Embezzlement wake-up call

It can happen to YOU!

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It can happen to YOU!

by Susan Gunn

As another spring dental convention wrapped up, I was perplexed once again at the lack of attendance by the actual practice owners - the dentists - at my sold-out QuickBooks® courses. Typically, more than half the class is composed of front office managers, who readily admit their bosses are clueless about QuickBooks, their practice-management software, or their actual day-to-day business.

So, after sending out a survey on the topic of embezzlement, the results did not completely surprise me. The consistent thread in all of the stories was the lack of business focus and oversight by the practice owner.

Wake up!Yes, it is convenient for someone else to be responsible for the business tasks you do not want to do, but is it worth taking the risk that your hard-earned dollars will be stolen by someone you trust? You must participate in all aspects of your business.

My survey did not specifically ask whether the practices had been embezzled or not, it simply asked the owners to tell their stories ... and tell stories they did!

Who responded to the survey? Respondents included staff, dentists, dentists’ spouses, and practice consultants. Many practice consultants told of noticing embezzlement warning signs while they were in the dentist’s office for a completely unrelated reason. One consultant developed systems and checks for a client after his practice had been embezzled. The dentist thanked her, but never implemented the procedures. She wasn’t surprised to later hear he had been embezzled again.

Who was the embezzler? You name it, assistants taking cash payments chairside, front office managers taking patient checks, spouses and family members taking from other family members, CPAs diverting funds … even the dentist! No one was immune.

How did the embezzler do it?A majority of survey respondents admitted no background or reference-checking was done prior to hiring the employee. Ultimately, the embezzler had too much control, worked long hours, and never took vacation time. These continue to be warning signs of practice embezzlement that every lecturer and author speaks and writes about on the subject of embezzlement. Yet, doctors continue to “trust their instincts” about new hires and do not perform background checks or call for references.

Another interesting note was how often the embezzlers stirred dissension in the office - bad-mouthing the dentist for paying low wages or bonuses or complaining about other staff members being incompetent. Be wary of employees who stir up bad feelings or negativity in the practice by routinely complaining about their co-workers or their bosses.

How much money was taken? From $35 to $900,000, with the average loss being $104,585. The monetary cost speaks for itself, but is secondary to the real cost - destroyed trust, time spent in discovery and recovery, shattered relationships, lost patients and revenue, bad press, and last, but certainly not least, health issues resulting from the ongoing stress. The emotional and physical costs of embezzlement often outweigh the financial cost. Multiple respondents sold their practices simply because they lost the heart to continue. Broken trust.

Over how long a period of time did the embezzlement go on?From one week to nine years, with an average of 23 months. Embezzlement is a crime of perceived need and opportunity. Most people understand there is a difference between want and need. Most respondents spoke of the embezzler’s unwise life choices and addictions. All saw the embezzler’s motives as greed for bigger, better, and more.

Embezzlement can happen in the blink of an eye. The act - in whatever form - often takes just a few seconds to perpetrate. Twenty-three months seem like a long time, but in actuality, the damage takes place within a few short hours during those 23 months.

How many hours were spent in the discovery and recovery process? From one hour to 360 hours. It takes much less time and money to perform background checks, call for references, and implement procedures than it does to recover from embezzlement.

Were the embezzlers prosecuted? Only 21 percent reported prosecuting the embezzlers. Of those prosecuted, 90 percent repaid the money they took. Several dentists did not prosecute because the embezzler was a relative. One did not prosecute because he and the embezzler were having an affair. A few practice owners did not prosecute because they were engaging in illegal business activities in the office (insurance fraud, employee fraud, illegal deductions) and feared being prosecuted themselves. Yes, it’s certainly hard for the guilty to prosecute the guilty!

Overall, the survey revealed five key points.

1) The dentist needs to be knowledgeable regarding practice software and accounting software. Hire a practice consultant or trainer to maximize security controls on your practice-management and accounting software. Schedule a half day with them and the practice owner alone. Have them show you specific reports you need to scrutinize daily, weekly, and monthly. “Getting the Most Out of Quickbooks in Your Practice” lists these reports and how to memorize them. Include these books in your reference materials and courses in your continuing education. Education is essential!

2) Implement tight controls on passwords. Only the dentist should have the administrator rights to any software. That password should not be known by anyone or used by anyone but the dentist. Passwords should not be written on sticky notes and attached to the computer monitor. Create passwords no one in the office would guess or know. Since audit trail reports reflect which user makes changes, passwords should be protected by the user, as well as the dentist. Do not use “password” or “dentist” or “1234” as your password. Use six to eight alphanumeric (letters and numbers) characters. Alternate letters with numbers, using both capital and small letters. Eighty-two percent of survey respondents did not create or protect passwords for any software.

3) Implement a thread of accountability between the practice software and the accounting software.The surveys indicated that neither practice software nor QuickBooks reports were created daily and the embezzler had the opportunity to adjust the practice software or QuickBooks entries and reports beyond the end of the day.

In my QuickBooks courses, I teach “Organized Accountability” between practice software and QuickBooks. As the last patient walks out the door:

  • Print the day sheet detail report immediately, including any adjustments.
  • Print the audit trail report, including any appointment changes.
  • Physically batch out the credit card terminal, printing the summary report of the day’s charges. Do not wait for the credit card company to batch out your charges. These charges must match the credit card charges listed on your day sheet.
  • The physical deposit slip total must match the cash and checks total from the day sheet. The Check 21 Act allows practices to use third-party machines to scan patient checks and submit these checks for deposit as a batch immediately into your bank, just as you do with credit card terminals. Several embezzlers had patients leave the payee field blank on their checks. Using remote-deposit capture for checks not only protects against returned checks, but helps protect against embezzlement. More insurance companies are using direct deposit features for insurance payments to practices. Contact your insurance company to have these payments deposited directly to your bank. Detailed insurance deposit reports will still be sent to your practice.
  • The above-listed reports, along with the physical patient sign-in log, should be placed on the dentist’s desk at the end of the day. The dentist should take this information home to verify all matching totals with all patients.

4) Be the boss. No one who is a direct employee or an extension of your business staff is immune from embezzlement. Countless stories revealed not only the staff, but CPAs, spouses, and yes, even the dentists themselves, were embezzling from the practices.

5) Accept responsibility. Few dentists who responded to the survey accepted responsibility for their lack of oversight. One dentist blamed the embezzlement on everyone and everything else - the practice software, the office staff, and the CPA.

If we learn nothing else as business owners, learn that precedence is set from the top down. Whether you are the CEO of a Fortune 500 company, the leader of a church, or the owner of a dental practice, the “boss” sets all standards of business. “I don’t have time” is a weak excuse.

Think of it this way. Regardless of the hard copy of your employee manual, the practice owner is the “verbal employee manual.” If the practice owner takes money out of petty cash without signing for it or returning it, the policy for petty cash is set. Use a petty cash worksheet, initialing it at the time cash is taken and brought back. Log in change with a receipt. The petty cash fund is not the dentist’s personal ATM machine. Establish precedence by monitoring your own behavior first.

Dentists are kind-hearted human beings. It is hard for most of them to define what is “business” and what is “personal.” One dentist kept the embezzler on the payroll because he felt “she’d made some poor choices.” And, he saw keeping her on the payroll as one way to be repaid. The fact that a mere 21 percent of the practice owners responding to the survey prosecuted the embezzler says more about their generous hearts than their lack of legal counsel. Regardless of the circumstances, it is never right for someone to take money from your practice. Emergencies happen as an exception (not the rule) in your staff members’ families.

If an employee needs an advance on his or her salary, use a legal document to state the amount advanced, how it is to be repaid (by payroll deductions, etc.), and what will happen if this employee should leave your employment before the advance has been repaid (you will deduct the remaining amount due from the employee’s final check).

To summarize, ignorance is not bliss. After teaching a recent embezzlement course, I received a phone call from an attendee less than a week later. He was implementing the systmes and checks suggested in the coiurse, and discovered money missing from the deposits. He never suspected embezzlement before this. We can no longer claim an innocent society. Take business courses at your next dental convention. The CEs are not the same, but your practice needs the attention. Learn the systems you need to put in place. Call for references and do background checks. Be the boss!

Susan Gunn's business and financial background involves being an Advanced Certified QuickBooks ProAdvisor and writing 12 technical books, including "Getting The Most Out of QuickBooks In Your Practice." She has a BA in psychology. Contact her at www.susangunnsolutions.com.


What do you do if you suspect embezzlement in your practice?

First, get legal advice from an attorney and accounting advice from your CPA. One respondent said he did not prosecute because he was advised not to by his CPA. That is a legal decision and should not be made by a CPA, just as a lawyer should not give accounting advice. Plus, it begs the question: Was the CPA attempting to hide the fact he or she should have known about the embezzlement from reviewing the practice’s books? Hiring an outside auditor, forensic accountant, or practice software specialist is a great option. All embezzlers were people the dentist trusted!

Second, make sure you have documented proof and legal advice before confronting anyone. The surveys showed a plethora of liable mistakes made by practices in the termination and documentation process. One respondent told of how he had a friend come to his practice and pay cash for treatment to prove the front desk person was stealing the cash. Always consult your attorney prior to any confrontation to ensure you are adequately and fairly documenting evidence prior to termination or confrontation.

Third, terminate the embezzler’s employment, after you have documented proof and consulted your attorney. File a police report and prosecute. One survey story recounted how the dentist was impressed by an interviewee’s skills (and her short skirt), and hired her on the spot without calling her references or doing a background check. Six months later, out-of-state police found and arrested her for embezzling from the practice she’d left previously.

In another story, the job applicant said it would be impossible to call her previous boss for references because he had died. Unbeknownst to the interviewee, the dentist had gone to school with said deceased and knew him to be quite alive. When called, the “dead” dentist admitted the interviewee had embezzled from his practice, but was not prosecuted. When you choose not to prosecute, you are enabling the cycle to continue and putting your fellow dentists - the next employer - at high risk of embezzlement.

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