Practice Management: Dental Practice Defalcation

by Ron MacKenzie

Previously, I have commented on the need for vigilance in dental practice offices and set out some specific steps to be followed. However, there is a general checklist for you to review.

Armed with a better understanding of fraud and misconduct, you can undertake a quick assessment of your practice’s fraud risk management. Using the following checklist, assign a rating between 1 (poor) and 10 (excellent) to each question:

1.What is the quality of your anti-fraud strategy?

2.Is the responsibility for managing fraud risk well defined?

3.How clear are reporting channels for reporting suspicions of fraud?

4. Are there clear protections for those reporting fraud?

5. How effective is your fraud awareness program?

6.How effective are your recruitment screening procedures at stopping potential fraudsters from joining your practice?

7.How developed is your practice’s understanding of its fraud risks?

8.How has the practice matched these fraud risks with controls to see how well they are managed?

9.How effectively does your practice learn from fraud incidents?

10. How aware of fraud indicators are you, and do you follow up? An example would be an accounts receivable balance exceeding approximately 10 percent of annual gross billings. Other indicators include bad debt expenses in excess of your profession’s average, which are normally one-half of one percent of annual billings per year.

Out of 100, the risk is as follows:

0-50:very high




What pressures are your staff members under in your practice? Personal pressures include gambling, substance abuse, divorce, debt and extravagant lifestyles. If you fail to recognize and manage such pressures, don’t be surprised when fraud is subsequently uncovered. Escalation usually results from a lack of attention to small-scale infractions.

Fraud awareness at all levels, clear reporting channels and protection for those who report suspicions go a long way to ensuring detection at an early stage. Better still, rigorous recruitment screening should ensure you don’t hire ‘bad apples’ in the first place. It is not uncommon for a dentist to terminate an individual once fraud has been discovered, without commencing legal action. Therefore, the individual will not have a criminal record. When you are considering hiring a person for a high-risk position, you should contact previous employers to enquire on related matters. However, the previous employer, due to potential litigation risks, may not be forthcoming with his/her assessment. Try to read between the lines.

If you suspect fraud, get competent advice, including a preliminary review undertaken on a professional basis. Once the review is completed and a report issued, you can determine whether you wish to proceed with further investigation.

Ron MacKenzie, B. Comm, CA, is the principal of MacKenzie & Company, CAs and practice consultants to the dental community.