Two big embezzlement myths

I know that I have talked about these things before, but  they keep coming up in conversations with doctors, so this month I’ll devote this column to addressing some of the misconceptions about embezzlement that just won’t seem to go away.
Myth # 1 — Cash vs. Checks
Almost every dentist I speak with believes that embezzlement is limited to cash theft, and it hasn’t occurred to them that embezzlers have found ways to steal checks payable to the doctor, credit card payments, and electronic funds transfers.  Because there are almost certainly some nascent embezzlers reading this column, I won’t spell out here how it is done, but this is something that we see on a daily basis.  Practice owners need to know that any form of wealth transfer can be adulterated by an embezzler, and they don’t have to be a Mensa member to do it.  A bit of research and a modicum of creativity will suffice.
Myth # 2 — I Can’t Fire Them Yet
Another misconception is that doctors believe that their recourse against a thieving employee diminishes when that employee is fired or quits.  I frequently encounter dentists who suspect a former employee of embezzlement, but believe that they have no ability to take action because the employee no longer works there, and others who believe that they must keep an otherwise unsatisfactory employee on the payroll until our investigation is complete.
Let me make this very simple.  Stealing is stealing, regardless of whether or not the person who did it is still (or ever was) an employee.  So yes, we can investigate the actions of an employee who is no longer working for you, and no, there is no reason to keep an employee you really don’t want anyway while our investigation take place.
Have embezzlement concerns?  Want to make your practice better protected against embezzlement?  Give Prosperident a call at 888-398-2327 and we will be happy to help.  Or click here.

Don’t Underestimate the Embezzler by David Harris, MBA CMA, CFE, and Pat Little, DDS, FAGD CFE – Orthotown

OT_Embezzler_0615.indd

As investigators, one thing we encounter every time we speak to a group of orthodontists is that, in the area of embezzlement, they consistently underestimate the capabilities of their opponents.

The most common question asked of us is, “Will this control/procedure/auditing step work?” followed by some procedural change that the questioner intends to implement. Normally, this change is designed to block a specific embezzlement method.

For example, one question recently asked in a presentation was whether using a “lockbox” system, where all mail gets delivered to a third party (which then opens the mail and inventories the contents), would prevent embezzlement.

This question is an example of denial of opportunity strategies for controlling embezzlement, because its goal is to block a specific embezzlement pathway.

While we don’t think that strategies of this type are necessarily bad ideas, we do believe that their effectiveness in controlling embezzlement is overestimated.

Why do people steal?
Let’s start by debunking one of the myths about orthodontic office embezzlement. Many orthodontists believe that embezzlement occurs as a result of mistakes in hiring and/or poor background checking. Serial embezzlers (i.e., those who have stolen from other offices before) definitely exist, but they account for less than 15 percent of our investigations. The vast majority of our perpetrators have no criminal record and no adverse work history. However, some pressure has caused this person to begin stealing.

In some cases, that pressure is from financial desperation. Various factors can make someone’s financial position unworkable. It could be addiction, divorce or a spouse losing a job. These people, who we label the “needy,” steal to preserve the basic needs of their family.

We call the second group the “greedy.” These thieves tend to be bright, and viewed objectively, are somewhat underemployed in your office. It is common for them to consider themselves (sometimes justifiably) as your intellectual equal, and therefore the perceived income discrepancy between the two of you seems unfair. Of course, in this simplistic comparison, they fail to consider the educational differences and/or sacrifices that you made to achieve your position. Their social circle tends to include people who are better off financially. Money that is stolen is often spent on conspicuous displays of affluence.

Whether they are needy or greedy, embezzlers are responding to some powerful pressures. A motivated thief who possesses an intimate knowledge of your procedures and how you think is a truly dangerous opponent, and one who is unlikely to be deterred simply because you have blocked some, but not all, options for stealing.

Embezzlement vs. controls
Let’s revisit the denial of opportunity strategies and see how they might withstand assault from a determined, knowledgeable thief. We should mention that it is our policy not to discuss specific embezzlement methodologies in articles, so as not to provide information that may aid thieves. In order to protect orthodontists, we will confine ourselves to a general discussion of how a thief will overcome controls.

First, any control or procedure that is dependent on implementation by a staff member is doomed. For example, many orthodontists have a policy that incoming checks are to be stamped “for deposit only” in the hope of stopping an embezzler from cashing them.

The flaw in this logic is that we shouldn’t expect an embezzler to stamp the back of any checks that he or she plans to steal. So unless the orthodontist personally stamps every check, this control is useless against embezzlement. And as we have pointed out, stamping the checks personally won’t accomplish anything unless you also personally receive, open and keep complete custody of the mail until the checks are stamped. And even if you do all those things yourself (which might make you wonder why you even have a receptionist at all) this may not fix the problem—we have seen many creative thieves find a way to redirect a portion of the incoming checks to a different address to escape the orthodontist’s control.

We have also been told by some orthodontists that embezzlement isn’t possible in their office because they diligently check their day-end report against the bank deposit. We disagree, as do many embezzlers. We do believe that every practice owner should review the day-end report, because he or

she will sometimes catch honest errors and because it is a good way to monitor practice performance. However, any embezzler who knows that the doctor compares the day-sheet against the deposit will not steal in a way that leaves a visible discrepancy; the thief will instead construct a method of embezzling funds that somehow hides the out-of-balance situation. And while (again) we won’t discuss specifics, a number of possibilities exist for creating a situation where money is stolen but the day-sheet and deposit agree. While we certainly agree that a “deposit shortfall” is indicative of a problem, the reverse isn’t true.

Many orthodontists tend to view their day-end report—especially if they have checked it against their appointment book—as gospel, and they don’t consider that thieves normally control what information gets entered into the practice management software in the first place.

Regrettably, there are hundreds of ways to steal from a practice. For internal controls to be effective there would have to be a control to stop each embezzlement methodology an employee could use. This is impractical from both an economic and procedural perspective. Additionally, most implemented internal controls are already known to the thief and can be discreetly “tested” for effectiveness.

We must also consider that embezzlers are adaptive to any new controls that are implemented. We have had numerous cases where a doctor, suspicious that an employee might be stealing, implemented additional internal controls. Typically, the suspect quickly adapted and began using a different embezzlement modality. This points both to the cleverness of the thieves involved and the strength of their compulsion.

Why ethics and best practices are important
A common thread in many embezzlement lectures and articles is that it is paramount for orthodontists to behave in an ethical manner and institute best-practice procedures. We concur. However, the prevailing thought is that engaging in ethical behavior will instill ethical behavior in staff and therefore discourage embezzlement. This is where we disagree. As already discussed, whether embezzlers are “needy” or “greedy,” they are under intense pressure to commit their crimes. Once they decide to steal, the fact that you are behaving ethically might make them feel guiltier about their crime, but your behavior isn’t strong enough to compete with their need to steal.

Why do we stress that orthodontists should behave ethically? Most important, it is simply the right thing to do. Second, for your staff members who are not embezzling, your ethical behavior will set an example to follow. For the embezzler, however, we consider ethical behavior vital for a simple reason: You don’t want to issue a “Get Out of Jail Free” card.

When embezzlers know their doctor has been engaging in unethical behavior or hasn’t instituted best-practice procedures, they have a powerful weapon at their disposal. One of the most frustrating aspects of our work occurs when we detect embezzlement, but the doctor is in no position to file a criminal or civil complaint because the embezzler has information that can literally make the doctor’s life miserable.

Some examples could include skimming cash that isn’t reported to the IRS, up-coding procedures, filing fraudulent insurance claims, improperly delegating duties to clinical staff, OSHA and HIPAA violations, or having an inappropriate relationship with a staff member.

By avoiding ethical lapses, doctors are better positioned to take action against an embezzler (or any other staff member who commits a crime against the practice). Imagine the consequences of allowing an embezzling staff member to walk freely out of your office—and then go to work for another doctor.

Regrettably, we encounter this more often than we like. So clearly, it is paramount to act ethically and maintain best practices not only because it is the right thing to do, but because doctors need to have all options available if embezzlement is detected in their practices.

The honesty test
Another recommendation we occasionally hear is to go “undercover” and place some extra cash in the cash drawer or other location where a suspect will discover it. The presumption is that if the cash disappears, the employee is dishonest. While we agree that if the cash overage is not reported to you it means that you have an issue, the reverse is probably not true.

We have observed that the typical embezzler steals somewhere between two percent to four percent of collections. So for a thief who is stealing thousands of dollars from you on a monthly basis and finds an errant $50 in the cash drawer, what is the best investment he or she can make with the $50? It’s to hand it back to you, with the predictable result that you will then believe that you have a very honest employee. This gives the employee freedom to continue to embezzle—often with greater magnitude than before the supposed “honesty test” was conducted.

Another tool we sometimes see advocated as a means of preventing embezzlement is to install surveillance cameras. There are two problems with this.

First, cameras are best suited for monitoring events where the time of occurrence can be closely determined. For example, if a computer monitor disappears when the front desk is left unattended for a minute, cameras are valuable, because the video from that time can be examined.

In contrast, embezzlement can happen at any time, and the amount of camera footage that would need to be monitored to discover it would be huge.

Second, since a thief would normally know that cameras are in use, only the dumbest of thieves would commit a visibly dishonest act on camera anyway. While we have heard of the occasional practice embezzler being caught on film, it hasn’t happened in any of our investigations.

What does work?
So if thieves are smart, aware of the control systems in place and motivated, how do you stop them? The answer is far simpler than many orthodontists think. Research by the Association of Certified Fraud Examiners suggests that more than 80 percent of embezzlers act in a manner consistent with stealing.1 This is affirmed by a 2007 study conducted by the American Dental Association that showed more than two-thirds of embezzlement was revealed by behavioral (as opposed to financial) inconsistencies.2

Behavioral signs of embezzlement include things like a reluctance to take a vacation, territoriality about job duties and work space, resisting the involvement of consultants or other advisers, and evasiveness when discussing practice finances.

And the good news? Behavioral monitoring is easier and far less time-consuming than overinvesting time and money in cameras and financial monitoring.

We believe that underestimation of the determination and capabilities of embezzlers is a major contributing factor to high incidents of embezzlement. But orthodontists do not have to accept embezzlement as a cost of doing business. Awareness and using existing tools to motivate employees, monitor behavior and keep an eye open for fraud can help you take the first steps toward preventing—or fixing—the problem.

References

  1. “Report to the Nations on Occupational Fraud and Abuse: 2012 Global Fraud Study”, Association of Certified Fraud Examiners, Austin TX, http://www.acfe.com/rttn-highlights.aspx
  2. Author’s reanalysis of “2007 Survey of Current Issues in Dentistry: Employee Termination and Embezzlement”, American Dental Association, Chicago, IL

__________________________________________________________

David Harris, MBA, CMA, CFE, is the chief executive officer of Prosperident, the world’s largest dental embezzlement investigation firm. Pat Little, DDS, FAGD, CFE, is a senior investigator with Prosperident. The company is consulted on hundreds of embezzlement matters annually. Find out more at www.dentalembezzlement.com, or contact Prosperident at 888-398-2327. Mr. Harris can be reached at david@dentalembezzlement.com and Dr. Little at pat@dentalembezzlement.com.

Content retrieved from: Don’t Underestimate the Embezzler by David Harris, MBA CMA, CFE, and Pat Little, DDS, FAGD CFE – Orthotown

Introducing Office Protection System

OPS®

By Prosperident

Something that many dentists have asked us for is an examination of the systems in use in their office to identify weaknesses that embezzlers could exploit.
We listened, and are pleased to announce the launch of our Office Protection System service.
Office Protection System is an affordable review of more than 25 systems in use in your practice in five key areas.
We also do something really important — where possible, we test to ensure that your policies are being followed.
You receive a report with detailed recommendations for improvement.
For more information, click here.

Do you have questions about embezzlement?  Give Prosperident a call at 888-398-2327 or send an email to requests@dentalembezzlement.com

What Dental Practice Embezzlers and Houdini have in Common

 

houdini

Harry Houdini was probably the most famous magician of all time.  His daring escapes included the “Water Torture Cell” (where he was manacled and suspended upside down in what amounted to an oversized aquarium), and the “Overboard Box Escape”, where he was locked in a wooden packing crate that was lowered into the water.

While many who watched Houdini’s daring escapes probably believed that he had supernatural powers, Houdini was a master illusionist.  Since many of his stunts were performed in full view of his audience, he relied on two key elements to perform the impossible.  First, he was dependent on cleverly constructed props.  However, his true genius was mastering the art of misdirection — getting his audience to focus on his hands while he was doing something with his feet, for example.

Although embezzlers in your office do not stand in the spotlight in the same way that Harry Houdini did, they rely on the same two things.  Like Houdini, they have clever props (often taking the form of adulterated reports on which the embezzler has worked their “magic”). They carefully plan their crime so that the day-end report from your software correlates to the (somewhat diminished) bank deposit.  They can conjure up falsified walk-out statements to give to patients.  With a wave of their magic wands, they create “adjusted” insurance claims that over bill insurance companies.  And like Houdini, this is all performed more or less under your nose.

A busy dental office is an excellent place to introduce some distraction, and embezzlers become adept at encouraging you to see what they want you to see.  Their sleight of hand may include giving you partial reports, providing your reports late and “selective reporting” where certain providers or procedure codes are suppressed

Houdini’s life ended prematurely, but not because of one of his highly dangerous magic tricks going wrong.  He died of accidental causes — complications from a ruptured appendix did him in.  Similarly, dental office embezzlers normally get caught by some accidental event; the systems and policies that doctors put in place account for the discovery of only about 20% of embezzlement.  The remainder is unearthed as a result of some chance occurrence that was unforeseen by both the embezzler and the dentist.

But here the similarity ends — Houdini was a hero to millions.  He accomplished a lot in his life in addition to magic.  He wrote nine books, acted in movies, and was an aviation pioneer.  He also worked hard to expose magicians who claimed to have divine powers.  Most dental office embezzlers accomplish nothing more than aggressively spending their loot, spending time in jail, and possibly victimizing unaware employers in future.

So how do you see through the “magic”?  First, you need to know where to look. Our “How To Beat Embezzlers” series gives some excellent and practical advice for monitoring your practice.  Second, employee behavior is the best indicator that someone is performing “magic tricks”.  All of these things are affordably priced on our web store at www.dentalembezzlement.com/store .

Do you think someone is playing “magic tricks” in your office?  We can help.  Call us at 888-398-2327.

 

Misinformation about Embezzlement

Unfortunately, one of those pesky business matters affecting many dentists is embezzlement.  Published statistics suggest that three in five dentists will be victimized by an embezzler in their careers.
Unfortunately, there is a lot of misinformation about how best to manage this problem.  Many well-intentioned advisors suggest that if the dentist simply checks more (or different) things each month, they will be able to detect embezzlement.
I recently made this response to a consultant who was advocating a checklist of things for a dentist to do or check monthly (I stopped counting at 80 items on the list):

“Respectfully, I think you are going at this in the wrong way.

I don’t have a specific objection to anything on this (very lengthy) list.  However, I do object strongly to the underlying philosophy, which is to suggest that the way to control embezzlement in a dental office is to turn the dentist into an untrained, under-equipped, part-time auditor.
Most dentists I know, when given a list of this length, will simply throw up their hands and ignore the list.  I haven’t tried to calculate the time that performing all tasks on this list would take, but I bet that it is 25 hours or more monthly.  Since the number of hours in a week  is constant, this time would come either from clinical or family time, and both have considerable value.
The other problem with the “dentist as auditor” concept is that it ignores the adaptability of embezzlers.  Most successful embezzlers in dental offices are long-term employees.  Their seniority means that they know their doctor well, including what he or she looks at on a monthly basis (and more importantly, what is not scrutinized).  It is then simply a matter of finding a way to steal that is outside the dentist’s scrutiny.  If you start looking at more, or different, items the thief simply switches methodologies and carries on stealing.  Ultimately, there are fraud methodologies that NO system of controls and checks can stop.
Monitoring for fraud is actually far easier than most dentists and consultants think.  Regardless of the specific embezzlement methodologies being employed, the behavior of thieves is remarkably predictable.  Embezzlers want to control communication in their offices, do not want to take vacation, resist upgrades or changes to practice management software, etc.  If dentists can learn to identify behaviors consistent with embezzlement, they can quickly realize when it is happening.  A benefit of the behavior-based detection approach is that it requires way less time than trying to self-audit, which means that it is far more likely that a dentist will do what is necessary.”

We have developed a scored behavior analysis checklist which is available in our electronic store at www.dentalembezzlement.com/store

I’ve Heard That If I Suspect Embezzlement, Stealth Is Important. Why?

When an embezzler thinks that he or she is about to be discovered (and possibly go to jail, have their friends read about them in the newspaper, have their spouse find out about their illegal activities etc.), their thoughts turn to self-preservation.  This is a very powerful emotion, and anyone who has ever taken lifeguarding training is well aware of the danger of getting too close to someone who believes that they are in danger.
We have seen many instances of destroyed hard drives, missing backup media and in a couple of extreme cases, arson and murder committed by dental office embezzlers attempting to cover their tracks.  (read about here — https://www.prosperident.com/2016/07/05/assistants-life-…tal-baltimoresun/ )
Although such efforts normally end badly for the embezzler, the dangers they pose for dentists are considerable.   When we say that embezzlement investigation is a job for professionals, this is one of the reasons why.  Prosperident has expended considerable effort perfecting the ability to conduct stealthy investigations to protect you from these issues.
If you want to discuss your situation in confidence, we are happy to speak with you.  You can call us at 888-398-2327 , send email to our embezzlement hotline which is checked daily by our on-duty investigator at emergency@dentalembezzlement.com, or chat with us using the “chat” button that should be visible in the lower right corner of your screen.   We will get back to you as quickly as we can, normally within 24 hours.

Ten things you might not know about Prosperident

Sometimes we make the mistake of assuming that everyone knows who we are and what we do.  Here are some things you might not know.
1.  The company was founded in 1989, by David Harris
2.  David got drawn into the dental embezzlement world by accident.  Once he found himself there, his investigative skills and amazing ability to think like a criminal quickly established him as the “top gun” of embezzlement investigation for dentists.
3.  Prosperident only assists dentists.  We do not investigate in other businesses, nor do we work for dental insurance companies, the IRS etc.
4.  We work with all dental specialties and have specialized groups to deal with embezzlement in oral surgery and orthodontic practices.  Our Special Investigations” group deals with some of our more unusual cases.
5.  Our dozen investigators all had extensive dental backgrounds before they started training to be Prosperident fraud examiners.  Half have completed their Certified Fraud Examiner (CFE) designation, which is the “gold standard” of fraud examination.
6.  Our examinations are completely stealthy — no one but you will know that we are involved.  Also, normally our investigations are done remotely and without a (probably conspicuous) visit to your office.
7.  We do a lot of speaking, and five members of our team are accomplished speakers.  In a typical year, we do 60 or more speaking engagements — everything from big meetings like the Hinman and Chicago Midwinter to local study clubs.
8.  We offer three products — Diagnostic Examination(for when a dentist wants to know if he or she is being embezzled), Forensic Investigation (for when embezzlement has been confirmed) and Office Protection System, which is a preventative product designed to minimize the probability and impact of future embezzlement.
9.  The most popular section of our website is the Hall of Shame, where we profile over 350 embezzlers.  It’s a great place to look before hiring someone — check it out here.
10.  Our favorite color is blue 🙂

The Cost of Inaction

Two years ago, I set a goal for Prosperident of increasing the knowledge level of dentists and those who advise dentists about embezzlement.
Overall I think we have done a good job of increasing awareness.  Prosperident’s other speakers and I have given literally hundreds of presentations and have logged thousands of travel miles.  Our articles have appeared in every major dental publication in North America.  Google search the word “Prosperident” and you will see the extent of the information that we have put in front of the dental community.
And yet, every once in a while, something happens that causes me to question our effectiveness at getting the word out.  Last week I had two encounters with dentists that caused me to question our effectiveness at getting the word out.
First, I got a call from a dentist.  As this dentist described his situation, it became clear that embezzlement was very likely happening given the suspect’s behavior.  We were retained and began our intake process.  The dentist contacted us two days later to say that he was discontinuing the investigation, and the reason was that there was a labor shortage in the area of the practice.  In other words, that it was better to keep an employee who was stealing from the dentist than trying to find another one.  I couldn’t believe my ears.
A few days later, I got a call from another dentist.  One of this dentist’s staff had taken the scrap gold in the office, sold it, and kept the proceeds.  The question that this dentist was calling to ask me was whether the employee should be fired.  While the amount involved was fairly small, the answer to this question seemed so obvious to me that I’m still having trouble believing that it had to be asked.
What concerned me about both of these incidents is the apparent willingness of the dentists involved to tolerate some level of dishonesty on the part of an employee.
Let me make this simple — there should be ZERO tolerance for dishonesty from your staff.  Someone who will sell a few hundred dollars of your gold is obviously over the ethical hurdle that employees must cross before they steal, so it is only a matter of time before this evolves into a more direct (and monetarily significant) form of stealing. And the dentist who suddenly decided that a local labor shortage existed had obviously bought into the idea than the suspect is completely indispensable to the practice.
The costs of inaction can included severe financial damage.  It also consigns the dentists to “long-term uncertainty” — wondering what these employees are up to will continue for as long as they continue to work in these practices.

The Mind of the Embezzler

I’ve often said that our embezzlers fall neatly into two categories, which I labeled the “Needy” and the “Greedy”.  The Needy are exactly what you expect; some life event has made their finances unworkable, and they are stealing to preserve the basics of life.  Some of the events that might prompt this include an addiction, a spouse losing his or her job, or a divorce.  Stealing is done because the thief feels that they have exhausted their other options.
The Greedy are a bit different (and fascinating — I keep threatening to write a book about them — perhaps this column is the start :-).  These people steal to scratch an emotional itch, not a financial one.  We are completing an investigation now where the thief won a seven-figure lottery prize, and after winning the money– get this — kept stealing.  These thieves get some kind of “endorphin rush” when they steal and it becomes addictive.
The Greedy thieves I have met are smart people and in many cases are close to being the intellectual peers of the dentists they work for.  I think that at some level they resentfully compare your wealth and status to their own, and decide to address the inequity that they perceive.
In contrast to the Needy, Greedy thieves tend to flaunt their “winnings”.  We have seen everything from top-end BMWs to boats to membership in the “Shoe of the Month Club” bought with YOUR money.
The good news is that our extremely popular Embezzlement Risk Assessment Questionnaire is excellent at ferretting out these thieves.  The Questionnaire provides a systematic way of capturing and evaluating the behaviors that are characteristic of embezzlement.

Things NOT to do if you suspect embezzlement in your office:

  • Start asking unusual questions of staff
  • Ask for reports you haven’t requested before
  • Spend lots of time in your private office on the phone with your CPA
  • Allow a couple of geeky looking people with briefcases to come to your office to look at stuff
  • Implement additional security features in your software
  • Start posting articles about embezzlement in other offices on your staff room bulletin board
  • Run around flapping your wings like a chicken

If someone is embezzling from you, they are constantly looking for signs that they are about to get caught.  When a thief observes these signs, their thoughts turn to self-preservation, which includes things like destroying evidence.  “Evidence” for this purpose usually includes your practice’s financial and clinical records.

Unfortunately, many dentists have learned the hard way about the dangers from alerting a suspect prematurely.  If you have concerns about embezzlement, we recommend using our “Panic List of dos and don’ts that is available on our web store at www.dentalembezzlement.com/store and getting immediate professional assistance.