Protecting Your Dental Practice From Embezzlement and Fraud

For over 43 years Price Kong and Company has been serving the dental community as accountants, business advisors, practice consultants, but more importantly we are advocates and our friends are dentists.  And friends watch out for friends.

Over the past three years we have been observing one specific trend which needs attention nationwide.  Everyone knows about it but it really doesn’t get the attention it deserves.  We are talking about embezzlement and employee theft at your dental office.

Do yourself a big favor just Google embezzlement at dental practices and you will get a bellyful of what is happening and reasons why and a lot of marketing information.  Per my Google search 35-40% seems to be the number, but it is probably higher ask friends and associates in the dental community and you will be surprised at the number of people who know.

Recently in a presentation at the Schuster Center I asked the following question to a group of dentists participating in Dr. Schuster’s Program, “How many of you know someone who has had a problem with embezzlement in a dental practice?”  In a show of hands over 75% of the participants personally knew of a problem and these dentists are from all across the nation not just Arizona.  That tells me the statistics are higher than the numbers quoted on the web.

How many of you have heard a story or worse yet experienced the trauma associated with employee theft.  There are many reasons why it occurs some are situational and others are perpetrated with malice.  Many employees are in desperate financial positions. As we say,” desperate people do desperate things”.

There are several reasons why dental offices are subject more than others to employee theft.  Given that most dental office are the consummate small businesses; very busy places where the owner is truly an owner operator, large amount of cash flow and not very many employees (4 or 5).

For accountants this is an internal control nightmare; a busy producer, limited bookkeeping, a profitable business that generates significant cash flow, not many employees and a trusting business owner.

How do we address this problem?

1.  Get your accounting records in order.  Do not focus on your accounting as a cost of doing business merely to file tax returns to the government.  Your accounting system if properly designed and maintained is the bedrock of your financial control system.  One of the core principals of accounting is that in order for an accounting system function properly; be it a small dental practice or a Fortune 500 Company, the records need to be accurate and timely.  Your accounting system when integrated with your dental software and proper operational accounting procedures is a very powerful tool.  So first ask yourself the following questions;

                a.   What is the current condition of my books and records? 

                b.   Is my information reliable?

                c.   Are my bank accounts reconciled on a monthly basis?

                d.   Are my credit cards reconciled on a monthly basis?

                e.   Does my accountant straighten out my books at the end of the year?

                f.   Do I file my tax returns late or at the last minute due to year end cleanup issues?

                g.   Have I established a budget for my practice?

                h.   At any point in time can you print a report that gives you a solid financial picture?

2.  Do a walk- through of your office accounting procedures with a CPA who has specific knowledge in dental practices.  This is a simple process which doesn’t take a lot of time but can yield some very eye opening results.  We are talking investing a couple of hours of your time with a knowledgeable professional.  You should in a very small period of time come up with some quick fixes to establish controls to help prevent possible misappropriation of funds.  A more detailed review is in order but this first pass should yield some insight as to any lapses in your internal systems and provide an outline for future discussion.

3.  Leverage your dental software package.  Make sure you understand the reports and usage of your system and integrate it with your accounting system.  Meet with your representative or get some training on the maximum use of the system.  There are also some free training sessions available via the Web find out what these are and take the time to understand your system.

These three simple steps will go a long way in protecting your practice.  Remember your internal systems and accounting is the financial foundation of your practice and your foundation is needs to be strong and solid.  A basic walk through will not protect you from every eventuality in the world of fraud.  Let’s face it if someone wants to steal and they are smart enough and have the right situation it is hard to combat.  However if we put up some barriers and are diligent it will make your practice a less likely target.

If you are interested in learning more about the Price Kong approach to dental practice accounting and how we leverage and integrate tax planning, income tax preparation, accounting procedures and financial controls, please contact Chris Torregrossa, CPA.

Christopher Torregrossa, CPA
Director Dental Practice Group
Price Kong & Company
Chris@pkcpa.com
(602) 776-6317