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Are You Being Embezzled?

Embezzlement is on the rise in dental practices these days, and can prove quite costly. Is your practice at risk? Below we discuss the classic symptoms of embezzlement, the profile of staffers that commit this crime, and actions to take if you see any of these “red flags.”

Recent statistics reveal that 60% of practicing dentists will likely be embezzled at some point in their career. What’s worse, many of these schemes are never detected. Even those that are, last 18 months on average before being discovered. That’s why the average loss for a dental practice embezzlement tops $100,000, not counting the legal, consulting, and accounting costs involved in uncovering the scheme and prosecuting the perpetrator.

Symptoms of Embezzlement

Should you be concerned? If your practice is experiencing any of the following symptoms, you need to look further:

  • A sudden unexplained drop in practice collections and profits, causing cash flow problems.

  • Practice overhead expense categories that are higher than the professional average in every category (labor, supplies, lab, etc.).

  • Excessive number of production adjustments (write-offs) related to patient accounts.

  • A large number of unexplained accounting adjustments.

  • Supply company complaints about slow payments.

  • Patient complaints about billing errors, including double billing, or failing to properly apply their payments.

  • Financial statements and reports that are not received in a timely manner, have substantial unexplained changes, are incomplete, or have numerous errors evidencing careless or sloppy work.

Profile of an Embezzler

Even confronted with these symptoms, most doctors don’t believe that it’s happening to them. Their front desk is composed of very bright, capable, trusted long-term employees, who work extremely hard, are true perfectionists in what they do, and have no prior criminal record. That false sense of security is why so many embezzlement schemes go undetected. Regardless of how the embezzlement scheme is carried out, there are usually certain behaviors that can tip you off. In fact, the Association of Certified Fraud Examiners reported that over 80% of fraudsters displayed behavioral indications of embezzlement like these:

  • A staffer under extreme financial pressure due to divorce, large medical bills, heavy personal debt, spouse’s job loss, investment losses, wage garnishment, or other financial misfortune.

  • An employee exhibiting erratic or disruptive behavior possibly brought on by excessive gambling, drug or alcohol use.

  • An employee exhibiting negative behavior toward the doctor and related staff.

  • A sudden change in the employee’s lifestyle, which is extravagant compared to her earnings, without a rational explanation.

  • An employee who is very controlling of her workspace and fights to protect job responsibilities involving access to money or financial records. That employee also refuses to delegate, desiring to do the job all by herself.

  • An employee who does not want another staffer to be cross-trained on her duties for coverage purposes.

  • An employee who constantly works excessive hours, including overtime, without sufficient reason, and often without requesting pay.

  • An employee who refuses to take vacation time or time out of the practice when it is operating.

  • An employee who resists any type of change to the practice management or accounting systems of the practice.

  • An employee who resists bringing in, or cooperating with, outside advisors such as a consultant or CPA.

  • An employee who makes a point of telling you about, or showing you, their “honesty.”

  • An employee who is evasive in discussing financial matters with you.

What to Do

If you see these warning signs, immediately contact your CPA or outside consultant to determine the proper course of action. These advisors can perform an internal audit, after business hours, to determine the likelihood of potential embezzlement, and what additional steps need to be taken.

Next month, we’ll discuss a comprehensive program to help prevent embezzlement in your dental practice.

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The McGill Advisory is designed to provide accurate and authoritative information with regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal or accounting advice or other expert assistance is required, the services of a competent professional should be sought.

Copyright © 2018 John K. McGill & Company, Inc. All Rights Reserved.