Fraud? In MY dental practice?!

Small businesses are the most vulnerable to occupational fraud and abuse. According to a report by the Association of Certified Fraud Examiners, small organizations suffer higher median losses than large organizations. Based on its survey, which was conducted between January 2006 and February 2008, small business losses averaged $200,000. Check tampering and fraudulent billing were the most common small business fraud schemes.

Considering the potential losses, it behooves small-business owners to make the prevention of fraud a priority in their business. Though no business owner wants to feel it employs unscrupulous people, sometimes temptation or personal financial pressures can push even the hardest working, most trusted employee into perpetrating fraud.

The first step in preventing employee fraud is letting employees know you’re watching for it. Perception of detection is a very powerful deterrent. Create a way to let your team know that you are educated about the cash flow systems in your practice.

The Schuster Center has identified a few methods you can use to minimize your risk. Some methods seem common sense. But when taken into consideration with other preventive measures, they help fortify a business against fraudulent activity.

First and foremost, hire the right employees. Conduct background checks for people handling inventory and money. Check past employment, criminal convictions, references, and education and certifications. Remember to always get the written consent of candidates before doing research since many federal and state laws govern the gathering of such information.

Maintain strong internal controls. Have checks and balances in place.  For example, you don’t want a signatory on the bank account balancing the checkbook. If that employee can write checks on the account, they can reconcile the bankbook and would be free to manipulate the check register.

Make sure expenditures are approved. For every expense, the doctor should approve it. The doctor will ensure that the expenses are valid, while your accounts payable officer will run the math.

Monitor cash situations.  If you don’t have a petty cash control policy/system, you should consider writing one.

Balance your accounts receivables daily. If you do not know how to do this, get the training.

Conduct surprise audits. Catching an employee off guard could be your best bet in discovering fraud. The key is that an employee generally doesn’t know what’s coming and won’t have the time to change the records to hide the fraud.  If you suspect it, hire a professional auditor. Using sampling and analysis techniques, auditors can quickly examine invoices in detail, including invoice numbers, to whom payments were made, when payments were made, and quickly determine those that are suspicious.

We heard of a practice with an employee that actually created a phony dental supply company, submitted invoices to the accounts payable officer (doctor’s spouse) and then sent the payment to a P.O. box! A surprise audit also can uncover duplicate invoice amounts and duplicate invoice numbers, both of which can be red flags for possible wrongdoing.

Create a fraud policy. Simply inform employees during employee orientation, training programs, memorandums, or other communication, that fraud is not tolerated. Be sure to inform employees of the actions you will take if you suspect or determine that fraud has been committed.

Enforce mandatory vacations.  Our clients have found that if their employees don’t take time off, they may be afraid to go on vacation because someone may notice that something is not right. Requiring employees to take time off can aid in the prevention of fraud.

–For help with dental practice management, dental case presentation, hygiene as a profit center, business plans for the dental practice, dental continuing education seminars and more, go to www.SchusterCenter.com or call 1-800-288-9393