What It’s Worth

What It’s Worth

Protecting Your Dental Practice from Fraud and Embezzlement

Author: Michelle Parish
Published Date: 4/3/2018

Fraud has become part of the common vernacular—from email fraud to internet scams, wire fraud, identification theft and the list goes on. Sadly, fraud and embezzlement in healthcare practices are increasing at an alarming rate. Dental practices are particularly vulnerable. Statistics vary, but a conservative estimate is that at least 40 percent of practices will fall victim to employee theft and embezzlement.

Why are dental practices susceptible? What can practice owners do to manage risks associated with fraudulent activity? Matthew Caldwell addresses these and other important financial-related questions for dental business owners. Caldwell is one of several veteran PlainsCapital commercial bankers in the Dallas area who specialize in working with dental practices, assisting them with their lending requests including lines of credit and expansion and acquisition loans, as well as providing layers of banking support like treasury management and fraud protection services designed to grow and protect their practice investment.

“Healthcare in general is a niche area of banking primarily due to the complex regulatory and technological landscape,” said Caldwell. “Dental practitioners appreciate working with a banker who understands the nuances of their business, be it general dentistry, orthodontics, endodontics, or oral and maxillofacial practice groups.”

In the following Q&A, Caldwell shares 15 years of banking insights regarding red flags and best practices he has found for creating a culture of fraud prevention.

Why are dental practices vulnerable to fraud? 

MC: You have to take into consideration that most of their professional education is not geared toward running a business. Furthermore, learning how to detect and prevent fraud often falls behind higher priority issues like learning how to manage dental benefit plans, HIPPA and OSHA requirements, and federal regulations like ADA requirements. That being said, I think the vulnerability can be broken down into four key areas: lack of internal controls, too much financial responsibility in the hands of one person, lack of oversight, and employee screening.

Lack of Internal Controls

A typical dental practice is small and often comprised of a close-knit group of people. The familiarity of the work environment can lead to lax business policies and procedures. This lack of internal controls and measures combined with the daily flow of cash and checks can make a dental practice vulnerable to fraud and embezzlement.

Financial Transactions in the Hands of Only One Person

Dentists’ offices are mostly staffed with individuals trained in delivering dental care to patients. This often leaves one person handling all of the business operations, including accounts payable AND accounts receivables.

Lack of Oversight

Since dentists spend the majority of their time with patients, this often leaves very little time to supervise the business side of the practice.

Employee Screening

Not following up on work references could mean the difference between hiring a trustworthy employee and someone who will betray you.

What are some key red flags?

MC: Unusual changes in an employee’s behavior can be an indication that something is amiss, particularly when taken alongside changes occurring within the practice, such as:

  • Insisting on handling all of the office financial responsibilities by themselves
  • Repeatedly forgetting to follow accounting procedures or financial protocols, like not reconciling bank statements with the checkbook register accurately
  • Taking accounting work home, coming in early, working late, and/or refusing to take vacations
  • A sudden change in spending habits
  • Unexplained changes in accounts receivables and collections
  • Patient complaints regarding billing discrepancies
  • Checks for unknown or unfamiliar vendors, or refund checks for unknown patients
  • Discrepancies in employee withholdings on payroll checks

How can a dental practice owner counteract fraud?

MC: While fraud cannot be 100% eliminated, practice owners can take steps to minimize the risk of it happening to their business. These steps include the following:

  • Make it a policy that all employees must take scheduled vacation time away from the office annually
  • Cross-train front office staff on different job areas
  • Separate duties so that one person isn’t in charge of both patient payments and bank deposits
  • Conduct random weekly or monthly audits of patient records, comparing them to the explanation of benefits and corresponding bank deposits
  • Learn the patient management software
  • Be involved in the operations side of the practice and generally create a culture of accountability

Developing and utilizing professional business partnerships with CPAs, attorneys, and bankers who specialize in working with dental practices is also valuable.

I had a dental customer years ago who unknowingly had her email account compromised. Due to the fact that we had an established banking relationship—and I knew her and her business exceedingly well—when the Bank received an email message requesting $175,000 be wired from her dental practice account to an individual account in Mississippi, it was immediately flagged as suspicious. I knew this was not a typical transaction. I called her on the phone, verified that this was a fraud attempt, and we were able to prevent the theft from occurring.

We want all of our customers to be successful. Because of our experience in the area of dental businesses, we’re able to assess, identify, and address a practice’s banking needs and make recommendations in a relatively quick and efficient manner. This is our “value add.” Unlike other professions, dental practitioners only generate revenue when they are working with a patient, so having to take time away from that to deal with an unknowledgeable banker or an unexpected and time-consuming business situation is costly indeed. Some of PlainsCapital’s fraud protection services that benefit our business customers include automated clearing house (ACH) tools with fraud filters, cash control systems, business credit cards, remote deposit capture, lockboxes, deposit pick-up service, and multi-level payment approval options. PlainsCapital’s Business Online Services and mobile banking features also provide commercial customers with the added convenience of staying on top of and managing their business’ banking needs anytime, anywhere.

What are some added benefits of having a banker who specializes in the dental arena?

MC: Establishing and building a relationship with a commercial banker, particularly someone with an extensive background working with dental practice owners, has benefits that extend beyond basic business operational needs. You’re building a banking history and establishing a lending relationship that will fuel the growth of your practice and help you build assets. These are important factors when it comes time to expand and grow. A commercial banker who specializes in working with dental practices understands the industry nuances as well as the business intangibles, such as how to assign value to the goodwill and practice brand, active patient charts, and a host of other factors that are driving forces in the success of a dental practice. Some of the most challenging requests for banks are dental acquisition and expansion loans. Although these transactions appear simple in theory, how they are underwritten, documented, and monitored are highly unique compared to more traditional lending transactions. Working with a banker and bank that can successfully guide a dentist through this process saves them an enormous amount of time and frustration and allows him or her to focus on what is most important— delivering world class dental care to their patients.

To learn more about PlainsCapital’s array of commercial banking and small business services—including fraud protection—visit the Bank website.

Tags: Commercial Banking