Embezzlement is a lot more common in dentistry than you may think, and it’s not always easy to see if you don’t know what to look for. So this week, Jeff discusses the signs that you may have an embezzlement problem as well as some simple things you can do to prevent it from happening to you.
Links:
Team training video courses - https://ddssuccess.com
Cash Reconciliation Report - https://mgeonline.com/cash-reconciliation-report
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Questions From This Episode
What percentage of new MGE clients does Sabri estimate have shown evidence of embezzlement?
She estimates roughly one in twenty new clients either have been embezzled from or show active evidence of it when first reviewed. Factoring in different degrees of severity, Jeff says her overall estimate is closer to one in ten dental offices.
What collection percentage does Jeff say should raise concern, assuming fee schedules are set up correctly?
With properly entered fees for every insurance plan a practice participates in, collections should run around 97 percent of production. Once collections drop into the low 90s, 80s, or lower, Jeff says that's a sign of either embezzlement or a genuinely disorganized collections system, either of which makes embezzlement easier to hide.
What's the difference between the second and third red flags Jeff describes, both involving deposits?
The second is when deposit slips or batch reports don't match the day sheet, a sign of a straightforward recording error. The third, more deliberate version is when the deposit slip itself matches the day sheet perfectly, but what actually lands in the bank doesn't match that deposit slip, since an employee embezzling cash would only worry about the day sheet comparison, not whether anyone checks the real bank deposit against it.
Why does Jeff say failing to close out your month in your practice software is a red flag?
Once a month is closed, nothing can be backdated into it. Without that safeguard, an employee could pocket a patient's copay and quietly backdate a matching credit onto their account months earlier, so the patient walks in today showing a zero balance with no trace of the missing payment on the current day sheet or accounts receivable report.
What daily, weekly, and monthly checks does Jeff recommend to protect a practice?
Daily, review the day sheet against the deposit slip and reconcile the cash box. Weekly, reconcile deposit slips and day sheets against what actually shows up in the bank account. Monthly, review accounts receivable and all adjustments, require doctor or office manager approval for any non-routine adjustment, and deposit any large cash payment immediately rather than letting it sit.
Episode Transcript
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Have you, or maybe a colleague you know, ever been embezzled from? I was talking to Sabri about this recently, and she estimates that roughly one out of twenty new clients we bring on either have been embezzled from in the past or show active evidence of potential embezzlement when we first look at their books. Factoring in different degrees of severity, she puts the overall rate at closer to one out of ten dental offices.
Beyond the actual cash loss, which is obviously a real problem on its own, embezzlement creates a number of other issues. As the owner doctor, you're going to feel genuinely betrayed. It can make you paranoid about hiring new people going forward, worried they might do the same thing, and we've seen that paranoia show up in clients before. It also tends to lower morale across the team, and it's just an upsetting situation all around, nothing fun about dealing with it.
So what are the warning signs that you might have a problem, and more importantly, how do you avoid this happening in the first place? That's what I want to cover this week. I'll walk through six red flags that can indicate something's wrong, and more importantly, how to protect yourself against most scenarios. My name is Jeff Blumberg, and I'm your host.
I want to be upfront that this won't cover every possible scenario, there are a lot of creative ways this can happen, so I'll focus on the most common patterns we actually see. I have come across some genuinely clever schemes over the years that were difficult to catch, but those are a real rarity. The large majority of embezzlement cases we encounter, I'd estimate 99 percent, were entirely avoidable, they came down to a lack of systems and a lack of oversight, nothing more sophisticated than that.
How does this typically happen in a dental practice? The most obvious route is cash, a patient pays in cash, it never gets recorded in the system, and the employee simply keeps it, or the balance gets written off some other way to cover the gap. We've also seen cases where an insurance check gets deposited directly into an employee's personal account, which, from a big-picture standpoint, isn't exactly a subtle move if you're trying not to get caught. But those are really the two common methods, cash, or a check deposited somewhere it shouldn't be. We've rarely seen anything involving credit cards directly, though with how easy it's become to open a Stripe or Square account, that may become more of an issue going forward.
How does this usually get discovered? In most cases, when a new client comes to us and it turns out they've been embezzled from, it's because they hired a new employee who started looking around, noticed something off, and brought it to the doctor's attention. Or we're the ones who spot the red flags ourselves and point them out for the doctor to look into.
So, what are those red flags? There are six.
The first is a significant discrepancy between production and collections. This assumes your fee schedule is actually set up correctly in your software. If you're participating in a number of PPOs, and say your normal crown fee is $1,300 but a specific plan only pays $740, and that $740 fee isn't actually entered in your system as the fee for that plan, you'll end up with a large write-off every time that insurance or patient pays, since the balance has to come down to match the plan's actual allowed fee. Assuming your fees are properly entered for every plan you're in, which, as a side note, is one more reason to start working your way out of these plans in the first place, your collections should generally run around 97 percent of production. Once you start seeing collections drop into the low nineties, the eighties, or lower, that's a sign something's wrong, either embezzlement, or your collections and administrative processes, insurance filing, patient accounting, are simply disorganized. Either way, a disorganized system makes it considerably easier for embezzlement to hide within it.
The second red flag: your deposit slips don't match your day sheet. Patients pay through several different channels, third-party financing, which typically generates its own report or email from the financing company, credit card batch reports showing what was actually charged that day, and then whatever checks or cash you're depositing manually, sometimes via mobile deposit or a check-reading device, though in most offices it's still handled manually with an actual deposit slip taken to the bank. If your deposit slips or batch reports don't line up with what your day sheet says you should have collected, that's a sign of an error, or a potential problem.
The third red flag, and this is a distinct issue from the second: your deposits don't match your deposit slips. In other words, the deposit slip itself matches the day sheet just fine, but what actually arrives at the bank doesn't match that deposit slip. Here's how this plays out: if I'm an employee embezzling, I'll fill out the deposit slip accurately, since I know the office manager is going to check the day sheet against it, and they do. What I'm not worried about is anyone actually verifying what physically showed up at the bank against that deposit slip. So say the slip says $500 in cash and $3,000 in checks, $3,500 total, matching the day sheet exactly. But the actual amount that lands in the bank, visible on your online banking or statement, is only $3,250. That's a $250 gap. If nobody's checking that specific comparison, it goes unnoticed. If you do check it and the numbers don't line up, that's a real problem worth investigating.
The fourth red flag is unusual or excessive adjustment activity. An adjustment, going back to that PPO example, if your crown fee is $1,300 and a plan only pays $750, you're writing off $550 to balance the patient's account. If your fee schedule is correctly set up per plan, you should rarely need to make that kind of write-off in the first place. But if you start seeing a large volume of adjustments generally, that's a potential way to disguise someone taking money. Say a patient pays $500 cash for their copay, and instead of recording it, the employee pockets it and simply writes off the balance in the system as a courtesy adjustment, a financing adjustment, or whatever label they choose. You'd never catch it just by comparing the day sheet to the deposit slip, because in that scenario, those two numbers still match perfectly, it's the adjustment itself that's covering the gap. This is exactly why you need a clear policy on who's actually allowed to make adjustments, which I'll get into shortly. When write-offs and adjustments can be made by anyone, with no oversight, that's a real minefield for embezzlement.
The fifth red flag has to do with closing out your month. Most practice software is built to let you close out a given month, which matters because once a month is closed, nothing can be backdated into it. Here's why that's important: say a patient comes in owing a $500 copay. I collect that $500 and pocket it, then backdate a $500 credit onto their account four months earlier. You'd never catch this in the moment, since the patient simply walks in today already showing a $500 credit. All that shows up today is their remaining insurance balance, and their account reads as zero balance owed, it won't even appear on your accounts receivable report. If you're supposed to be closing out your month, which you should be, and you discover you're not, that's a serious red flag on its own, and if you don't know how to close out your month, it's worth learning, since it prevents this kind of backdating, at least beyond the current month, someone could still backdate within the same month, say to an earlier date that month. So watch for unusual adjustment volume generally, regardless of what the adjustments are labeled as, since the label alone doesn't tell you anything meaningful.
The sixth and final red flag is an unusually large accounts receivable, meaning a lot of outstanding claims or aged balances sitting on the books. This can also just mean your collections system is poorly organized generally, which is exactly why we offer a full Financial Coordinator training course on our online platform, DDS Success, on demand, covering how to properly set up your system, collect overdue balances, and post insurance payments correctly. I'll put a link on the episode webpage if that's something you need. Without a real system in place, it becomes very easy to camouflage embezzlement within a large, disorganized AR. A couple of things worth keeping in mind here: if your total accounts receivable runs 1.5 to 2 months or more of your average monthly production, say you're producing $100,000 a month and carrying an AR of $150,000 or more, that's a strong indicator either your system is poorly run, or someone may be taking patient payments and simply leaving the balance to sit on the AR rather than adjusting it off, since they know adjustments specifically draw scrutiny. In most US states, insurance companies have 30 days to pay or deny a claim, which gives you real leverage to push them to move faster, and if a claim doesn't get filed within a year, most insurance companies simply won't pay it at all, some allow even less time. So a chronically overdue AR is a problem no matter the underlying cause, even if embezzlement isn't involved, it's simply bad business practice.
Those are the six major red flags. So how do you actually protect yourself against them? I'll give you some basic, practical steps, and if you have further questions, you're always welcome to email me directly at jeffb@mgeonline.com, and I'll point you in the right direction.
Starting with over-the-counter collections, checks, cash, and credit cards. Credit cards generate a batch report automatically, so that's fairly well covered already. For checks, make sure they're deposited daily. People sometimes ask how a staff member could possibly deposit a check made out to the practice into their own personal account, and the honest answer is, it happens, I've seen it go on for months. Banking oversight generally has loosened over the years, signature verification and similar checks aren't what they used to be. I'm not a banking expert myself, but from what I understand, banks today are generally flagging unusual or outlier transactions for closer review rather than scrutinizing everything closely the way they might have thirty years ago, which means this kind of thing can genuinely slip through. So, deposit checks daily.
For cash, even though it's used less frequently these days, most practices still keep some kind of cash box on hand for petty cash and making change. A couple of things matter here. First, your financial coordinator should be reconciling the cash box daily, I'll put a cash reconciliation form as a free download on the episode webpage if that helps. If you're not reconciling the cash box daily, that leaves real room for cash to go missing unnoticed. Second, if you receive a large cash payment, $2,000, $3,000, $7,000, that should get deposited essentially right away. I remember hearing about a patient who once paid $7,000 in cash for treatment, and the office left it sitting in a drawer for two days. No surprise, it was stolen. They had no idea who took it, could have been staff, a janitorial service, even a patient, there were no cameras, nothing to go on. If someone pays you a large amount in cash, the office manager should write the deposit slip and get to the bank quickly. But the daily cash box reconciliation is what really keeps you on top of things consistently.
For insurance checks specifically, I'd arrange direct deposit with every insurance company you're in network with that offers it, most do, though some smaller union plans might not. That way the money goes straight into your account and never physically passes through anyone's hands.
Next, review your day sheet against your deposit slip every day, whether that's you personally or your office manager, if you have an experienced manager you trust with this. Pull the day sheet, confirm what should have been deposited that day, cash, checks, expected credit card totals, expected third-party financing amounts, and verify it's all actually accounted for, with real records showing it happened, every single day.
On a weekly basis, reconcile your deposit slips and day sheets against your actual bank deposits. Confirm, for example, that a credit card batch reported on Tuesday actually shows up in your bank account by Thursday, matching exactly. This connects to a broader point: I still see practices that aren't keeping their accounting software, QuickBooks or whatever you're using, updated in real time, instead letting their accountant handle reconciliation a month and a half later. That delay leaves real room for problems to go undetected. There's no good reason not to keep your deposits reconciled daily or weekly yourself, catching issues early before they become bigger ones.
On a monthly basis, review your accounts receivable and all adjustments, and flag anything that looks off. On adjustments specifically, I'd generally require doctor or office manager approval before any adjustment can actually be made, not something any single employee can decide on their own. There's a legitimate, routine version of adjustments too, worth noting here, say a patient pays through CareCredit or a similar financing company, and you're taking an 11 percent fee on a $10,000 payment, you'll actually net somewhere between $8,900 and $9,300. Some offices enter the lower, actual net amount directly as the payment and skip a separate adjustment. Others enter the full $10,000 and then adjust it down to the real net figure. Be thoughtful about which approach you use, especially if you're running a bonus system, since showing $10,000 collected when you actually only netted $9,000 can distort your real numbers. Whatever method you choose, any adjustment outside of that kind of routine, expected write-off should require real approval, because whether it feels like it or not, every adjustment is effectively spending money, money you were otherwise owed.
Last point: if you're participating in any insurance plans with their own negotiated fee schedule, which again, we'd recommend you start working your way out of, make sure that plan's actual fee schedule is correctly entered into your system. Otherwise you'll generate a steady stream of unexpected, hard-to-track adjustments that make it genuinely difficult to sort out what's normal and what isn't.
These are some basic safeguards, and the underlying idea is simple. Think of it like having something genuinely valuable, a $50 million painting sitting in your living room, someone determined enough will eventually figure out how to steal it, unless you have a truly ingenious security setup. But using a more ordinary example, the more visible deterrents you have around your own home, the less likely you are to be seen as an easy target in the first place. The same logic applies here, real safeguards and real oversight make your practice a harder target, and significantly less likely to be embezzled from. There will always be a rare, genuinely clever scheme out there, but in my career, those have been the exception, not the rule. Put these basic safeguards in place, and you meaningfully improve your odds of staying in that nine out of ten rather than becoming the one out of ten Sabri's estimate points to. It's best to get ahead of this now rather than deal with it after the fact.
I thought this was a genuinely worthwhile subject to cover. I hope it helps. I've got links on the episode webpage for the Financial Coordinator training course, which also includes various forms and systems you can use, along with that cash reconciliation report if you'd like to download it. If you have any questions, you can email me directly at jeffb@mgeonline.com, find us online at mgeonline.com, or call us at (800) 640-1140. Folks, have a great week, and we'll see you at the next episode.