Six Ways to Prevent Insider Fraud at Your Dental Practice

Tiffany Couch, CPA/CFF, CFE

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Dishonest employees exist in all businesses, and unfortunately the dental profession is no exception. When employee theft is discovered in dental practices, it’s typically perpetrated by staff members who have justified stealing from their employer as a solution to their financial woes. 

Even more sobering, this “thief in the office” is very often a dentist’s most trusted employee: someone who has been at the practice for many years and whom the dentist trusts. Because of this trust, the employee often has unbridled access and authority over finances, credit cards, checks, and petty cash, creating an ideal environment for theft to occur.

How Does Employee Theft Occur in a Dental Office?

According to the Association of Certified Fraud Examiners (ACFE), occupational fraud falls into one of three categories: asset misappropriation, corruption, and fraudulent statements. The most common type of occupational fraud involves asset misappropriation, and most of the time cash is the targeted asset. In a dental practice, the most common fraud activities are:

  • Cash theft: If no one regularly monitors the flow of money into the practice, it’s often the asset the embezzler steals first due to its accessibility. Cash theft can be easily covered up by an unscrupulous employee who has too much access to the practice management system. Employees who handle receivables have many ways to skim funds. For example, an employee who is responsible for posting payments can keep the account from aging by posting the payment and not depositing the funds. Conversely, the employee could post unauthorized credits or write-offs on patient accounts. The co-pay can be accepted from the patient and pocketed, and the amount is written off as a negotiated insurance adjustment.
  • Falsifying expense accounts: Inflated expenses are easily hidden. Examples include submitting receipts not associated with the business or inflating mileage use.
  • Check fraud: In a busy dental practice, it can be easy to lose sight of check transactions, so it may not take much effort for an employee to misuse a signature stamp or forge checks for personal gain.
  • Unauthorized credit or debit card usage: With access to the business’s credit and debit cards, employees have the ability to make personal purchases or pay personal bills with company funds, whether in person or online.
  • Payroll schemes: Whether falsifying timecards, paid time off (PTO) usage, or the repayment of draws, there are numerous payroll schemes employees could perpetrate to pay themselves more money than the business has authorized.

How Can Insider Fraud Be Prevented? 

The best way to prevent insider fraud is to implement internal controls that incorporate checks and balances into the dental practice. Here are six anti-fraud measures dentists can take to reduce fraud:

  • Incorporate strict hiring procedures: No one sets out to hire a dishonest worker. That’s why it’s important to verify employment applications for any employee who will have access to financial records or cash. Be sure to obtain a signed release and consent form before running a credit check or criminal history, as most states require written authorization from the employee before doing so.
  • Segregate job duties: This is one of the most important steps to take to reduce fraud. The person who accepts patient payments should not also have the authority to “write off” any monies (ie, issue a non-payment credit) on a patient account. Further, it’s also important that the person who prepares checks and bill payments should not have the ability to sign checks. One best practice for check control is that the dentist is the only one authorized to sign checks. Finally, the person making the bank deposits should not be the same person receiving and recording payments.
  • Require written authorization for purchases above a certain amount: To avoid “surprise” charges for large items, dentists should personally sign off of any expenses over a certain amount, such as $100.
  • Provide detailed policies and procedures for all business activities: Every practice, even one with only a few employees, should set clear, step-by-step instructions for handling patient documents, invoices, and receipts. This policy should also include an employee conduct policy that establishes a zero tolerance for fraud, including the consequences of committing fraud.
  • Conduct monthly statement reviews: Most fraud goes undetected for 16 months, and the median loss to the business is $130,000. By conducting routine, thorough reviews of bank statements, cleared check images, credit card statements, and payroll reports, discrepancies can be detected sooner. 
  • Perform routine audits to uncover problems, risks or threats: In addition to monthly statement reviews, dentists should routinely verify that day sheets match bank deposits and track expenses on bank statements to approved invoices or receipts. It’s also important to match approved payroll to payroll reports to ensure that gross pay to employees and their PTO usage agrees with your approved wage and benefit structure.

Understanding how employee theft occurs and taking proactive steps to reduce its likelihood allows dentists to focus on their primary concern: patient health and well-being. For more information on fraud prevention, or if fraud is suspected, consult a certified fraud examiner. He or she can help detect potential discrepancies, quantify loss, and restore peace of mind.

Ms. Couch is CEO and founder of Acuity Forensics, a nationally recognized forensic accounting firm. She is also the author of The Thief in Your Company, a book that explores the financial and emotional impact of fraud on organizations of all sizes. She can be reached at tcouch@acuityforensics.com or (360) 573-5158.

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