Embezzlement — What a Busy Dentist Needs to Know

Dental Support Organization

By David Harris, Prosperident CEO
It is a basic characteristic of human nature that we overestimate our own capabilities relative to those of others.  Behavioral scientists label this “Illusory Superiority.” 
A familiar example is driving, where a 1981 survey found that 93% of US drivers rated themselves as having above-average skill, and 88% considered themselves to be safer than average.  This is an obvious statistical impossibility. It also explains something important about embezzlement.

Embezzlement Basics

Prosperident is consulted on hundreds of embezzlement matters annually, and this work provides insight into embezzlement unavailable to anyone else.
Embezzlement is rampant in dentistry; published statistics suggest that three in five dentists will eventually be embezzled.
One of the things that surprises me is that there are cohorts of practice owners who tend to consider themselves “immune”, and that this amount of perceived immunity is, like the number of above-average drivers, impossibly high.
Members of certain specialty groups have believed that embezzlement didn’t afflict them.  Many small-town dentists believe embezzlement is an urban issue.  Dentists whose practices are managed by their spouses believe they are embezzlement-proof.
There is a commonly held assumption that some practices are more “prone” to embezzlement than others based on various factors.  This misconception flows from a flawed understanding of how criminals think.

So How Do Embezzlers Think?

Like with any premeditated crime, there are three preconditions for embezzlement – motive, rationalization, and opportunity.  A thief’s motivation is obviously outside of the practice owner’s control.  Some thieves are in desperate financial situations and steal to meet basic family needs.  Others steal because they feel society has failed to properly their talents properly.
Rationalizing embezzlement isn’t terribly difficult, and the perceived disparity in income between doctors and staff is frequently seized by thieves as “justification” for embezzlement.
Of the three pre-conditions, “opportunity” is frequently misunderstood by casual observers.  Intuitively, the reduced opportunity should result in less vulnerability to embezzlement.
In fact, opportunity works differently.  It is a binary variable – either opportunity exists or it doesn’t, and as long as at least some opportunity remains, there is the potential for embezzlement.  I’ll also mention that opportunity exists in every practice and that there is no reasonable way to eliminate it.
The reason people inappropriately correlate opportunity with the probability of victimization is that they don’t fully appreciate the difference between embezzlement and other crime.  In most economic crimes, the criminal can choose their victim.  Therefore, a visible reduction in opportunity (for example, an alarm system) causes criminals to select a less defended victim.  Alarm systems don’t transform thieves into honest people; they simply encourage stealing from someone else.
What differentiates embezzlement from other economic crimes is that embezzlement has a pre-ordained victim.  A reduction in opportunity will not cause a would-be embezzler to select a different victim, which would involve changing employers and waiting to acquire sufficient knowledge and trust to steal.
In this framework, the true determinants of vulnerability are motivation and rationalization, which are almost completely out of the hands of the practice owner.

But we have a strong system of controls, and our CPA firm looks at our books!

Now I’m back to discussing “Illusory Superiority”.  I wrote an article a couple of years ago where I discussed how playing chess with my son taught me about embezzlement.  My son is a decent chess player, but I have (so far) maintained my mastery for one reason – he forgets that he has an adaptive opponent who is able to perceive (and counter) his strategy.
I’ll make the same observation about embezzlers.  Every embezzler performs the same exercise – they survey their environment, observe the controls in place, and design embezzlement that overcomes or bypasses those controls. 
Whether your practice is small or a large multi-site group practice, dental practices have more embezzlement opportunities than you could ever match with controls.  The impact of implementing more or different controls is simply to prompt adaptation by the embezzler.
With respect to the involvement of your accountants, they normally are hired to perform a “Notice to Reader” engagement.  This involves the transmogrification of your information for third parties (e.g., your bank or the IRS), with no analytical review, and certainly no search for embezzlement.  And even if you select a higher level of accountant involvement (a “Review Engagement” or an audit), these are neither designed nor oriented to catch embezzlement.

What a Busy Dentist Needs to Know

So the series of controls you have put in place, and the involvement of your accountants are, unlikely to stop embezzlement.  Is stealing therefore inevitable, and what can be done to mitigate this problem?
Having devoted most of my adult life to dealing with embezzlers (and having been a miscreant myself in my teens) I can tell you with authority that there is virtually nothing that you can do to deter an embezzler from committing that first criminal act.  The best that we can hope for is to catch embezzlement quickly.
The challenge is the breathtaking variety of embezzlement methodologies that exist; we have observed hundreds of variations, and we keep seeing new permutations.
I’d like to leave you with a simple thought – research suggests that, regardless of how someone chooses to embezzle, the way that they act when stealing is predictable.  The Association of Certified Fraud Examiners reports that over 90% of embezzlers display at least one behavior consistent with embezzlement and that more than 60% of embezzlers display two or more such indicators.  The best way to spot embezzlement is therefore to monitor employee behavior.
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