Embezzlement Prevention—To Catch a Thief! Part 2

Dentistry Today


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In the dental office, the most common type of embezzlement is the misappropriation of the practice’s cash and checks by business office team members who are responsible for day-to-day accounting. They know the systems, the practice, and the patients; they know the deposits, the vendors, who pays with cash, who pays with check; they know what goods the suppliers provide and what they charge. Their greatest asset is also your greatest liability: they understand your practice so well. When it comes to practice finances, I recommend that you follow the Ronald Reagan maxim, “Trust, but verify.” In this final part of our article on embezzlement, I will present the next set of guidelines to implement in order to make sure you are not taken to the proverbial cleaners.

Reflect on the fact that about $10 million, and in some larger practices, $25 million, will be going through the practice in your lifetime. You must implement every safeguard possible to prevent losing those hard-earned dollars due to their not being deposited in your account. The best way to prevent embezzlement is to set up rigid protocols for handling office finances and have them written down in an office manual.
Once your practice finances are computerized with your management software, they should be further enhanced with QuickBooks, the number-one selling small business accounting software. It provides a fast and easy process to manage a practice’s business finances more effectively. (Susan Gunn is a noted QuickBooks expert for the dental profession [susangunnsolutions.com]).
Do not expect your accountant to detect, or let you know, about potential embezzlement. While accountants can find and inform you about trends, they are usually not given sufficient information from which to make a determination of embezzlement.

Dental software programs have security features beyond simple password protections. With these software programs, you can generate reports that create an audit trail which will allow you to track every financial action taking place in the practice. It is possible to illustrate which employee posts each payment or adjustment. You can actually customize access for individual team members, separating which procedures each one can perform. Find out what features your software offers, and have it customized for your specific needs.
The biggest problem that I have come across with regard to dental software programs is that most doctors do not understand their value, or even how they work. As a result, they have no clue as to the different and invaluable reports that can be generated to prevent embezzlement.
The wakeup call that I have is that all doctors should and must undergo software training. Contact your respective computer/software companies and inquire about the courses that are available to educate “doctors only” on operational issues. This could be the very best investment that you will ever make. It is just as important for the dentist to be trained as it is for the team. You are the owner and boss and must participate in all aspects of your business. This is one part of your business you need to know inside and out.

Doctors must stay on top of their financial system by consistently checking up on their information daily, weekly, monthly, and quarterly. Doctors who say they just don’t have the time to monitor their financial reports are only asking for trouble. Doctors, or someone they can trust, should then monitor the practice financial system. One possibility is having a spouse perform this necessary task. It has been my recommendation to all my clients to add to their payroll their spouse, whether that person is male or female. No one has a more vested interest having the practice be financially successful than a spouse. The spouse does not have to work physically in the office but can perform the monitoring of the financials conveniently at home.
Doctor, spouse, or a trusted team member should use a printing calculator to total all the charges, payments, and adjustments that were posted to the billing system each day. The resulting paper-tape sum can then be compared to the computer’s total. Your computer system should be set up to provide an audit trail that tracks each payment and adjustment, tells which employee entered it, and provides built-in cross-checks for office visits, payments, and deposits.

As more and more insurance claims are filed and paid electronically, many practices’ financial statements are now generated by their own computer systems. But just because a report comes from your computer, don’t assume that it must be correct, or that it doesn’t need your careful review.
All computer data must be backed up daily. The doctor should take the back-up media home every night, which can prevent falsification of this data by others. Make sure that your software program is “closed out” each month. Otherwise, it is easy to go back into prior periods and make adjustments without the doctor’s knowledge. “Closing out” creates a clean slate and makes subsequent manipulation cumbersome, or impossible.
The use of passwords with any computer that contains financial data is important. If remote access software is installed at your home, password protection needs to be set up with it. Anyone could easily make adjustments to accounts at any time if the data could be accessed. In the office, computer access is customized with passwords for individual team members. Also, the doctor’s software access is password-protected. Change the passwords regularly. Employees should be instructed to memorize passwords, not to write them down.



The good news is that a cash theft can be easy to spot if you bother to look for it. To go a step further with your prevention, my suggestion from personal experience is to carry a copy of the daily scheduled appointments. After each office visit, jot down the fee next to the patient’s name on the appointment sheet. Everyone on the dental team should know the fees that are charged out for each and every procedure.
Make sure all charges are being properly recorded. Then, at the end of the day, after those charges have been posted, compare the fees you noted on the appointment sheet with the charges listed on the office day sheet to make sure they match. How often should you do this? Do it randomly for a week every month.
All worthwhile dental software programs can create audit reports. Audit reports should be printed daily and reviewed and examined for adjustments and deletions. Written explanations should accompany every adjustment made to a patient account. If nothing else, look at the adjustments and deletions, each of which must be accompanied by a clear and acceptable explanation.
Have all insurance checks mailed to a post office box. The doctor or trusted staffer should retrieve the mail. A staff member opens the mail, and every check is stamped immediately with your “For Deposit Only” stamp (containing your account number), regardless of the size of your practice.

It is imperative that you have serial-numbered patient charge/receipt forms on no copy required paper, as they create a very effective foundation of solid internal controls that make embezzlement much more difficult. These forms should also have a line for the team member and the patient to sign, and should be presented to each patient at the conclusion of every visit. The form is a receipt that shows patients the charges that were incurred that day, as well as payments and adjustments made to their account. Receipts are given and signed for all cash payments.
The daily total payments received at the counter and in the mail each day should be compared with the amount that’s been entered in the computer for that day, plus what’s been deposited in the bank. Even forms which would normally be discarded due to error should be kept, so that there is a complete record and a solid audit trail. Periodically audit and confirm that all serial-numbered office charge forms are present, and that the numbers are continuous from day to day.

No single team member should be involved in all of the practice’s financial functions. Have a second cross-trained business team member that allows for a check and balance. Duties of posting payments and preparing deposits should be separated. The day’s receipts are balanced daily. The bank deposit slip is itemized by each individual patient name. If the check comes from an insurance company, then the last name of each patient for whom the check is issued must be listed individually. Balancing the day’s receipts every business day is an essential task in any business before closing down for the day.
Deposit slips for the practice should be kept in a secure location. Do not allow several days’ deposits to accumulate, even if the deposits are secured. Make the deposit daily, utilizing duplicate deposit slips. Verify that all the day’s receipts are properly recorded for deposit. The doctor, or a trusted associate, should make bank deposits daily. This practice prevents loss of cash and checks due to theft, fire, or other reasons. If team members are to make the deposit, compare the deposit recorded at the bank with the duplicate held at the office to confirm that all receipts were deposited in the correct bank account.
Co-pays are now paid in cash. They are small amounts; however, as there could be many co-pays, a lot of cash pouring into doctors’ offices could prove irresistible to dishonest employees. The doctor or the office manager should check the cash deposits each day to make sure they correspond to the co-pay totals for those days.

Petty cash must be secured. Embezzlement is rampant when the economy dips, and is discovered in otherwise well-run dental practices. It usually starts small and mushrooms over time. Sometimes a person can get into financial trouble and “borrow” some money, fully intending to pay it back. But once the employee crosses that line, it’s easy to just keep going. Check the petty cash drawer periodically to verify that all withdrawals are supported by the proper receipts or vouchers. The total of cash on hand, plus receipts and vouchers, should equal the original petty cash balance. The change fund for office cash payments should also be checked at the end of each day to confirm that the cash total equals the day’s original balance plus payments taken in.

The checks for the practice checking account should be kept in a secure location available only to the doctor. The checks are numbered. If a team member is to do the payables, the doctor should sign the checks. There should be no signature stamp(s) in the office. Banking can also be done online; if you choose to do this, you can download transactions daily, and you will be able to pick up suspicious activity far sooner than you will by waiting for your monthly statement.
Have all practice bank statements mailed directly to the doctor’s home address. If they must be delivered to the practice address, no one but the doctor should open the bank statement. Cancelled checks and bank statements must be reviewed and reconciled also by the doctor. No staff member should do this reconciling. This system will easily and quickly catch any attempt to steal or to alter checks. The bank statements should be reviewed monthly to assure that all deposits were made and to determine if there were any unauthorized checks, purchases, or withdrawals.
Be cautious with your practice’s bank statements, and the photocopies banks often send now instead of cancelled checks. You still need to review and reconcile those statements each month, and the photocopies deserve the same attention you would have been giving to the cancelled checks to make sure they’re legitimate. Also inform the bank that checks made payable to the dentist should not be cashed by office personnel.
So what is the bottom line of the preceding discussion on bank accounts? The dentist should control the checkbook.

Most of the information in this 2-part article has mainly addressed the inappropriate handling of practice cash and checks by business/financial team members, but there are 3 potential fraudulent issues that also need attention.
Practice credit cards: The doctor should review all practice credit card statements monthly, line item by line item, to determine their accuracy and that all charges were authorized by the doctor and not related to personal purchases made by employees.
Office supplies: One team member should be in charge of office supplies. Limit the number of practice suppliers to help avoid unauthorized purchases and avoid fraudulent billing. Monitor high-volume vendor relationships to assure that all purchases are authorized and that there are no fraudulent invoicing or kick-back schemes.
Your time clock: In your personnel manual it should state that, when team members arrive, each must personally “punch in” only when ready to start the workday. This can help keep track of everyone’s actual time with no difficulty. Most time clocks come with security features to avoid tampering. Ask the manufacturer of your clock about passwords or other security features which can be implemented to prevent manipulation of data. Remember that stealing time is also a serious form of embezzlement.

Keep yourself abreast of your own practice financial picture. The biggest deterrent to embezzlement or theft is your team’s knowledge that you are on top of your finances on a daily basis. Develop strict procedures and controls for handling all practice financial transactions. Establish a system of checks and balances at every stage with random audit checks of the different systems in place.
Embezzlers will always be trying to come up with new schemes to separate doctors from their hard-earned money. Implementing the suggested guidelines (described in this article) won’t guarantee that your practice will not be embezzled. However, following these guidelines will provide the internal controls necessary to make it much more unlikely that you will ever have to suffer from the emotional and financial impact of embezzlement.

Dr. Doherty is a certified financial planner, investment advisor, and is a member the Association of Certified Fraud Examiners. He is a former dentist who has spent years of research and study at Harvard University Graduate School of Business and the College of Financial Planning, to make him uniquely qualified to educate in all aspects of the business and financial world. In recent years his focus has shifted to a well-received unique educational process entitled “Financial Boot Camp for Dentists.” Dr. Doherty lectures internationally and has served as a special lecturer and consultant to the American Dental Association. He can be reached at (772) 225-3021, via e-mail at hughdohertydds@comcast.net, or at the Web site hughdoherty.com

Disclosure: Dr. Doherty is CEO of Doctor’s Financial Network.