THE MILLIONAIRE DENTIST PODCAST

EPISODE 19: DENTAL EMBEZZLEMENT

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EPISODE 19: DENTAL EMBEZZLEMENT

In today's episode of The Millionaire Dentist, we sit down with embezzlement investigation expert David Harris. How prevalent is embezzlement in dental practices and what can you do about it?

 

EPISODE 19 TRANSCRIPTION

Announcer:

Hello, everyone. Welcome to The Millionaire Dentist Podcast, brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry finances and business practices, to help you become the millionaire dentist you deserve to be. Please be advised, we do speak with an honest tongue, and may not be safe for work. Now, here's your host, Alan Berry.

Alan Berry:

Hi, welcome back to another episode. Today, we are talking about your dental practices and embezzlement, how prevalent is it, and what you can do about it. To help us do that we have David Harris, the founder and chief executive officer of Prosperident. David had the idea for his company after a friend of his, who was a dentist, asked him to help figure out if one of his employees was stealing from him. They were, and now David had the idea for a new company. 30 years later, Prosperident has become the leader in investigating dental embezzlement cases around the world. David, thank you so much for coming on the show today.

David Harris:

Thanks for having me, Alan.

Alan Berry:

The thought that popped in my head when thinking about this subject is, why do people steal? I mean, there's some obvious reasons. But why do you think people steal?

David Harris:

Well, they steal for two reasons, need or greed. And needy thieves are trying to balance the family budget. There's something going on in their life that means that more money is going out of the house than what's coming in each month. Maybe their spouse lost his job, maybe they're going through divorce and they're now trying to float two households on the income that used to float one, can't deal with some attorney's bills, or addictions, gambling, drugs, alcohol, something like that. There's something happening that creates an imbalance and they're stealing to pay the bills. The needy thieves feel bad about the stealing they're doing, but they just don't see a choice for themselves.

David Harris:

And then you've got the greedy people. And they're stealing for ego. They I think look at the doctor that they work for as a high functioning moron with good hands. And the only reason that that person is successful, in the thief's worldview, is because I keep her chair full, and when people leave it I collect the money.

David Harris:

These folks, they forget some things. They forget the amount of time the doctor spent in school, the amount of student debt that that person emerged with, the stress of buying a practice and at the same time probably more or less buying a house and starting a family. They forget all that. They look at the doctor, maybe even justifiably, as their intellectual equal. And to them, it just seems horribly unfair that the doctor makes so much more money than the thief does. And of course, thieves, like everybody else who works in a dental practice, tend to grossly overestimate what the doctor takes home.

Alan Berry:

So, there's a certain amount of arrogance along with the greedy thief?

David Harris:

There is. And they are stealing because they think that society hasn't, and society in this case is really manifested by the doctor, hasn't properly rewarded them for their contribution. What's instructive, Alan, is how the different types of thieves spend the money that they steal. The needy thieves spend it to pay the mortgage or buy groceries. I mean, their basic existence is threatened and that's what they're stealing to defend. Greedy thieves will spend it conspicuously. They will buy front row concert tickets or take expensive trips or buy clothes that there's just no way they could afford on what they're officially being paid.

Alan Berry:

That brings up a thought. So, when you started doing this, I'm imagining that cash was a much more used form of currency. But now as we move forward where the majority of people are hitting their debit card or their iPhone to pay for things, or a lot of electronically transferred funds. So one, I would think that that gives you a... And I want to clarify and say to everybody listening, we're not going to give away any tricks of the crooks to anyone, because we don't want to add to the problem. And I think it's very important to David and his company that he doesn't share any of that information. That's fair, right?

David Harris:

It is our policy that we do not comment publicly on embezzlement methodologies. There's probably an embezzler or six listening to this podcast, and I do not want to help them.

Alan Berry:

Right. So with that in mind, with the changeover from cash to electronic funds, has that hindered or helped your ability to catch an embezzler?

David Harris:

Well, let's step back a minute and say, first of all, that cash is certainly no longer the most prevalent form of stealing in dental practices. You nailed it. It is stealing checks or credit card payments, or even what are called ACH deposits. ACH means automated clearing house. So, that's when somebody like an insurance company puts money directly into the doctor's accounts. Any of those things are stealable. And Alan, you're absolutely right, technology is a huge enabler for embezzlers. I mean, they just have opportunities that they never had in that first investigation I did back in 1989.

David Harris:

When I talk to dentists about embezzlement, inevitably what's in their mind is the theft of cash. And I have to say to them, "Look, embezzlers love to steal your cash. I mean, it's a great place to steal. But in 2019, it's become the smaller player, and we see far more dollars stolen in checks and credit cards and ACH deposits now than we do in cash."

David Harris:

To answer your question, the difference between stealing cash and stealing other things is that the other things automatically leave a paper trail. If a thief takes a check payable to the doctor and cashes it, that's traceable. That check went into an account somewhere and we can find out where it went, and ultimately that leads us back to the thief.

David Harris:

When people steal cash, sometimes they steal it and put it in their bank account, sometimes they steal it and take it to the casino and gamble it away. The third option is, if somebody has an addiction issue like drug addiction, they take cash, they put it into the hands of their drug dealer and it never goes into a bank account anywhere, and it's not spent somewhere that tracks it like a casino. So, it's a little more difficult to chase cash theft, but not impossible.

Alan Berry:

Yeah. But when you're talking about buying front row tickets or buying those type of things, those all have... You're not going to buy a front row ticket off of Johnny on the corner of the street, you're going to buy it from StubHub, so there's going to be a tracking. I mean, that's the other side, the plus side of technology, is that most people are going to leave a trace I imagine.

David Harris:

For the most part they are.

Alan Berry:

And they're not too bright in the first place if they think... Well actually their arrogance comes back to hurt them, because they believe that they're smarter than the doctor, and the doctor's not going to take the time to figure this out. They probably don't worry about leaving a trail, which I'm assuming helps an investigator like yourself?

David Harris:

Hubris has been the downfall of many an embezzler. And it's not uncommon for people to, let's stick with the cash, for people to steal cash and take it and deposit it into the same bank account that their paychecks goes into. When that happens, they'll get caught eventually.

Alan Berry:

I just think it was important to point that out, that just because you eliminate the cash does not eliminate this problem. I've seen a few different retailers where they're no longer accepting cash, and part of their thought process is that they don't have to worry about the person behind the cash register stealing money. But I just want to make sure everybody realizes that just because you're not taking cash, doesn't mean that somebody cannot embezzle from you.

David Harris:

Embezzlers are pushed by some pretty strong forces, and they will work around just about any control measure that you can put in front of them. And to give you an example, Alan, just because the doctor... Let's assume that somebody makes a policy that they do not accept cash at their practice. I'm not even absolutely positive it's legal, but let's assume somebody makes that policy. It isn't the doctor who applies that policy, it's staff members. So, whether that policy is in existence or not, I can certainly undermine it by saying, "Officially we have the policy where we don't take cash. But unofficially, if you want to pay me cash, I'll take it. In fact, I can even arrange a discount for you." Then what happens next is that the policy doesn't get applied. So, we can't assume that simply because we make a rule that every embezzler on the planet is going to automatically follow it when it's not in their self-interest.

Alan Berry:

I got to believe that part of this puzzle is also access to, if it's log-in information or if it's access to certain types of books or data, could be someone that you really trust in the office. Do you ever see a... is there a particular role or position within the office that's common? Or should it be it's more like trust, but verify everyone in the office?

David Harris:

So, certainly somebody in an office manager position has probably the most opportunity to steal. But ultimately, probably everybody who works in a practice has at least some potential to embezzle. Let's step away from the front office operation, because we all understand that's the place where patients pay money.

David Harris:

Let's think about somebody who's in a clinical role. How can they steal? I'll give you a couple of possibilities. First of all, most dental practices have something in the back that they refer to as the gold jar. That's the place where, when somebody has a crown on a tooth that's extracted, that's where it goes. There's a fair amount of money that sits in that gold jar. And in most practices, it's not really anywhere that's kind of supervised. If I work in the back and I want to take a trip to Las Vegas and I don't have the money, I just stick my hand into the gold jar and take out a handful of old restorations. There's probably a couple of thousand dollars in gold there.

David Harris:

For the dentists in your audience. If you've ever looked for dental equipment or supplies on eBay, there's a lot of it there. Some of it is new in the package. And the new stuff is being sold for less than the supply company's cost.

Alan Berry:

Are you able to maybe utilize your alarm system to see who's coming in, who's leaving, to help figure that out? Is that a tool to use your alarm system?

David Harris:

The alarm companies are quite happy to send the doctor on a monthly basis what's called the access log or the entry log. And that will tell when people arm and disarm the alarm. And you're absolutely right, it is a great way to find out if people are visiting the office at weird hours.

David Harris:

One of the things we know about thieves is that they like to do at least some of their work when they're alone. And partly that's because nobody can sort of exercise any kind of oversight on them then. And partly because embezzlement takes concentration and it's a lot easier to do at a time when you won't be disturbed. So, thieves will often try to get some alone time at the office. And it may be that they come in before everybody else, or they stay late, or they come in on a weekend, but they'll work towards having some alone time.

David Harris:

A lot of dentists of course will not be able to differentiate between when somebody is working for you and when they're working against you. So, they will often mistake this for having a huge amount of dedication.

Alan Berry:

And I have to tell people that, that could be the case. You could have an exceptional employee there that's actually doing work there. But so, it's not automatically a sign of guilt. But it should maybe raise a slight red flag. Now on top of that, what are some other red flags that dentists out there should be looking for or thinking about?

David Harris:

A big one is territoriality. Embezzlers get very possessive about their duties. And it will even extend to their workspace, their computer. A lot of these folks don't like anybody even sitting at their desk. So yeah, they just do not want other people doing anything.

David Harris:

And an extension of that is that a lot of them are reluctant to take vacation. They don't want somebody else doing their job for two weeks because that's a great risk to them. And they also want to control the flow of communication in the office. So, if somebody is stealing, there may be some weird phone calls that come in from patients asking questions about their bills and things like that. And as long as the embezzler is the one who answers the phone, they can prevent this from escalating to the doctor. If they're gone, then they lose that.

David Harris:

A lot of embezzlers are also resistant to upgrading the practice management software. We will often come into a practice that's three versions behind. And they of course never know exactly what's going to be in a software upgrade, so they're concerned that it may shut down whatever they're doing.

Alan Berry:

But the dentist probably shouldn't rest at ease with just that. Because once the new software is up, they may figure out... then their task is to figure out, "Okay, how do I get around this new software?"

David Harris:

Well, and the new software probably won't shut down what they're doing anyway, but they just don't know that. It's a fear of uncertainty that's encouraging them to resist the upgrade.

Alan Berry:

You know how sometimes you get that gut feeling that something's not right with somebody? Does that ever play into it? So, you have Sally, she's coming to the office for six, seven months and everything is one way. And then all of a sudden she's coming in and you just get this weird gut feeling. Should dentists listen to their guts when something like that comes about?

David Harris:

They absolutely should. Statistically, their guts are probably right about 70% of the time. And one of the mistakes that people make, and we get a lot of remorse that comes along these lines, when people call us and say, "Yeah, I knew a year ago that something wasn't right, and I just ignored it."

Alan Berry:

So, pay attention to how your employees are acting at all times. It's not like the dentist isn't doing enough, you also have to be able to be conscious of how your employees are acting.

David Harris:

The American Dental Association did a study about 10 years ago. And what they did in this study was they asked embezzlement victims, "What tipped you off?" And there were a lot of answers that came up. Some of them I think would surprise people. For example, a lot of dentists believed that their accountant is kind of on the frontline of their defense against embezzlement. In this survey, the answer, "My accountant found the embezzlement", came out 4% of the time. So, it wasn't a big factor.

David Harris:

What I did a few years ago though, was I kind of clustered the responses into two categories, being financial anomalies and behavioral ones. So an example of a financial anomaly would be that my day sheet and my bank deposit didn't balance each other. A behavioral anomaly would be the staff member who didn't want to take vacation. When I did that, Alan, less than a third of the embezzlement that was discovered was found because there's some kind of financial irregularity. And 68% was found based on the way the thief was acting. I will agree completely with your statement. If doctors could become better observers of their staff, they would find a lot more of the problems a lot sooner.

Alan Berry:

And I got to believe some of the staff, you could look at their, "Oh, how is Susie buying a Louis Vuitton purse every three weeks and got a new watch?" And those type of things too.

David Harris:

Absolutely. Living beyond your means is certainly a danger sign. And your listeners should understand that no danger sign is definitive. I mean, there are people who don't want to take vacation for some other reason than embezzlement. There are people who we might think live beyond their means, but maybe they inherited some money from their uncle or there's some part of their financial picture that we don't know. I wouldn't latch on to any of those and say, "Well, I can't understand how that person could afford that car, therefore they must be stealing from me." No. But when symptoms start to aggregate, then we get suspicious.

Alan Berry:

Right. So let me, you said something about accounting, I'm just curious, does it help to have a dental-specific accountant that is always kind of doing your books, but is also an outside entity, does that help? And I know it's not going to get rid of it, but does that minimize the risk at all?

David Harris:

I'm definitely in favor of an accountant who concentrates on dentistry. Was working on an embezzlement file a little while ago and this was a non-assignment practice. In other words, the practice did not accept people's insurance. Patients paid directly and got their own reimbursement from insurance. In that kind of practice, the receivables should basically be zero, because the thing that drives receivables in most practices is doctors waiting to get paid by insurance.

David Harris:

This practice happened to be using a non-dental CPA, so this was a CPA who deals with all different kinds of businesses. The receivables were actually up to about $350,000 because of some of the activities the embezzler was doing. And the CPA really only became concerned once the receivables climbed higher than other dental practices he was working with. In other words, he had no concept whatsoever that a non-assignment practice should have zero receivables. And if you're dealing with a dental-specific CPA, that probably wouldn't happen because they understand that problem a lot better.

Alan Berry:

Once a dentist has been embezzled from, that money's not coming back, right? Because even if he wins a lawsuit or the person is convicted, if that person's already spent that money, isn't it kind of like a good luck collecting from them? I mean, even if you have a judgment against them, it doesn't necessarily mean you're ever going to see that money. Is that true? Or is there insurance that you can buy? Or how does the dentist protect themselves?

David Harris:

It's not quite as bleak as you suggest. Everybody gets something back, and virtually every dentist has insurance coverage for this, it's built into their property insurance. So, everybody gets that amount back, which is typically $25,000. The average embezzlement is actually about $100,000.

Alan Berry:

So, there's a little shortage there though. So, if they're getting 25k-

David Harris:

There's a shortage there. Then there's a possibility of getting something back from the embezzler. And most embezzlers walk out of court with what's called a restitution order. Most embezzlers end up with some long-term obligation to make payments to the victim. The third source of recovery happens when an embezzler cashes checks payable to the doctor, because the doctor has some recourse against the financial institution that let that happen. So, if you're cashing checks payable to me at your bank, your bank has some liability for that.

Alan Berry:

I got a practice, and I'm thinking that some of these red flags have popped up, and I'm really curious about what's going on here, what should be their next steps? And please tell me about some of the things that your company does and how you guys can help them out.

David Harris:

The biggest no-no for somebody who suspects embezzlement is to Telegraph that suspicion to the thief or conceivably anybody else in the practice. If I'm stealing and I think I'm about to get caught, and I think that the outcome of my getting caught is that I'll go to jail, there are not a lot of limits on my behavior. And what we don't want to do is prompt this person to do something desperate to try to stay out of jail.

David Harris:

The most notorious example of doing something ugly was when a dentist in Maryland was being embezzled. And the thief sensed that she was about to get caught, so she came back to his practice one night when she knew the doctor would be there catching up on some paperwork. She brought her cousin with her for some muscle, and the two of them dragged the dentist, whose name was Dr Albert Row, into the patient restroom and beat him to death.

David Harris:

There's a whole other side of humanity that most of us don't get exposed to most of the time, and you can come face-to-face with that side of humanity in embezzlement if you're not careful. So, it's important that the doctor not for example, confront the suspect or ask them to print off a bunch of reports from the practice management software that the doctor's never asked for before. Don't let the suspect know that they're a suspect. Certainly when we are involved, our process is 100% secret, so there is no chance in the way we work that people in the practice will realize that we're involved.

Alan Berry:

So, they get ahold of you guys, and we're not going to go too much into detail of what next steps are because I think that that would give away some secrets. But is there a place here that we can discuss ballpark of what something like this cost for a dentist? Or is that something you'd rather not discuss?

David Harris:

I'm happy to give generalities specifics based on a specific situation. In the simplest situation, and let's think about a one dentist, one hygienist practice, the typical costs are probably around $7,000. Our turnaround time to complete an investigation is usually about eight weeks. Which if we're dealing with a situation of suspected embezzlement, as opposed to the other kind of call we get, which is where embezzlement's already been found and now we are mapping it and helping somebody get their money back and things like that. In a case of suspected embezzlement, that's tortuously long. Everybody wishes it's something we could answer in a weekend, and you just can't. You can be quick or thorough, but not both.

Alan Berry:

What would the police do? I mean, because the police aren't capable, they don't have this expertise I would think in this specific field. What would happen if they just said, "Oh, I think I'm being embezzled", and they just call their local police? What would happen there?

David Harris:

A couple of things happen, and neither of them is good. The first is that the police will likely send some patrol officers to the practice. They will send two big people with squawking radios to show up at the practice and take the doctor's statement. The second thing that happens is that the police will quickly inform the doctor that actually it's not our job to tell you what was stolen, you have to tell us that. Once you do, we'll make sure that the law's applied.

David Harris:

But this is a technical crime, it's not like a car theft where the car disappears from one side of the city and appears later at the other, and the owner didn't do it. This is a very technical crime, police departments do not have the expertise or the budgets to investigate it. So, after the two police show up at the practice and take the doctor's statement, they will say, "You really need to hire somebody with forensic expertise, get us a report, and once we have that report in our hands, now we'll make sure that this person gets charged."

Alan Berry:

So, let's make it clear that this is the one time that when you see a crime happening, do not call the police, and do not call the person out, get ahold of someone like David. Let me ask you this, does your company consult on preventative measures? Because I got to believe that that's a priority for a lot of the dentists that have not been embezzled, they don't want to be embezzled, but they don't necessarily know how to protect themselves. And I'm going to guess that there's no absolute way of protecting yourself 100%, but maybe there are a few things you can do to protect your practice a little bit better.

David Harris:

There's a lot you can do. And I agree with the statement that once somebody gets it in their head that stealing from the doctor they work for is the right thing to do, it's going to happen and they'll get away with it for some period of time. What's really controllable is how long they manage to pull it off. Is it something that happens once? Or is it something that where they steal 3,000 or $3,500 a month and get away with it for a couple of years? Which is kind of the norm. So, there's a lot you can do to make detection more likely. And yes, we do work with a lot of doctors. In fact, the amount of work we do in prevention is starting to approach the amount we do in investigation.

Alan Berry:

Is there one, I mean I'm sure, like you said, there's several ways to protect yourself. But is there one thing that I would imagine that if you're speaking to groups or talking about this on other podcasts, is there one thing that you suggest for dentists to make sure that they're doing right now to protect themselves? Knowing that that's not going to completely protect them, but it's a step in the right direction.

David Harris:

Let's negotiate a bit. Can I give you three?

Alan Berry:

Ah, please. Yes, I'd love three.

David Harris:

Okay. The first thing is that most dentists do a very poor job of background checking when they hire people. I'm not talking specifically about criminal records checks, that should be part of it. But most dentists don't even check photo IDs when they're interviewing people. If I have a background and I don't want you to find it, one of the easiest ways is I use somebody else's name when I'm looking for the job.

David Harris:

So, they also aren't great at phoning former employers, or even looking up the phone numbers of former employers independently. In other words, if I'm applying for a job with you, you should never call any phone number I give you, because at the end of the day you have no idea who that number belongs to. If somebody says that they worked for Dr Smith in Indianapolis, Google is really cheap to use, look up Dr Smith's phone number, call that number, and then you know who you're speaking with.

David Harris:

The whole hiring activity is not well carried out by dentists. And if your readers are interested, we have a fair number of suggestions on our website that will go well beyond what we have time for here.

David Harris:

The second suggestion that I'll make to your listeners is this. The reports that they look at from the practice management software should be ones that the doctor or practice owner printed themselves. As soon as you allow somebody else to print reports, you open the door to selective reporting. And I know there's a cohort of your listeners who were hoping to make it through their whole career without ever having to learn the first thing about their practice management software. That is as important to your practice as your handpiece is. The software is a really important tool in the practice, and the doctor who says, "Yeah, that's really something for my staff to learn, but I don't want to know anything about it", is courting danger.

David Harris:

The third thing is, make everybody take vacation, and not when the office is closed anyway, and not in one-day increments. But you really want every single person gone from the practice for two weeks when the practice is open. And the magic of that two weeks is that that's enough time that somebody else is going to have to do their work. That's one of your best chances to detect embezzlement.

Alan Berry:

This podcast, you've probably given me more tips for dentists than I think on any other podcast. So, this has really been helpful.

David Harris:

Okay, good. I appreciate the feedback.

Alan Berry:

Hey, Dave, I'm looking at the clock, it looks like we got to get going. But thank you so much for your expertise here. I think that by you going on, I've heard you on a few different podcasts, I really think you're helping the dentist community as a whole, because this is an area that I would think a lot of dentists are just oblivious to. And then when they do find out about it, it's not only the money, but it's just the fact of thinking about your trusted coworker and maybe even friend has done this behind you or behind your back. So David, thank you so much for your time today, and thank you so much for sharing your expertise.

David Harris:

Yeah. It was a pleasure to talk to you, Alan.

Announcer:

That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information. And thank you to you, the listener, for tuning in. The Millionaire Dentist Podcast is brought to you by Four Quadrants Advisory. To see if they might be a good fit for you and your practice, go on over to fourquadrantsadvisory.com and see why year after year, they retain over 95% of their clients. Thank you again for joining us, and we'll see you next time.