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Practice Matters ORTHO TRIBUNE | JUNE & JUly 201012 By Sally McKenzie, CEO T he stories read like popular fic- tion. Unfortunately, they are true. The outwardly stable, unquestionably loyal employee commits a crime no one would have expected, least of all her/his employer. More puzzling is the fact that often this member of the staff doesn’t have a criminal record. In fact, according to the Association of Certified Fraud Examiners (ACFE) in a 2008 report, only 7 percent of those committing fraud have prior convictions and a mere 12 per- cent have been fired by a former employer as a result of fraud-relat- ed conduct. But what is perhaps most discon- certing is that many of the charac- teristics that make up this person’s profile would also be the sketch for your “ideal” team member: dedi- cated, takes very little time off, first in the office and last to leave, will take work home, is very particular about how things get done. Some say she/he’s controlling while others contend it’s commit- ment. Working her/his fingers to the bone, this devoted employee is quietly slipping thousands of dol- lars under the table and into her/ his pocket. According to the ACFE’s most recent report, U.S. businesses lose an estimated $994 billion in annual revenues to fraud, despite increased emphasis on anti-fraud controls and recent legislation to combat it. If that weren’t troubling enough, the U.S. Chamber of Commerce estimates 75 percent of all employ- ees steal at least once and that half of these steal again and again. Who are the thieves? Fraudsters represent all walks of life: CEOs, bank tellers, firefight- ers, payroll clerks, senators, even Catholic priests. And, in some cases, they are shamelessly brazen. One reported case involved an employ- ee who routinely crossed out the employer’s name on checks written from customers and inserted his own. No white out, no fancy chemi- cal concoction to erase the ink, just strike through the name on the check and make it payable to himself. And you probably thought the bank would catch something so bla- tant. But banks process literally tens of thousands of checks per minute. In the recent case of the parish priest, he embezzled more than $1 million from two churches. The crime wasn’t exposed until a donor Weak economy increases amount of employee theft requested a receipt for tax purposes from the church dioceses, which had no record of the donation. How- ever, the contributor had his can- celed check. This led to the arrest and conviction of the priest. No organization or business is immune to employee theft, and health-care businesses, such as dental offices, are among the top three businesses to be victimized by dishonest employees. With the aver- age loss per fraud case among small businesses at $200,000, that kind of financial hit can be huge for small practices, many of which operate very close to the margin. In this economy, any increase in expenses or reduction in revenue could be catastrophic. More prob- lematic yet, lenders are less likely to extend additional credit these days to cover such a shortfall. How do they steal? Dishonest employees are fraudu- lently writing company checks, skimming revenues and engag- ing in fraudulent billing. In small operations, such as dental practices, internal controls tend to be lax and accountability slim, providing the ideal environment for employee theft. Checks, in particular, present a veritable smorgasbord of opportuni- ties for the small-business embez- zler. As another thief discovered, it was a relatively simple exercise to write company checks to her- self and then destroy the cancelled checks. Countless fraudsters have dis- covered the ease of ordering new checks in the business’ name and making them out to themselves. They can steal insurance checks or sign checks using a signature stamp. In a multitude of other cases, the trusted employee accepts pay- ment from the patient or custom- er, deletes the transaction on the computer and keeps the payment. Many patients no longer get their cancelled checks, let alone actually look at them. Then there are the fraudulent billing schemes. These take a bit more effort than your typical check fraud. One small employer was building a new office only to dis- cover by accident that a trusted employee, who just happened to be in charge of paying the bills, had set up a fictitious painting business and was billing the employer for work never done. Motivation to steal But what is it that makes the other- wise stellar employee turn to crime? Research indicates there are sev- eral inducements that can influence someone’s decision to embezzle, but three factors must be present. This is known as the “fraud trian- gle.” The employee must have the incentive, the opportunity and the rationalization. Incentive may be a gambling problem, alcohol or drug addiction or shopping addiction. It can also be motivated by financial struggles through an economic downturn such as we are experiencing now. The person may be disgruntled or is stretched beyond his/her finan- cial means. The employee may be experiencing personal crisis such as a divorce, serious illness or a death in the family. He becomes desper- ate, angry and disillusioned, all of which provide incentive to commit the crime. The opportunity typically comes in the form of lax internal con- trols. One person has total control of practice revenues. There are few, if any, checks and balances and a near total lack of supervision over that highly trusted employee who seemingly can do no wrong. Then there’s rationalization. The employee tells herself that she will just take a little loan and will pay it back. Then she takes a little more the next time. Or the employee hasn’t received a raise and contends he works hard- er than anyone, so he deserves the money. Or perhaps her addiction is tak- ing over her life. Maybe medical bills have skyrocketed, a spouse has lost her job or he thinks the ortho- dontist makes so much money the orthodontist will never notice. Whatever form the rationalization takes, oftentimes, in the employee’s mind, he or she is simply correcting a perceived wrong. So who’s most likely to be pil- fering from your practice? Fraud experts refer to it as the 10-10-80 rule: 10 percent of people will never steal, another 10 percent will steal at any opportunity and the other 80 percent will go either way depend- ing on how they rationalize a par- ticular opportunity. The good news is that for those in the 80 percent category, if they believe they will get caught, they won’t take the chance. Don’t be an easy target Small businesses, such as dental practices, are prime targets for fraud and embezzlement. Why? Practice owners can be very naïve and far too trusting, giving near total financial control to the employee. In some cases, orthodon- tists don’t even know how or where to access their financial reports. Also, there is often a close rela- tionship between clinicians/owners and employees. They become trust- ed friends, and this, sadly, encour- ages a dishonest employee to take advantage of them. As the ACFE reports, the most common small-business scheme is check tampering. It frequently occurs when one individual has access to the company’s check- book and also has responsibility for recording payments and/or rec- onciling the company bank state- ment. g OT page 15 Do you know where all your money is going? (Photo/stock.xchng)