According to an American Dental Association survey, 35% of dental practices have been embezzled once and 17% more than once. The actual percentages are probably much larger due to underreporting.
Based on his experience, David Harris, Certified Fraud Examiner and CEO of Prosperident, believes that more than two out of every three dentists will eventually be victims of fraud. Here at CWA, we have noticed the same trend. In fact, almost every financial planner has had at least one experience going through a fraud case with a client.
With all the cash and electronic transactions changing hands, valuable equipment and exploitable personal data to be had, dental practices are ripe targets for criminals. Even petty theft of consumables like toothpaste and floss can be an entry point for major embezzlement.
“I’ve seen everything from skimming of petty cash to two-million-dollar embezzlement schemes,“ says David.
Every case is unique, but there are common characteristics. David was able to identify four common themes for our CWA readers.
1: Failure to do full background checks
Chronically understaffed and often forced to hire in a hurry, background checks are the exception rather than the rule when it comes to office staff hires. David says that, “doctors think they are better judges of character than they actually are.” They tend to make a quick hire based on their judgement, when a little due diligence could reveal that a prospective office manager is actually a serial embezzler. Many dentists confuse a “criminal records check” with a background check; David says that a proper workup includes things like a drug test, a credit history check, and of course conversations with former employers.
Dental practice embezzlers cannot be spotted based on visual appearance alone. Just take a look and you’ll see what David means when he says, “criminals don’t always look like criminals.”
It’s also important to note that even if someone has passed a background check or has worked in the office for years without incident, it doesn’t mean you no longer have to be vigilant. David identifies two types of thieves, the “needy” and the ”greedy”. Needy thieves steal because of circumstances like illness, divorce or a spouse’s job loss. Greedy thieves steal because they feel unappreciated, perceive pay inequities or simply to prove their own twisted point. Circumstances change. People change. Have processes in place to monitor employees who handle money at all times.
2: Lack of doctor involvement in the “business” of their practice
“Nobody becomes a dentist because they want to run a small business,” David said. “Dentists tend to be reluctant business owners with little patience for the minutia of day-to-day operations.”
Giving limited attention to the business of the practice leaves owners open to opportunistic criminals and disgruntled staff.
It’s understandable that a doctor would rather delegate non-clinical aspects of their job, but David always reminds doctors that there’s a difference between delegation and abdication. Owners have to be able to trust their employees, but need to be able to verify that trust.
By being involved in the business of your practice you can help assure there’s no funny business.
3: Focusing on the numbers and ignoring behavior
“While many dentists believe that their accountant is at the front line of embezzlement protection, David argues that the reality is somewhat different. David explains that most embezzlement is concealed inside a dentist’s practice management software. In these cases, if a staff member has been cooking the books, then anomalies are tough to spot.
David points out that the majority of embezzlers are caught not because of any financial irregularity, but behavioral irregularities.
“Published surveys indicate that behavioral anomalies are responsible for the detection of more than two thirds of embezzlements.”
The $40,000 a year receptionist who never takes vacations who shows up in a new BMW. A bookkeeper who always finds a way to be alone. The alarm system entry log shows staff coming in during off hours for no good reason. These are just a few of the warning signs that you need to look for. “Get to know your people and focus on the way thieves act,” says David. “Catching a crook has very little to do with numbers.”
CWA Planner Ed Daude still remembers a frantic Saturday morning call from a client moments after noticing that a long-time employee was embezzling from her practice. “Financial loss aside,” Ed recalled, “the betrayal of trust by this employee was the hardest part.” Since that first experience, Ed says he always has this situation in mind during his consults, and commonly reminds his clients to always be on guard for behavioral abnormalities.
4: Embarrassment leads to underreporting
Nobody likes to be taken advantage of, but for a highly educated and altruistic individual like a dentist it can be particularly tough to deal with.
“Dentists come from a culture of accountability,” says David. “If something goes wrong in their office, they have been taught that the blame rests with them.”
He fields between 20-30 calls a week from dentists at various levels of discovery. “All of them feel like they failed, but they aren’t failures. They are victims,” however he warns, “if they fail to report it they could be setting up the next victim by allowing a criminal to get away with it.”
If you suspect fraud, a call to an expert fraud examiner who focuses on dental practices is the first one you should make.
What can you do to prevent fraud at your practice? Unfortunately, it’s impossible to completely prevent.
“There is no magic fraud prevention pill,” says David. “There are a lot of ways to steal and you can’t block them all, and control measures do not convert thieves into honest people. You need to shift your mindset from prevention to monitoring.”
To give his clients a better understanding, David uses the analogy of a leaky ship. “It’s not about building a ship so tight that it never leaks. It’s about catching a leak before it sinks your ship.”
CWA encourages each doctor to keep these four embezzlement precautions in mind as you continue to manage your business. There are immediate steps to take once fraud is suspected. Reach out to CWA if you fall victim to dental embezzlement, and we can guide you through the process.