Practice Wisdom “Embezzlement”
Dianne Glasscoe Watterson
Dear Dianne,
I hired a new business assistant fourteen months ago. Until yesterday, I thought she was the best employee I ever had. What happened? I discovered she has been embezzling from me.
Her primary method of embezzlement was skimming cash payments, but we’ve also discovered some discrepancies with checks too. To date, I’ve been able to verify $15,000 that has been stolen, but I’m sure the amount is more than that.
As I stated, she has been an exemplary employee. She has kept the schedule full, is never absent, dresses like a professional business person, and is wonderful on the phone and with patients. I am devastated by her thievery and deceit.
My question is this: is there a particular protocol to follow? Who should I contact first, the police, an attorney, or my insurance company? Finally, how can I insure that this will never happen to me again?
Victim of Embezzlement
Dear Victim,
I’m very sorry to hear that a staff member has been embezzling money from your practice. Unfortunately, it is far too common. According to a report published by the Association of Certified Fraud Examiners, fraud costs the American economy in excess of $500 billion yearly. To put that into perspective, that’s over ten times the cost of street crime alone! This type of white-collar crime has caused numerous companies to collapse financially, such as the giant company, Enron. The problem could be much larger than we even know since not all fraud and embezzlement is detected or reported.
Let’s examine the mechanics of skimming, which is the most popular method of embezzlement. There are numerous ways to steal money by skimming. Here are a few techniques:
(1) When a patient pays with cash, the visit is recorded as a $0 charge, and the money is pocketed.
(2) The business assistant can give the patient a professional courtesy that you did not authorize, thereby understating your fee and pocketing the difference.
(3) The patient’s account can be written off or placed in ‘collection’ account to hide the payment that has been stolen.
(4) Another scam is to place deposits in a separate account in the bank that draws interest and skim off the interest.
(5) The deposit can be falsified.
(6) Certain checks can be held back and actually cashed at the bank without the patient visit or transaction ever being recorded.
(7) The day sheet can be altered with adjustment entries to cover up the theft.
(8) Payments or charges can be reversed by using a negative (-) sign or placing the number in parentheses.
(9) Partial credit adjustments and backdating accounts can be used to cover theft.
Usually, embezzlers are very clever in whatever technique they employ. They typically possess much computer savvy and become masterful at hiding their deeds. Often they appear to be loyal and hard working, i.e., the first to arrive and the last to leave each day. They may even work on weekends to “catch up on office work” occasionally. Sometimes they refuse to take vacations, because they don’t want others discovering their misdeeds.
There should be no question in your mind about whether or not to prosecute. Prosecution is your strongest weapon! Most business owners have insurance against employee theft, but failure to prosecute may prevent you from collecting indemnity insurance proceeds. Further, failure to prosecute sends the message that you are willing to ignore the fraud, even excuse it. Your staff members may see this as weakness.
The protocol you should follow is this:
(1) Establish the paper trail and irrefutable evidence of embezzlement with your accountant and computer support.
(2) Contact your attorney, and then contact the police.
(3) Terminate the staff member’s employment in the presence of a witness.
(4) Contact your insurance company.
Here are some tips to prevent embezzlement in the future.
(1) Know your computer system thoroughly.
(2) Ask to see a production/collection analysis daily.
(3) Always be suspicious of $0 charges.
(4) Never allow employees to sign checks.
(5) Always conduct background checks of anyone who will be handling money.
(6) Always demand and check references for any potential employee.
(7) Have an independent accountant to audit your practice occasionally.
(8) Make sure your computer software has levels of security so that editing any transaction requires at least one other person’s approval.
There is an excellent book written by Donald P. Lewis, Jr., DDS (an oral surgeon) about his experience with embezzlement. It is titled, Employee Embezzlement and Fraud in the Dental Office, (JdSG International, PO Box 35640, Monte Sereno, CA, 95030-0640, email info@jdsg.com) and it should be required reading for every dentist.
Best wishes,
Dianne
Dianne Glasscoe-Watterson, MBA, assists dental practices in achieving their highest potential through practical, effective, on-site consulting. Call (301) 874-5240 to discuss how your practice management challenges can be solved. Visit Dianne’s Web site at www.professionaldentalmgmt.com or e-mail her at dglasscoe@northstate.net.
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