Editorial
by Bryan Truitt and Jim Du Molin

Even if you have an internal controls system that makes embezzlement difficult, the danger of collusion still exists. (I’ve already told you that embezzlement is common, it can be detected, and it can be prevented.) One of the ways in which some dental practices protect themselves from employee dishonesty is by bonding their employees.

Bonding is the process by which an employer can be indemnified for the loss of money or other property sustained through dishonest acts of a “bonded” employee. Bonding can cover many types of acts including larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, willful misapplication, or other fraudulent or dishonest acts committed by an employee, alone or in collusion with others.

There are several types of fidelity bonds. Discuss each with your agent to determine whether damages from negligence are covered. Basically, your practice has several options at its disposal:

• Individual: covers one employee. Usually purchased by small practices or family-operated businesses with only one employee.
• Name schedule or position schedule: covers either the employees or positions specified.
• Blanket fidelity: covers all employees.
• Commercial, blanket, and blanket position: provides multiple protection (comprehensive dishonesty, disappearance and destruction coverage, or a blanket crime policy).

There is wide choice in features and coverage as well as cost differences in bonding coverage. It difficult to understand why only two practices in ten have this economical insurance.

Next week, we’ll talk about what to do when you have discovered a problem.

Establishing Internal Controls Against Theft

Editorial
by Bryan Truitt and Jim Du Molin

Previously, I told you how common dental embezzlement is and what some of the warning signs of dental embezzlement are. Embezzlement can be deadly to a dental practice and your retirement plans. Now it’s time to discuss what you can do to protect yourself.

There are four basic things that you can do in implementing an internal system of controls:

• Screen applicants before they are hired.
• Periodically examine canceled checks to see if there is anything unusual.
• Take precautions in preparing payroll. Have more than one person prepare it, have several different people prepare it, oversee it yourself, or have it done outside.
• Have two people sign off on checks, preferably in front of each other. Or better yet, sign all checks yourself.

While there is no foolproof system of accounting or internal control that will absolutely prevent employee dishonesty losses, an environment can be created where it is discouraged.

The first step is to review every area where potential dishonesty problems could arise, including:

• bookkeeping
• data processing
• cash disbursements
• purchasing
• receiving
• inventory control

The next step entails putting mechanisms in place to remove the temptations that could make an otherwise honest employee dishonest.

In setting up an internal audit system, it’s common to divide financial responsibilities and functions so that no one employee controls all aspects of a transaction. Hence, I recommend the following:

• Require checks to be countersigned by two responsible parties. In addition, limit the endorsement of checks, by anyone other than the owner, to deposits for credit only.
• If you must delegate check-signing authority, limit the accessibility and value.
• Make it mandatory that all insurance claims are properly filed within fifteen days.
• Delegate the responsibility for receiving checks and cash to someone other than the person who records incoming funds.
• Require every patient to sign in and keep the sign-in sheets for your audit.
• Mail statements to outside accounts directly at least monthly. Even better, pay your bills online using a secure service provided by your bank – but only if it is set up so that you are the only person authorized to make payments!
• Examine payroll records periodically to prevent padding.
• Make sure that employees responsible for ordering goods and supplies are not the same ones responsible for receiving them or paying for them.
• Require backup documents to be attached to all payable checks for signing.
• Do not give the person who has the authority to write off bad debts the authority to authorize credit or loan money to an employee.
• If someone else does payroll, make sure you have access to payroll data on the computer and that no one changes the passwords or access requirements for that data. Consider an outside service for this and your quarterly reports.
• Use pre-numbered receipts, checks and purchase orders. Use duplicate deposit slips and checks printed on special safety paper.
• Cross-train and rotate personnel. Insist your staff take their vacations.
• Review revenue, receivables, payables, bad debts, account balances, statement reconciliations and payroll monthly. This can be done in less than thirty minutes over that sandwich in your office with the door closed.

Dividing financial responsibilities and functions is not enough. The single largest problem is permitting one employee to handle all receivables and payables. In a small practice it is hard to do otherwise but there are ways to effectively monitor the activity. You have to monitor and want to do it properly every day. The commitment and follow-up starts at the top: YOU.