United States: Fraud Prevention In Your Dental Practice

Last Updated: September 5 2019
Article by Scott Haberman

You've built your practice on serving your patients and keeping them healthy. What happens if your own business is unhealthy? We don't like to think fraud can happen to us or that our employees would consider stealing valuable assets. However, it happens more often than you might realize. One study states that fraud in the workplace is costing businesses $50 billion annually.

Taking the necessary steps early on can help you prevent fraud from occurring and protect the well-being of your dental practice. Here are a few ways you can work to safeguard your practice:

Make a commitment at the top.

As the owner of your dental practice, a culture of fraud prevention begins with you. Policies must be in place and enforced as you work to prevent and eliminate fraudulent behavior in your organization. The following are a few ways you can do this:

  • Make sure you know who you're hiring and what you're hiring them for. Establish pre-employment background checks for your employees. Ensure your policy manual and job descriptions are up to date.
  • Hold everyone accountable. No matter what level they are or how long they've been there, if an employee does something against your policies, hold them accountable for their actions.
  • Communicate potential threats. Make sure you have a whistleblower hotline or policy in place and encourage your employees to report anything they see. Routinely conduct fraud risk assessments and internal control examinations.

Internal Audit v. Forensic Audit

An internal audit is an examination of company's accounts and activities by your own accountants and managers. A forensic audit, on the other hand, is an examination to find illegal financial activity.

Learn more.

Ensure proper controls are in place.

A very common issue that sometimes leads to failure of achieving goals is the lack of internal controls. Lack of internal controls is the leading cause of fraud, according to a recent report by the Association of Certified Fraud Examiners.

Private practice dental offices often rely on an office manager to wear many hats within the practice, including collecting and depositing payments, processing payroll and paying bills. It's understandable, given the realities of the industry. You're likely swamped with patient exams and procedures, which means your involvement might be limited to reviewing the practice's monthly performance via practice management software and financials that are provided to you. If cash flows are good and production is high, extra scrutiny may not always be given.

But what if that trusted office manager had a vice, or some sort of crippling financial need? Sometimes, when the opportunity is right and financial pressure is applied, an office manager can rationalize fraud. Would it be noticed if the office manager was stealing $100,000 per year, but put a "veneer" over the financial situation, making the practice appear healthy? Implementing certain review procedures and controls can help prevent this from happening.

Much like how a daily routine of brushing and flossing is critical to good tooth care, the same principles hold true for a practice's money. If regular oversight and controls are not in place, the practice may end up with a large cavity in the bank account.

There are several steps you can take to ensure your daily and monthly accounting practices are being monitored to prevent against fraud:

  1. Require that monthly bank statements (including cleared check images) be sent directly to the doctors before being provided to the office manager. Doctors should review the statements and checks for transactions that do not appear related to the practice. The same should be done for credit card statements if employees are issued cards.
  2. Compare monthly collection reports from the practice management software to bank deposits to ensure that funds are being deposited, including actual cash.
  3. Have external payroll services send the payroll reports directly to the doctors for review before providing to the office manager. If payroll is processed internally via direct deposit, request and review ACH reports from the bank.
  4. Utilize a safe to store cash on hand, deposits not yet made, signature stamps, etc. Only allow those authorized to have access to the safe. Also, do not allow employees to use a doctor's signature stamp, because ultimately it is the doctor's signature, not an employee's.
  5. Consider adding employee dishonesty insurance to the practice's coverage.

Know the red flags.

There are a few common red flags when it comes to potential employee theft or embezzlement within an organization or practice. These include:

  • Employees having close relationships with a vendor or a customer.
  • Employees holding tightly to their responsibilities and refusing to allow others to help with their work.
  • Employees experiencing financial difficulties at home and struggling to pay their bills or experiencing a personal financial crisis, such as a divorce.
  • Employees involved in addictive behaviors, such as gambling, alcohol or drugs.
  • Employees feeling the need to keep up with appearances and trying to live beyond their means.

What do you do if someone in your dental practice exhibits any of these warning signs? Review the employee's job description and duties (which should be up to date). Discuss potential risks and opportunities that may be present related to employee theft or fraud. Finally, ensure proper internal controls are in place to help prevent these opportunities from occurring.

The moral of the story

These are just a few ways to prevent your dental practice from potential fraud. By creating an atmosphere of detection and setting the tone at the top, you can start to worry less about potential threats and more about your patients and growing your practice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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