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3.14.08 Issue #314 Forward This Newsletter To A Colleague

Stop Employee Theft
by Sally McKenzie CEO
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It’s the stuff nightmares are made of. By chance you discover your loyal employee has been stealing from you for years. You were curious about her resistance to changing the computer systems. You were puzzled by her seemingly lavish lifestyle. But you were happy with the fact that she just “took care of” the financial side of the practice. So you ignored the warning signs because your trusted employee would never do such a thing. How wrong you were.

If misery loves company, dentists can have quite the pity party. When it comes to incidents of fraud in the practice, three out of five dentists report that an employee has stolen from them. In one particularly shocking case last spring, a bookkeeper and her husband pleaded guilty to stealing nearly $2 million from a Washington family practice over a seven-year period. It was the largest embezzlement case in the county’s history.

So who’s most likely to be pilfering from your practice? Fraud experts refer to it as the 10-10-80 rule: 10% of people will never steal, another 10% will steal at any opportunity, and the other 80% will go either way depending on how they rationalize a particular opportunity. The good news is that for those in the 80% category, if they believe they will get caught, they won’t take the chance.

It’s the small businesses, such as dental practices, that are prime targets for fraud and embezzlement. Why? Because (a) controls tend to be very lax and there’s little staff accountability and (b) there tends to be a close relationship between doctors/owners and employees. They become trusted friends, which, sadly, encourages a dishonest employee to take advantage of them.

As the Association of Certified Fraud Examiners (ACFE) reports, the most common small business scheme is check tampering. It frequently occurs when one individual has access to the company’s checkbook and also has responsibility for recording payments and/or reconciling the company bank statement.

First and foremost, dental practices must divvy up the financial duties. The doctor may want to only do the dentistry, but this attitude is inviting disaster. As one Wisconsin dentist discovered recently, his/her trusted employee of 28 years who had “total run of the practice’s financial operations” is accused of stealing at least $41,000 and that is believed to be just the tip of the iceberg. 

Separating billing, collections, and delinquent account responsibilities is critical. The employee making the bank deposit should not be the same employee responsible for checking the deposit slip that is returned from the bank. Consider rotating the responsibility for making bank deposits among employees, and monitor deposits for unexplained increases or decreases.

Look at the reports daily. In particular, examine the day sheet and the deposit. Investigate any adjustments made on the day sheet. Pay close attention to increases in refunds or write-offs, large adjustments, or missing documents. Print and review an audit trail report daily. It reflects every transaction that has transpired in the office since the last printed audit trail. In addition, generate a report monthly listing all patients that have had changes made to their accounts. This helps to identify a recurring problem or detect a discrepancy. Routinely conduct random checks of different accounts.

In practices with small staffs, the doctor must take a much more active role in monitoring the financials. Ideally, the doctor should write all the checks and do his/ her own payables. The doctor should reconcile the bank statement monthly and cancelled checks should be sent, along with the bank statement, to the doctor’s home. In addition, monthly credit card statements should be received unopened and compared with original receipts of purchases. These steps enable the doctor to know exactly where the money is going. 

Checks received should be immediately stamped on the back with the practice’s bank deposit endorsement stamp. Periodically check the account number to ensure it is the practice account. Do not use signature stamps.

All employees should be required to take at least one week’s vacation every year, particularly those in charge of practice finances. And, most importantly, don’t let the work pile up. During that time, the vacationing employee’s duties should be carried out by someone else.

Take complaints seriously. If patients claim that they’ve paid but didn’t receive credit investigate it. If an employee tips you off that something isn’t right check it out. If you sense that things just aren’t adding up, don’t dismiss it. Ignorance could cost you thousands if not millions of dollars.

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