Carrying Costs: Theft in the Dental Practice

In Vegas, everybody’s got to watch everybody else. Since the players are looking to beat the casino, the dealers are watching the players. The box men are watching the dealers. The floor men are watching the box men. The pit bosses are watching the floor men. The shift bosses are watching the pit bosses. The casino manager is watching the shift bosses. I’m watching the casino manager. And the eye-in-the-sky is watching us all.  – ACE ROTHSTEIN, Casino (1995)

One of the “Carrying Costs” of inventory is theft. We can call it “misappropriation”, “pilfering”, “borrowing”, or whatever, but no matter what it’s called, it can be costly to your practice.

Even thought dentistry is one of the most inventory-intense professions, there is very little attention paid to the ways that inventory or “supplies” affect the bottom line. In a well-managed office, the supply bill should be no more than about 6% of gross. That means that, in a million-dollar practice, about $60,000 is spent annually on supplies. And, these supplies aren’t just used in and around the mouth; they include office supplies, cleaning supplies, and other miscellaneous supplies that are used on a daily basis in a practice.

It never ceases to amaze me that something that can have such a large impact on the bottom line is given so little consideration. In my experience, and I’ve been in and out of dental practices all over the world over the last 40-plus years, dentists and dental practice managers pay an over-abundance of attention to price, while slowly hemorrhaging inventory cost through what could be dozens’ of pin-pricks.

If you are reading this blog, and you are part of a dental practice, I’d bet the farm that the chances of you having a formalized inventory control system in your office are nil. You must, must, must be able to put your finger on your true inventory state at any time.

So, what about supply theft? You’ll find very little written about it, but there is mention of it here and there.

Sandy Pardue, speaking of embezzlement said about dental supply theft, “With no one watching the practice overhead and no purchase order system in place, they feel comfortable stealing supplies, which causes unexplained inventory shortages”. (Pardue, 2009)

What kinds of people steal supplies? The same who would take other things from your practice. David Harris says of them:

These people (who I call the “desperate”) work in a dental office, typically for quite a few years, when they become desperate for money. This could happen for many reasons: their spouse could lose his or her job, they might have some type of addiction, they could be experiencing matrimonial problems, etc. Once the Desperates have exhausted their other options for money, it dawns on them that stealing from you would be pretty easy. And so it starts. (Harris D. )

Donald Lewis outlines ways that employees can steal from your practice:

Individuals who steal do so in a variety of ways. They will steal time, money, and supplies, or just about anything of value. The problem is compounded by the fact that the practitioner may lose a great deal of hard-earned income before - if ever - suspecting that embezzlement has occurred. (Lewis, Jr, 2015)

• They can accept kickbacks from suppliers by over-ordering supplies. When the check arrives, they forge the payee's name and cash the check.
• Personal items can be bought and charged to the practice.
• Substantial amounts of money can be lost from the cumulative effect of such seemingly minor abuses as personal use of office postage, supplies, equipment, and magazine subscriptions, and charging personal, long-distance phone calls to the office. (Lewis, Jr, 2015)

How does he say this can be prevented?

Develop appropriate internal controls and an adequate accounting system. Prevention and detection of embezzlement depends upon these two issues. Recordkeeping should be set up by your accountant and tested for reliability and accuracy by independent, periodic audits. You will be taking a proactive approach to your practice's financial well-being, and potential embezzlers will take notice. (Lewis, Jr, 2015)

In other words, in the case of supplies, have a reliable inventory control system.

One of my Grasshopper Mouse Beta accounts had a staff member that developed a crush on a dental supply rep. This rep talked her into buying huge quantities of supplies. This not only impacted opportunity cost (money tied-up in excessive supplies), but when the doctor moved his office to a new location, he had to take $20,000 of expired impression material to the dumpster. His staff member and the supply rep, in effect, stole at least $20,000 from this office.

He had no idea of what he had in his office inventory. And, even if he’d wanted to find out, there was no way short of a complete inventory audit that would have shown the problem, because he had no inventory control system in place.

Where can stolen goods be sold? Here’s a link to Craig’s list in the Los Angeles area. I can’t say that this stuff was stolen, but these are examplee of how one could go about selling goods stolen from your office: https://losangeles.craigslist.org/search/sss?query=dental

You don’t have to use the controls that Ace Rothstein did in the casino, but how can you go on without having a reliable inventory control system in your office?

In summary, the supplies in a dental practice are such a significant part of overhead that they must be monitored and controlled. In a million dollar practice, reducing supply cost by 1% would put $10,000 in the practice’s pocket.

If you’re looking for a product and a service that will help you with inventory concerns, check-out Grasshopper Mouse inventory control system: https://www.ghmouse.com/