrad and their employees. Once they find this kind of practice followed by employees behind their back.

Our learning from case study

When running a business, there will always be some type of small expenses. But this expense usually incurred with reference to business need or day to day activities.

In the given case they use the money for their own need and rather than to taking approval from employer. They simply destroy the tracing chain of misappropriation and the additional part is they followed continuous practice month by month.

So we conclude that business owners and managers should assume that it is happening or that it will happen when the opportunity arises. So owner’s duty is not typically ends after delegating authority to employee, timely review is also required. Apart from this does not mean treating all employees with suspicion because that is the quickest way to sink morale.

Following types of report/controls help Dr Contrad to prevent and detect from this fraud in future

Doctor Cantrad can ask their employees to submit report to preventing fraud.

• Cash Log register.
• Surprise cash count by auditor or third party hirer of Doctor contrad.
• Reconciliation should be prepared and same should be verified with proper evidence on sample basis.

Apart from this, some control should be introduced to avoid this fraud.

1. Establish a system of checks and balances especially for Patton, in sensitive positions with access to cash. Procedures that call for voiding appointment & remittance advice and issuing patients refunds should require approval by a Dr. Contrad himself.
2. Install a video surveillance system as a deterrent. People are less likely to engage in dishonest behavior if they know that they are on camera