3 Best Practices to Prevent Embezzlement

Episode #596 with Matthew Nelson

Three in five dentists experience embezzlement. Don't let it happen to you! To prevent this from happening in your practice, Kirk Behrendt brings in Matthew Nelson, a practice management analyst from the California Dental Association, with three best practices that will keep embezzlers at bay. Know the red flags and do your due diligence before it’s too late! To learn what they are and what you can do, listen to Episode 596 of The Best Practices Show!

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Links Mentioned in This Episode:

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Main Takeaways:

Recognize the red flags of embezzlers.

Be involved with spot-checks and audits.

Make it known to your team that you audit.

Always do background checks on applicants.

Call references at the official business number.

Remember that embezzlers steal in multiple ways.

Quotes:

“There is a survey from the ADA from 2018. In the survey, about 49% of the dentists that responded said they had experienced some type of embezzlement or employee theft. What we're finding now, Dentistry IQ had an article, they said three in five. And with COVID-19, and with people furloughed and laid off, doctors started to open more of their own mail and finding weird things. Three in five, that's 60%. That's a pretty big impact.” (6:04—6:35)

“[The reason why dentists may be more susceptible to embezzlement is because] I don't think there's a lot of training. A lot of dentists don't think it will happen to them because it's their staff that they hired and brought in. Third-party payments are hard to track. Things like consultants, bookkeepers, CPAs, the second set of eyes, all of these things are usually the first to go when things aren't going how they're supposed to. There is, in healthcare more than any other industry, this sense of entitlement that the staff feels. Like, ‘If I didn't book this appointment, or if I didn't do this treatment coordination, or if I didn't get this person to say yes to doing this treatment, the doctor wouldn't even have this.’ More in healthcare than anywhere else, we see this amongst staff.” (6:52—7:41)

“Circling back to the impact, obviously there's financial loss, but there's turnover. And listening to a lot of your shows, obviously, you are a big proponent of time and having time back. When there's turnover, you're recruiting and staffing and training, and there goes some of your time. And studies right now are showing that hiring and training someone is $8,000 to $15,000. But then, how do you not have low trust and morale in the office after having someone you trust steal from you? How do you not feel betrayed, and how do you not project that onto the rest of the staff? It's going to take a conscious effort.” (7:45—8:22)

“I think back to this story in Las Vegas that I was telling you about. This employee had stolen $249,000 from one office. Then, they applied for another office while they were, I don't know, waiting to go to jail or whatever, and worked for that office. Exactly a year later, they were caught stealing about $10,000. And then, three months later, in January of 2022, another $3,600. And so, I think there's this thing where we see experience, and we get really excited, and maybe don't do our best practices of a background check or reference checks to make sure that this person is someone you want to bring into the practice.” (9:54—10:40)

“Be involved. You don't have to do everything, but you do have to be involved. Ask questions. Closely review what you're signing. The team should know that you're checking, that you're spot-checking or that you're auditing. Have all your logins and passwords. There was someone that didn't want to go on vacation, and they kept all their logins and passwords, and wouldn't share them. When they finally went on vacation, the doctor had to reset the logins and passwords to help with some billing questions, and they unearthed all sorts of stuff. So, make sure that you have access to that, that it's not all entrusted to one person.” (11:48—12:25)

“If you can, have a system of checks and balances. If you talk to any of the big remote billing companies, they'll have one person that does the billing and one person that does the posting of the checks. So, if you can have that, I recommend that. Know your deposits and your adjustments. Your software company, your practice management software, should have people that can help you identify what reports to run, or to put controls in place so adjustments are limited. Make sure everybody has their own sign-on password so that you can track who did what. Those are some of the involvement parts. But after that, have your controls and best practices in place. So, like we talked about, access, segregation of duty. Make sure your staff takes vacations. That is one of the big red flags, is staff that doesn't take vacations or never wants to leave.” (12:26—13:19)

“Something else that I've heard an office do as a best practice that I love was that, obviously, they're using carbon copy deposit slips, and they're taking the deposit slips home with them. They're having the banking statement actually mailed to their house instead of to the office. That way, it triggers them like, ‘I need to go back and double-check these carbon copies with the deposit to make sure everything is in line.” (15:32—15:52)

“When we're talking about $100 for a background check, this study that I was looking at — it’s the Association of Certified Fraud Examiners, and this was multiple industries — what they found is the average loss from a manager is about $150,000. From a non-manager is $60,000. So, in comparison to a $100 background check, I think it's pretty smart to do them.” (18:31—18:57)

“We recommend offices sign up for the EFTs and get the electronic funds transfers. That is your safest bet. We're starting to see a lot of calls from people about checks getting misdelivered, misplaced, stolen, whatever it may be. There is still a lot of check fraud out there, and that's not easy money to get back from the plan. There are virtual credit cards, which are easily stolen. On top of that, they cost you two to three percent to process them.” (19:06—19:33)

“We highly recommend that you turn down those virtual credit cards and you try to get EFTs. But I'll tell you, you have to be involved in the setup of the EFTs. There was an office we did consulting and remote billing for, and this doctor called us and said, ‘Hey, I don't understand why my office manager is going on nicer vacations and drives a nicer car than me.’ And so, we started digging in and found out that several of the EFT accounts were set up to go to the office manager's bank account. And that had been several years and close to $500,000 by the time it was all unearthed.” (19:33—20:08)

“Establish your control. So, the first part is being involved. The second one, controls on best practices. So, controlling your access, segregation of duties, take vacations. Do you know your deposits? Do you know how much your deposits were? There was an office that, if you're familiar with HMOs, this office took HMOs, and they have a planned visit fee where you can charge a $5 or $10 co-pay. Every time that person paid with cash, they would delete the planned visit fee and just pocket the cash. So, make sure you know those. And there's a lot of practice management software out there that will show you how to run deleted payments or deleted postings that you can check. So, check with your practice management software.” (22:36—23:21)

“This was an office manager in Vancouver, Washington, [that embezzled] $123,000. And so, this is why you need to be involved in a little bit of everything, because they didn't just steal one way. So, $15,000 in cash; over $77,000 with checks with the check stamper. So, if you have one of those automatic stamps, please get rid of that; $25,000 in payroll. And so, when I talk about payroll, I don't usually talk about clocking in ten minutes late or something, stuff that's time theft. This is actually creating a fictitious employee, putting them on the payroll, and then sending the check to their house. So, $25,000 in payroll; $2,500 on Amazon — which, Amazon has great business controls, so I do recommend you look into those. But $2,500 in Amazon deliveries. But here's the kicker. Because of the fraudulent payroll, the doctor had to pay an extra $2,200 in payroll tax. So, this was $123,000 over multiple different levels. It doesn't happen just one way, and they're not only doing it just one way. So, we really recommend being involved in everything, not just one aspect.” (23:31—24:45)

“Make [team members] take [vacations]. You go back to the trust piece that you were talking about earlier, and I hear this again and again, that the broken trust hurts more than the financial loss. And it's the best employee that never takes their vacations, never calls out sick, never misses work, has a super clean area, won't let anybody touch any of their stuff. It can be a red flag. If they're there and they don't want to take time off, sometimes it's because they don't want people to find what they're doing. So, if you do provide vacation and time off, make sure that your staff takes that time.” (24:55—25:32)

“Be involved. Establish controls and best practices. And the last one is, your best people practices. So, like we talked about, the background checks, reference checks. Make sure you report misconduct. That same ADA survey — you're going to be surprised. What percentage of people do you think got fired after the doctor found embezzlement? . . . They did turn in 65%. But 35% of people got to keep their job after stealing from the doctor.” (25:43—26:24)

“[When something doesn't feel right], use your partners. You have a lot of partners out there. You have your risk management team. You have, hopefully, a CPA or a payroll company. There are forensic accountants. There are third-party billers. I would even be happy to refer you out to anybody if you have questions. But really, start the investigation process. Start trying to build the story. If something looks weird, dig into it and find out why, or start looking for patterns. Is this just one employee, or is this one family? Is it multiple families? Really start trying to dig in and peel back the onion and see how deep this goes.” (27:41—28:22)

“Have an employment manual and have that outlined in your employment manual that embezzlement is not tolerated, that it leads to termination and prosecution. If you don't prosecute, the likelihood of you recouping any lost money from your insurance claims is minimal. They might require prosecution to recoup that.” (29:39—30:00)

“One thing I did want to bring up that I heard another office did is, they periodically ran a background check on themselves, or a financial credit check on themselves or on their business. It doesn't hurt to do that. But really, as long as you start building your best practices, have your employment manual, do your background checks and your reference checks, have your controls in place, you're involved so people know that you're looking and touching things, I think you can prevent a lot of this from happening.” (30:12—30:41)

Snippets:

0:00 Introduction.

2:08 Matthew’s background.

3:10 Have the proper controls in place.

5:40 Statistics on embezzlement in dentistry.

6:38 Why dentists are susceptible and the toll it takes.

9:08 Patterns of serial embezzlers.

11:37 Tip 1) Be involved and show that you're involved.

13:20 Use LastPass and two-factor authentication.

15:20 Have banking statements mailed to your home.

15:56 Keep a monthly discrepancy graph.

16:43 Great team members like accountability.

17:31 Always do background checks.

20:40 Don't call the number applicants give you.

22:20 Tip 2) Establish your control.

24:46 Make team members take their vacations.

25:37 Tip 3) Do your due diligence.

27:30 What to do when something feels off.

28:36 Outline your embezzlement policy in the employment manual.

30:03 Last thoughts.

Matthew Nelson Bio:

Matthew Nelson is a practice analyst with the California Dental Association. With over seven years of experience as an office manager, dental consultant, and CDA analyst, Matt specializes in all areas of practice management, including leadership, practice systems, dental billing, dental insurance plan analysis, human resources, practice transitions, and embezzlement. He has been in the dental field since 2015 as an office manager of a large group practice and in private consulting.