Howard Speaks: Are You At Risk of Peculation? by Howard Farran, DDS, MBA, MAGD

Peculation: To steal or take money dishonestly, especially public funds or property entrusted to one's care; to embezzle.

In my 30-plus years of watching dentists catch someone embezzling from them, I've noticed that even if the money's a sizable amount—I'm talking upward of $100,000, $150,000—the emotional sting hurts them more than the financial loss. These dentists are devastated, because the employees who do it are often very close to them. Imagine realizing that someone you thought was your best friend or is the godmother of your child has been stealing from you for a decade.

During a recent Dentistry Uncensored with Howard Farran podcast ("Don't Get Embezzled," #730), certified fraud examiner Bryant Truitt said that 43–47?percent of dental offices are being embezzled from; other experts I've spoken to have shared the same estimates, too. (Dental offices aren't alone in this regard; it's the same data for small businesses in other industries, too.)

There's no particular demographic that's more likely to embezzle—no single race, age, sexuality or the like. It's not something only heathens do, either; someone who attends church religiously could also be embezzling thousands of dollars from you. The more common denominator is desperation—someone in their family is sick, or there's a financial crisis in their house. Maybe you've noticed they're living above their means, but it's unlikely. The fraud experts I've talked to say that four out of five times, the dentist is stunned and says, "I can't believe it. I never saw that coming."

Taking steps toward prevention

Part of the sting that dentists feel is embarrassment, because it means they didn't have internal controls over peculation. The situation that everybody seems to come back to in embezzlement cases is that one person was doing way too many things, unchecked. You need separation of duties in your office—the person getting the mail shouldn't be the one entering the checks, for example, and the one taking the money from patients shouldn't be the same one making the bank deposits.

Even your completely trusted, longest-term employee is capable of embezzlement when the circumstances are right. For that reason, you should have at least two or three people working on separate responsibilities, who can serve as cross-checks when any disparities come up.

Ideally, those employees shouldn't be related, either. The risk of having two or three people who aren't family members all being in cahoots is very low; it's a high-risk poker game if I walked up to you and said, "Hey, you want to do a crime against this company?" You can ask your mom or sister that in confidentiality if your family's all in the same boat, but it's harder to ask a co-worker because of the odds that someone would report it.

Knowing and setting controls
When was the last time you changed the password on your software? You should change your toothbrush and your passwords every three to four months. Embezzlement is dramatically increasing because of how many digital schemes are now possible via computer and online. Back in the day, you would have had to do everything on a pegboard—there'd be a paper trail for everything, a spindle for receipts—but now when you're banking online and you're computerized, there are so many opportunities for fraud and embezzlement. There are a dozen ways to embezzle just on the credit card machine alone.

When I talk to practice-management consultants, they tell me that 50 percent of all dentists can't check out a patient on their practice-management software and bill insurance for it. That means half of all dentists wouldn't know how to find an audit trail. It's imperative to get a bookkeeper inside your practice, even if he comes in one day a week. You've got to be humble, be hungry and get help.

Bringing in the experts
I've said it a thousand times in the past 30 years, but I'll say it again: The No. 1 return investment you can get on your business is always an office consultant. A new laser's not going to save you. If your restaurant was going broke, would you really think the best idea was to go learn a new recipe and add beef stroganoff? If you're not making money on cleanings, exams, X-rays and fillings, why would you want to add sleep apnea to the mix, instead of figuring out why you're not profitable in the first place?

A consultant will be able to look at everything from your gift cards and credit card payments to your prescription output and old supplies and stock materials to ensure your financial house is in order. Every one of those things is at risk for fraud and embezzlement.

Another great thing about getting a dental-office consultant is that when you do, usually embezzlers immediately put up a red flag: "Why are we paying that lady to come here? I could fix this if you just listen to me." They're total control freaks and don't want anyone coming near what they've been doing. Dental consultants tell me they can smell the embezzlement a mile away because when they walk in, there's that one person who's just protecting her whole territory.

You need to find a good CPA who specializes in dental offices. If your CPA isn't doing a dozen dentists, you need a different one. Would you let your family physician deliver your baby or do your bypass? Medicine has 58 specialties; dentistry focuses only on the mouth and it has nine of its own specialties. It's too sophisticated for a generalist. Someone who specializes in dental can look at your books and see the red flags—"Your cash is too low!"—and because they've been in the business awhile, they know what to look for.

In my book Uncomplicate Business: All It Takes Is People, Time and Money, I recommend that dentists dedicate time every week to look at their practice dashboards, production reports and general ledger entries—this will assist in preventing fraud. They should then review profit and loss statements (financial reports) monthly, and all canceled checks and bank statements once each month is closed out and balanced. It's easy to put these tasks off and say, "I'll just do it next week or next month," but you must form a habit to do this regularly and never put it off so it becomes a routine and an education process for the sake of your practice..

As they say: Love many, trust few and paddle your own canoe. ¦

Earn CE credits and learn more about how to prevent embezzlement
Practice management consultant Sandy Pardue's hourlong CE course "Safeguards to Prevent Embezzlement" will help dentists establish internal systems and controls to help stave off employee embezzlement. Click here to view.