Dental Practice Theft: Policies and Practices Are Key to Prevention

It's incredibly difficult to predict if a staff member will steal from your office. Since prediction doesn't work, experts say you should focus on prevention.

The act of assuming is usually not a good thing. As the expression goes, we all know what happens when someone assumes.

But according to Derrick Handwerk, managing partner of Handwerk Multi Family Office, LLC, there are times when assuming makes a lot of sense.

That’s because in the business world, losses of cash due to acts such as embezzlement are bound to occur.

“[These acts are] assumed to occur when you have a business,” Handwerk explains. “The reason I use the word assume is by assuming it will occur you can put safeguards and systems in place to make sure it doesn’t happen.”

In other words, an ounce of prevention is worth a pound of cure.

Making the Assumption

Handwerk believes that shrinkage will occur in any type of cash business. And it can be extremely problematic where the product has value.

For example, he recalls a friend who owned a large luggage store, and employees were removing pieces of luggage through the shop’s rear door. Inventory might indicate there were 15 pieces of luggage in stock, but a count would indicate only nine. Where did the other six pieces go?

“They don’t evaporate,” Handwerk says. “In accounts payable, people make up companies that don’t exist. I’m signing all these checks and I don’t even know who the company is. And it’s not only a matter of getting your money returned, it’s a matter of who you’re paying. So, it’s an accounts receivable problem and an accounts payable problem.”

He explains that if you’re hiring new staff, it’s very difficult to tell who will pilfer money from a practice and who will not. But an accountant can set up a system to verify receipts by someone the dentist trusts, or have a bookkeeper come to the practice monthly to reconcile the payments for services.

“It may cost $300 to $500 a month for this service, but it is well worth it,” Handwerk says.

Starting Small

Handwerk says that theft in a small business like a dental practice is not usually premeditated. More often it involves trusted employees who are doing a good job but suddenly, due to events in their lives like divorce or overspending on a lifestyle, finds themselves in a hole.

“What happens is people start with smaller amounts, $100 here or $50 there, to see if they get caught,” Handwerk explains. “And then they either start increasing the dollar amounts or the frequency.”

Having a bookkeeper visit the practice can not only help identify these acts, but also reduce the dentist’s tax bill since the businesses books will be correct. For example, if a dentist goes to a dental convention and it costs $1,000, it has to be filed under education. If the dentist does not have the correct account names or the correct dollars put in the correct accounts, it becomes a mess for the accountant when the accountant or tax professional arrives in February or March to prepare for an April 15 filing date.

“By having somebody come out and set up your chart of accounts and clean everything up periodically, at the end of the calendar year, the tax return is almost done at that point in time,” he says.

Set Up a Process

A bookkeeper or accountant can also put a simple process in place whereby the dentist can easily reconcile the daily number of patients with the payments received. Once the process is set up, it should take the dentist no more than 10 minutes at the end of the day to reconcile.

You can also have an outside bookkeeper stop by unannounced periodically to reconcile the practice’s billings.

“Any bank that loans money wants a year audit of the books by an outside accounting firm, or at least a more formal review,” Handwerk says. “So why not have your business adopt the same mindset.”

And when you’re establishing a process, Handwerk says that, depending on the size of the practice, it might not be a good idea to utilize a signature stamp when issuing checks. For example, large companies have some high level procedures in place, and if two people collude to write a check for $10,000 rather than $1,000, it’s going to be caught. But it’s a different story in a smaller practice.

“A lot also depends on how many checks you have to write,” Handwerk says. “Generally speaking, when I had my companies I would sign all the checks. It might only be about 30 a week, so it might take me 10 minutes.”

He says that ounce of prevention affords the dentist an opportunity to push back if he or she is writing a large check to a company they’ve never heard of.