2.19.10 Issue #415 Forward This Newsletter To A Colleague

Two Dentists: One of You Will be Embezzled
by Sally McKenzie CEO
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As small businesses, dental practices 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, and that trust, sadly, encourages a dishonest employee to take advantage of them. It also makes the crime all the more devastating for the doctor.

It is estimated that one out of two dentists is embezzled, and the average loss is $50,000. In the dental practice, the most common methods of embezzlement involve stealing cash, checks, and supplies. So how do you protect your business from a fraudster? Read on.

First and foremost, practice owners must divvy up the financial duties. Second, the doctor must be actively involved in monitoring the finances. Yes, you may want to only do the dentistry, but this attitude is inviting disaster. One of the greatest deterrents to theft is when a prospective perp knows s/he is being watched. 

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. Trust but verify, particularly when it comes to confirming daily deposits and collections recorded.

Review your daysheet daily as well as the deposit. Pay attention to route slips. Compare the appointment schedule to procedures actually posted. Pay close attention to adjustments and make sure you know why they are being made. If there are increases in refunds or write-offs or missing documents – check it out. Print and review an audit trail report daily or at least weekly. It reflects every transaction that has transpired in the office since the last printed audit trail. In addition, generate a monthly report 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.

Each month, review accounts payable and purchasing functions. Examine bank statements and credit card statements carefully. In addition, periodically check out Explanation of Benefits and track treatment and payment through the practice ledgers and patient records. Sit down with your accountant and review financial statements. Watch for trends that appear irregular as compared to other dental practices.

The doctor must take an 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. Mark all invoices as paid so that they cannot be submitted twice. 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. Make it office policy that all employees 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. Nearly half of the cases in the Association of Certified Fraud Examiners’ (ACFE) 2008 Report to the Nation on Occupational Fraud and Abuse were uncovered by a tip or complaint from an employee, customer, vendor, or other source. 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.

Consider running credit checks on current and prospective employees. According to ACFE these may be the least common form of background checks, but they can be the most useful in identifying individuals under financial pressure and/or those living beyond their means, which are key motivating factors for those who commit fraud. Periodically conduct surprise audits. And above all else, pay attention. Do not turn over your practice finances to one “trusted” employee.

Interested in speaking to Sally about your practice concerns? Email her at sallymck@mckenziemgmt.com. Interested in having Sally speak to your dental society or study club? Click here.

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