DTUS1710

Employee embezzlement: Don’t let it happen to you By Stuart Oberman, Esq. The day-to-day pressure in run- ning a dental practice is enor- mous, especially in today’s econo- my when every dollar counts. Unfortunately, dentists spend most of their day practicing den- tistry instead of supervising the staff members who manage their dental practice. In this type of atmosphere, embezzlement can thrive. According to industry statistics, approximately 40 percent of dental offices have been or will become the victim of employee embezzle- ment. Recent studies indicate that employee embezzlement in a den- tal office has become so rampant that it accounts for the majority of ordinary business losses suffered by dentists. The average amount of employ- ee embezzlement from a dental office is approximately $105,000 per incident, which is a staggering amount. Listed below are signs employ- ee embezzlement may be taking place: • You fail to receive financial information in a timely man- ner. • Employees are resistant to any type of change in the present accounting system. • You have large numbers of unexplained accounting adjustments. • Your collections have slowed. • Your cash deposits have declined. • An employee refuses to take a vacation. • A staff member resents your income or lifestyle. • An employee always works late and/or takes work home. • You have employees who always seem to have cash on hand, and/or appear to live above their means. • An employee treats office pro- cedures as an annoyance. Perform an embezzlement audit of your practice If you suspect that an employee is embezzling funds, there are three ways to initiate a practice audit. 1) Request that your accountant performs a practice audit or hires a forensic accountant that specializes in employee embez- zlement; 2) Ask your accountant to design a brief self-audit process for you to follow; or 3) Perform an immediate, cursory, on-the-spot random audit by pulling approximately 15 to 20 patient charts from the past week’s schedule in order to confirm that the treatment per- formed has actually been post- ed to each patient’s account. If you suspect embezzlement in your practice Anytime you suspect that you are the victim of embezzlement, you should seek legal advice immedi- ately. Your attorney should pre- pare an investigation strategy that should include working closely with your practice CPA or an out- side forensic accountant. When the owner of a dental practice is first confronted with the prospect of employee embez- zlement, there are four primary objectives, which are: 1) to determine whether employ- ee embezzlement has actually taken place, 2) to determine the total amount and method(s) of the theft, 3) to remove the dishonest em- ployee from the workplace (and take remedial actions to pre- vent employee embezzlement in the future), and 4) to recover the money or pro- perty lost. Conducting the investigation It is extremely rare that an employ- ee is actually caught embezzling funds by direct observation. Most embezzlement cases are detected based upon initial circumstantial evidence, such as an inconsis- tent practice financial report or through a random audit. If you suspect that employee embezzlement has taken place, one of the first things you should do is conduct an investigation with an attorney and CPA in private, and proceed with extreme confi- dentiality. The reason for this is two-fold: to avoid exposure to defamation claims and to avoid premature disclosure of information to the wrong party. The next step is to identify employees at every level of the practice that had access to finan- cial information and the opportu- nity to commit the theft. In addi- tion, it is important that you identi- fy employees that may have known that embezzlement was taking place, but failed to disclose it. All employees with access to financial information and the opportunity to commit the theft should be included in the investi- gation regardless of their employ- ment record, length of employment or position within the practice. No one should be exempt from investigation, including a partner in the practice, if you have one. If you suspect that the loss is potentially large, or the theft appears to be complex, you should always seek the advice of legal counsel, a CPA, a computer-data- retrieval specialist and other required experts to assist in the investigation. It may be appropriate for such experts to be hired by outside legal counsel in order to main- tain privileged communication with the experts and to avoid any appearance of a conflict of inter- est. At the early stages of an employee embezzlement claim, and depending on the extent of the theft, you may wish to con- tact your insurance agent in order to determine whether you have employee dishonesty coverage. Most insurance policies have strict time requirements for reporting an employee dishonesty claim. For substantial losses, an attor- ney should assist the owner of a dental practice in determining whether insurance coverage may exist, and how much coverage may be available. Depending on the type of employee embezzlement, you may wish to interview employees. However, you must ensure that the interview is conducted with appropriate regard for confidenti- ality and without undue coercion or duress in order to avoid a false imprisonment claim and other state law tort claims. The owner of a dental prac- tice or the office manager should never interview any employee without seeking the advice of legal counsel. Appropriate disciplinary action Once the investigation has been thoroughly completed, and if you have determined that employ- ee embezzlement has actually occurred, you must decide what action you should take, includ- ing termination of the suspected employee. In certain ways, investigating suspected embezzlement is simi- lar to investigating other employ- Practice Matters DENTAL TRIBUNE | July 20106A Here’s some content from past editions of Dental Tribune that you can find online … 5 ways dental practices can reduce waste and pollution www.dental-tribune.com/articles/content/scope/news/region/usa/id/1894 Florida dentist pampers his patients with massages www.dental-tribune.com/articles/content/scope/news/region/usa/id/1838 You can’t always get what you want (unless you clearly ask!) www.dental-tribune.com/articles/content/scope/specialities/section/ cosmetic_dentistry/id/1859 One in five U.S. children lacks access to dental care www.dental-tribune.com/articles/content/scope/politics/region/usa/id/1793 Here’s some more content that might be of interest to you … Managing maxillary molars www.dental-tribune.com/articles/content/scope/specialities/section/ endodontics/id/1742 Why orthodontists should be holistic www.dental-tribune.com/articles/content/scope/specialities/section/ orthodontics/id/1895 Mystery and controversy are directly proportional www.dental-tribune.com/articles/content/scope/specialities/section/ orthodontics/id/1881 www.dental-tribune.com g DT page 8A