In this episode of Beyond Bitewings, the team at Edwards & Associates is joined by Allen. Schiff to discuss the prevalent issue of embezzlement in dental practices. Alan, the president of the ADCPA and a certified fraud examiner, shares his insights on the unexpected frequency of embezzlement cases, stating that one in six dental practices will experience or have already experienced embezzlement. Alan explains common signs that business owners can look out for, such as behavioral changes in trusted employees and discrepancies in financial records. The conversation emphasizes the importance of not immediately terminating suspected employees to allow for proper investigation and gathering of evidence.

They also offer practical strategies for minimizing the risk of embezzlement. This includes segregating financial duties among staff to prevent any one individual from having too much control, regularly reviewing day sheets, and ensuring robust internal controls like setting audit trails at the highest level in practice management software. Alan highlights the psychological deterrents, such as having doctors visibly review financial statements and records, and discusses the complications of background checks due to unreported offenses.

Key Topics Discussed:

• Understanding dental practice embezzlement frequency
• Recognizing behavioral signs of embezzlement
• Importance of independent investigation
• Strategies for minimizing embezzlement risk
• Setting internal controls and segregation of duties
• Psychological deterrents in financial monitoring
• Common types of fraud in dental offices
• Challenges in prosecuting embezzlement cases
• Tips for effective fraud prevention and detection

Welcome to Beyond Bitewings, the business side of dentistry brought to you by Edwards and Associates, P. C. Join us as we discuss how to build your dental practice, optimize your income, and plan for your future. This podcast is distributed with the understanding that Edwards and Associates PC is not rendering legal, accounting, or professional advice. Listeners should consult with their business advisors before acting on any of the information that is shared. At Edwards and Associates, P. C, our business is the business of dentistry. For help or more information, visit our website at eandassociates.com.

Hello and welcome to another episode of Beyond Bitewings. And in today's episode, we will be talking about embezzlement in a dental office. And to talk more about it, we have a special guest, Alan Schiff, who is currently the residing president of ADCPA. Hey, Alan.

Hi, Ash. How are you?

I'm good. Thank you. And, of course, we have our regulars, Lynn

Hello.

And Robert. Hey there.

We're very excited to have Alan on because he's an expert in this area, and he's done seminars all over the country for years and years and a wealth of information. So you're in for a treat today.

Correct me if I'm wrong, Alan, but I think you're a certified fraud examiner. Right?

Yes. That's correct. Besides a CPA, a certified public accountant, I'm also a certified fraud examiner. And, Robert, what that does is that that gives me the credentials to testify in court. But, unfortunately, we have one of these sad occurrences occurring when inside of one of our dental practices.

And unfortunately, these occurrences are are less rare than we'd like them to be. Is that right?

Yes. That's true. The latest statistic, Lynn, is one in six practices will been or has been or is currently been being embezzled. So

That's high. That's so high. Yeah.

I know that when I give lectures and and webinars, and if there's 60 people on or in in attendance and I give that statistic, I say 10 of you are, you know, either experiencing it now or have experienced it or will be experiencing it. And you start to see the body language.

Well, especially when you start going through talking about possible signs, and there's checking things off in their head like, uh-oh.

Exactly. Exactly. So I'm honored to be here, and I, certainly appreciate the opportunity to share my knowledge with those that are attending today.

Well, Alan, when people like that when you say something like that to the the audience and and they start looking around, then my first question would be, what do I need to be looking for to see if it's happening in my office?

Well, that's true. And there's, there's traits of the perpetrator, Robert. And the biggest trait is and, unfortunately, it's it's the employee that you trust the most. And, unfortunately, that trust is not the trust that we as business owners like to enjoy within our employees. It's a trust that's been violated because of the employee knows that you trust them, and they take advantage of that trust. And, you know, one of the biggest indicators is who's the first to arrive, who's the last to leave, who has a lot of control over their workspace, and really doesn't like anybody looking over their shoulder or invading their workspace. They're the type of, traits that you ought to be paying attention to coupled with their personal behavior. It's very hard for humans to change their behavior, but, unfortunately, behaviors do change when you have embezzlement.

And as a business owner, we should all be paying attention to body language, being pay paying attention to how folks communicate, and quite frankly, the employee's behavior at work. And if if your gut's telling you something may be going on or something that you feel uncomfortable about, you may wanna look into it and certainly look into it in a, independent fashion.

Right. Without alerting the possible perpetrator that you're looking into it, I would assume.

Exactly. And, you know, and that's a good lead on when to if you if you sense and you've in your mind, if you really feel you have the evidence to support that, in fact, the, perpetrator is unfortunately performing negative acts within your practice. I always I always recommend to those that attend, the webinars or the seminars that I give on this subject is to not terminate the perpetrator.

Right. This all goes against everything they wanna do, which I understand.

Right. And then ultimately as, CFEs, as certified fraud examiners, when we gather the evidence and the evidence is overwhelming, we like to interview the perpetrator to ultimately get them to a confession, a written confession as to what's transpired. And then what happens is if if because you're angry and you're upset because someone has violated their trust and you're ready to terminate them, it's impossible for the CFE to to interview the terminated employee, because they're not within your domain. So my recommendation is as hard as it is to keep an employee on for a somewhat extended period of time, you have to allow the professionals to perform the investigation to gather the, necessary evidence so that that, critical interview process can take place where we can ultimately obtain a, written con confession whereby that information would be admissible in court. And with the with the employee being terminated, you wouldn't have that opportunity to get to that point.

Right. Well, and the the signs of embezzlement can be so counterintuitive also because you've got this employee who you think is amazing, who is there early and stays late, doesn't take vacation, takes care of everything. And as you know, Alan, the the dentist like to have someone taking care of their things so they can see the patients, but then that's the very one who could be accessing all of his financial information and and doing these acts. They're the very ones that usually are. Not that every trustworthy employee is embezzling, but the ones that are embezzling look like trustworthy employees.

Exactly. That's really well said, Lynn, and I certainly concur with that. The embezzler is the person that you invite to your Thanksgiving dinner.

Mhmm.

Maybe your Christmas Eve party. Right. Your family picnic. And quite frankly, you had I'll say her. You treated her as one of your family, like ultimately as a sister or a daughter. And and when unfortunately the information is revealed, it's very disheartening. And certainly the person that in your mind that you trusted so much has violated that trust. It it's very heartbreaking.

So pay attention to that and and certainly, please don't be accusatory with any of your employees until you've engaged the right professionals to gather the, necessary evidence so that the evidence in effect speaks for itself and that it isn't just like a presumption or you're assuming or you think. None of that will work particularly in court and that potentially could work against you. So make sure that you gather the necessary evidence so that you can, unfortunately, take the the the, perp perpetrator to court and potentially prosecute them as well.

What are some of the things that I can do in my office to, not to eliminate the possibility, but to to minimize the possibility of embezzlement?

Right. Robert, that's an excellent question. The, the largest item that comes to mind is the mail. Like, for example, when the mail hopefully, The US Postal System is oh my goodness. What we've been through, you know, with the mail has just been crazy.

Right.

Let's just assume let's just assume that the US Postal Service employees are doing their job, and you you receive 14 checks in today's mail. And when you finally get the the the bank deposit ticket and you finally get your day sheet and you see that the checks have been posted on the day sheet and you know that 14 checks did arrive and you see all 14 checks posted, you feel pretty good. However, you have to really institute good internal accounting controls to make certain that the 14 checks that did in fact come in the mail are in fact recorded within your books and records as well as your practice management software. So depending on the size of the office, and keep in mind many dental practices simply do not have an abundance of employees to create what we call segregation of duties. Segregation of duties is is in effect an internal accounting control whereby we only have really one process per employee so that an entire process can't rest with one employee. For example, what I'd like to do is when the checks come in the mail, have one of the folks up front open the mail, run a tape of those checks and give the tape to the doctor, and then those checks are then given to another employee to post to the practice management software ultimately arriving at a day sheet. The 14 checks that are posted can be traced from tape that the first employee ran to the day sheet at the end of the day. The production should be posted either by the chairside assistants and or the hygienist to keep the production away from the front desk team so that the front desk does not have the capability of posting production and collections and also patient adjustments.

So, those three factors within the billing where it would be posting production, posting receipts, and posting adjustments to the individual patient accounts really should be segregated within the office. And you can easily do within the audit controls of the practice management software whereby you would only give certain rights to certain employees So that so that if I'm Becky, I can only post collections. If I'm Sally, I can only post patient adjustments. And if I'm a chairside, I can only post production. And if I'm a hygienist, I only can post production. And unless you have collusion where you have a group of employees that are getting together, to work against you, we can and like I agree with you, Robert, you're never gonna prevent embezzlement, but you certainly can try to diffuse it in some way. And, certainly, if you can segregate as many of the duties over the over the malfunction, that certainly would help along with post in production and post in patient adjustments.

That makes total sense. So, Alan, over your career, since since you started looking at embezzlement to now, we've really gone from a, you know, paper heavy society to electronic society. Is there any really difference now with the way fraud is perpetrated, or is it the same kinds of things? Do they have to be sneakier? I know passwords are always changing. I can't even get into anybody's bank account, so I don't know how anyone else is.

Well, Lynn, thank you for that question. I tell you the one thing that has really changed is the ATM. And what's so sad about the ATM, Lynn, is let's say Delta sends a check to, your client, John Smith DDSPA, and, the check is currently made out to the corporation, the professional association. Becky can take that check, even though it's made payable to John Smith DDSPA and go to the ATM and deposit that check into her personal checking account. Does this happen? Oh my god. Yes. It happens.

Wow. Okay.

Yes. And it's very, very it's scary. Right? I mean, like, why would the bank accept the check that's not made payable to me to be allowed to be deposited into my personal checking account. Yeah.

Because that actually wouldn't have been allowed back in the day when you had to drive it to a bank teller.

Exactly. Because the teller would pay attention to the payee unless it was endorsed on the back of the check.

Right.

I will tell you this. The biggest thing I see in hopes of deterring fraud in this area is for the doctors to take home the day sheet at the end of the day. And even if they don't look at the day sheet, can you think psychologically how Becky or Sally or Joan feel knowing that the doctor's taken home the day sheet to review it, to make certain that the patients that did come in were in fact billed, and that the checks that were received either through the mail or over the counter were posted. And certainly that would give some reassurance to the doctor that even if he never has put that procedure in place in the past, it would give him some assurance that there wouldn't be any hanky panky inside the books and records for the fact that he's taken the day sheet home and there's fear within the employees that the doctors wanna pick it up, pick up a mistake.

Right. And, Alan, I love that advice because that's that's the main thing I tell my clients when they're worrying about this or really when they start up a practice is let the staff know you're watching. Don't try to keep it a secret. You want them to know you are looking at things. Even if you're not looking at things, you make it appear as if you are watching things, and it really deters on the, oh, he'll never find out aspect.

Right. Great point. And I'll give you another one along these lines linked to bank statement. Now the bank statement's much different than when the three of us started public accounting because we actually got a bank statement with the actual canceled checks. Today, the canceled checks are all microfilm as part of the bank statement. But can you imagine if you have bank statement unopened to Becky, and Becky is the the the office manager, the in house bookkeeper, and she's the one that's reconciling the account. And she writes checks and she gives it to doctor Smith to sign the checks. And she gets fathomed and happy and all of a sudden she starts signing doctor Smith's name knowing very well he doesn't even look at the bank statement.

Whereas, how about if the doctor handed Becky an open bank statement? In other words, the envelope is open, even if he didn't even look at the bank statement. Psychologically, Becky's gotta say to herself, wow, the doctor is reviewing the information and the information contained in the bank statement, let alone who signed the canceled checks. And I have to be careful if I wanna actually write a check to either a company that I own or a fake vendor or overpay a vendor on purpose. Psychologically, Becky's gonna, think about that before she starts to do what we call disbursement fraud inside of the, checkbook.

So which is the most common type of fraud you see? Is it have to do with deposits, or does it have to do with, you know, writing the the fraudulent checks?

There's no no doubt, Robert, it's inside the billing function where, like these 14 checks come in the mail, only 11 are deposited, three are kept for the perpetrator, and the perpetrator also has the access to credit the patient's account because you never want a patient to get an accounts receivable statement saying they owe the practice x when they know very well they paid x. So it's more than likely inside the billing fund where the fraud's taken place. I've certainly seen disbursement frauds where employees have set up companies and have rendered fake invoices and they present invoices to the doctor to pay and they know the payment processing inside the practice and they understand how they can submit an invoice without the doctor asking questions. And unfortunately, you have a disbursement call because you're paying for services that were never really rendered to the practice. And along those lines, Robert, I've seen where they paid Patterson, Benco, or Shine, or Burkhart, and they've actually double paid them or overpaid them. They call Shine up and they say, to their accounting department, hey, we have invoice number 12345. We paid it twice for $1,200. Can you send us a a check to reimburse us? And, of course, they send a check and who opens the mail but Becky.

So, Becky has control over that. When the check comes in, the doctor's not expecting the check. And as far as he's concerned, all the invoices were paid, paid timely, and paid for the proper amounts. And she takes the check and she deposits that into her ATM, into her personal account. And that would be certainly hard to be picked up unless, as you all know, we try to keep dental supplies around five and a half to 6% of collections. And if the dental supplies and we're really talking pre COVID, COVID with all the PPE stuff, Certainly, dental supplies have gone up. Prior to COVID and hope hopefully subsequent to COVID, the the metrics that we see within dental supplies will will be closer, to what this the key performance indicators, the metrics, and the benchmarks are. And and if they're inflated, then we have to be paying attention to potentially a disbursement fraud whereby we have overpaid for dental supplies for dental supplies that we have not received.

And we have to be careful with that. Certainly with like a website such as eBay where supplies aren't being ordered, we're paying for supplies, but the problem is the supplies never make it to the supply shelf because the chairside assistant takes the supplies or the or the bookkeeper takes the supplies, puts them in the trunk of her car, and she sells them on eBay. And meanwhile, the doctor is paying for the supplies at the same time. So we have to be cognizant of all kinds of different types of disbursement fraud other than, duplicate payment to vendors, fraudulent signatures, fake invoices, and now overpayment or over ordering of dental supplies whereby the perpetrator sells them on a website where other doctors are purchasing, those supplies.

Alan, it always kind of bothers me in the back of my head when I see our clients paying eBay for supplies. Yeah. Because they notoriously are stolen products. I don't think that they realize that, they just think they're getting a great deal, but there's such a thing as too good to be true prices.

Right. I had a, dentist in in Annapolis, Maryland, and the sales salesman came in from one of the implant companies, and he said to her, I just wanna congratulate you this year. You won the award for the most implants purchased in your area. And I said, what are you talking about? And then, certainly she got into it. And what happened was the employee was selling the implants on eBay. And Lynn and Robert, are you sitting down? 400,000 worth of implants.

Wow. Wow.

This dentist, husband is an attorney. Yeah. And and naturally, the hairs on the back of his neck, started to raise. And what he did, he wrote a letter to everybody that purchased the implants on eBay, because they subpoenaed the records. And he required those dentists to return the implants

Wow.

For his wife. And, the gal actually went the perpetrator went to jail on this one because it became a federal offense because she was shipping them using FedEx and UPS and it became a the FBI got involved as opposed to the local, police or local jurisdiction. So pay attention to what other people are saying because she wouldn't have known unless she knew that she won this award for the purchasing of supplies. And crazy how it came about, but they they wouldn't allow any grass to grow under their feet. They prosecuted her and they simply were they were upset and they certainly felt violated because of this employee's behavior.

Well, speaking to that, Alan, what percentage of these cases do you see actually prosecuted?

No, Robert. That is a great question. That is a fantastic question. Let me share with you why there are not a lot of cases prosecuted. And the reason being is that many dentists do not run a clean practice. And that's because there's a bunch let's just keep because this is a podcast. Let's just keep it clean. Unfortunately in dental practices, there's a bunch of hanky panky going on and it becomes that if you prosecute me, I'll go into your wife.

Or if you prosecute me, I'm going to the public and telling them what's really going on. And that because the doctor hasn't run a really clean, ethical, professional practice, you know, with integrity, credibility, and honesty, then he or she cannot go public with this and they shake hands and they part ways. And the sad part about that, Robert, is Becky, she leaves the office and she certainly understands why it has to leave. She then goes to doctor Jones's office and starts his shenanigans all over again. Yeah. And then when we as CFEs try to find public records or or like court documents on Becky, there's no court documents because doctor Smith never prosecuted because of the behaviors in his or her practice. So that's why I always preach, you know, you have to run your practice as a business with with with the adjectives of professionalism, integrity, and honesty, and therefore, you wouldn't have this type of behavior or certainly try to diminish the possibility of this type of behavior occurring within your practice.

Alan, I I think one of the statistics you gave us many years ago was that sixty seven percent of those who embezzle are repeat offenders, but the vast majority of those don't have any records. And so even a background check is not going to to bring these to light. You're gonna hire these people accidentally and have them in your practice because of this. Mhmm.

Exactly. Yes, Linda. You recall you recall the statistics for sure. And, you know, we, as CFEs, have access to a bunch of public websites for us to do background checks and to see behavior in the past. And like you just said, if if if if if the doctor has not prosecuted, we'll never find it. And that's why we have to be very, very careful. Every background check, like I I print these reports, it could be 25 or 30 or 35 pages long. And when I finally render the report on the background checks, I share with the doctors, this is based on public information.

And if, something has occurred that never made a public document, no one would ever know. We would never know and so I have to preface it by saying that this is the information that we have as a result of, you know, public records. The one thing I would be remiss if I did not mention this, and I think this is great fall prevention technique.

That would be great for us to end on.

Yeah. Yeah. Let me share it with you. It's a little I may have to repeat it because it's a little complicated. But let's just let's just assume today is, March, March the sixteenth. And you have the day sheet and you take it home, and it looks good and certainly can identify all the patients on the day sheet and who came in for services. And you certainly can you know, because of your internal controls, you recognize the checks and and the credit cards that were processed to to pay for today's services as well as those that came in the mail, and then you wait. You wait six months.

So let's say let's take March 16 and go up to September 16. Go back in the computer system today, today being September 16, and print March day sheet. And then compare the day sheet that you print today, which is September 16, back to the March 16 day sheet and see if the two agree.

Okay. That's great.

If they agree, then we're I'm gonna give you a high five. Give me a hug. Right? However, think about this, Liv. How about if the day sheets do not agree? How could that have happened? So what happens is the really smart per perpetrators, they change the system date on the computer to manipulate the March 16 day sheet after the doctor has received it. So one of the things you want to do within your, practice at least one of my suggestions within your practice management software is to set the audit trail to the highest level. So that the highest level is the doctor and no one can change the audit trail. And within the audit trail you can see what system identifications are changed, which computer changed it, and who is the employee who changed it because their initials are associated with it. I think that's just a great suggestion and probably craziness for those that are listening.

And I wanna go home and print my day sheets from six months ago and see if they're still the same. But in all seriousness, you should do that. And hopefully, if they agree, we're we're I would I would think you would feel better. If they do not agree to the original day sheet, then you really wanna roll your sleeves, take a look at it, and get somebody like yours your folks and your team involved to to investigate and find out why did the day sheet change from something that was just six months ago.

Great tip. Excellent tip.

Great information, and and the statistics just boggle the mind. And I know everybody out there knows that they're high, but they hate to hear that confirmed. So appreciate the information, Alan. Thanks very much for agreeing to be on today.

What would be your contact information, Alan?

Robert Howard's an associate at that.

We can totally coordinate that.

Listen. I'm always a resource. I'll be happy to help in any way I can. My website is shiftcpa.com. Shift being spelled just like the vitamins, s c h I f f cpa dot com. Email is ashift@shiftcpa.com. And office is (410) 321-7707. 4 10 3 2 1 7 7 0 7.

And certainly I'm a resource, I'd be happy to help out in any way I can. The big thing is try to keep, as the owner of the practice, try to keep your emotions, you know, tied together despite feeling amazingly violated. Do not terminate the perpetrator until those that are trained in this area can help you, and ultimately get to a, like I said, the the goal is a written confession from the perpetrator. And Robert and Lynn, thank you so much for having me. I certainly love sharing my knowledge, and I hope this was helpful for those that attended today.

Very much so. I appreciate it. And, Ash wanna tell the people how to get in touch with us so we can get them in touch with Alan if they forget his.

Of course. So for those that are listening, if you guys have any questions for us, feel free to reach us at info@eandassociates.com, and the and is actually spelled out a n d. We look forward to hearing from you guys. Thank you again, Alan.

My pleasure. You all have a good day.

Thank you. You too. We'll see you in Miami.

Thanks for listening today. Be sure to subscribe to Beyond by Wings on your favorite podcast platform. For more information, you can follow us on Facebook, Twitter, and LinkedIn. Or reach out to us on our website. You can also shoot us an email at infoeandassociates dot com.