Note: The Colorado Dental Association recently sent an email alert to members regarding a $200,000+ embezzlement that occurred in a dental practice related to processing credit cards. We would prefer not to provide details here as anyone who might read this could duplicate the method. If you are a dentist, please call CDA staff member, Rose McKee at (303) 996-2847 to learn more.
Here is some great advice on how to prevent embezzlement...
How Deep Are Your Pockets? Are Periodontal Disease and Embezzlement Similar?
By Debra S. Lane, CPA, MT
You tell your patients that periodontal disease can often go undiagnosed for years, and that they may not be aware of the problem until their gums and the supporting bone is seriously damaged. You tell your patients that periodic examinations and good daily oral hygiene routines are the best way to control the disease.
And yet, even though you continue to disseminate this information, some of your patients choose to ignore your advice and preventative treatment until the damage is done. They just don't think it could happen to them.
Frequently, dentists suffer from the same myopia. Experts estimate that more than 50% of dentists are embezzled with an average loss of $50,000. But, because embezzlers often steal relatively small amounts over a long period of time, the misappropriation of funds goes unnoticed.
Similar to periodontal disease, embezzlement can be controlled. It requires your involvement. It requires periodic examinations. It requires good internal controls.
The reality is, if you have employees, you have a high risk of being a victim of embezzlement. According to the Denver District Attorney's Office website,
"embezzlement is at epidemic proportions accounting for 20 percent of all cases filed by the Denver District Attorney's Economic Crime Unit." In 1970, one in 200 employees was dishonest; today, one in six employees is dishonest.
How Embezzlement Occurs
First, employees must have the opportunity to steal. Second, they must have a motive.
Third, they must rationalize to themselves that they either deserve or have to steal from you.
Opportunity is the easiest area for you to control in your practice. However, keep in mind, if employees want to steal from you badly enough, they probably will –but you can make it more difficult for them.
The most common method of embezzlement in a dental practice occurs through theft of cash, checks or supplies. Here are a few embezzlement situations that may occur.
Pocket cash from patients
Stealing petty cash
Lapping checks - cash or checks are removed from the daily deposits and replaced with subsequent receipts.
Insurance fraud
Forging endorsements
Writing duplicate accounts payable checks or writing checks to phony vendors
Stealing supplies and re-selling or returning to vendors for refunds that are pocketed by employees
Embezzlement also occurs because dentists fail to report these crimes to law enforcement officials. This failure allows the criminal (yes, embezzlement is a crime) to steal again from another dental practice.
Involvement
Dentists spend their days practicing dentistry and frequently provide little or no oversight for staff members who manage their businesses. In this often-occurring situation, embezzlement can thrive. Controlling embezzlement requires your involvement. Watch for key indicators in your office.
Is financial information timely? If not, why not?
Are employees resistant to any change in the present accounting systems?
Do you have large numbers of unexplained adjustments?
Have your collections slowed?
Have your cash deposits declined?
Do you have employees who refuse to take vacations?
Do you employ staff that resent your income or lifestyle?
Do you have employees who always work late and/or take work home?
Do you have employees who always seem to have cash on hand, and/or appear to live above their means?
Do any of your employees treat office procedures as an annoyance?
Protect your company and personal documents
Keep important company documents such as incorporation documents and employer identification numbers under lock and/or off-site
Do not allow a signature stamp to be used in your office
Personally sign all checks
Print checks with a type font 12 points or larger
Enforce mandatory vacation policies
Check references on all new hires
Conduct background checks on all new hires
Bond employees
Insist that all records remain on the premises of the practice
Take an interest in the financial operations in your practice - be visible
Periodic examinations
Controlling embezzlement requires periodic examination on your part.
Daily
Review your daysheet
- Compare route slips and/or appointment schedule to procedures posted
- Verify daily deposits with collections recorded
- Scan adjustments - know why they are being made
- Send a copy of the collections, charges and adjustments to your CPA for reconciliation
Weekly
Review your audit trail reports for changes in procedures, receipts and adjustments
Verify employee time records
Monthly
Monitor accounts payable and purchasing functions
Review bank statements and credit card statements thoroughly
Randomly review EOBs, and trace treatment and payment through the patients' ledgers and charts
Review financial statements with an accountant, and pay attention to trends outside the "norm," compared to other dental offices
Internal Controls
Improving your internal controls can greatly reduce your risks.
Close the books and dental software system timely
Review and authorize adjustments
Endorse payments received immediately
Never sign checks without supporting documentation
Mark all invoices as paid so invoices cannot be submitted twice
Have all bank statements mailed someplace other than your office, such as directly to your home or CPA
Activate the audit trail function in both your accounting and dental software systems
Use passwords and require employees to keep passwords confidential
Conduct surprise audits
The best method for reducing the risk of embezzlement is properly separating financial tasks among your staff. Make a list of financial duties that need to be handled in your office. This list may include some of the following tasks:
Opening mail
Listing and copying checks
Posting cash and check receipts
Posting charges
Posting adjustments
Making deposits
Preparing payables for payment
Opening bank statements
Reconciling bank statements
Identify who currently performs the tasks you have listed. You are trying to identify task conflicts. For example, you do not want the person who prepares the payables for payment to open and balance your bank statements. Reassign tasks to separate responsibilities.
Like periodontal disease, embezzlement may not always be prevented, but with a few basic changes in your practice operations, it can be controlled.
REPRINTED with permission by the Colorado Dental Association.
Debra Lane, CPA, MT, is the president of Lane and Associates. For more information, contact Debra at (303) 841-2602 or www.lanepccpa.com.
