The Association of Certified Fraud Examiners (ACFE) publishes a biennial Report to the Nations on Occupational Fraud and Abuse. Occupational fraud can be defined as “the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.”1 This report represents a summary of the results of cases reported by ACFE examiners over the prior two years.
The first topic covered in the 2016 report is “The Cost of Occupational Fraud,” which summarizes the financial damage that occupational (employee) fraud causes. Of the 2,410 cases of occupational fraud included in the 2016 report, 30.1% of victim organizations had less than 100 employees. Of these cases, the median loss reported was $150,000.1
In a 2016 guest article in the Prosperident e-newsletter, Sandy Baird, MBA, noted the most significant way to avoid being embezzled by an employee.2 She listed six specific steps you can take to minimize the risk of hiring an embezzler. While nothing can guarantee that you will be safe from embezzlement, following her recommended steps goes a long way to ensure that you have done as much as you can to bar the embezzler from the door.
No procedure comes without some cost—in time and dollars. In this article, we examine the cost of these steps compared to the potential risk of loss by not following them. The components of the cost estimates of the steps are as follows:
• Dentist time: $400 per hour (This cost varies, of course, depending on location and specialty. This amount is an average of production loss and net income per hour.)
• Staff time: $16 per hour (As mentioned above, this varies.)
• Outside service cost: Varies with each step
• Materials: These costs (e.g., paper, record storage) are deemed immaterial and are excluded.
Before we discuss the steps, note the following two points: (1) By hiring an employee, you have invited that person into your business, livelihood, and retirement funding. Ideally, the employee performs his or her tasks to the benefit of both the employee and you. The responsibility to ensure that this happens is yours. (2) Most (if not all) embezzlers are liars. They have to be.
Review your business’s code of conduct or code of ethics—it should be fresh in your mind as you begin the hiring process. Your policies should provide an establishment of good faith compliance with federal, state, and local laws. Your code of conduct should be displayed on your website and a copy should be given to applicants. This sends the message to the receiver that the business maintains an environment that fosters respect for others and is intolerant to those who act otherwise.
Step one: Employment applications
Where do the applicants come from? Applicants can come from people you know, such as your network from study clubs, memberships, colleagues, and professional associations. When an applicant is referred to you, they will usually work harder to please. Beware of the employee referral. Friends working together can create a scheme and cover-up.
While you may already have the prospective employee’s resume in hand, Ms. Baird recommends that you ask him or her to complete an application in your office. When comparing this request to the resume provided, there may be inconsistencies that require explanation.
Estimated time cost: 1 hour and 30 minutes to develop questions (one-time expense), $24
Estimated outside cost: None
Step two: References
A well-written and well-presented resume and job application along with an impressive interview are not enough. Always check employment references. The point of checking references is to secure outside verification of what the prospective employee is telling you. Because former employees can sue for defamation if false or negative information is released to a potential employer, the prior employer’s response to the inquiry is generally generic and limited to date of hire, termination date, and job title. Clearly, this has limited value. A recommended question is, “Would you rehire him or her?” If the response is “no” without explanation, you may not be able to find out more from that source, but it is clear that additional steps in other areas are necessary.
Estimated time cost: 30 minutes, assuming that the dentist and coordinator check employment references together, $208
Estimated outside cost: None
Step three: Interviews
Ms. Baird recommends four interviews: (1) an initial interview with the practice coordinator, (2) an interview with the dentist and practice coordinator, (3) a lunch interview with the team, minus the dentist, and (4) an experiential interview in the office. Multiple interviews allow for comparison of information for consistency. Also, interviewers may pick up on different aspects of what has been said.
The objective of the first interview is to weed out those not suited for the position, and the practice coordinator should have specific training to make this call.
The second interview (with the practice coordinator and dentist) should involve predetermined open-ended questions designed to assess the candidate’s abilities and communication skills. A set list of questions ensures uniformity among potential employees and keeps interviewers on task, while protecting the interviewers from asking prohibited questions. The second interview can be the most productive time spent, or the least. The difference depends upon the established structured questions and how susceptible the interviewers are to deceit. Remember that embezzlers are liars—good liars. Some embezzlers have internalized their stories so well that the behavioral red flags of deceit are imperceptible by the average person, and even by some with training.
The team lunch interview is not likely to uncover clues that the candidate has embezzled in the past unless there are inconsistencies in what has been said by the candidate regarding work or lifestyle. Note, however, that such “clues” are not proof of anything, merely invitations for further inquiry. It is also important that the office coordinator is included in all interviews to serve as the “consistency check.”
The experiential interview may provide clues that the candidate is a potential embezzler if the he or she seems overly concerned with the nonclinical aspects of the position.
Note that, for legal reasons, there are multiple questions to avoid, such as the following: Have you ever been arrested? Have you ever been treated for drugs or alcohol? Have you ever filed for workers’ compensation or have you had a work-related injury?
Estimated time cost: One hour each for the dentist plus office coordinator, 1 hour 20 minutes for a staff of five, $520
Estimated outside cost: Lunch for six, $100
Step four: Background checks
Background and credit report checks are another outside source of information about a prospective employee. There are different levels of background checks, and the costs vary.
State law governs employer background and credit check procedures. Businesses should outsource this step to an entity that is familiar with applicable state laws. In a properly designed application process, the prospective employee has already given authorization for the background and credit check. Note that if a candidate has previously embezzled from another dental practice and the dentist did not prosecute, it will not show up in a background check.
Credit reports used for employment purposes show credit history without including personal information such as date of birth or other information that is private for employment purposes. They can provide clues to lifestyles that require an extraordinary amount of cash, but their use can be controversial. Several states have laws that affect the use of credit reports for employment purposes. This is another area where the use of a professional is recommended.
Estimated time cost: 30 minutes, $8
Estimated outside cost: $75
Step five: Internet search
As we all know, the reliability of the information provided by an internet search is questionable. Ms. Baird suggests googling a prospective employee’s full name and address. This could include information regarding arrests, bankruptcies, disputes, and more. She also recommends reviewing the candidate’s Facebook page. Photos could provide clues (but not proof) of a lifestyle inconsistent with information that the applicant provides. Note that this step is not a substitute for a background check.
Estimated time cost: 30 minutes, $8
Estimated outside cost: None
Step six: Drug testing
A complete discussion of the costs of employee drug use is beyond the scope of this article, but know that the costs in time lost, in subpar work and its fallout, in negative impact on the team, and in employer medical expenses are significant. Here the discussion is limited to the fact that the cost of drugs to the user is great as well. Frequently an additional source of funds is necessary.
If you make drug screening part of your hiring process, it should apply to all candidates to avoid the appearance of discrimination. The agreement to submit to the drug screening should also be part of the initial application. Drug screening of all applicants and employees is an important show of force for your code of conduct. As Ms. Baird noted in her article, the notification of testing at the initial stage may result in self-elimination of candidates for whom that would be an issue, thus saving further time and costs for the employer. Quest Diagnostics (employersolutions.com) provides valuable information about the “whys” and “hows” of drug screening. Price varies according to the type of test and drugs involved, but generally, the cost is between $50 and $60 per test.
Estimated time cost: None; candidate goes to collection site
Estimated outside cost: $55
It is possible that your practice will never become a victim of employee embezzlement. Is it likely that the same will be true? That is a harder statement to make. Ignoring for a moment the actual amount embezzled, if spending $998 would keep an embezzler outside your office and save you the cost in lost time and dollars involved in investigation and prosecution, wouldn’t it make sense to follow Ms. Baird’s six steps?
1. Report to the Nations on Occupational Fraud and Abuse 2016 Global Fraud Study. Association of Certified Fraud Examiners website. https://s3-us-west-2.amazonaws.com/acfepublic/2016-report-to-the-nations.pdf. Published 2016.
2. Baird S. How do you stop an embezzler? Don’t hire one! Prosperident website. https://www.prosperident.com/guest-post-sandy-baird-how-do-you-stop-an-embezzler-dont-hire-one/. Published January 20, 2016.
Sandy Baird, MBA, is a practice management consultant, coach, and speaker. With 35 years of in-office experience, she offers valuable management services and practical advice. Her passion is to help dental teams conquer challenges, exceed goals, and realize their full potential. Contact Sandy at bairdconcepts.com, or at sbaird@bairdconcepts.
Teri Dervenis brings over 30 years of experience in the dental profession. As a territory sales manager for Patterson Dental, Teri was known as an account advisor for 15 years, helping dentists make their vision a reality. Teri is an associate member of the ACFE and serves as secretary for the Indianapolis chapter. Contact her at firstname.lastname@example.org.
Jean Patterson, CPA, CFE, owner of J Patterson Consulting LLC, has been a CPA for over 30 years and a certified fraud examiner since 2009. She has advised dentists regarding accounting, tax, and fraud issues and can be reached at email@example.com.