Top 4 ways to prevent internal theft in your dental practice

Aug. 29, 2014
You can take some major steps to prevent embezzlement in your dental office. It is well worth the effort to make sure your practice thrives instead of sinks.

When embezzlement occurs in a dental office, it’s usually by a staff member who thinks their financial problems will be solved if they steal from their employer. Usually the employee has been at the practice for quite some time, so the dentist trusts the person and does not notice the theft immediately. Unfortunately, the average rate of embezzlement among busy dentists is one out of three.

Note – busy dentists. As a dentist operating a practice, you’re stretched thin with many responsibilities. It’s virtually impossible for you as the boss to monitor every financial transaction, see patients, oversee staff, develop the operational steps of the practice, and everything else involved with running a practice. This busy schedule provides the employee who wants to embezzle the opportunity to learn what you review often and what you deem important against what you don’t review, and the person will target that area for embezzlement. The employee then sets up a plan of action. Due to the trust that has developed, the dentist’s busy schedule, and the employee’s seniority, the embezzlement often goes unnoticed until the financial and emotional toll causes enough damage to close the practice’s doors.

The purpose of this article is to equip you with preventive measures to protect you from theft. I will share my expertise as an accountant who works with dental practices, and the internal controls I’ve designed to help reduce the likelihood of embezzlement.

Internal controls are procedures to help achieve the objectives of a company. These could be related to financial success, business operation, and customer satisfaction. Having internal controls for a dental practice encourages efficiency, eliminates potential fraud and abuse, and complies with the industry laws and regulations. Strong internal controls act as a firewall against embezzlement, which will save money, time, and headaches.

The top four internal controls are:

1. Implementing extensive new-hire procedures
Due to the sharing of detailed information such as insurance claims, confidential patient information, checking account information, and more, each employee should undergo a background check that includes criminal, credit, and educational information. Key references, such as their last employer, should also be checked.

In my years of working with dentists, I have noticed that over 60% of dentists overlook these important procedures and hire a friend, or even a stranger, and immediately provide the person with access to confidential information. Even employees that do not handle financial information should undergo an extensive background check because you never know when you might promote someone or need them to perform duties of a confidential nature.

2. Completing daily financial checks
I once read, “A dental practice owner’s greatest liability is an employee’s greatest asset, because the employee knows the practice as well as the dentist does.” Employees know the day-to-day operation of the practice, such as which patients pay with cash versus check or charge. The employees know how much a typical daily or weekly deposit is, and when and how much money will be received from insurance companies.

The first financial check is to create an accounting manual that details each position’s responsibilities. You can take it a step further and require employees to sign off as they complete daily and weekly tasks. It is your responsibility as the owner to double check that jobs have been completed and the numbers align. An outside accountant can be hired to help with this.

The second step is to ensure that you as the dental practice owner understand the accounting software just as well as the employees. Create or purchase an accounting system or software that includes a check and balance system. Daily opening and closing reports should be an essential component of the software.

When it comes to operating a successful dental practice, I recommend that you verify everything as often as possible. Do not allow employees to see that one part of the business is more important than another.

3. Segregation of duties
No doctor wants to be defrauded by his or her own employees, yet this often occurs when only one person handles multiple steps of a task. Segregating duties is a powerful internal control. This ensures that duties are assigned to people so that no one individual controls a process from start to finish.

For example, limit areas of your accounting software to each employee. This will allow you to identify which employee recorded a specific transaction and why. Create procedures so that every job function has to be shared by two or more employees before it can be completed. This allows employees to check each other’s work.

To establish segregation of duties, clearly identify the roles and responsibilities per person, per job. This clearly lets employees know what you expect. Hold employees accountable by reviewing completed work. Letting all staff know about segregation of duties will help catch errors and fraud immediately.

4. Perform a month-end closing with an accountant
Hire an experienced outside accountant to perform the monthly closing for your practice. This will allow an outsider to oversee what your employees have completed. This safety measure allows an experienced individual to catch errors, mistakes, and theft on a monthly basis, before they cause serious financial damage.

As an accountant who performs closings for dental offices, I recommend the following:
• Have all bank statements opened by the doctor only
• Lock the checkbook in a secure area accessible with a key, and all checks should require the doctor’s signature
• Reconciliation of statements should be completed by the accountant only and reviewed with the doctor monthly
• All deposits should be accompanied with supporting documents, such as copies of the customer’s receipts
• Deposits should be checked before and when returning from the bank by the doctor only
• Two people should make bank deposits and retain all deposit slips for the dentist’s review, as well as the monthly accounting reconciliation

The bottom line is that as the owner of the practice, you should remain ahead of the financial aspect at all times. It is impossible to prevent embezzlement 100% of the time, but these internal controls will discourage most employees from theft. They will realize that you are proactive in protecting your practice.

Doctors who feel they’re too busy to handle their finances open the business up to possible theft and embezzlement. The best method of prevention is to implement strong internal controls.

Octavia Conner is the owner of Smart Accounting Services, a virtual accounting firm that specializes in profit increase strategies and business development for dentists. Visit her website at smartaccountingllc.com to schedule your free Profit Increase Consultation today.