The unfortunate truth is that there’s a three in four chance that your practice will be embezzled at some point. If you’re not able to avoid theft, the best thing is to catch it quickly. However, you’re unlikely to discover embezzlement unless you’re checking for it. Blind faith in humanity is not a good business practice!
Are you being embezzled? Here are 20 signs that might indicate the answer is yes.
1. Unusual Behavior
The perpetrator will often display unusual behavior that when taken as a whole is a strong indicator of fraud. The fraudster may never take a vacation or call in sick for fear of being caught. He or she may not assign out work even when overloaded. The employee may become very defensive, unusually irritable and suspicious.
2. Complaints
Frequently, tips or complaints will be received which indicate that a fraudulent action is going on. Complaints have been known to be some of the best sources of fraud and should be taken seriously. Although all too often the motives of the complainant may be suspect, the allegations usually have merit that warrant further investigation.
3. Stale Items in Reconciliations
This is a big indicator in dental practices! In bank reconciliations, deposits or checks not included in the reconciliation could be indicative of theft. Missing deposits could mean the perpetrator absconded with the funds; missing checks could indicate one made out to a bogus payee. Bounced checks could indicate that funds are being siphoned out of your bank account.
4. Excessive Voids
Voided patient receipts could mean that the patient paid, the payment diverted to the use of the perpetrator, and the internal copies of the receipt subsequently voided to cover the theft.
5. Missing Documents
Documents that cannot be located can be a red flag of fraud. Although it is expected that some documents will be misplaced, your CPA should look for explanations as to why the documents are missing, and what steps were taken to locate the requested items. All too often, the auditors will select an alternate item or allow the auditee to select an alternate without determining whether or not a problem exists.
6. Excessive Credit Memos
Similar to excessive voids, this technique can be used to cover the theft of cash. A credit memo to a phony customer is written out, and the cash is taken to make total cash balance.
7. Common Names and Addresses for Refunds
Insurance refunds are received in error and the perpetrator will make the refund out to a bogus name and the address shown for the refund is then made to the employee’s address, post office box the perpetrator maintains, or to the address of a friend, relative or co-worker.
8. Increasing Reconciling Items
Stolen deposits, or bogus checks written, are frequently not removed, or covered from the reconciliation. Hence, over a period of time, the reconciling items tend to increase.
9. General Ledger Out-of-Balance
When funds, inventory, or assets are stolen and not covered by a fictitious entry, the general ledger will be out of balance. An accounting of the inventory or cash is needed to confirm the existence of the missing assets.
10. Adjustment to Receivables or Payables
In cases where patient payments are misappropriated, adjustments to receivables can be made to cover the shortages. Where payables are adjusted, the perpetrator can use a phony billing scheme to convert cash to his or her own use.
11. Write-off of Receivables
Comparing the write-off of receivables by patients or insurance companies may lead to information indicating that the employee has absconded with payments. Only the doctor should have the authority to write off an account.
12. Slow Collections
Pay close attention to your receivables. If a patient or insurance company that has always paid within guidelines has a balance/claim that is starting to age, you should inquire.
13. Excess Purchases
Excess purchases can be used to cover fraud in two ways: (a) fictitious payees are used to convert funds, and (b) excessive purchases may indicate a possible payoff to the perpetrator.
14. Phantom Vendors
Perpetrator establishes one or more phantom vendors to pay for goods or services never ordered. The payment goes to an address controlled by the employee.
15. Ghost Employees
Ghost employee schemes are frequently uncovered when an individual other than the perpetrator distributes the paychecks. Missing or otherwise unaccounted for employees could indicate the existence of a ghost employee scheme.
16. Duplicate Payments
Duplicate payments are sometimes converted to the use of an employee. The employee may notice the duplicate payment; then he or she may prepare a phony endorsement of the check or turn it into cash at the bank.
17. Large Payments to Individuals
Excessive large payments to individuals may indicate instances of fraudulent disbursements.
18. Employee Overtime
Employees being paid for overtime hours not worked by altering time sheets before or after your approval, if required.
19. Inventory and Supplies Shortages
Normal shrinkage over a period of time can be computed through historical analysis. Excessive shrinkage could explain a host of fraudulent activity, from embezzlement to theft of inventory or phantom inventory.
20. Charge Accounts and Credit Cards
The perpetrator makes charges for his or her own benefit to charge accounts and credit cards. When the bill comes in, it is paid in the normal course and the merchandise is used by the employee.
Once again re-read the above and check your system. Remember, there’s a 75% chance that your practice will be embezzled during your dental career… chances are it will happen to you!
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