Protecting your Practice from Fraud

Before you say it could never happen to me, consider this—in Canada, employees are responsible for fraud 46% of the time, while managers are responsible 36% of the time. The annual Association of Certified Fraud Examiners’ Report to the Nations provides empirical evidence that the median loss against Canadian professional practices is $125,000.

Dentists are particularly vulnerable to fraud due to the nature of their work. Several factors make a professional dental practice especially vulnerable to fraudulent and unethical behaviour. As a necessary function of the business, dentists spend most of their time with patients. Since much of their workday is spent helping patients and generating revenue, administrative duties and close supervision of financial matters are deferred or delegated to employees. As such, it’s important for every dentist to take steps to protect their practice.

Where do I Start?

The best way to protect yourself is to take an honest look at the practices and policies in place so you can see where vulnerabilities lie. First and foremost, you need to set the tone in your practice and express zero tolerance of fraud and unethical behavior.

Second, understand the risks specific to your business. The key to preventing fraud is determining how it could occur in your practice. To do this, you should perform an assessment of your risks. For example:

• Do you have one staff member looking after all of the accounting for your practice, with little or no oversight?
• How much cash do you receive from patients?
• Are your various IT systems secure?

You need to implement sound anti-fraud policies, including segregating incompatible duties such as the receipt and recording of payments and management of receivables. This is often not an easy task for professionals with few staff members; as such, you should ensure that there are some detective controls in place such as reviewing patient revenue reconciliations and receivable write-offs, countersigning cheques and preventing unauthorized deletion of records in your accounting and patient booking system.

The single-most effective step to detecting fraud for dentists is reviewing banking records, including bank statements, cancelled cheques and other supporting documentation. Ensure that the bank statements are sent directly to you and remain untouched by your staff prior to your review. Other steps to protect your assets include never pre-signing cheques, avoiding the use of automatic signatures, and ensuring you secure unused cheques. Ideally you should minimize the use of cheques and cash altogether.

It’s also important to know your employees. While most employees will never commit fraud, you should ask yourself how well do you really know your staff, and whether you would be able to recognize whether they are a risk.

As a practice owner, you should also be familiar with your key suppliers and how much you are paying them for their goods and services. This will help you identify any unusual trends when you are approving invoices and payments, such as new suppliers or unexpected price increases.

Internal controls can never entirely eliminate the risk of fraud occurring in your practice. Someone determined to commit fraud will most often find a way. But you can make it much more difficult for by being aware of the possibility of fraud and taking the above steps to protect your practice.

Signs of Potential Fraud

You may be the victim of fraud if you notice an:

• Increase in patient complaints or lost patients due to billing errors
• Increase in adjustments to billing report
• An employee who seems to be living beyond their means or whose behaviour and attitude suddenly changes for the worse
• An employee who refuses vacation or is always the first to arrive and the last to leave the office
• Employee who is overly territorial and refuses to have others perform their duties
• Unexplained drop in revenues or increase in costs