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Occupational Fraud What Dentists Need to
Know
Presented by
Erick Cutler &Jerry Murray
Objectives Raise your occupational fraud awareness. Provide information and ideas for your practice.
Questions we will address: • Percentage of occupational fraud cases in dental offices?
• What type of behaviors should dentists look for?
• How can dentists minimize occupational fraud risk in their office?
• What is the best method to approach an employee if there is a suspicion of occupational fraud?
• Can and should a dentist legally pursue an employee if they have evidence of occupational fraud?
Occupational Fraud Defined Employee deliberately misappropriates or
misuses company assets for personal benefit.
“Company assets” is not just cash.
Might be referred to as embezzlement or theft.
Detection is difficult because you only see what’s showing……like an iceberg.
Occupational Fraud Risk Facts 5% of annual revenue lost to fraud Median loss of $150 thousand (18 mos.) 85% of fraudsters are first time offenders 79% displayed warning signs Asset misappropriation, billing and check
schemes were most common frauds Weak or no internal controls Too much control limited to one person Most common detection....tips!!
Fraudster Example 1
Financial coordinator for dental practiceTime frame 18 monthsStole 237 checks written by patients and
insurance companiesEmployee deposited into personal account
via ATMTotal loss $85,353Discrepancies discovered in office’s
operating bank account – deposits per bank did not equalamount posted to accounts receivable
Fraudster Example 2
Manager for medical practiceTime frame 2008-2011Employee wrote checks to a business they
owned located out of stateEmployee made electronic credit card and
student loan payments Employee gave themself a bonus and paid
for unauthorized health insuranceTotal loss $871,728Uncovered via a tip from fellow employee
Fraudster Example 3
Office manager of dental practice 20 year “loyal and most trusted” employee Wrote self 243 extra paychecks for various
amounts over several years Total loss $359,458 Discovered when dentist received notices
from the IRS regarding shortage in payroll tax remittances
When questioned, fraudster indicated: “I did not feel it was stealing, but thought it was owed to me for extra efforts both during the day and after hours”
The Fraud Triangle• Three common elements of fraud:
Motive OpportunityRationalization
(MOR…. as in more than they deserve)
When motive and opportunity meet, rationalization is just a baby step
away.
MotiveMotives are ever changing.
What motivated you at age 20, today, tomorrow?
Personal finance issuesGreedAddictions (drugs, alcohol, gambling, etc.)Health issues and medical costsDivorceElderly parent careLiving beyond their means“The thrill of steal”
Opportunity(The Keys to the Kingdom)
Whenever someone in the organization can initiate, execute and conceal a monetary transaction without any checks and balances. Giving someone signature authorization on your
checking account without compensating controls Allowing employees access to the office at times
other than normal working hours Allowing employees to make deposits with no
crosschecks Not reconciling bank statements timely and
accurately Not reviewing your 401K employee deferral
deposits Not reviewing your payroll tax deposits.
This is the only factor in the fraud triangle you have any control over!
Rationalization (aka moral breakdown)
Rationalization for fraud can take many paths:
I am not paid enough I work hard, I deserve this I’ll just borrow the money and pay it backNo one will ever miss itWow, wonder if I can get away withMy kid really needs a new cell phone so
his friends won’t make fun of him
What’s wrong with this picture?Billing manager: - prepares and files claims - opens the mail - prepares and makes bank deposits - posts receipts and makes adjustments to
the accounts receivable system - receives billing inquiry calls from both
patients and payors - reconciles the bank accountsBilling manager rarely takes a vacationBilling manager has new car, new clothes
and increased spending habits
OK, now what do I do? Step One
Perform a risk assessment of your practice (foundation)
“Follow the dollar” - study your internal processes from start to finish and ask yourself “what could go wrong”?
Identify where you have weak internal controls such as no checks and balances, security, daily reconciliations (such as scheduling to billings or deposits in bank to daily receipts)
Pre-employment criminal background checks for all employees plus a credit check for anyone with a financial role
Follow through with reference checks and get references from the references
Consider obtaining fidelity bond insurance on employees
OK, now what do I do? Step Two
Establish internal controls (walls) Establish the controls around the
position….not the person – very important You have protocols for dental procedures,
why not written finance policies and procedures?
Communicate your financial policies and procedures in writing and establish a fraud policy as well as a robust anti-fraud program
Be sure systems are secured and backed-up daily where only you can control access.
OK, now what do I do? Step Three
Monitor and Maintain (roof)• Be unpredictable, periodically:
– open your mail for a few days– periodically compare the deposit slip to cash posted to AR– review the reconciliation of the daily schedule to the billings– review the amount your employees are being paid
• Approve all accounts write-offs or adjustments• Review the system audit trail for changes to prior
periods or other unusual or off-hour activity.• Change your routine by arriving earlier than normal or
staying later than normal from time to time• Require mandatory vacations and rotation of duties• Re-evaluate changes such as opening a second office
Actionable Anti-Fraud StepsMotive + Opportunity + Rationalization
Don’t give your employees a reason to take from you. Be aware of changes in employee habits or circumstances. However, don’t get too close on a personal level as it could cloud your
skepticism radar. Establish AND Maintain the perception of detection. Design your controls around the position not the person. Clearly communicate expectations to all personnel in writing as well as
verbally, including ethics training. Consider a fraud tip reporting mechanism for employees. Be sure your systems are secured and backed-up daily where only you
can control access. Test your backups! Be proactive and unpredictable. Have your outside CPA conduct “surprise” inspections
What to do about Suspected FraudIf you suspect fraud, contact your attorney immediately.
You do NOT want to make a rash decision/false accusation. Avoid the temptation to dismiss immediately, as that may open you up to wrongful termination claims.
Do not confront the employee (as it may provide them an opportunity to destroy evidence), but work through the attorney to gather evidence and preserve documentation. This may include the need for a fraud investigator or forensic IT professional.
Act quickly but not rashly. You may inadvertently destroy key evidence.
What to do about Suspected FraudOnce you do have proof, you should have your attorney quarterback and coach you through the issue every step of the way:
If you find proof and have to let an employee go, you must show them some evidence to justify your decision, but NOT all the evidence. This should be done in the presence of a witness.
After this, with the guidance of your attorney, determine next steps (i.e. what kind of remedies are you looking for and what do you want to get out of this).
Consider hiring a compliance consultant or creating compliance manuals that the staff are aware of.
Specific Considerations for Billing Fraud
• If the fraud is on the billing side, and it involves in Medicare/Medicaid, then the legal ramifications are much more complex.
Liability includes potential personal financial loss, suspension or revocation of provider number, and recoupment of payment from services provided.
• This requires extremely quick action and self-disclosure You, the dentist, must come forward to explain specifically what has happened, including the exact dollar amount compromised.
Anti-Fraud House
Risk assessment of your practice (foundation)
Strong system of internal controls (walls)
Monitor and maintain (roof)
If you have any questions, please feel free to contact Jerry or Erick
at:
Jerry Murray: (214)[email protected]
Erick Cutler: (214) [email protected]
References
Dawson, Steve. (2015). Fraud Prevention and Detection. [Lecture]. Fort Worth CPA’s Free CPE Day.
Association of Certified Fraud Examiners – 2016 Report to the Nations on Occupational Fraud.
A special thanks to Daniel Tatum, Attorney at Law from Friedman & Feiger:[email protected]
