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No one likes the “F” word … Fraud

By October 27, 2020December 8th, 2022Employment Law, Practice Management

It seems fraud is everywhere today – mail fraud, internet phishing, telephone scams, etc. But what exactly is fraud, and how can it affect a dental office?

What is Fraud?

“To commit fraud means to deprive somebody of something by deceit or a falsehood and to induce a state of mind through a specific course of action.”

Fraud is when deceit is used to gain a dishonest advantage over another person. It is different from theft, a more direct action without deceit, and robbery, which is theft with violence. In dental terms, think of fraud like tooth decay or gingivitis. They are each preventable but, if left unchecked, can worsen over time and will be costly in the end.

Occupational Fraud

One of the more prevalent types of fraud is occupational fraud. This is where the fraudster uses their job for personal enrichment through the deliberate misuse or misapplication of the employer’s resources or assets. Within occupational fraud, there are three main categories:

  • Asset misappropriation (the most common)
  • Corruption
  • Financial statement fraud

Asset misappropriation fraud happens when the person(s) entrusted to manage a business’s assets steal from it. This usually involves employees abusing their position to steal from the business. Asset misappropriate fraud could include any of the following:

  • Embezzlement (accounts are manipulated or false invoices are created)
  • False expense claims
  • Payroll fraud (payments are inflated, diverted or fictitious)
  • Misappropriating dental supplies/instruments or office supplies
  • Data theft or intellectual property theft

Are dental offices immune?

How many of you have said, “my team would never steal from me”? Are you sure? Published statistics suggest that 60% of dentists will eventually be victims of fraud. These incidents range from something as simple as an employee taking home packages of paper towels from the supply closet to something more audacious like diverting payments to the dental office’s vendors to the employee’s credit card bill. Other statistics show that a significant portion of the population, in the right circumstances, will commit a dishonest act. And dental offices – with their larger number of employees, employee turnover and usual independence for front desk personnel – are more susceptible to fraud.

Sometimes, as a business owner, you fall prey to some of the immunity myths around fraud, such as “if someone were stealing from me, I would know.” Or the belief that fraud could not happen to you because

  • you live in a small town,
  • your office manager has been with you for many years, or
  • your spouse handles all the front desk and management matters.

These, unfortunately, are also myths. As you will see from the examples below, fraud happens even in these circumstances.

At the end of the day, fraud, especially embezzlement, happens when three simple elements are combined: opportunity, motive, and rationalization.  For example, someone working for you, who has access to your accounts, decides that they have an entitlement to your money.

Can fraud be prevented?

There is no formal checklist or book on how to prevent fraud. But there are certain things that you can do to minimize the risk of being a victim.

  1. Don’t underestimate the ingenuity and determination of those who commit fraud and don’t latch on to immunity myths.
  2. Set out a code of conduct for the office and educate your employees about office policies and procedures and the consequences of non-compliance.
    • You also need to lead by example by not doing things you don’t want your employees doing. For instance, taking home office supplies, using office petty-cash for personal items, cutting corners with dental insurance or purposely overbilling, etc.
  3. Know who you are hiring.
    • Verify information on the resume of your prospective hire (including reference checks)
    • Although many dentists favour only a working interview to assess clinical skills, you should consider conducting multiple interviews to compare information and consistency.
  4. Implement preventative systems and best practices.
    • Make sure employees are using their vacation and away from the office. Why? Many scams are discovered when the fraudster is not present to maintain the deceit and shield others from realizing their actions.
    • Don’t allow only one employee to handle all the office’s financials. This helps to prevent an employee from not only committing fraud but also controlling the cover-up. For example, make sure there is a monthly reconciliation of all bank and credit card statements and that you personally review financial statements, accounts, invoices and practice statistics on a routine basis.

Bottom Line

No one, especially dentists, asks to be the victim of fraud, but it does happen regrettably. However, with a little planning and good practice management, you can minimize the risk of it happening to your practice. In the unfortunate event that it does, contact us before taking action so we can direct you to the right people and authorities in a way that doesn’t alert the fraudster and risk the destruction of evidence of their fraud.

If you want to read about some real-life frauds perpetrated against dentists, here are a few examples:

The Content of this post is provided for informational purposes only. It is not intended to be legal, financial, tax, or other professional advice of any kind. You are advised to contact DMC (or other counsel) to seek specific legal advice concerning your individual situation.