Owning a dental practice involves juggling multiple responsibilities, from patient care to revenue cycle management. Unfortunately, the unique structure of dental practices, coupled with the fact that many dentists did not choose their profession to become business managers, creates an environment susceptible to embezzlement. This blog post will explore the warning signs of embezzlement, focusing on the behavioral and financial indicators that dentists should watch for to protect their practices.
Understanding the complexity of dental practice accounting:
Dentistry's accounting system is inherently more complex than that of many other businesses. Most businesses use a single piece of accounting software to manage their finances, but dental practices typically split record-keeping between software like QuickBooks for expenses and practice management software for revenue. These systems often don't communicate with each other, creating opportunities for discrepancies and potential embezzlement.
Why dentists are vulnerable to embezzlement:
Many dentists enter their profession to help people, not necessarily to run a business. The realization that they must also manage their practice can be overwhelming, especially when their passion is clinical care. This understandable lack of business management interest and expertise can leave dental practices vulnerable to embezzlement.
The motivations behind embezzlement:
Understanding why people embezzle can help in identifying potential threats. According to David Harris, forensic CPA and CEO of Prosperident, a leader in dental embezzlement detection, thieves typically fall into two categories: needy and greedy.
- Needy thieves: These individuals steal out of financial desperation. They may have significant personal expenses, such as medical bills that they cannot cover with their income. Feeling out of options, they turn to embezzlement.
- Greedy thieves: These individuals feel under appreciated and underpaid. They believe they deserve more than they are earning and rationalize stealing as a way to obtain what they think they deserve. They often view their dentist employer as someone who lacks business acumen, making them an easy target.
Behavioral warning signs:
- Desire for isolation: Thieves prefer to be alone when stealing to avoid observation and concentrate. They might come in on weekends, stay after hours, or find other times when the office is empty.
- Territoriality: Thieves often hold their duties close and resist cross-training others. They don't want to share their responsibilities because it increases the risk of their actions being discovered.
- Reluctance to take vacation: Many thieves avoid taking time off to maintain control over the information flow and reduce the risk of detection.
- Fear of consultants or outsourcing: Thieves are wary of external, expert support staff such as consultants, and outsourced dental billing companies, who view the practice as a business first. These service providers are more likely to notice discrepancies that the dentist might miss.
- Conspicuous display of honesty: People who constantly emphasize their honesty may be doing so to divert suspicion. Naturally honest individuals typically do not feel the need to highlight their integrity.
Financial warning signs:
- Unexplained anomalies in bookkeeping: Any irregularities or inconsistencies in the financial records should be investigated. These could indicate manipulative transactions designed to underreport collections.
- Lack of oversight on collections and Deposits: If there is no oversight on the daily balancing of collections versus deposits, stealing becomes easier. Regular checks and balances are crucial to prevent embezzlement.
- Manipulative transactions: Thieves may alter practice management software to underreport collections, making the day’s transactions appear balanced while pocketing the difference.
Protecting your practice:
- Separation of duties: Ensure that different individuals handle the money and input data into the practice management software. This separation creates a system of checks and balances, reducing the risk of embezzlement.
- Regular audits and consultant engagements: Periodic audits and bringing in external consultants can help identify discrepancies and potential fraudulent activities.
- Fostering a culture of transparency and accountability: Encourage open communication and establish clear policies regarding financial management. Create an environment where employees feel accountable and are aware that financial activities are monitored.
Conclusion
Embezzlement is a significant risk for dental practices due to their complex accounting systems and the typical dentist's focus on patient care over business management. By understanding the motivations behind embezzlement and recognizing the warning signs, dentists can take proactive steps to protect their practices. Regular oversight, separation of duties, and a culture of transparency can go a long way in preventing financial misconduct and ensuring the integrity of the practice. Reach out to us, or Prosperident if you need support or have any questions.
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