Embezzlement – What Every Brilliant Clinician Should Know

by David Harris and Wendy Askins

You believe you have been blessed with the dream employee! This person has stood closely beside you for years, fighting for the success of your practice, arriving early and staying late and refusing to take vacations because the practice simply could not function without them. This person displays all the traits of an ideal employee.

Imagine how you would feel upon discovering that your dream was really a nightmare. While you focused on building the perfect office by freely giving trust, praising positive performance, and giving financial rewards, your dream employee had devised a complicated embezzlement scheme and had robbed you of hundreds of thousands of dollars.

There are many practice owners who no longer need to imagine this scenario because embezzlement became their reality. Beliefs that they were immune from embezzlement because “my team would NEVER steal from me”, “my CPA audits my books for embezzlement”, and “if someone were stealing from me I WOULD KNOW IT” have been harshly extinguished. They have joined the 60% of practice owners who are embezzled during their careers.

“Illusory Superiority” is a basic human characteristic where we overestimate our capabilities relative to those of others. It is tempting to believe that your extra years of education and probably superior intellect provide an advantage over a would-be embezzler. However, your adversary is more adaptive, cunning, and committed to their personal well-being than you realize. They are burdened by their personal demons, have constructed a self-serving rationalization, and now see your practice as their personal cookie jar.

Embezzlement Basics
Prosperident is the world’s largest dental embezzlement investigation firm. We are consulted on hundreds of embezzlement matters annually, and this work provides insight into embezzlement unavailable to anyone else.

Embezzlement is rampant in dentistry; published statistics suggest that 60% of dentists will eventually be victims1. Our own files suggest that, on average, embezzlement goes undetected for almost two years and that the amount stolen until discovery averages $109,000.

Prevention of embezzlement is a myth and the ideas that one is immune or that certain dentists are more prone to embezzlement than others are dangerous. For example, many small-town practitioners mistakenly believe embezzlement is an urban issue. Dentists with long-term staff or those who pay their staff above the local going rate often also have misplaced comfort.

Our experience indicates that embezzlement occurs at the same rate for well-organized, procedure-laden practices as for a solo practitioner who has not reviewed bank statements in years.
The misconceptions flow from a flawed understanding of criminal thinking.

How Embezzlers Think
Premeditated crimes have three preconditions – motive, rationalization, and opportunity. An embezzler’s motivation is obviously outside the practice owner’s control. Some thieves are in desperate financial situations and steal to meet family needs. Others steal believing that you (and probably society) have failed to reward their talents properly, and a third group gets pleasure from successful risk-taking.

Rationalizing embezzlement is never difficult, and the perceived income disparity between doctor and staff is frequently seized as justification for embezzlement. Others determine that the doctor is fleecing patients or insurance companies, and this makes their own crimes appropriate.

Of the three pre-conditions, “opportunity” is misunderstood most frequently by casual observers. Intuitively, reduced opportunity should result in less embezzlement.

In fact, opportunity works differently. It is a binary factor and either exists or does not. As long as at least some opportunity remains, so does the potential for embezzlement. We believe that there is no reasonable way to eliminate opportunity, and accordingly, it exists in every practice.

Drawing a correlation between opportunity and probability of victimization overlooks a basic difference between embezzlement and other crimes. Criminals in most economically motivated crimes can choose their victims. Therefore, a reduction in opportunity (for example, an alarm system) causes criminals to divert to a less-defended victim. However, alarm systems do not prevent crime (i.e. convert thieves to honest people); they simply redirect crime to different victims.

In contrast, embezzlement normally has a pre-ordained victim – you. A reduction in opportunity will not typically cause a would-be embezzler to leave your employ and wait a year or more to acquire sufficient knowledge and trust to steal from their new employer.

With opportunity always present, the true determinants of vulnerability are motivation and rationalization, which are almost completely out of practice owner’s control.

But we have a strong system of controls, and our CPA looks at our books!

Now we are back to discussing “Illusory Superiority”. The skills utilized to master your clinical craft can cause you to overestimate positive qualities and underestimate weaknesses. You may be an excellent clinician and business owner, but never forget that you have an adaptive opponent who is able to perceive (and counter) your strategy.

Every embezzler performs the same exercise – they survey their environment, observe the controls in place, and design an embezzlement that overcomes or bypasses those controls. Whether you practice solo or own a multi-site group practice, thieves have more embezzlement pathways than you could ever hope to block. The impact of implementing more or different controls is simply to prompt adaptation by the embezzler, and every new rule or procedure you implement carries a financial or productivity cost.

With respect to the involvement of your accountants, they normally are hired to perform a “Notice to Reader” engagement. This involves the transmogrification of your information for third parties (e.g. your bank or Canada Revenue Agency), with no analytical review, and certainly no search for embezzlement. And even if you select a higher level of accountant involvement (a “Review Engagement” or an Audit), these are neither designed nor oriented to catch embezzlement.

Research from the ACFE suggests that only about 3.8% of all embezzlement is detected by external accountants2, so clearly accountants do not play a major role in embezzlement control.

Ten Great Ideas
If the series of controls you have implemented and the involvement of your accountants are unlikely to stop embezzlement, is stealing therefore inevitable? What can be done to mitigate this problem?

We can tell you that there is virtually nothing that will deter an embezzler from committing their first criminal act. A realistic goal is to catch embezzlement quickly to reduce financial damage.

The challenge is the breathtaking variety of embezzlement methodologies that exist; we have observed hundreds of variations, and we keep seeing new twists.

Here are ten things that take very little time and will minimize your risk:

1. Print computer reports yourself. This prevents “selective reporting”.
2. Review and initial day-end reports. Retain for three years or more. For many embezzlement patterns, comparing these “original” reports to ones printed later helps us piece the puzzle together.
3. Review alarm system logs to see if employees are visiting at unusual times.
4. Review receivables listing and compare with the previous month (to ensure that amounts are aging properly). A frequent symptom of embezzlement is high receivables.
5. Review the modified transactions report (its exact name depends on your software).
6. Have bank and credit card statements sent to your house.
7. Use Prosperident’s Monthly Monitoring Spreadsheet to ensure that all receipts are deposited.

As needed:
8. Prosperident’s Embezzlement Risk Assessment Questionnaire (see discussion below).
9. Mandatory vacations and cross training for all staff.
10. Skepticism when hiring (53% of resumes have some amount of untruth3).

We would like to leave you with a simple thought – research suggests that, regardless of how someone embezzles, behavior when stealing is predictable. The ACFE reports that 91% of embezzlers display at least one “embezzlement behavior” and 57% display two or more indicators. The best way to spot embezzlement is therefore to monitor employee behavior.

A great tool is our affordably-priced Embezzlement Risk Assessment Questionnaire, which provides a systematic way to evaluate your risk. It is available on our website.

So take some simple and time-efficient steps, and let’s hope that you never have to deal with that awful feeling of being victimized by a trusted, long-term employee.

1 See, for example “Dental Embezzlement: “It Can’t Happen to Me!”
2 The Association of Certified Fraud Examiners 2016 Report to the Nations http://www.acfe.com/rttn2016 retrieved Feb 16, 2017
3 http://www.statisticbrain.com/resume-falsification-statistics/ retrieved Feb 16, 2017
4 ibid

About the Authors
David Harris is the CEO of Prosperident and the world’s foremost expert on financial crimes committed against dentists. David is a CPA, private investigator, and is “dual certified” in fraud examination, being both a Certified Fraud Examiner and Certified in Financial Forensics.

Wendy Askins is the Supervising Examiner of Prosperident’s Orthodontic Department. In addition to her MBA and undergraduate studies in psychology and criminology, she has an encyclopedic knowledge of orthodontic practices after more than 25 years of experience. Wendy is a Certified Fraud Examiner.