Embezzlement in the dental office
Larry Wintersteen, PhD
Traditionally, I am not a negative person, nor do I want to focus on negative subjects. However, it makes sense to periodically consider the variables of fraudulent activity in the dental office. Please accept and realize that your dental practice is not immune from the ugly possibility of embezzlement. It is estimated that one-third of all workers steal from their employers. As a practice-management consultant since 1974, I am sad to say that I personally have witnessed an alarming increase in embezzlement heartache. It is the private stories, the affected lives, the periodic questions, and the frequency in these episodes that have prompted me to write this article.
I almost am hesitant to share these guidelines. My hesitancy comes from the fact that this information is being read by those wanting to protect themselves, but it also is being read by the thieves or potential thieves. Consequently, I must work on the premise that integrity is the primary motivation for reading this article.
Where does it start?
I personally interviewed several individuals who have been caught and prosecuted for embezzling funds in the dental office. Their remorse, justification, and personal stories are all different. When asked to qualify their thinking and behavior, they shared the following quotes:
"It was just easy to take a little bit at a time."
"Dr. always took money from the petty cash and never paid it back. I guess I felt like this practice was just as much mine as his."
"The Dr. wastes more money than I ever took."
"I figured he gave so much dentistry away that he surely wasn`t going to miss a few dollars here and there."
"He never appreciated what I did, nor would he even consider a raise without my begging. I just decided to give my-self a raise. To hell with him!"
"Actually, I never would have been caught had I not taken a lunch hour."
Let`s talk about this last quote. It`s an insightful, true case history. This particular receptionist had been working in the office for approximately 15 months. She was the only full-time receptionist. Once in a while, she would have a helper. For the most part, she ran the front desk and compiled all practice reports. One day, when she was away at lunch, the telephone rang. The doctor happened to be expecting a call and quickly answered the phone. However, it was not for him. It was a patient wanting an itemized statement to verify receipt of personal payments to the office. Also, the patient was trying to verify that his son had given the receptionist $100 in cash during his last visit. The last statement he received simply indicated a balance due. The patient was confused about whether the payments received were cash, patient check, or insurance check.
The doctor thanked the patient and assured him that the itemized statement and an explanation of payment would be in the mail promptly. He shared this patient`s request with the receptionist upon her return from lunch. "I will take care of it," she said. "I do remember the son giving me $100." The next day, the doctor asked the receptionist, "How can I answer those questions for a patient if I were to pick up the telephone again? For example, how do we keep track of cash payments?" "That`s easy," the receptionist replied. "You simply refer to the cash-receipt book and match it to the computer deposit entry." She then showed the doctor the cash-receipt book and where to go in the computer. Oops, there was a $100 adjustment in the computer, but not a payment. Funny thing, there also was no entry in the cash- receipt book. Of course, she gave all sorts of reasons why she had not finished the transaction and again assured the doctor that she would "take care of it."
The doctor smiled, said "Thank you" ... and went to his office, where he called his accountant. "We need to talk," he said. For the next week, a team of three people examined and evaluated all money and patient TX transactions for a six-month period. The evidence was conclusive ... there was a thief in the office. The doctor and his accountant confronted the receptionist.
She could not argue the documented evidence. She was caught. She was assured that they would continue to audit all of the records since her first day of employment. The end result was alarming. Over a 15-month period, she personally had taken over $50,000 from the practice that was documented. Who knows what else she covered up? I will spare you the ugly details, other than to say she had very little remorse, the money was completely spent, she received the maximum reprimand, and she devastated her husband and family.
You must actively protect yourself. This requires discipline and consistency. Hopefully, the following ideas can prevent you from becoming a victim of fraudulent activity:
v Be an active leader. It is important that you participate in the management of the front desk. Act like you care about the business end of the practice and understand the business systems that are utilized in your office. All policies and practices pertaining to handling money in your office must have your sanction, review, and approval. Put procedures in writing.
v Review your numbers. Discipline yourself and calendar a routine review of your financial statements and practice statistics. Learn how to retrieve and track practice data. Interpret your numbers and confirm their workability and feasibility. Periodically, unannounced, reconstruct a day. Make certain that you can track all patients who have been seen in a given day and how the monies or postings were recorded. Establish a clean paper trail. Cash-receipt books must have a numbering sequence.
- Monitor your bank statements. Make certain that your staff knows that you look at your monthly bank statements. In fact, you should be the person to open your bank statements and review them.
- Control adjustments and write-offs. Utilize your computer`s access functions to control adjustments in patient accounts. Use security passwords. All adjustments must have an ID number entered by the adjustment. There must be a personal accountability trail with adjustments.
- Post times. Daily changes on the computer are possible up to midnight. At midnight, the new calendar and time change will lock out prior date changes without a special password and/or permission.
- Review banking records. Inspect all canceled checks for unusual amounts, payees, or endorsements. Make certain that you have your checks returned with your statement each month. Insist on dated and time-stamped receipts from your bank. Match receipts to deposit slips and to daily receipt reconciliation.
- Review write-off records. Have a daily review of the write-off transaction journal. Carefully evaluate professional-courtesy adjustments. Someone must be able to explain "why" for each adjustment and have a clean paper trail.
- Review refunds. Patient credits should be refunded promptly. Approve and understand all refund checks. Check the refund against the patient-account record.
- Check error frequency. If there is an abundance of numerical errors, this may be a cover-up for other activity. If a traditionally effective employee starts making frequent mistakes, find out why. If there are a lot of errors, you must supervise, monitor, and train more carefully.
- Review invoices. Never sign a check without reviewing its corresponding invoice. Record the invoice on the check and cross-reference to avoid double payment.
- Plant bait. If you are monitoring or suspect foul play ... plant and mark some bills. See what happens.
- Stuff and mail. You should sign the checks, stuff them, and seal the envelope. Then, have a person other than the one making out the payables mail the checks. Ideally, the payables should be mailed by you or your spouse.
- Conduct accounts-receivable reviews. Establish a set time with your receptionist to review all aged accounts (weekly/monthly). Look at each account with your receptionist. Talk about aged accounts and payment history.
- Review adjustments. At least once a month, review an alphabetical list of all write-offs, adjustments, allowances, and bad debts. Make certain the receptionist or person working the accounts receivable is involved with this review.
- Budget. Take an active part in the budget process. Establish a budget for each business year. Monitor expenditures on a monthly basis. Evaluate your overhead expenditures and percentages per category. Make certain your receptionist knows that you look closely at all payable transactions and the canceled checks.
- Look at the checkbook. If someone else is entering your payable and deposit transactions into the checkbook, make it a point to look at the checkbook often. Absolutely do not allow correction fluid to be used in the checkbook. If anything is voided, simply draw a line through the entry ... so it still can be read. Make certain that checks are in numerical sequence, and don`t carry blank checks around in your purse or wallet for long periods of time.
- Bond employees and check references. Employees who are individually involved with handling practice monies should be bonded. Also, make certain that your practice insurance addresses the possibility of embezzlement coverage. Check out references carefully before hiring a person to handle your money and practice accounting. I stress the importance of telling all employees the strong consequences of being dishonest in the practice. Establish a reputation for not tolerating theft. Prosecute. Use applications provided by a bonding company to serve notice to employees that they are being watched.
- Conduct a quarterly review. At the end of each quarter, set up a review time with your accountant or another professional advisor. A third party often can zero in on unusual amounts or percentages. If so, you then can investigate a little more carefully. Remember the importance of discipline and establishing regular calendar-review dates.
- Cross train. No one person should be empowered with total control of your front desk. Cross train for coverage to ensure an extra set of eyes and ears. If you do not have another person to cross train, then you or your spouse should understand the basic essentials of the front desk, especially the receiving and posting of money.
- Avoid "alone" time. Many schemes are developed when the employee is alone in the office. Insist that employees arrive and depart with the other staff or the doctor. It may be impressive to see an employee`s willingness to put in extra time ... but, it also can be very damaging. Having other people around can deter wrongful manipulation of figures, postings, and reports. Also insist that receptionists take vacations.
- Make daily deposits. Never let deposits accumulate. All postings must be done on the day of treatment. Make certain that your deposit book and your computer- deposit report match (dates, amounts, people).
- Make electronic deposits. Take advantage of direct-electronic deposits from insurance companies, finance companies, and banks when available.
- Have a cash practice. Join the many practices that are rendering services for cash only. Then, you have to make certain that your production is being billed out in full and that your deposit slips match the production report. Again, track your posting and the form of payment received.
- Pay a fair compensation. Be fair and competitive in your staff compensation. Good compensation potentially can deter temptation.
These are but a few precautionary measures you can take to help prevent embezzlement. The key to effective prevention is being involved with the business. Stress the importance of accountability, responsibility, and consequences with staff. Employees must know you are keeping your eyes and ears open for inappropriate behavior. Consequential communication can be threatening to some, but most employees want to know the rules, regulations, and consequences of inappropriate activities.
How to steal from a dentist
People have various motivations and rationale for embezzlement. However, their techniques are even more diversified and complex. Oftentimes, a dentist does not know what to look for. In fact, he or she is afraid to look for fear of destroying trust or team spirit. Yet, through controlled staff interaction and private examination time, you can be safe rather than sorry. Prevention through awareness is valuable and helpful. I constantly am amazed at how creative people are in order to be dishonest. Here are just a few common, fraudulent practices. Don`t let them creep into your business:
- Altering dates on deposit slips to cover theft.
- Altering, voiding, or destroying cash receipts and taking the money.
- Billing stolen supplies to a fictitious patient`s account and sending them elsewhere.
- Charging patients` accounts with stolen money.
- Making out checks to personal debtors.
- Creating smoke-screen, pettycash vouchers.
- Doubling posted adjustments on patient accounts.
- Falsifying inventory to cover up theft.
- Forging signatures on checks at the back of checkbook.
- Giving adjustments or credit to fictitious patients.
- Giving favors to patients in exchange for "kickbacks."
- Issuing receipts on self-designated receipt books, then pocketing money.
- Misrepresenting hours worked.
- Not posting production and pocketing cash.
- Paying false invoices secured through collusion with suppliers.
- Pilfering funds by falsifying cash discounts.
- Scanning receipts and changing dates, amounts, and vendors on the altered receipt.
- Setting up a new bank account with employee name on signature card.
- Setting up fictitious patient accounts.
- Shipping supplies to an employee or relative`s home.
- Stealing clinical and business supplies.
- Taking postage stamps.
- Taking small amounts of cash.
- Using false paid-out receipts for paid-out items (personal receipts or receipts taken from garbage).
- Using previous vouchers and changing the date (cut-and-paste editing).
- Withholding cash by using false patient accounts.