Would YOU Recognize the Warning Signs and Red Flags of EMBEZZLEMENT in YOUR Office?
The exact statistic may not be clear, but the message certainly is: Dental practices are highly susceptible to theft and embezzlement by employees.
Such statistics are necessarily low because there is an unquantifiable amount of fraud that is never detected, or is detected but not disclosed.
The What and Why of Embezzlement
You may associate the term embezzlement with elaborate schemes, millions of dollars and offshore bank accounts. But in actuality, embezzlement covers all means of stealing from an employer. There are many ways to do that besides pocketing actual cash; for example, the employee could be adjusting off copays for friends without the doctor’s knowledge and concurrence. Each incidence of theft may be small, but over time, left undetected and uncorrected, totals can become surprisingly large even in small businesses.
According to dental-practice fraud expert David Harris in an interview with Dental Tribune, smaller businesses are more likely to experience problems than larger ones. Worse, the typical dental office management structure is inherently vulnerable to theft because the doctor is busy doing what he/she does best – i.e., caring for patients – having delegated most of the business management functions to trusted team members. Moreover, detection can be trickier in a dental practice compared with other small businesses because of the proliferation of 3rd party payors (i.e., insurance companies).
According to Dentistry IQ there are two typical reasons for embezzlement:
- Personal hardship that leads to desperation, and
- Dishonesty; people who believe they should live better than their compensation allows.
There is a third reason, however, that is unique to medical and dental practices:
- Employees feel underpaid in comparison to what the doctor earns. They believe that without them, the doctor would not be successful and thus they deserve a piece of the pie.
Sadly, a family member, friend or long-term employee is no less likely to steal from their employer.
A True Story
The following Case Study is a true story about a savvy, tenacious outside billing consultant from eAssist Dental Solutions who uncovered misappropriations by the office manager at a client’s practice. First, we’ll explain how Emma (not her real name) put the complex puzzle pieces together. Then we’ll describe the red flags she identified from her vantage point, and what you as the practice owner could (and should!) be on the lookout for so as not to allow these kinds of “opportunities” in your own practice.
Embezzlement: Theft or misappropriation of funds placed in one’s trust or belonging to one’s employer.
- Theft Misappropriation
- Fraud Swindling
- Stealing Larceny
Reasons / Rationale
- Personal hardship
- “I deserve it”
Putting the Puzzle Pieces Together
The biggest trigger to make Emma start to think something wasn’t right was seeing on reports that claims had been closed, and yet there were no payments posted for the services provided. She found instances where a claim had been processed, and an insurance check issued on a certain date, and yet the claim was closed without that payment having ever been posted.
When Emma would ask the OM about such a case, the OM would say she didn’t know, and quickly try to change the subject. Only when Emma would pointedly ask, “Did you receive the check?” would the OM offer to look, and then immediately find the check, or the EOB (Explanation of Benefits) and tell Emma the check had been received, and that Emma should go ahead and post it (but without providing proof to Emma).
By closing the claim, the OM knew it wouldn’t show up on an aging report, so Emma would have no reason to follow up on it. Emma admits it was somewhat by chance that she came across these anomalies in the first place, but once she did, she was compelled to dig further. If the OM’s objective was to make Emma look bad, it was at the expense of her patients, which was perplexing to Emma; it just didn’t make sense.
Emma knew that, as a rule, the OM was extremely well-organized and on top of details. In fact, she recalled that the OM’s scanned documents were the most organized and precise she had ever seen. When they spoke, the OM always knew exactly what patient Emma was talking about, what insurance they had, benefits allowed, etc.
So when the OM would “suddenly” lose a check… but then just as suddenly find it when pointedly asked about it, Emma thought such uncharacteristic disorganization was odd, and definitely a red flag.
Numbers Not Adding Up
The OM made it extremely difficult for Emma to track what she was doing to hide inaccuracies, and cover the fact that numbers weren’t adding up the way they should. But, ironically, not because the OM seemed to have a definitive methodology. She used a combination of: falsely closing claims, posting insurance payments as patient payments and vice versa, posting payments to wrong accounts, making adjustments that didn’t match, writing off balances, notating that payments were posted to wrong accounts to cover the fact that checks had never been scanned in.
All combined, it took a tenacious, if not forensic accounting mind to figure out what the OM was doing.
Emma admits it was all of the above combined that gave her a gut feeling that something was wrong. Even though she wasn’t sure what, there were too many small things that didn’t mesh, and behavior that didn’t make sense.
Emma spoke with her eAssist Team Leader, who agreed something sounded suspicious and encouraged her to trust her instincts, continue digging, and take the time to figure it out. She created a detailed spreadsheet to track what she had found, and identify checks that needed explanation. Laying it out this way convinced Emma beyond any doubt that the OM was indeed taking money.
Emma requested copies of checks from banks, but only those she could get for free, and only those she could get directly, as opposed to them being mailed to the office; Emma didn’t want to tip off the OM before she fully understood what was going on, and could speak with the doctor, if necessary.
From one bank Emma was able to get a copy of one of the missing checks, as well as a copy of one of the scanned checks. This enabled Emma to compare if the OM had signed or stamped the checks. The scanned check had been stamped, whereas the non-scanned check had been signed allegedly by the doctor. Having never seen the doctor’s signature, Emma couldn’t be certain, but she suspected it was forged.
Breaking the Bad News
At this point Emma knew it was time to inform the doctor. She heeded her Team Leader’s advice to not only be well-armed with facts, but to tread lightly when talking with a doctor with whom she had never before spoken. That was because the OM had succeeded in blocking Emma from ever establishing a relationship with the doctor.
Emma called the doctor after hours on a Friday, trying to be certain she wasn’t in the office, or with the OM. Emma caught the doctor at home, who was understandably surprised to hear from, in essence, a “stranger.”
Emma told the doctor she had found some checks that had not been scanned in, and that she wanted to make sure they had been received. Emma respectfully asked the doctor if she would please check her bank account.
Again, the doctor was understandably cautious and asked Emma some clarifying questions. Emma handled the conversation brilliantly by saying, “If you don’t have them, then I feel we should discuss this a bit further. And if you do have them, great; we just need to change some protocols on our end and make sure all checks are getting scanned in.”
When the doctor checked her bank account and was unable to find the checks in question, she called Emma back and they talked further. That’s when Emma let her know she had a copy of the front and back of the check and that one had her signature on it. When the doctor exclaimed, “Wait, what?!” Emma replied, “I take it you don’t sign your checks?” And the doctor said, “No, I never do.”
In essence, Emma let the doctor come to her own conclusion, vs. Emma coming right out and saying, “I think your office manager is stealing from you.” The doctor might have been offended, and the OM might have been a good friend or even a relative. Emma gained the doctor’s trust by asking questions and waiting for answers before taking the conversation further, and leading the doctor to her own conclusion.
The doctor and her husband went into the office over the weekend to search for the checks, and also analyzed bank statements. Unable to find the missing checks, the doctor called an attorney friend who advised her to immediately terminate the OM. The doctor had been inclined to try to “catch her in the act,” but the attorney advised that, once the doctor knew, it would become a liability issue because they did not know if the OM had been stealing from patients, plus she had access to all patients’ protected information.
The OM was brought in and terminated first thing Monday morning. She admitted she had been taking insurance checks when they came in, forging the doctor’s signature on the backs, and depositing them into her own bank account through her night drop ATM. She did not admit how much she had taken overall; she had been careful to take amounts small enough so as to stay under the radar, but the total was suspected to be quite significant over the more than three years that she had been employed as the OM.
The doctor and her attorney ultimately addressed liability with the OM’s bank (since the checks were not made out to the OM and therefore should not have been accepted for deposit into her account), used a forensic accounting team to investigate, and subpoenaed the OM’s bank records in order to fully prosecute.
An outside billing consultant like Emma will typically work remotely. They are therefore not in the office working side-by-side with other team members, seeing original documents (including checks), and witnessing how documents are physically handled at the office. From afar, a savvy remote billing consultant will consider the following to be red flags that “something is just not right.”
- Inability to reconcile accounts
- Many unexplained adjustments
- Single employee handling multiple tasks (without oversight)
- Billing and payment complaints
- EFTs discouraged
- Communication with doctor blocked
- Awkward relationship with office manager (or other staff member in a financial role)
|What the Billing Consultant Saw||What a Doctor Should Look For|
Inability to Reconcile Accounts
Prior to becoming a full-time billing consultant, Emma was an experienced office manager for a dental practice. She knew how to do the job and do it well. So when, after much effort, she was unable to reconcile accounts, she considered it a red flag that something wasn’t right, and she was compelled to dig deeper.
As the business owner, it’s vitally important that you ask questions about the financial aspects of your practice. If your OM (or other) seems offended when you want to talk about status of insurance filings, payments, and AR aging, for example, that’s a red flag.
Many Unexplained Adjustments
The office manager (in this case, but it could be any team member) made a lot of adjustments for which there didn’t seem to be good reasons. Emma became concerned that the doctor may not even know, much less have given approval. She viewed this as a red flag and wanted to look into those adjustments further.
You should personally approve unusual discounts, debt write-offs, and adjustments. Explanations should be included in the patient management system. If your OM (or other) seems to object to this protocol or tries to convince you it’s an unwarranted use of your time, that’s a red flag.
Single Employee Handling Multiple Tasks (without oversight)
Whenever a single employee is responsible for multiple financial tasks, and has little to no supervision, that can be a red flag if other things don’t seem to be adding up. For smaller practices, this is often the case by necessity, but the doctor still needs to provide adequate oversight to keep this from being a point of vulnerability for the practice. In this case, the OM had a great deal of unsupervised autonomy.
Money management duties should always be separated across two or more employees. Malice aside, someone else should be checking for inadvertent errors. If that’s not possible because your practice is so small, and you have not outsourced your billing and collections function, then you have to be that second set of eyes. As above, if your OM (or other) tries to convince you it’s unnecessary, that’s a red flag.
Billing and Payment Complaints
If patients are calling to report such things as their payments didn’t get posted, or numbers aren’t matching, or that their insurance payments are missing, that’s a red flag. Since she didn’t talk to patients directly, Emma didn’t know if this was occurring, but she suspected it was.
As the doctor, it’s not your job to directly involve yourself with daily patient billing issues, but you might consider spot-checking by occasionally asking a patient when in the chair, “How’s everything at the front desk?” If they have a billing issue, they will jump on the opportunity to bring it up. That gives you an “excuse” to discuss with someone afterwards, ask if many other patients are having similar issues, and “read the situation” (which will entail reading between the lines). You may see a red flag. And, if the patient doesn’t have an issue, you just might get great feedback on the front desk team you wouldn’t otherwise have heard!
EFTs are an efficient and highly reliable business process, and are therefore recommended to clients wherever they are available. And yet, the OM had convinced the doctor that EFTs are unreliable and therefore a bad idea. This was definitely a red flag.
The Electronic Fund Transfer Act was enacted in 1978. And while there may have been some start-up glitches several decades ago, today EFTs are a highly reliable business process, and make it harder for people to steal from a business. If your OM (or other) tries to convince you that EFTs are unreliable because bugs in the system are still being worked out more than 40 years later, that’s a red flag
Communication with Doctor Blocked
From Day 1, the OM blocked Emma from being able to establish a relationship with the doctor by never following through on setting up a telephone meet-and-greet between them. New to the job, though, Emma was trying to be respectful of the OM, so didn’t go behind her back to call the doctor directly. In addition, the OM intercepted Emma’s emails to the doctor. This was definitely a red flag that the OM didn’t want the person handling a financial function (Emma) to have contact with the owner of the business.
Besides handling your billing and collections, a good consultant will be a knowledgeable resource to your team and you. If you have never spoken to them, don’t have a direct line of communication, and aren’t receiving emails or other communications, find out why not. Chances are, the consultant is sending, you’re just not receiving... and that’s a red flag!
Awkward Relationship with Office Manager
Emma continued to communicate regularly with the OM by email and telephone, but was unable to build a collaborative relationship. The OM would never give complete information or all the details in response to Emma’s questions, and yet, Emma knew she was very detail-oriented; Emma always felt the OM knew more than she was telling her. At first, Emma thought the OM just resented eAssist being added to the team, and was trying to sabotage Emma’s ability to do her job well. Later, combined with everything else, Emma recognized the OM’s behavior as a red flag. Ultimately it proved to be true that the OM did not want eAssist on board, just not for the reason Emma thought.
When you outsource your billing (or any other) function, your staff may not initially welcome “the help,” perhaps fearing layoffs are ahead. An adjustment period is normal, but if you see or sense that the OM in particular does not develop a cooperative, collaborative relationship with your billing consultant / team over time, that’s a red flag!. Don’t be too quick to chalk it up to personalities; the real reason may be that the OM doesn’t want another set of eyes on practice finance functions.
You May Win… But You Still Lose
Even when you discover and successfully prosecute an embezzler, you still lose. Dental IQ assessed the average loss at roughly 7% of monthly income. Using round numbers, the average dentist earns $160,000 a year (double that for a specialist), which equates to nearly $1000 a month, or $12,000 a year in lost revenue. Since embezzlers tend to start small then get bolder as their confidence and success grows, the amount can be substantially more than that when theft goes undetected for years.
Additionally, finding out a trusted employee – perhaps even a friend or family member – has been stealing from you is tantamount to shell-shock. Even when caught early, the time, expense and emotional drain of prosecuting the thief is detrimental to the doctor, the business, and other team members.
Doctors who have been through the ordeal come out gun-shy – unable to trust anyone with their financial functions and banking information for a long time afterwards. They may even end up scanning incoming checks themselves, and making their own bank deposits. And, doing all that while having to interview, hire and orient a new office manager (or front office lead or bookkeeper or accountant or whomever did the dirty deed).
You don’t want to have to go through that!!
Protect Your Practice
Based on decades of experience, fraud expert Harris knows that if someone is determined to steal, they will find a way to do it. He and others advise: (a) Make it as difficult as possible with strong control systems, (b) Don’t be an absentee business owner by delegating critical functions without appropriate oversight, and most importantly, (c) Have systems in place that ensure early detection.
An essential business practice is to always have adequate checks and balances in place, including another set of eyes watching over your income on a daily basis. High on every industry expert’s list of the most important protocols you should have in place to ideally deter, and then quickly detect theft, are:
- Separate money management duties across two or more employees so they can monitor and cross-check each other’s work. As examples: the person handling patient payments should not be the one updating patient records; there should be protocols for scanning checks and verifying receipt into your bank account by you, not the team member responsible for the deposit; and EFTs should be used wherever available. This not only reduces the likelihood that an employee could manipulate circumstances for personal advantage, but also enables employees to catch one another’s inadvertent errors when no malice is intended.
- Run a daily schedule and check it against charges, insurance claims, and payments. Stay current on insurance filings and ensure that all covered services are reported accurately. “Creative” insurance filings are a common form of embezzlement and could expose you to civil liability.
Pay attention to accounts receivables. Thoroughly explain coverage and fees to patients before treatment so they understand their financial obligations. Provide a printed statement at the end of each visit with the amount and type of payment made or owed. Send out monthly statements on unpaid balances and review all aged accounts with staff. Provide oversight and approval of unusual discounts, debt write-offs, and adjustments, and include an explanation for each transaction in the patient management system.
Protect Your Practice!
- Strong Control Systems
- Personal Oversight
- Early Detection Protocols
Outsourcing your billing and collections function to a highly reputable third-party service can provide these layers of protection for you and your practice. Moreover, if theft is already taking place, an outside billing consultant may uncover it, provided they are savvy enough to realize “something isn’t quite right,” and then are tenacious enough to put the often complex, well-hidden puzzle pieces together.
For an added layer of protection and early detection, consider a company that offers an accounting service in addition to billing services. For example, eAssist’s dental bookkeeping and accounting services include balancing your practice management software and merchant statements with your day sheets, EFT insurance deposits, bank deposits and QuickBooks. Deposits and payments are accurately reconciled with your bank, and even your bills are paid if you want them to be.
When it comes to embezzlement, being in the majority is not a good thing! Even if not completely preventable, outsourcing your billing and collections to the right company can bring you peace of mind that someone’s got your back while you’re taking care of the patients in front of you.