Dipping into the till

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embezzlement

Dental-practice embezzlement is relatively rare—but probably not as rare as you think, reports Andy Kollmorgen

You do not have to be a master criminal from the wrong side of the tracks to embezzle money from a dental practice. In fact, you are more likely to be a star performer, running a tight ship on the administrative side while quietly squirrelling away funds.

“Embezzlers are usually the ones you would least suspect, the ones who have come to almost seem like members of the family,” says Dr Phillip Palmer, CEO of dental practice-management firm Prime Practice, which has lent a hand to more than a few practices fleeced by trusted insiders.

“It’s almost always the person who’s first in and last out, the person who never seems to take holidays. They’re afraid to go on holiday and have someone else looking into the bookkeeping.”

This is not say there is an epidemic of embezzlement happening in Australian dentistry, or that a pall of paranoia should descend on practices throughout the land. Nine out of 10 practices have nothing to worry about, says Palmer, citing a commonly reported statistic that he agrees is pretty accurate.

Then again, there have been some whopper embezzlement cases in recent years. In one of the biggest, involving the now defunct electronics retailer Clive Peeters, an accountant embezzled $19 million over a two-year period and siphoned the funds into eight different bank accounts. She was sentenced to eight years’ prison by the Supreme Court of Victoria in 2010—and there have been plenty of smaller-scale embezzlement cases since then. That particular crime, it is worth noting, brought about the company’s collapse.

Embezzlement in dental practices has not quite reached that scale. But with a total annual turnover in dental services of $9 billion as of June this year, the cumulative annual loss would still be well into the millions. This equates to about one out of every 10—which is a lot, and the bad apples can be diabolically clever.

“A really well-planned person can always commit embezzlement, and there’s only so much you can do about it,” Palmer says. “Most dentists could lose a couple of hundred dollars a week or month and never know the difference.”

CPA Australia, the country’s peak body for the accounting industry, makes the same point in a recent report on the issue, stating, “It is important to realise that employee fraud cannot be eliminated but the risks of it occurring can be substantially reduced.”

For those who are paying attention, significant gaps in the income stream become noticeable over the long term.  But by then it can be too late to undo the damage, since the ill-gotten gains will likely have been spent. The key is to prevent embezzlement in the first place.

“There are a lot of little things you can do to make it much more difficult for a would-be embezzler,” Palmer says. “For starters, have more than one person looking after the finances.”

In addition, practice principals or owners should keep a tight grip on master passwords to payment and accounting systems, even if it inhibits their ability to farm out the entire bookkeeping process.

“Embezzlers are usually the ones you would least suspect, the ones who have come to almost seem like members of the family.”—Dr Phillip Palmer, CEO, Prime Practice

Other staff should be given partial access on an as-needed basis, and special security codes on account software should be set for after hours so only the principals can log in when the office is closed.

Does all this add levels of inconvenience? Yes it does, but it also protects otherwise well-meaning staffers against themselves.

As CPA Australia puts it: “No one person should be responsible for a complete transaction from start to finish.” For very small businesses where this just isn’t practical, “Employees handling finance should be subject to close supervision.”

The organisation also recommends conducting careful reference checks and—especially for people with access to finance—a police check. (There are a number of easily-found businesses that will organise police checks on short notice for a reasonable fee.)

More generally, you should always keep an eye on who comes in early and who has access to sensitive financial information. And be aware that if you are a principal occasionally dealing in cash, it makes embezzlement that much easier.

Taking such steps is not about fostering an atmosphere of mistrust, say the experts; it is about preventing temptation from luring otherwise trustworthy and valued employees down the wrong path.

In response to queries, the Australian Institute of Criminology (AIC) provided a report on the psychology of fraud and embezzlement. According to the report, embezzlement is almost always motivated by financial stress, or by the perception of it.

Some embezzlers of relatively comfortable means may still believe that others unfairly have more than them; or maybe they just want a new car. Then, there are darker forces at work: across small businesses as a whole, gambling debt is probably the primary motivator of embezzlement.

But if the opportunity arises, all kinds of people are prone to stealing money, especially if it is easily done. “There are situations that encourage fraud to the point that even the average person is at risk of engaging in it,” the AIC report says. “Few categories of offences suffer from the same dearth of psychological profiles of offenders as fraud and white-collar crime in general.”

Once an embezzler succeeds the first time—perhaps in response to a one-off financial need—it can be very hard to resist dipping into the till again.

And it is not just about vulnerabilities inherent in the new technologies. Keeping a firm grip on management software can go a long way toward preventing fraudulent activity in your dental practice, but securing the computers alone isn’t a foolproof remedy, says Palmer.

A holistic approach is in order. You need to consider all the factors at play and stay alert to the reality that people of all types can succumb to financial temptation—even the junior dentist who just joined the practice.

“Embezzlement existed before practice-management software came on the scene, and I don’t think new technologies have substantially changed anything,” Palmer says. “Human nature hasn’t changed.”

1 COMMENT

  1. Our statistics about dental office embezzlement (which are primarily based on the North American experience) are somewhat higher. Studies here suggest that it had six in ten dentists will eventually be embezzled, average stolen until discovery US$109,000. The typical embezzlement goes undetected for approximately two years.

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