Dentists Often Embezzled – Thieves Rarely Prosecuted

Dentists often embezzled, but thieves rarely sent to prisonDentist office embezzlement is a major issue at dental practices, but most dentists don’t even realize how widespread the problem of dental embezzlement is.

I’m a total cynic when it comes to dentists being embezzled. I’ve spent over 20 years uncovering over 100 thefts. I’m fully convinced that it happens all the time. (In fact, one of my surveys found that most dentists report being embezzled.)

The vast majority of embezzlement cases never go to trial. (And we’re not even talking about all the theft that is never even uncovered in the first place!) Usually, the offender is fired, and that’s it. If charges are filed, 9 out 10 times there will be a plea bargain which results in probation for a first-time offender.

Only on rare occasions do you see the dental embezzler fully prosecuted and taken through the court system. This only happens if the case has has been fully investigated, all the details uncovered, and everything tied up with a big bow by the doctor (and the the doctor’s attorney and private investigator) and handed to the district attorney for prosecution.

Recently, one such case resulted in a five-year prison sentence for the miscreant. The 25-year-old woman, a Texas dentist’s financial clerk, pleaded guilty. Here’s the news report:

U.S. District Judge Hilda Tagle… sentenced [defendant Claire Batsell] to 69 months in federal prison on a count of fraudulent use of dental patient identification information and a count of aggravated identity theft.

The U.S. Attorney’s Office said Batsell used patient information to open and bill credit card accounts for services. In addition, she pocketed cash payments made by the patients…

Dentist DavidPedley was unaware of Batsell’s scheme and said her actions almost destroyed his practice and damaged his reputation…

In a statement before Tagle, Pedley said the thefts affected the credit of some of his patients and “imposed a huge financial burden on him and his family to pay back the credit card company for the fraudulent charges made by Batsell.”

– Laura B. Martinez, The Brownsville Herald

While it’s morally satisfying to see someone held accountable for their wrongdoing, I have to say: if it was just the doctor losing money, this case probably wouldn’t have been prosecuted. Identity theft is a hot consumer issue right now… while employees stealing from their dentist employer is somehow stale and commonplace.

View all our stories about dental practice embezzlement

How to Avoid Embezzlement and Keep Your Dental Practice Afloat

Establishing Internal Controls Against Theft

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.

20 Signs Your Employees Are Stealing from You

20 Signs Your Employees Are Stealing from YouEditorial
by Bryan Truitt and Jim Du Molin

When Blind Faith in Humanity Doesn’t Cut It!

Last week I told you how there’s a 3 in 4 chance your practice will be embezzled at some point. If you’re not able to avoid theft, the best thing is to catch it quickly.

However, you’re unlikely to discover embezzlement unless you’re checking for it. Blind faith in humanity is not a good business practice!

Are you being embezzled?

Here are the first 10 of the top 20 signs that might indicate the answer is yes.

  1. Unusual Behavior
    The perpetrator will often display unusual behavior that when taken as a whole is a strong indicator of fraud. The fraudster may never take a vacation or call in sick for fear of being caught. He or she may not assign out work even when overloaded. The employee may become very defensive, unusually irritable and suspicious.
  2. Complaints
    Frequently, tips or complaints will be received which indicate that a fraudulent action is going on. Complaints have been known to be some of the best sources of fraud and should be taken seriously. Although all too often the motives of the complainant may be suspect, the allegations usually have merit that warrant further investigation.
  3. Stale Items in Reconciliations
    This is a big indicator in dental practices! In bank reconciliations, deposits or checks not included in the reconciliation could be indicative of theft. Missing deposits could mean the perpetrator absconded with the funds; missing checks could indicate one made out to a bogus payee. Bounced checks could indicate that funds are being siphoned out of your bank account.
  4. Excessive Voids
    Voided patient receipts could mean that the patient paid, the payment diverted to the use of the perpetrator, and the internal copies of the receipt subsequently voided to cover the theft.
  5. Missing Documents
    Documents that cannot be located can be a red flag of fraud. Although it is expected that some documents will be misplaced, your CPA should look for explanations as to why the documents are missing, and what steps were taken to locate the requested items. All too often, the auditors will select an alternate item or allow the auditee to select an alternate without determining whether or not a problem exists.
  6. Excessive Credit Memos
    Similar to excessive voids, this technique can be used to cover the theft of cash. A credit memo to a phony customer is written out, and the cash is taken to make total cash balance.
  7. Common Names and Addresses for Refunds
    Insurance refunds are received in error and the perpetrator will make the refund out to a bogus name and the address shown for the refund is then made to the employee’s address, post office box the perpetrator maintains, or to the address of a friend, relative or co-worker.
  8. Increasing Reconciling Items
    Stolen deposits, or bogus checks written, are frequently not removed, or covered from the reconciliation. Hence, over a period of time, the reconciling items tend to increase.
  9. General Ledger Out-of-Balance
    When funds, inventory, or assets are stolen and not covered by a fictitious entry, the general ledger will be out of balance. An accounting of the inventory or cash is needed to confirm the existence of the missing assets.
  10. Adjustment to Receivables or Payables
    In cases where patient payments are misappropriated, adjustments to receivables can be made to cover the shortages. Where payables are adjusted, the perpetrator can use a phony billing scheme to convert cash to his or her own use.

Read the next 10 warning signs or learn how common dental embezzlement is. Your homework assignment is to re-read the above list and check to see if you have any possible problems in these areas. If you do find a problem, DO NOT confront the suspect! We’ll give you more on how to proceed later in this series.

Dental Embezzlement: It Can’t Happen to Me!

Dental Embezzlement: It Can't Happen to Me!Editorial
by Bryan Truitt and Jim Du Molin

Someone Is, Most Likely, Stealing from You at This Very Moment

“Embezzlement can’t happen to me!” Oh, really? It can, and statistics say there is a better than 75% chance it will! Those odds are worse than your chances of coming down with 95% of known terminal diseases.

Earlier this year, I did a survey of dentists on the topic of dental embezzlement. Over half of the respondents reported having discovered an embezzlement!

What is embezzlement?

It’s a $310 billion annual industry that has built itself into the single largest loss category for fidelity bond insurers. It is greater than the amount our national debt increases each year. It’s the “E” word no one likes to talk about or admit that it can happen to his or her dental practice.

Embezzlement or fraud or internal theft has been defined as “the fraudulent appropriation of property by a person to whom it has been entrusted.” Often, this may be your office manager, but it could just as easily be your financial management consultant, your hygienist, even your spouse.

Embezzlement doesn’t just happen to Fortune 500 companies and people other than yourself.

It is especially rampant in small businesses of all kinds and in particular dental, medical, legal and religious organizations. These are considered higher risk groups.

How many people do you know who have been ripped off? Don’t be too quick to say none. How many know they have been taken for a ride and admit it? That’s the key question.

Dentists, like most small business owners, often will not say anything because they are too embarrassed or ashamed. Embezzlement hurts small businesses the most, and it’s been known to drive them out of business.

Make no mistake about it: you are a highly trained professional, but you have the added responsibility of being the owner of a business that operates in many respects just like General Motors. Their numbers are larger and problems more diverse, but the bottom line is still the bottom line, and stress is a big part of everyone’s daily workplace.

The reason why dental practices are at high risk is because the dentist is the central figure generating the revenue stream that moves the practice forward. You’re the CEO, President, CFO, Vice President of Marketing and Sales, Vice President of Operations, Vice President of Administration and Personnel, and in some cases, all the other hats that must be worn, including maintenance.

Dentists do not have the time, the interest, or the resources to establish effective internal control systems (i.e., checks and balances) and monitor them on a regular basis. They want to be the best in their profession!

When you examine the problem closely, it is very clear why dentists are in the high risk group. You spent many years perfecting your clinical expertise; however, there were few courses to teach you how to run a business. You do not have an owner’s manual to help guide you through all the mine fields. Many times it is your first experience in the business world and most likely first experience in running a business. It’s a big responsibility to be “The Boss,” and it can have far-reaching effects on your practice, family, patients and financial matters.

The first thing most dentists do is to secure the services of a certified public accountant. This is certainly the proper course.

However, your accountant does not provide day-to-day operational execution – you do!

Obviously that is the key area for long-term success or failure. In 22 years, I’ve rarely seen an accountant uncover embezzlement in a dental practice.

You need to remember this stark point: one-third of your profession will retire in great financial shape; one-third will be comfortable; and one-third will be dead broke. Embezzlement only makes the picture grimmer, particularly since the odds are 90% against recovering more than 10% of your loss. There are better odds at the crap table, and you know what they say about casinos: they weren’t built by the winners.

It’s your job to take preventive measures against fraud, implement strict internal controls, and be vigilant and aware.

Done correctly, you should be able to make an additional 15% to 20% R.O.I. every year, have greatly improved peace of mind, and do what you love to do: dentistry. One last thought to leave you with: 99% of embezzlements are caught by accident.

This means that many embezzlements are going undetected due to lack of proper internal controls and monitoring.

The best ways to combat embezzlement are to:

  • Detect the warning signs.
  • Establish internal controls.
  • Bond employees.

Stay tuned… In the next few weeks, I’ll have more to say about embezzlement and what you can do to avoid it.

In the meantime, feel free to post your comments or share your own experiences.

Dentist, Busted for Medicaid Fraud, Owes $1.3M


A Michigan dentist convicted of Medicaid fraud has been ordered to repay the state $1.3 million. During the years of 2004 and 2005, Dr. Billy Shee Lim fraudulently billed Medicaid for over $2.1 million. In fact, one of the cases against the doctor involved billing for the removal of 37 primary teeth from a single pediatric patient – hardly a sophisticated scheme, considering children only have 20 baby teeth! Considering the scope of Dr. Lee’s fraud, he’s lucky to have avoided jail time with a three-year probation sentence.

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