Written by David Harris is the Chief Executive Officer of Prosperident, the world’s largest dental embezzlement investigation firm. https://www.prosperident.com/
Published statistics suggest that three out of five dentists will be victims of embezzlement in their careers. Embezzlement knows no boundaries – it strikes general dentists and specialists, solo practitioners, group practices, dentists in small towns, and those practicing in urban areas. It is carried out by long-time, trusted employees and carries high financial and emotional costs. I’d like to share some of the things I have learned in the course of investigating many dental embezzlement files.
How is embezzlement normally uncovered?
The answer to this question might surprise you. The American Dental Association recently published the results of an extensive study on embezzlement. Among other things, the study considered how victims uncovered the embezzlement taking place in their offices.
Here’s where it gets interesting — only 19% of discovery was prompted by the planned operation of the dentist’s system of controls (day-end balancing, review of software audit logs, fraud found by the dentist’s accountant, etc.). The remaining 81% was discovered by some accidental occurrence (examples include another employee reporting the theft, patients identifying billing discrepancies, or an employee working unexplained extra hours).
So what can be learned from this?
There has been a lot written by advisors who suggest that the way to prevent embezzlement is to implement more (and more) controls. I’m sure you have seen articles that give frustratingly long lists of things a dentist should check weekly and monthly. In addition to the large time commitment that accompanies this internal audit process, I have always questioned its effectiveness.
Embezzlers are driven by some powerful forces, and to expect them to be discouraged by some visible and easily circumvented controls seems like a delusional exercise.
With the ADA’s survey results reinforcing my view, I hope that dentists and their advisors begin to see the futility of attempting to manage fraud through internal controls and self-directed audit.
Please don’t misunderstand me — there are lots of controls that serve purposes other than fraud detection. For example, even though day-end reviews uncover less than 8% of all embezzlements, these reviews serve other useful purposes like catching clerical errors.
There is good news. Since I’ve just turned your understanding of embezzlement upside down, at this point you are probably looking for a solution. Fortunately, I have one, and it is a lot less painful than you might think.
This silver lining is that, regardless of the methodology used to steal, embezzlers behave in very predictable ways. We have developed and constantly refined a “Fraud Risk Assessment Questionnaire” that is designed to help you capture and assess these behaviors. Completion will take less than fifteen minutes and could save you a bundle. And what if you suspect fraud? This is where it gets a bit tricky. Many of the things that instinct tells you to do in this situation (call the police, confront the subject, etc.) have the potential to make your situation far worse.
If you suspect fraud, the best advice I can give you is that stealth is paramount. If someone is stealing from you and senses that you are about to uncover their stealing, they will have a very strong desire to destroy the evidence. This might be as simple as wiping your computer’s hard drive and destroying all backup media, or it might take a more sinister form (there have even been cases of thieves burning down dental offices in an attempt to hide the evidence!)
Any steps taken by the thief in this direction will compound the damage they have already inflicted on you.
If you are in this situation, you must receive knowledgeable advice – and by this, I mean someone with experience in dealing with dental embezzlement investigation.
While the list that follows is not a substitute for this kind of advice, it may prevent you from making some of the mistakes that others have made:
Stealth is paramount for several reasons – normally at this point, fraud is SUSPECTED but not CONFIRMED. It is not unheard of for a dentist to wrongly believe that he or she is a victim.
On the one hand, if there is no fraud, it is far better that staff members are unaware that the dentist had a “crisis in confidence” in them. However, if fraud is happening and the thief thinks that you are on to them; their normal inclination is to take steps to destroy evidence. For example, erasing data from your computer’s hard and destroying all backups. We were not involved but observed a situation where an employee, sensing that the dentist was about to uncover her fraud, burned down the entire office to reconstruct her crimes almost impossible.
If theft is taking place, the best outcome for the dentist will be achieved by preserving evidence, conducting a quiet (stealthy) investigation, and confronting the thief only when fully prepared.
Several things must be done to preserve stealth:
- The dentist must continue to act normally and avoid behaving unusually
- The investigation must be done in a way that does not disclose the dentist’s suspicions. The easiest way to tip your hand is to have a couple of people who look like police officers or accountants) come into the practice and start poring over records or to start having an unusually large number of non-patient phone calls for the dentist.
- The dentist must be extremely guarded about discussing suspicions with colleagues, staff members, etc. We were involved in a situation where a relative of the suspect worked at the vendor of the dental software used by the dentist, so great care had to be taken in communication with the software company.
- Obtain professional advice. Some dentists approach fraud investigation as a do-it-yourself project. Given that the dentist typically does not know what to look for (and often needs the assistance of staff to access computer information in any case), a self-guided fraud investigation is likely to accomplish little other than tipping off the fraudster.
- Preserve evidence. Your computer’s hard drive contains a cornucopia of information that will be needed to confirm the fraud, quantify losses, prepare an insurance claim, proceed with prosecution, etc. However, this information is volatile and can be deliberately erased or overwritten
- Dental software vendors make continual improvements to their software. If contacted with concerns about theft, a common recommendation of vendors is to upgrade your software to the latest version. This is probably not a good idea in most cases as doing this will undoubtedly be resisted by, and raise the suspicions of the thief.
- Do not place “bait” (e.g. put an extra $20 in the cash to see if it goes missing). This action is likely to provide a false sense of security. Employees who target their dentists often perpetrate sophisticated frauds involving tens or hundreds of thousands of dollars. If you were doing this and the dentist offered a (fairly transparent) chance to demonstrate your honesty by returning the $20, wouldn’t you give it back? This seems like a fantastic bargain.
- Do not change financial protocols. Looking to make changes without being able to explain the rationale will certainly be seen through by a thief.
- Do not report the incident to the police (until you have sufficient evidence to confirm fraud). Before you have gathered all the evidence, making a police report serves no purpose and may limit your options in dealing with a thief.
- Do not confront the suspect. There will be a time when this is appropriate – our success rate in obtaining confessions from thieves is 100%, but it requires careful preparations before the confrontation.
- Do not contact insurance companies. If a theft involves obtaining extra funds from insurance companies (e.g. upcoding of treatment), the insurance company may have recourse against the dentist for amounts misappropriated. Some insurance companies will provide an agreement not to hold the dentist vicariously liable in situations where the dentist had no involvement in the theft, but this amnesty needs to be set up correctly, with an intermediary approaching the insurance company on behalf of an unnamed client.
- Whatever you do, don’t fire anyone until evidence has been gathered – the amount the employee may steal from you in the few weeks that it will take to complete an investigation pales in comparison to the cost of a wrongful termination lawsuit.
If you are a current client of Professional Insurance Programs, please email us at info@profinsprog.com Embezzlement Risk Assessment Questionaire for free. Please include your name, practice name and contact information. You may also contact your PIP account manager.