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Safeguard Your Dental Practice! by Matthew Nelson

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Categories: Practice Management, HR and Accounting;
Safeguard Your Dental Practice! 

Implementing an anti-embezzlement system to prevent fraud

by Matthew Nelson

Embezzlement poses a significant threat to dental practice owners, jeopardizing both their financial stability and their reputation. Despite its prevalence, embezzlement remains a covert and elusive crime that’s difficult to detect and prevent, but by implementing an anti-embezzlement system and following best practices, dentists can protect themselves and their patients from these criminal activities.

In my predental career, I worked for a major national retailer identifying, investigating and resolving cases of internal embezzlement. I didn’t expect that experience to carry over into dentistry, but I learned rather quickly that unethical behavior doesn’t discriminate against professions.

As the office manager of a group dental practice that collected more than $6 million a year, I supervised a large staff that created monthly themes for orthodontic patients such as “crazy sock month,” “sports month” and “rock band T-shirt month.” If patients chose to participate, their names were put into a drawing for a $25 or $50 gift card. One month, the lucky patient showed up midweek to collect their gift card, but we were unable to locate the cards. Embarrassed, I rushed to the grocery store across the parking lot and quickly purchased additional cards.

After giving the patient their card, my retail investigator training kicked in, so I grabbed the original receipt for the missing cards and began tracking when and where they were used. They were all used on a Monday near a college campus 30 minutes away from the practice. Only one employee was off on Mondays—to attend that college.

In this case, identifying the stolen goods and the unethical team member was fairly simple. However, I would have failed as a leader in the practice if I had just stopped there. I also owned some responsibility in the theft, because I didn’t have proper controls in place: I had given this employee access to the safe when there was no real business need to do so.

On top of the loss of goods, feelings of betrayal, stress and loss of trust, this embezzlement hurt our practice in other ways. After the employee was terminated, I had to take time away from a busy schedule to begin the expensive process of finding a replacement. One recent HR study showed the cost to recruit, hire and train a new employee can be $7,500–$28,000 in hard costs alone.1

Understanding embezzlement
Dentistry is susceptible to embezzlement because of the unique financial operations and transactions involved, including receiving payments in cash, checks, virtual credit cards and electronic fund transfers. To further complicate the situation, dental practices receive payments from multiple parties, including dental plans and patients, which may require adjustments in patient accounts.

A 2018 American Dental Association survey revealed that 49% of dentists had experienced embezzlement,2 while third-party billing company eAssist cites that number as 60% post-pandemic.3 The ADA study also found that 39% of embezzlers had worked for the dentist for three years or longer. That’s a long time to know someone before discovering they’re less ethical than you thought!

Identifying red flags
Recognizing the warning signs of embezzlement is crucial for early detection and prevention. Frequent adjustments to financial records, unexplained discrepancies in deposits, and patient complaints regarding billing or financial irregularities are common red flags, along with deleted items, such as payments that were posted and then later removed.

Some behavioral red flags commonly associated with embezzlement include an employee who is ever-present, asserts significant control over their work and doesn’t like additional hands in their area, including training new employees. Other possible red flags are employees who are financially frustrated, show signs of addiction (drugs, alcohol, gambling, etc.), live outside their means or create a negative environment where colleagues are afraid to approach them.

Establishing controls
In my initial experience with embezzlement in dentistry, I learned I didn’t have proper controls in place that would limit access to the safe that held the gift cards. Establishing controls in the practice is an important part of implementing an anti-embezzlement system.

Segregate employee duties. Most revenue cycle management companies will have one employee submit all the claims while a second employee receives and posts the payments to ensure nothing fraudulent occurs under the patient’s dental plan coverage.

Watch daily adjustments, payments, missed payments and deleted items. Reviewing the deleted-items report may highlight fake treatment claims that were submitted and then deleted when payment was received for patients who may have not been treated by the practice. Honest errors do occur, but confirming the legitimacy of financial activities with your team is crucial not only to preventing theft but also to ensuring the accuracy of your practice’s financial records.

Establish safe banking practices. Utilizing carbon-copy deposit slips for cash deposits and requesting that banking statements are mailed to your house instead of the office are good safety measures. This will allow you to audit the bank statements against the carbon-copy deposit slips and ensure nothing was edited after the fact.

Implement best practices for hiring employees. Dental practices should always conduct background and reference checks on applicants before hiring. With current staffing shortages, doctors are hanging onto their top talent, so asking why an applicant with experience is available is always advisable. A Las Vegas office manager was caught embezzling three times between 2020 and 2022, from three different practices.4 If background or reference checks had been conducted before hiring the employee, the offender could have been stopped much sooner.

Ensure you have an employee manual in place that clearly explains embezzlement is a criminal act and any employee caught embezzling will be terminated and reported to authorities. As should have been done in the Las Vegas case, be sure to always follow through with termination and report the incident.

Be curious about vendors and employees. Monitoring the vendors on your payroll or accounts payable is an important step in mitigating theft and embezzlement. There have been instances where an employee has created a fictitious vendor or real vendors who are their relatives (such as for office cleaning) and billed the practice for services that were never provided.

Time theft such as padding a timecard, though unethical, is not a criminal act, but you should still audit payroll on a regular basis. I am aware of a situation where a fictional employee was created by the payroll manager, assigned hours were recorded as worked, and then a paycheck for the fictional employee was sent to the payroll manager. This situation is clearly more criminal than timecard padding, but both can lead to losses for the practice owner.

Use security controls for shipping addresses. Many business owners do not use the security features of supplier accounts that can ensure new addresses are not added or shipments made without the owner’s involvement. Use the security features of your suppliers to help prevent supply theft.

Other controls recommended for dentists include creating and maintaining a password log for all dental plan portals and limiting the access to those logins; eliminating the use of signature stamps; and being involved with chart and financial audits.

Getting help
If you’re faced with an embezzlement situation, several resources and professionals are available to assist dentists in identifying, investigating and resolving embezzlement. Use your practice management software team for training on built-in controls and monitoring features, such as providing unique login credentials for each employee. Consider hiring an embezzlement consultant to conduct a risk assessment of your practice’s financial systems.

Remote billing companies can also provide an extra layer of oversight and help identify irregularities. Your state dental association or risk management team can also help, as well as many forensic accountants who are trained in conducting thorough investigations. The important thing to remember is that much like regulatory compliance, consistent auditing on a routine basis is necessary and not a one-time, check-the-box exercise.

Despite the significant threat embezzlement poses to dental practices, dentists can mitigate that risk by implementing a strong anti-embezzlement system. Practicing vigilance, conducting regular audits and establishing strong access controls and robust employment practices will help protect your practice and patients from unethical and criminal activity.

References
1. Pugh M-R. “From Recruiting to Onboarding, What’s the True Cost of Hiring Employees?” Retrieved from bamboohr.com.
2. American Dental Association. “Council on Dental Practice: 2018 CDP Survey on Employee Theft in Dental Practice.” Fall 2019.
3. eAssist. “Are You One of the 3 in 5 Dentists Who Will Fall Victim to Embezzlement?” Retrieved from dentalbilling.com.
4. Charns D, KLAS-TV. “I-Team: ‘Most Fabulous Office Manager Ever’ Accused of Embezzling From 3 Las Vegas Dentists.” April 2022, retrieved from 8newsnow.com.

Author Bio
Matthew Nelson Matthew Nelson is a practice management analyst for the California Dental Association (CDA). Nelson earned a bachelor’s degree at California State University, Chico, studying psychology and human behavior. Before joining the CDA, he managed a large group dental practice and worked as a dental consultant. In his free time, he enjoys traveling with his wife and daughter and playing recreational sports.
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