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Accounting Dental Industry Fraud & Embezzlement

Dental Practice Employee Fraud: How It Happens & How to Discourage It

March 21st, 2018
Updated November 6th, 2018. Originally Published March 21st, 2018.

According to an American Dental Association survey, one in three dental practices will experience some form of employee fraud or embezzlement during their lifetime. Dental office fraud occurs more often than it should, and it’s often the product of poor or non-existent internal office checks and balances, too much autonomy and authority given to a specific employee, lack of oversight by the practice owner, and failure to prescreen employees adequately.

Common Types of Employee Embezzlement:

 

Skimming Cash

Petty cash or the occasional cash payment from a patient is often the first asset that a fraudulent employee targets to see if they can steal money without being detected. Fraudulent employees rationalize their misdeeds; i.e., “I am underpaid” or “the doctor makes more than enough money.” $10 turns into $100, and that turns into $1,000’s. It is not uncommon for a fraudster to increase the magnitude of their theft as time goes on. They get braver, bolder, and feel invincible.

 

Deleting or Altering Transactions

Once a fraudulent employee perfects their scheme to steal money from the practice, they need to cover their tracks in the patient management system (PMS). In other words, they need to show that a payment has been made in order to clear the accounts receivable. This can be done by adjusting or deleting activity in the PMS.

 

Modifying Patient Checks

Patients typically pay their portion of fees on the day of service, either by credit card or by check. One fraud scheme involves a fraudulent employee telling the patient to leave the “pay to the order” section blank because they have a stamp. The stamp would be made out to the fraudsters own bank account using a “business-like name” that wouldn’t raise any suspicions from the patient. Without internal checks and balances that reconcile the PMS activity to actual bank deposits, this scheme goes undetected.

 

Refunding Patient Credits

Offices typically estimate and collect the patient’s portion of fees on the day of service and, when the EOB clears, it is not uncommon for patients to have nominal credits in their account. This fraud scheme involves a fraudulent employee processing these nominal patient credits as refunds to their own credit card. Patients may not be aware that they have a nominal credit and never inquire about it. Without oversight, no one is the wiser and the fraudulent employee has successfully stolen money from the practice.

 

Unauthorized Expenditures

Offices commonly give a key employee (office manager) a business credit card to pay practice expenses as they arise (dental supplies, lab bills, utilities, etc.). Some offices even give that employee signature authority on the business checking account. With the simplicity of online purchases and direct delivery to the employee’s home, unauthorized purchases are easily overlooked and undetected. Without oversight or protocols that are designed to monitor the practice’s financial affairs, a fraudulent employee can pay personal expenses and simply post those transactions like any other legitimate business expense.

 

Best practices to help monitor and discourage employee fraud:

  1. Monitor your detailed production and collection reports; compare posted services to the schedule (routing slips or day sheets) to insure billing information has been entered correctly
  2. Prohibit the use of check payee stamps
  3. Lock out the refund option on your credit/debit card machine
  4. Do not give employees signature authority on bank accounts
  5. Provide an admin staff person with a “convenience” credit card that has a modest credit limit
  6. Reconcile payments posted in your patient management system to payments posted to your bank and QuickBooks
  7. Routinely review your Adjustments Report and Deleted Services Report, and ask questions about transactions you may not recall or understand
  8. Routinely review patient credits that your staff processes
  9. Outsourcing your accounting duties will help monitor and discourage employee fraud by having another set of eyes on the “numbers” (accounting) side of the practice

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