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Practical approaches for embezzlement protection

June 20, 2022
David Harris and Scott Clifford say it is relatively easy to build a model of financial oversight that is neither complicated nor time intensive. They explain the basic elements and how to accomplish them efficiently.

At times we say, “Some dentists monitor their finances effectively, and then there are the other 80%.” It is well established that dentists who are oblivious to the financial operation of their practices are more prone to embezzlement, so why is compliance with this basic element of ownership so low?

When dentists with embezzlement concerns call us, we probe into the monitoring being performed, because this often provides clues to the methodology used to embezzle. When we explore, two central themes emerge. Some dentists say that the clinical output required of them, and their otherwise busy lives, leave them insufficient time to devote to practice numbers. Others (sometimes sheepishly) tell us that they simply were not taught how to oversee their practice’s finances in dental school or anywhere else. There is probably a third cohort who simply have no interest in this topic at all, but they are unlikely to derive much benefit from this discussion.

Here's more information about embezzlement

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Burglar-proof your practice

The good news is that it is relatively easy to build a model of financial oversight that is neither complicated nor time intensive. In this article, we’ll explain the basic elements and discuss how to accomplish them efficiently.

Financial monitoring

There are three building blocks for monitoring your finances:

  1. Ensure that transactions are recorded accurately in the practice management software.
  2. Verify that the correct amounts are deposited.
  3. Articulate daily to monthly information.

Building block no. 1: Accurate recording

Your practice management software performs the clinical and financial recordkeeping for your practice. Inaccuracies, whether caused by carelessness or deliberate action to conceal theft, will invalidate all subsequent monitoring steps, so confirming the accuracy of information entered into the practice management software is foundational.

There are two places where information is entered in your software. Invariably, payment information is entered by front desk staff. In many practices, clinicians enter treatment codes contemporaneously with treatment. However, in some practices, clinicians record treatment on paper for posting by front desk staff—possibly as a throwback to the days before operatories had computers. Obviously, the probability of inaccuracy (either deliberate or from an inability to read a doctor’s handwriting) is much higher when front desk staff enter the clinical codes.

If your practice is one of those legacy offices where paper charts or routing slips communicate the treatment performed, the way to increase accuracy of rendition is to have each doctor, assistant, and hygienist enter treatment from their operatory. Even if you are not ready to adopt electronic charts, this simple step expands the division of duties in your practice and goes a long way toward ensuring accuracy of your records.

The most important monitoring document is the day-end report from your practice management software. This report summarizes fees charged, amounts collected, and adjustments applied. There is no substitute for this information being properly reviewed; simply giving the report a 30-second glance and throwing it onto the pile of papers on your desk is inadequate. To be meaningful, this review must be immediate; looking at Monday’s report on Wednesday is not sufficient.

The burden of this review can be shared by having each clinician check his or her own work. Each dentist, hygienist, and assistant should receive a report of the work they or their dentist performed and sign to attest to its accuracy. The reviews by assistants act as a double-check on their dentists’ work. Remember that a hygienist’s or assistant’s review is limited to procedures; they cannot assess amounts paid or the appropriateness of adjustments.

Practice owners need a full practice report to review both their own productivity and adjustments and payment information for those who are unable to review these things for their work. The practice owner should sign the report to establish that it was the one he or she reviewed, and then put it in a safe place.

Building block no. 2: Verification of deposits

Once you confirm the integrity of the information contained in your practice management software, then you can ensure that the deposits correlate with collections. This task is complicated by the variety of payment types and by timing differences that result in items being recorded in the software on different days than when the payments are deposited to your bank. One source of timing differences occurs when patients pay by credit card. These payments are captured immediately in your practice management software, but normally take several days to reach your bank. Automated deposits also create timing differences but in the opposite direction; these funds hit your bank before being recognized by your practice management software.

Your administrative staff performs an activity called daily balancing, where the deposit is confirmed to equal collections according to the practice management software. In the old “pegboard” system that predated computerization, oversight involved the doctor replicating the office manager’s work by daily verifying that the deposit equaled recorded collections. With computerization, the concept of daily doctor oversight typically continued. While daily oversight can catch dishonest acts at the earliest opportunity, it is not time-effective, and the increasing proportion of deposits carrying timing differences complicates the calculation and prevents the verification being done in real time. A proper review cannot be performed at the end of the day; it must be deferred until delayed amounts have been deposited.

The simplification adopted by some practice owners is to only validate the physical deposit of cash and checks and ignore the electronic components, such as credit card payments and direct deposits. This partial oversight will not work.

A better approach is to switch the oversight from daily comparison to a monthly correlation between collections and deposits. To be clear, we are not suggesting a change in the staff’s daily balancing activity, only in how the practice owner supervises the activity.

The monthly approach offers several advantages. First, it is considerably less work to do this only once a month, even with more data, than to do it 15–20 times a month. Second, looking at an entire month at once allows most timing differences to self-correct, meaning that the only timing issues needing individual examination are those that overhang the first or last day of the month. The third advantage of performing this monthly review is that it is far more amenable to being outsourced. Having an external bookkeeper or other person perform daily reviews is costly and burdensome; monthly outsourcing is more practical.

The downside of moving from daily to monthly oversight is that deposit shortages could persist for a month before coming to your attention, but this concern is purely theoretical. If a would-be thief realizes that deposits are being compared with the practice management software, rather than create a visible shortfall in the amounts deposited, they will adapt, which often takes the form of making deceptive entries in the software to make the software understate the quantity of collections. One of the key purposes of the end-of-day review described earlier is to look for entries that are intended to cause the software to understate collections.

Building block no. 3: Articulation

A thief who realizes that you are looking at reports daily will quickly decide that making after-hours or weekend transactions is a way to avoid your scrutiny. Protecting you against off-hours postings is the role of the third leg of our oversight triangle: articulation.

Dentists understand articulation where the mandible and maxilla should enjoy a certain relationship. Financially, articulation means that, if your office was open 18 days last month, adding up the totals for production, collections, and adjustments for those 18 reports should exactly equal the totals from a month-end summary report. If they do not, something was posted to your software that is not contained in the 18 reports you reviewed, and the implication should be obvious.

While confirming articulation may seem like a tedious process, there are a couple pieces of good news. First, we have developed a spreadsheet that automates addition of the daily totals, which we can give you upon request. Second, this is purely a mechanical process requiring little judgment and is ideal for outsourcing to an external bookkeeper (or your son or daughter who is looking to earn money for college tuition).

Embezzlement protection doesn’t have to be intimidating

When you break financial oversight into its components, shift the deposit verification from daily to monthly, and consider outsourcing, it doesn’t seem quite so intimidating, does it? Embezzlement victims learn the hard way that employee theft is facilitated and perpetuated from lack of oversight, but now you have a workable framework you can use to protect yourself. Go do it!

Editor's note: This article appeared in the June 2022 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.

About the Author

David Harris, MBA, CFE, CFF, CMA, CPA, FCPA

David Harris, MBA, CFE, CFF, CMA, CPA, FCPA, has the coolest job in dentistry: he gets to catch those who steal from dentists. A youthful rule-breaker, he uses his unrivaled understanding of the criminal thought process to help educate and protect dentists. Harris is CEO of Prosperident, a licensed private investigator, forensic CPA, certified fraud examiner, and the author of Dental Embezzlement: The Art of Theft and the Science of Control.

Updated April 29, 2022

About the Author

Scott Clifford

Scott Clifford is a supervising examiner at Prosperident.

Updated April 29, 2022   

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