Employee Embezzlement and Fraud: Detecting and Deterring Theft in the Digital Dental Practice

Transcription

1 Earn 1 CE credit This course was written for dentists, dental hygienists, and assistants. Employee Embezzlement and Fraud: Detecting and Deterring Theft in the Digital Dental Practice A Peer-Reviewed Publication Written by Donald P. Lewis, Jr., DDS, CFE Abstract Employee embezzlement is dramatically increasing and causing serious financial distress in the dental profession. Recognizing the signs of this criminal behavior is the first place to begin. Being proactive in hiring methods is of utmost importance. Understanding the behavioral patterns, recognizing the warning signs and awareness of the potential for embezzlement is critically important for all practitioners. Realize that financial security of the practice is of primary importance to long term viability and success. Educational Objectives: At the end of this educational activity participants will be able to: 1. Recognize the signs of criminal behavior. 2. Describe the Fraud Triangle and why seemingly good people commit embezzlement. 3. Implement internal controls to detect and prevent loss. Author Profile Donald P. Lewis, Jr., DDS, CFE is a Diplomate of the American Board of Oral and Maxillofacial Surgery and is currently in private practice in Cleveland, Ohio. He also has earned the designation of Certified Fraud Examiner (CFE) from the Board of Regents of the Association of Certified Fraud Examiners and is a respected lecturer on the subject of white-collar crime. Dr. Lewis has written numerous articles and books on the subject of Employee Embezzlement and Fraud. Contact him at [email protected]. Author Disclosure Dr. Lewis co-founded Practice SafeGuard, a software product in the healthcare profession dedicated to the detection of errors, negligence and fraud. Go Green, Go Online to take your course Publication date: July Expiration date: Jun Supplement to PennWell Publications ThiscourseisapprovedforAGDcreditsonly it is not approved for ADA credits PennWelldesignatesthisactivityfor1ContinuingEducationalCredit DentalBoardofCalifornia:Provider4527,courseregistrationnumberCA# ThiscoursemeetstheDentalBoardofCalifornias requirementsfor2unitsofcontinuingeducation. ThePennWellCorporationisdesignatedasanApprovedPACEProgramProviderbythe AcademyofGeneralDentistry.Theformalcontinuingdentaleducationprogramsofthis programproviderareacceptedbytheagdforfellowship,mastershipandmembership maintenancecredit.approvaldoesnotimplyacceptancebyastateorprovincialboardof dentistryoragdendorsement.thecurrenttermofapprovalextendsfrom(11/1/2011)to (10/31/2015) Provider ID# This educational activity was developed by PennWell s Dental Group with no commercial support. This course was written for dentists, dental hygienists and assistants, from novice to skilled. Educational Methods: This course is a self-instructional journal and web activity. Provider Disclosure: PennWell does not have a leadership position or a commercial interest in any products or services discussed or shared in this educational activity nor with the commercial supporter. No manufacturer or third party has had any input into the development of course content. Requirements for Successful Completion: To obtain 1 CE credit for this educational activity you must pay the required fee, review the material, complete the course evaluation and obtain a score of at least 70%. CE Planner Disclosure: Heather Hodges, CE Coordinator does not have a leadership or commercial interest with products or services discussed in this educational activity. Heather can be reached at [email protected] Educational Disclaimer: Completing a single continuing education course does not provide enough information to result in the participant being an expert in the field related to the course topic. It is a combination of many educational courses and clinical experience that allows the participant to develop skills and expertise. Image Authenticity Statement: The images in this educational activity have not been altered. Scientific Integrity Statement: Information shared in this CE course is developed from clinical research and represents the most current information available from evidence based dentistry. Known Benefits and Limitations of the Data: The information presented in this educational activity is derived from the data and information contained in reference section. The research data is extensive and provides direct benefit to the patient and improvements in oral health. Registration: The cost of this CE course is $20.00 for 1 CE credit. Cancellation/Refund Policy: Any participant who is not 100% satisfied with this course can request a full refund by contacting PennWell in writing.

2 Educational Objectives At the end of this educational activity participants will be able to: 1. Recognize the signs of criminal behavior. 2. Describe the Fraud Triangle and why seemingly good people commit embezzlement. 3. Implement internal controls to detect and prevent loss. Abstract Employee embezzlement is dramatically increasing and causing serious financial distress in the dental profession. Recognizing the signs of this criminal behavior is the first place to begin. Being proactive in hiring methods is of utmost importance. Understanding the behavioral patterns, recognizing the warning signs and awareness of the potential for embezzlement is critically important for all practitioners. Realize that financial security of the practice is of primary importance to long term viability and success. Introduction Do you work every day with a white-collar criminal? It s a dramatic question, but victims of embezzlement have suffered the dramatic and devastating consequences of inadequate financial controls. Employee embezzlement and fraud in the dental office have escalated significantly since the advent of the internet. Reports of dental practices being victimized by this silent, destructive crime continue to increase. Some practices are so devastated that doctors have no choice but to declare bankruptcy and start over. The cost of white-collar crime in the United States is staggering and increases every year. According to the Association of Certified Fraud Examiners 1, business losses due to embezzlement and fraud could be as high as $500 billion annually. Consider the red flags: practices are small businesses run by high school graduates using complex management software platforms, most of which boast many ways to change patient records for ease of use. Most importantly, these small businesses are usually supervised by a clinical professional focused on care delivery, sometimes with no more than one or two office staff members who understand the books. Practices in which these factors are occurring are vulnerable to white-collar crime. Profiling Embezzlers: Recognizing Signs of Criminal Behavior It is paramount that every business person, including dentists, understands and be observant of the red flags of embezzlement and fraud, states George P. Farragher (CPA CFE CFF), former Chairman of the Board of Regents and Regent Emeritus of the Association of Certified Fraud Examiners. We can identify several revealing factors using just a few embezzler profiles. Embezzlers look, talk and act just like any normal employee, but what separates them is devious behavior, says Farragher. Embezzlers think they are smarter than anyone else. They know that they can beat the system, sometimes because they ve done it before, but often because they control functions or see system weaknesses where others don t. This may manifest at first as the employee actually solving problems in the practice. Not a bad thing, of course; however, the smartest embezzlers also take advantage of process flaws and so recognize how to use those holes to bury their tracks. Embezzlers are usually predictable. Crimes of embezzlement are rhythmic and cyclical, occurring over time with small thefts that aggregate to thousands. In many cases, the embezzler exercises or is given more authority than their position calls for, but these same employees can suffer from low self-esteem. Committing the crime or at least the attempt to commit the crime, helps to alleviate this lack of esteem. Their self-esteem may be assuaged by having more money, or the material things that money provides. Guilt and anxiety may also cause a marked change in both the embezzler s appearance and behavior. You may notice clothing or items that seem inconsistent with your knowledge of their means, or they may irrationally resist changes in practice responsibility. Behaviors While there is no description of the average embezzler, most employees who embezzle consistently will display some regular symptoms or red flags. These symptoms may show that the employee is troubled mentally, physically, emotionally or financially. These are clues that may become apparent to other employees in your practice. The demonstration of any one of these symptoms does not necessarily mean that an employee is embezzling from your practice, but should serve notice that the potential is there. They simply put that employee in a risk category, and intervention may prevent future embezzlement. Some of the well-known clues include the following: A significant and unexplained change in an employee s lifestyle may be a red flag that illicit funds have been stolen from your practice. A suddenly enriched and extravagant lifestyle, unsupported by the level of compensation, is one such indicator. Another potentially dishonest employee is one who refuses to take time off from work. Embezzlement is a rhythm crime and this rhythm must accommodate routine practice business operations. The embezzler must be present in the office to track transactions, or to explain suspicious activities that may be discovered during spot-checks and audits. By taking a vacation the embezzler may have to spend money to travel, they also lose the opportunity to steal money while on vacation. Most importantly, they risk the crime being discovered when they are not there to protect it. Constantly working overtime without sufficient reason and often without pay should also be examined. Again, the embezzler needs time to track transactions and falsify entries which may not be possible during normal office hours. You may get the false impression that this employee is indispensable, dedicated and committed to success of the practice. So,

3 while the employee commits the crime, they are boosting their image, and possibly gaining access to more assets. Any indication that an employee is keeping personal records of business transactions (outside your regular books) is a major red flag to be investigated. They continue to steal increasingly larger amounts of money involving more and more accounts. Frauds of this nature can run for years and require detailed record keeping by the embezzler. Inconsistent or disruptive behavior at the office should also be noted. Other employees may note this, but the perpetrator may be in such a powerful position as to use this behavior in an intimidating fashion. Embezzlers will live an increasingly erratic lifestyle to escape the effects of the distress. The profile of the embezzler is one of complexity, sometimes involving significant behavioral problems. They are trusted employees who exploit the confidence instilled in them to cover up dishonesty. They must appear diligent and loyal to retain trust and access to vulnerable funds. Failing to randomly check the accuracy of all employees work, or providing anonymous, non-punishing ways for them to check each other empowers thieves to commit fraud. The Fraud Triangle: Why Good People Do Bad Things Embezzlers also fit into what is known as the Fraud Triangle. This triangle is a confluence of three compelling factors for thieves: Opportunity, Rationalization and Motive. Opportunity is measured simply by the level of ease and certainty with which a crime can be committed. The probability of success is determined by the perceived or actual weaknesses of the practice s operations. The potential thief will consider these opportunities prior to the act. If discovery and punishment are not certain or avoidable, some employees will take the chance. Next is the rationalization of their actions. As human beings, we all define what is right and what is justified in our behavior. Embezzlers rationalize stealing by viewing themselves as an average employee in a dishonest world where everyone is trying to get ahead. It s possible they are in a desperate situation and feel they must solve it however they can. They may look at this newfound income as only borrowing. Their intent may or may not be to repay this debt. Regardless of how they justify it, stealing from your practice is no accident. It occurs after a careful evaluation process, with several steps taken to set up the crime before it s actually committed. The manner in which you establish the perception of accountability in your practice affects the employee, their evaluation of the opportunity, and whether or not they choose to commit the criminal act. The management skills in the practice will set the tone and draw the line. Integrity and accountability start at the top. If employees perceive that the doctor isn t involved in the financial aspects of the practice in a detailed manner, it may provide more rationalization for theft to occur. Finally, for the crime to occur, embezzlers need a motive. There are three primary motives most commonly noted in these individuals, and they are self-explanatory. One is the basic need for money. The second is revenge, and the third is the thrill of the crime. All three of these motives may be intertwined, or they can individually be the cause for the perpetrator. There is no way to predict what combination of motives exists within your employees, but watching for these behaviors may prove to be important to protect the practice. Computer Fraud: The Methods of Thieves Of the many ways that fraud is perpetrated against a practice, computer fraud and manipulation is one of the most common. It starts with a scheme commonly known as lapping. Lapping involves the withholding of receipts such as a payment on a patient account. The payment can be cash, check or credit card. Lapping schemes usually start with small amounts of missing funds, but as the scheme becomes more complicated and continues, the amounts will increase until the embezzler is caught or leaves the practice. Lapping requires the employee to have control of many different aspects of the practice. For example, the employee may be responsible for opening mail, receiving cash or checks, and posting payments on accounts with balances. Usually, the employee also has access to the accounts receivable records and patient statements. They may alter the statements sent to your patients. An increase in patient refunds might also represent concealment of an accounts receivable payment. An increase in bad debt write-offs, or an unusual number of accounts turned over to a collection agency, may also signal a cover-up. While they are not always fraudulent, unusual transactions such as write-offs, payment adjustments, charge adjustments and backdated accounts are always included in computer fraud schemes, and in aggregate, they impact the income of the practice. Declines in practice gross income or profits can be legitimate, or may indicate that income is being embezzled. These actions need to be examined closely. The fraud can continue for a long period of time or until something unusual happens. A patient complaint of inaccurate billing may bring the scheme to light, or it may surface through a simple audit of patient statements compared with the total accounts receivable. The point is, sooner or later, these schemes will collapse. Hopefully the practice does not collapse along with them. Financial Security: How to Detect and Prevent Loss The office must have a system of internal controls for financial security and to safeguard its money and assets. Having a builtin system of controls, administered fairly and tightly, and audited frequently, can prevent attempts at embezzlement. The best internal controls help document incriminating evidence, which will help estimate practice losses for recovery purposes and potentially prove that a crime was actually committed

4 When it comes to the financial security of the practice, virtually every precaution instituted to protect practice income does not constitute overkill. Basic safeguards include: 1. Ensure that the clinical dentistry provided is correctly posted to the proper patient account. 2. Monitor billing and collections from your patients. 3. Conduct appropriate due diligence on employees before hiring them. At a minimum, this should include basic reference and background checks. The vast majority of offices depend on administrative staff to properly safeguard the financial health of the practice. With technology advances in practice management, patient data is often siloed into multiple systems that do not interact. If one employee is solely responsible for executing even 2 of the above 3 steps without your detailed oversight, the opportunity to steal income in small unnoticeable increments is provided. The sums can quickly aggregate to hundreds of thousands of dollars in embezzled funds. Auditing staff functions in which automatic checks are in place with ultimate accountability to the doctor, without disrupting the flow and efficiency of production and patient care, is critical to preventing fraud and smooth office operations. The following efforts are low cost or free, and can be implemented relatively quickly: 1. A fast, inexpensive audit can be performed by the doctor. a. For each location and provider, pull 15 random patient charts from the past month s schedule. Confirm that the treatment performed was posted to each patient s account and check to see that that patient s payment was posted both to his or her account and the bank deposit. Confirm that the bank receipts reflect the same total as the daily in-house deposit amount. b. Plan on performing the 15 patient chart audits each week. At the end of the audit, leave the charts at the front desk. Add a note stating you are finished with the audit and the charts can be filed. If the office is paperless, the practice accountant and office manager should be notified that the records are being reviewed regularly. This is a very non-threatening way of notifying staff members that records are reviewed without detailing the specifics. c. Support this audit process by having bank statements sent to the home address. 2. Lock down your internal controls. The following are essential to creating self-sustaining fraud prevention in the practice: a. Segregate bookkeeping duties among employees to eliminate total financial control or knowledge by any one employee. For example, different employees should receive payments and post bank deposits, and be provided with a shared report template which are compiled daily or weekly for review by the doctor. b. Control adjustments, write-offs and refunds by reviewing all adjustments and each entry of the monthly adjustment report. c. Implement strict cash processing rules with segregated receivables/deposit personnel. d. Doctor(s) should be the only individuals with checksigning authority. Lastly, the doctor should insist that the accounting system and supervising employee provide reports on a regular basis. A daily audit trail should be printed and presented to the doctor every day. This audit trail will reveal financial transactions transpiring since the last audit trail was printed. These audit trails need to be dated and numbered for accuracy. Any audit trail or report that is not numbered is not an accurate representation of the report requested. Any unusual or unexplained variations should be discussed with the employee involved or with your accountant. Summary If embezzlement is suspected, do not to jump to any hasty conclusions. What appears at first to be a clear-cut case of fraud or embezzlement may be nothing more than weak internal controls compounded by training errors or negligence, all with a perfectly valid explanation. Good help is hard to find, and many offices hire and keep family friends on for years because they are trustworthy. Loyal employees should never be accused or alienated without documented proof. If there is good reason to suspect embezzlement and/or fraud, contact the practice attorney immediately. Involving local law enforcement authorities is of utmost importance. Prosecution is paramount and failing to prosecute could constitute charges or helping conceal the commission of a crime. Finally, asking the right questions and instituting effective controls can be the best deterrent possible. Honest employees will not feel accused, and will help protect the livelihood and integrity of the practice. 1 Association of Certified Fraud Examiners 2012 Report: Author Profile Donald P. Lewis, Jr., DDS, CFE is a Diplomate of the American Board of Oral and Maxillofacial Surgery and is currently in private practice in Cleveland, Ohio. He also has earned the designation of Certified Fraud Examiner (CFE) from the Board of Regents of the Association of Certified Fraud Examiners and is a respected lecturer on the subject of white-collar crime. Dr. Lewis has written numerous articles and books on the subject of Employee Embezzlement and Fraud. Contact him at [email protected]. Author Disclosure Dr. Lewis co-founded Practice SafeGuard, a software product in the healthcare profession dedicated to the detection of errors, negligence and fraud

5 Online Completion Use this page to review the questions and answers. Return to and sign in. If you have not previously purchased the program select it from the Online Courses listing and complete the online purchase. Once purchased the exam will be added to your Archives page where a Take Exam link will be provided. Click on the Take Exam link, complete all the program questions and submit your answers. An immediate grade report will be provided and upon receiving a passing grade your Verification Form will be provided immediately for viewing and/or printing. Verification Forms can be viewed and/or printed anytime in the future by returning to the site, sign in and return to your Archives Page. Questions 1. The crimes of embezzlement are: a. Random and haphazard b. Committed spontaneously c. Rhythmic and cyclical d. Not associated with guilt or anxiety 2. Embezzlers are usually: a. Unpredictable b. Employees with low self esteem c. Able to identify system weaknesses d. All of the above 3. Symptoms of an embezzler can include which of the following? a. Significant change in employee s lifestyle b. Refusal to take time off work c. Constantly working overtime d. All of the above. 4. Dishonest employees refuse to take time off work because: a. They want to be present to track transactions b. They are concerned that their schemes may be discovered c. They want to be able to explain discrepancies d. All of the above. 5. A possible red flag of employee embezzlement may include which of the following? a. Employees that constantly work overtime without sufficient reason b. Employees that work excessive overtime c. Employees that are always on time and never complain d. Employees that track entries and transactions 6. Embezzlers are trusted employees who: a. Exploit your confidence b. Are diligent and loyal employees that check accuracy of work c. Have no access to vulnerable funds d. Love internal controls 7. The Fraud Triangle consists of: a. Motive, opportunity, rationalization b. Motive, theft, concealment c. Theft, conversion, concealment d. Opportunity, theft, conversion 8. Rationalization can include: a. Defining what is right and what is justified b. Viewing themselves as honest but just trying to get ahead c. Look at new found income as only borrowing d. All of the above 9. To establish the perception of accountability in your practice you must: a. Establish integrity and honesty b. Allow the staff to dictate your internal controls c. Have no separation of duties among the staff d. Leave financial accountability totally to your office manager 10. Motives for embezzlement can include which of the following? a. They would rather work than take vacation b. Being a team employee to further the needs of the practice c. Perception of revenge d. Would rather be paid for vacation than to take time away from the office 11. A Lapping scheme requires: a. An employee that has little control over financial aspects of the practice b. An employee that is only responsible for opening the mail. c. Temporarily holding of payments to accounts receivable d. An employee to have access to both accounts receivable and patient statements 12. While not always fraudulent in nature, which of the following is typically seen in a computer fraud scheme? a. Write-offs b. Payment adjustments c. Charge adjustments d. All of the above 13. When it comes to the financial security of your practice, which of the following will help protect your business? a. Have your staff post patient payments to the proper accounts b. Hire employees that you think will be honest c. Make sure your staff conducts proper background checks d. Conduct regular audits to make sure fees and payments are posted to the correct account 14. Which of the following constitutes a conduct a low cost audit of your practice? a. On a biannual basis, review 15 random charts for payments b. Review the bank statement and deposits monthly c. Perform a 15 patient chart audit each week d. Have your employees open your bank statement and balance your checking account 15. When locking down internal practice controls, which of the following should be done? a. Allow trusted employee to be the only one to complete bookkeeping duties. b. Have different employees take payments and post bank deposits c. Allow employees to control adjustments, write-offs and refunds d. Make sure that all employees have check signing authority Notes

6 ANSWER SHEET Employee Embezzlement and Fraud: Detecting and Deterring Theft in the Digital Dental Practice Name: Title: Specialty: Address: City: State: ZIP: Country: Telephone: Home ( ) Office ( ) Lic. Renewal Date: AGD Member ID: Requirements for successful completion of the course and to obtain dental continuing education credits: 1) Read the entire course. 2) Complete all information above. 3) Complete answer sheets in either pen or pencil. 4) Mark only one answer for each question. 5) A score of 70% on this test will earn you 1 CE credit. 6) Complete the Course Evaluation below. 7) Make check payable to PennWell Corp. For Questions Call Educational Objectives 1. Recognize the signs of criminal behavior. 2. Describe the Fraud Triangle and why seemingly good people commit embezzlement. 3. Implement internal controls to detect and prevent loss. Course Evaluation 1. Were the individual course objectives met? Objective #1: Yes No No Objective#3: Yes Objective #2: Yes No Pleaseevaluatethiscoursebyrespondingtothefollowingstatements,usingascaleofExcellent =5toPoor =0. 2. To what extent were the course objectives accomplished overall? Please rate your personal mastery of the course objectives How would you rate the objectives and educational methods? How do you rate the author s grasp of the topic? Please rate the instructor s effectiveness If not taking online, mail completed answer sheet to Academy of Dental Therapeutics and Stomatology, A Division of PennWell Corp. P.O. Box 116, Chesterland, OH or fax to: (440) For IMMEDIATE results, go to and click on the button Take Tests Online. Answer sheets can be faxed with credit card payment to (440) , (216) , or (216) Payment of $20.00 is enclosed. (Checks and credit cards are accepted.) If paying by credit card, please complete the following: MC Visa AmEx Discover Acct. Number: Exp. Date: Charges on your statement will show up as PennWell 7. Was the overall administration of the course effective? Please rate the usefulness and clinical applicability of this course Please rate the usefulness of the supplemental webliography Do you feel that the references were adequate? Yes on 11. Would you participate in a similar program on a different topic? Yes on 12. If any of the continuing education questions were unclear or ambiguous, please list them. 13. Was there any subject matter you found confusing? Please describe. 14. How long did it take you to complete this course? 15. What additional continuing dental education topics would you like to see? AGD Code 552 PLEASE PHOTOCOPY ANSWER SHEET FOR ADDITIONAL PARTICIPANTS. COURSE EVALUATION and PARTICIPANT FEEDBACK We encourage participant feedback pertaining to all courses. Please be sure to complete the survey included with the course. Please all questions to: [email protected]. INSTRUCTIONS All questions should have only one answer. Grading of this examination is done manually. Participants will receive confirmation of passing by receipt of a verification form. Verification of Participation forms will be mailed within two weeks after taking an examination. COURSE CREDITS/COST All participants scoring at least 70% on the examination will receive a verification form verifying 1 CE credit. The formal continuing education program of this sponsor is accepted by the AGD for Fellowship/Mastership credit. Please contact PennWell for current term of acceptance. Participants are urged to contact their state dental boards for continuing education requirements. PennWell is a California Provider. The California Provider number is The cost for courses ranges from $20.00 to $ PROVIDER INFORMATION PennWell is an ADA CERP Recognized Provider. ADA CERP is a service of the American Dental Association to assist dental professionals in identifying quality providers of continuing dental education. ADA CERP does not approve or endorse individual courses or instructors, nor does it imply acceptance of credit hours by boards of dentistry. Concerns or complaints about a CE Provider may be directed to the provider or to ADA CERP at org/cotocerp/. The PennWell Corporation is designated as an Approved PACE Program Provider by the Academy of General Dentistry. The formal continuing dental education programs of this program provider are accepted by the AGD for Fellowship, Mastership and membership maintenance credit. Approval does not imply acceptance by a state or provincial board of dentistry or AGD endorsement. The current term of approval extends from (11/1/2011) to (10/31/2015) Provider ID# Customer Service RECORD KEEPING PennWell maintains records of your successful completion of any exam for a minimum of six years. Please contact our offices for a copy of your continuing education credits report. This report, which will list all credits earned to date, will be generated and mailed to you within five business days of receipt. Completing a single continuing education course does not provide enough information to give the participant the feeling that s/he is an expert in the field related to the course topic. It is a combination of many educational courses and clinical experience that allows the participant to develop skills and expertise. CANCELLATION/REFUND POLICY Any participant who is not 100% satisfied with this course can request a full refund by contacting PennWell in writing by the Academy of Dental Therapeutics and Stomatology, a division of PennWell EEF713DE

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