The reality is that most people who embezzle are just normal, everyday people in whom you have placed your trust. Here`s what to look for and how to fight it.
Geoff Irvin
Let`s be honest. There`s not a more distressing subject to a dentist than the concept of an employee stealing money from the practice. Estimates show that employee dishonesty accounts for over $400 billion in business losses every year.
Small employers, such as dental practices, are particularly vulnerable. They lack the resources to engage in sophisticated workplace surveillance. The average dollar amount lost by a small business is essentially the same amount of money lost by large companies. The difference is that small companies cannot absorb the losses as readily.
Why does it occur?
A common stereotype is that people who steal money or goods from a business are career criminals who make their living by deceit and fraud. Clearly, a small group of people target practitioners for this reason. But most dentists will never meet a career criminal.
Embezzlers do not have "embezzler" tattooed on their foreheads. The reality is most people who embezzle are just normal, everyday people in whom you have placed your trust. This means the burden is on you to be aware and stay alert for the danger signs.
There are three distinct groups of embezzlers:
(1) The aforementioned career criminal.
(2) An employee with a lack of ethics, scruples and/or loyalty.
(3) An employee who has taken a wrong turn.
Career criminals are hard to spot and harder still to stop. Some of the techniques we will discuss will discourage these people from stealing from your practice. The second group, unfortunately, is a product of our times. Increasingly, people feel that there is no ethical or moral reason for not stealing from a business. It is "owed" to them for having to "put up" with the demands of an employer. Stealing is justified as a means of making up for the compensation to which they feel they are entitled. There is no rational argument for this behavior and, again, the only defense is the diligence of the employer.
The last group is the hardest to spot and is emotionally the hardest to deal with for most employers. This is an individual with whom you have established a finely honed relationship ... one who made some bad choices and quietly slipped into a pattern of fraudulent behavior. Since this employee has gained your trust and confidence, recognition of a problem generally takes longer and resolving the matter effectively can be an arduous process.
Enabling criminal activity
Dentists unwittingly assist employees in embezzlement by establishing office policies which are based on convenience rather than effective control.The necessary system of checks and balances is missing. Some of the ways they do this include:
- Abdication of management control.
- Failure to implement a system of checks and balances over critical functions.
- Failure to recognize and investigate the signs of embezzlement and failure to act when suspicions do arise.
- Failure to pursue and prosecute when suspicions are confirmed.
State and federal laws also make catching and prosecuting employees for theft and embezzlement a substantial problem. Employers usually are prevented by law from recovering losses by attaching pension plans, employee assets or by deducting such losses from owed wages.
Additionally, an accusation of embezzlement or theft without the appropriate proof could subject the employer to the prospect of being sued for slander or libel. Employers must act with great care while investigating to prevent this type of lawsuit.
Federal law restricts employers from using polygraph tests (which have no scientific value, but can be used to "pressure" a suspect into confessing the crime). Other "tests" such as hand-writing analysis and mail-order psychological testing for honesty have dubious scientific value and should be avoided.
Reducing Risks
Changes in the practice`s cash flow, profit margin, books, records, inventory or other documents could be a signal that an embezzlement problem is occurring. These changes easily can be disguised by the routine fluctuations common to all dental practices. It is very easy to explain away losses due to business fluctuations!
The following steps will help ensure that your financial affairs are kept secure:
(1) Effectively interviewing and checking a job applicant`s background before hiring. This is especially true for new hires from out of the area.
(2) Check credit references.
(3) Divide critical functions so that no one employee has access to the entire process. Example: check-writing should be segregated from account reconciliation.
(4) Never, ever give check-signing authority to one individual.
(5) Restrict access to credit cards.
(6) Occasionally change your daily routine. Embezzlers love people who are predictable.
(7) Personally audit different functions of the office procedures. Review accounts payable and receivable, inventory, insurance, etc.
(8) Be involved with your practice.
(9) Review all incoming checks and drafts.
(10) Deal with one bank and get to know your banker. Personally meet with the bank and implement a policy, which requires your personal approval on all major banking activities.
While we are on the subject of bankers and other advisers, remember that they, too, have their limitations. These people are not responsible for the daily operation of your business. You should not assume that your banker, your accountant, attorney, payroll service, etc., are watching your affairs closely enough to discover fraud.
Clearly, you do not want to establish an adversarial relationship with your staff members. Trust is a very important part of the dental-team relationship. But, there is nothing wrong with having some checks and balances in your procedures to ensure that the trust which you have worked so hard to establish is not violated.
Heed the warning signs!
What follows is a list of warning signs to be aware of when suspecting embezzlement.
These signs are not necessarily concrete evidence that fraud is being committed. But, just as smoking substantially increases the risk of oral cancer, an employee who exhibits one or more of these tendencies may be at an increased risk of committing fraud.
* Unexplained lifestyle. An employee who suddenly can afford cars, clothes and jewelry or is otherwise engaged in a lifestyle that cannot be readily explained by income or other factors, such as a wealthy spouse, poses a warning sign.
* Financial problems. Employees who always are in trouble financially or who are reckless or negligent in handling their money can present the same problem. They tend to borrow money repeatedly from co-workers and friends and/or ask the doctor to give them cash advances on their wages to meet their overdue bills.
Be especially aware of people in either the first or second categories. They may also have a substantial credit card debt. This creates pressures that can lead to dishonesty. An addendum to this is an employee who gambles excessively.
* Emotional problems and/or alcohol/drug abuse. People with emotional problems or who are using alcohol and other drugs inappropriately are extremely vulnerable to the temptations of mishandling money or engaging in fraudulent activity. A related problem to this issue is an employee with a problem family member.
* Refusal to take vacations or other time off. This could be the ideal employee - or someone who is afraid of being discovered. Most embezzlement schemes require the daily attention of the embezzler and many are discovered after an unplanned illness or accident.
* Excessive neatness or being overly "territorial" about their work. Again, this could be the ideal employee trying to do a good job - or someone who is keeping meticulous records to cover up some type of fraudulent activity.
* Unusually close relationship with a vendor. Kickbacks can be a powerful enticement for someone, since the money is not really coming from the doctor or the practice, but from sales representatives of outside vendors.
* Lack of ethics in other areas. Someone willing to file a false insurance claim for a car accident is willing to take money out of your pocket.
