The Power Of Nature … And Embezzlement

Prosperident had a visitor on the weekend — Hurricane Arthur traveled up the East Coast and walloped us on Saturday.  Fortunately, our extensive computer infrastructure didn’t miss a beat and remained in full operation throughout the storm.  Others weren’t so lucky.  At the peak, 140,000 Nova Scotia households were without electricity, and as I write this (two beautiful sunny days after Arthur hit) there are still about 30,000 households more-or-less patiently waiting for power.
Interesting, but what does this have to do with embezzlement, you might ask?  The sheer power of nature is, at different times, wondrous and frightening.  While the determination and ingenuity of a motivated embezzler will not knock down trees or cause boats to sink, measured against the scale of human emotions it ranks somewhere between a tropical storm and a hurricane.
And kind of like the people in the picture by the rocks at Peggy’s Cove who have placed themselves in (possibly mortal) danger by underestimating nature’s power, underestimating embezzlers is also perilous.
I encourage you to take advantage of the summer months to give careful thought to whether anyone in your office is demonstrating embezzlement-like behavior.  The Association of Certified Fraud Examiners recently released its 2014 Report to the Nations, which gave some very interesting statistics — over 90% of embezzlers displayed at least one such behavior, and over 60% presented two or more behaviors consistent with embezzlement. 

When Dentists Behave Badly

Do Dentists Embezzle?  
By David Harris  

I think everyone reading this newsletter is aware of the shockingly high probability of a dentist being embezzled in his or her career.  Published statistics put that probability at three in five dentists, but because some embezzlement goes unreported and some is never detected, the true probability is likely about 80%.  

It is tempting to attribute this pandemic to the necessity to have employees, with those employees being generally less educated and having a less developed sense of ethics than the dentist.  By this logic, while it is quite possible to be victimized by staff, it is unimaginable that another member of the dental fraternity would steal.  

This reasoning is doubly flawed.  First, the overwhelming majority of dental team members share the altruism and integrity that most dentists bring to their profession, and the embezzlement statistics are a result of the actions of a very small proportion of dental staff.  And second, one dentist stealing from another in a group practice context is something that we encounter with some regularity.  We usually have four or five active investigations of this type in progress.  While this is a small proportion of our total investigations, we need to bear in mind that the number of multi-dentist practices where this “fratricide” can happen is relatively small also.  

What I want to establish is that the causes of embezzlement are not as simple as modest economic circumstances and underdeveloped ethics.  Most of our dentist-embezzlers are already reasonably well off, and it is clear to me that they understand the ethical transgressions they are making.  

So why do they do it?  

Sometimes the embezzlers feel that the dentist they are victimizing has somehow wronged them in the past, and they are (using a very twisted concept of fairness) attempting to right this historical wrong.  In other situations, I believe they get some kind of biochemical thrill from successfully stealing (analogous, I guess, to the celebrity shoplifters we sometimes read about in the news who steal a $10 item from a store while earning millions of dollars).  And the dental education and licensing processes are probably far better at weeding out the undexterous and unintelligent than the sociopaths.  

If you are not in a group practice, at this point, you are probably questioning the relevance of this discussion to you.  It’s actually pretty direct.  Embezzlers who happen to be dentists are bestowed a huge advantage by their victims.  Because their actions are “inconceivable” (and I’m now quoting many of the victims), the perpetrator receives far less skepticism from the victim than he or she should.  

Regardless of your practice situation, an easy way to make yourself vulnerable is to decide that it is inconceivable that a certain person will steal from you.  Unfortunately, we have seen far too many of these “inconceivables.”  In addition to the classic cases of the trusted long-term employee, we have also seen embezzlement committed by siblings of the dentist, children, and even spouses.  

I’m not suggesting an ongoing hunt for embezzlers the way Sen. McCarthy once hunted for communists; simply that deciding that anyone is “above suspicion” is exactly the enabler that they need, if they are so inclined.  We just can’t completely rule out the possibility of someone being a thief.  Whether you practice solo or in a group, some amount of skepticism is a healthy thing.

Don’t Underestimate The Embezzler

By David Harris MBA CMA CFE and Pat Little DDS FAGD CFE

As investigators, one thing we encounter every time we speak to a group of dentists 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 methodology.

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.

Lorraine Guth (with David Harris) — Don’t Shoot The Messenger!

David Harris co-wrote this article several years ago with his friend, Dental Consultant Lorraine Guth, in a great magazine called The Progressive Dentist.  It’s a great discussion about embezzlement and the dilemma that Lorraine faced.
Lorraine’s web site is and her phone number is 636-273-9500
Lorraine Guth…
If you suspected your friend’s spouse of cheating, would you tell?  What if the signs of the deceit were fairly clear, but you couldn’t be sure? It’s a tough question, and most of us really don’t know how we would respond until actually faced with the decision.  As consultants, one of our most difficult challenges is bringing evidence forward when we believe a dentist-client is the victim of fraud.
Follow me as I recount an experience. It was the end of the first day of observation and coaching in Dr. Simpson’s practice.  I watched and learned from the doctor and team members.  Something didn’t seem right.  I began my mental organization of findings and started to dig deeper. Dr. Simpson’s favorite and most dedicated employee seemed to be holding back.

The Myth Of Prevention

I continue to see articles published with titles like “Four Things You Can Do To Stop Embezzlement In Your Practice” — in fact, I saw a new one online a couple of weeks ago.
Many of these articles are written by someone working in the dental field but without the daily contact with embezzlement that we have.  So they write from “intuition” and recapitulate what others have written.  While these authors have the very best of intentions, they consistently make a couple of errors.
First, they assume that what controls other types of crime will also work for embezzlement.  So people fall into what we refer to as the “hard target fallacy,” where they assume that if we make it hard for a prospective thief to steal, they won’t try.  This works really well, for example in deterring house burglars, because an alarm (or even the sticker that says that you have an alarm) is normally all that is needed is to convince a burglar to rob someone else instead of you. However, embezzlement is different; unlike most economic crime where the thief is able to choose his or her victim, for embezzlers, the victim is pre-ordained — it’s the practice owner.   So the notion that we can redirect an embezzler to an alternate victim is misguided.
Second, many pundits underestimate the motivation and creativity of embezzlers.  People embezzle to address a perceived need; sometimes it is financial, and other times it is an emotional need that causes them to steal.
In either case, it is a powerful motivation, and we shouldn’t expect a few minor obstacles to steer an embezzler toward honesty.  And as for creativity — we have been at this for over 25 years and have seen hundreds of embezzlement methodologies employed, and we still encounter new ones on a regular basis.  So picture your dental practice as having hundreds of embezzlement “doors.”  Unfortunately, believing that locking four (or ten or fifty) of them will solve your embezzlement problem, is wishful thinking.
I’m not suggesting that there is nothing that you can do; on the contrary, there are plenty of steps that you can take that will make embezzlement easier to spot, minimize its damage and facilitate the investigative process.  Our How to Beat Embezzlement in Your Practice guide offered through our web store at  gives you some simple and practical tools to gain the upper hand on those who might steal from you.  Also, check out our Ten Great Monitoring Ideas article here.

Our Most Popular Article Ever — What I Learned About Embezzlement By Playing Chess With My Son

(Originally appeared in Dental Products Report)
While this isn’t the way that most articles about dental office embezzlement start, playing chess with my son taught me something important about embezzlement.
For his age, he is a decent player. He has a well-developed sense of strategy, which allows him to defeat his peers routinely. However, he has never beaten me (although I confess that he came close once last summer). My perfect record isn’t because I am smarter than he is (objectively, the reverse is probably true) or because his strategies are deficient. I attribute my success to having the perspective and wisdom of an adult, which allows me to study his moves and discern (and counter) his  strategy.
Before we get mired in the philosophical debate about whether we should occasionally allow our children to win, let’s apply this same logic to embezzlement in dental offices.
A couple of basics first – published statistics suggest that 60% of dentists will eventually be victims and that the average amount stolen exceeds $100,000. Some dentists experiencing these losses have been forced to postpone retirements, others have marriages ruined, and the aftereffects of embezzlement have made practicing less enjoyable for many dentists.
Furthermore, while active embezzlement is occurring, practices tend to underachieve in ways that extend beyond the amount being stolen. Thieves tend to sabotage efforts made by owners to improve their practices, such as engaging consultants, implementing changes, and hiring new high achieving staff. The true cost of embezzlement can extend well beyond what is stolen.
The transference from my family’s chess games is this – the embezzler has ample time to study the “moves” (by which I mean the control system) of the practice owner and to plan an embezzlement that will defeat the structure. The embezzler is also likely to bring far more knowledge and worldliness to the problem than the dentist can, and to adapt quickly and successfully to any changes implemented by the dentist (much like the way that the process of monitoring one’s chess opponent, and reacting to any apparent changes in tactics, is an ongoing one).
This adaptation is helped because, much like the large number of moves possible on a chessboard, there are many possible embezzlement pathways in most dental practices.
So are dentists consigned to perpetually lose in this battle of wits? I don’t think so. In the same way that my son is developing as a chess player (I mentioned that he almost beat
me a few months back), you too can improve your skills. He is becoming more competitive not by improving his basic strategies (which are already pretty good) but instead by becoming more observant of my moves and better able to discern the strategy that underlies them.
You can also benefit from becoming more observant of your opponent. In its 2012 Report to the Nations, the Association of Certified Fraud Examiners reported that more than 80% of
embezzlers displayed some type of behavior indicative of embezzlement.
I’ll mention that this is a different approach than the anti-embezzlement measures that are most frequently advocated for dentists like separation of duties and increased self-audit (which I would really equate to trying to improve basic strategy). To be clear, I am not suggesting that these
suggestions are bad ideas; rather that, in the unequal battle between embezzler and victim, they are simply unlikely to be successful.
I’ll also recommend an excellent tool to improve the observation of your opponent. Our popular Embezzlement Risk Assessment Questionnaire takes about 10 minutes to complete and helps
you identify employee behavior that indicates risk of embezzlement. Your score gives you an indication of your vulnerability. You can access the questionnaire here.
I soon will rejoice in the imminent victory of my underdog son, and I will also celebrate your coming of age and winning your embezzlement battle.

Embezzlement, Baby Boomers And The Culture Of Entitlement

I recently attended a presentation about the different ways that Baby Boomers, Gen Xs, and Gen Ys make buying decisions. One of the points made by the speaker is that we are currently raising a generation of kids who never get to “lose” (when we now give medals to kids for participating instead of winning) and who, even as they enter adulthood, still have their parents fighting their battles for them (for an interesting read on this, check out this Huffington Post article).
One generational change that the presenter discussed was that now most parents repeatedly tell their children that they are “special” (whereas when I was growing up in the 1960s, parents used the word “special” in an almost derogatory way — as in “What do you think you are, special or something?”).
Part of my interest in these changes relates to my role as parent of a 12-year-old son (who is frequently told that he is special), but I am also interested in anything that explains any part of the explosion in dental office embezzlement we have seen over the past two decades.
There has clearly been a seismic shift in the environment in which we raise our kids.  Since it is we adults who create the framework in which our offspring develop, I have to conclude that changed parenting mirrors a change in our values and is not an adaptation to newborns behaving differently from birth.
I am certainly not advocating a return to the “Mad Men” 1960s when kids sat on smoking parents’ laps in the front seat of cars, and bullying was almost encouraged; I’m simply considering changes in societal values and their potential effect on embezzlement.
I’ve said before that our embezzlers fall into two categories, “Needy” and “Greedy,”with Needy thieves pushed by financial need and the Greedy stealing for emotional reasons.  One observation I have often made about Greedy thieves is that they feel that they have underachieved in life and that they “deserve” certain things that their incomes don’t permit.  I am sure that I am not the only one who sees the parallel between the concept that “everyone should be considered a winner, regardless of effort and ability” and “life hasn’t rewarded me the way that it should, and therefore I am justified in correcting this societal oversight by stealing.”
So what I realized from the lecture I attended is that probably Baby Boomers and Gen Xs worldview makes some of them feel more “entitled” to embezzle than perhaps their parents felt.  This entitlement would certainly explain some part of why embezzlement in dentistry has been such a growth industry.

Do Thieves Steal More In a Recession Or When The Economy Is Booming?

Something I often get asked is whether more embezzlement takes place when the economy is in trouble.  The answer isn’t a totally simple one, but it does show something interesting about embezzlers, so it is one that I am always happy to address.

An economic downturn puts some people in a financial bind; spouses may lose their jobs, investments devalue, and falling housing prices cause homes to be “underwater” or can even make it difficult to obtain mortgage financing.  All of these things exert sufficient financial pressure to cause a small minority of the population to steal.
We refer to this group as “Needy” thieves, and economic conditions certainly increase their numbers.  However, we shouldn’t forget that there is another cohort, which we label as “Greedy”. Unlike the Needy, these people aren’t stealing to survive — they are stealing to purchase luxury items that they feel that they “deserve” but can’t afford on the salaryyou pay them.  We’ve watched these people purchase everything from $150,000 automobiles to boats to lavishing expensive gifts on their friends.
Members of this group believe that society (and in particular their employer) underappreciate their talents and value.  Stealing is their way of addressing this perceived inequity and tacitly demonstrating how smart they are.
I’ll mention two things about this group — they seem to be much larger than the Needy — approximately 80% of the embezzlement we find involves Greedy thieves.  Second, the “lifestyle gap” that they perceive widens in a booming economy — they see others “getting ahead” faster than they are, and this motivates them to embezzle.
So, contrary to what you may have thought, we see more embezzlement in a recovering economy than one in a downturn, but it involves a different group of embezzlers.

Embezzlement — What a Busy Dentist Needs To Know



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 doctor and staff is frequently seized by thieves as “justification” for embezzlement.
Of the three pre-conditions, “opportunity” is frequently misunderstood by casual observers.  Intuitively, 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 probability of victimization is that they don’t fully appreciate the difference between embezzlement and other crime.  In most economic crime, 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 crime 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 an 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 implement controls for.  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.


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 displays 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.

The Question I Get Asked Most When Speaking…

People come to my lectures looking for many things — some want CE credit; others with embezzlement concerns want information, and there are probably some seeking entertainment.
There is also the group I call “validators” — what they want is my affirmation that they are doing the right things to address the possibility of embezzlement in their practices.
So after the lecture or during a break, they will approach me to ask if a specific business practice (that they are using or are contemplating using) will “prevent” embezzlement.  Some of the more common tactics discussed are a separation of front-desk functions, direct deposit of insurance payments into their bank account, not accepting assignment of insurance benefits, and having a bank “lockbox” where payments are directed and opened by a third party.
I think that most of them leave the conversation disappointed when I tell them that, while many of these things are good ideas for other reasons, none of them are likely to have any impact on embezzlement.
The reason is simple — each of these things removes one (narrow) opportunity for stealing.  What none of them do is to address the thief’s desire to steal, which is an incredibly strong force (and one which humankind has had little success in influencing despite a lot of trying).  A thief who knows you well, and probably understands your practice management software far better than you do, is very likely to overcome whatever obstacles you place in their path and successfully embezzle.
So while I will never encourage you to stop looking for more streamlined ways to run your practice, we also can’t ever be lulled into thinking that we have created a structure that is embezzlement-proof.
So if you are one of those unfortunates who has been on the receiving end of one of my “if you did that, here is how I would embezzle from you” sentences in one of my presentations, I apologize for leaving you feeling a bit deflated.  However, I hope that you gained some insight that will equip you better to recognize and deal with the possibility of embezzlement in your practice.