Embezzlement Identification and Control Guide for your Dental Practice

Hey, dental associates and new practice owners. Welcome to the Associates on Fire podcast, powered by Practice cfo. This is the podcast that teaches you what you never learned in dental school, the financial side of dentistry. We cover topics from planning for ownership, buying a practice, to student loans, taxes, and all things financial for the hungry to learn Dental associate. So let's light it up.

Welcome, everybody, to a new podcast of our Associates on Fire program. Today on the show, we have David Harris as our guest. And this is one you'll want to listen probably from beginning to end, because it's extremely relevant for any practice owner and it's on the subject of dental embezzlement. Now, I've known about David Harris since I almost got into dental about a decade or so ago because he's kind of the go to when you in your company feel that there might be embezzlement going on or maybe even if you just want to take precautionary measures. His company, called prosperident, is where you want to go. And then I had David come and do a seminar here at our office in San Diego about a year ago or so, and we just had a full room and it was so. It was so content rich is how I would describe it because this is real stuff. It happens all the time in dental. There's a lot of reasons why. And today we're going to talk about things that relate to in our fuel cells, our video education, in our Associates on Fire program. Online, we talk about choosing your dental transition team to make sure you really understand the numbers of the seller and also understanding when you own your. Your profit and loss statement in your balance sheet. Now, David's going to tell us, and I know this, that your accounting reports are not going to discover embezzlement. That's occurring very rarely. However, having some numbers that you're monitoring to see trends, you start to notice anomalies. So be sure to watch those videos as I think they'll relate somewhat to our podcast today on embezzlement. All right, David, welcome. Tell us. Let's go ahead and start off with you telling us how you got into being this very niche specialty of dental embezzlement.

Great to be here, Wes. I happened was in 1989, so we're talking 31 years ago. I had left my job with a bank where I was doing investigations. I was sitting at home watching tv and I got a call from a guy I'd been in high school with who is now a dentist, and he said some words that would slowly change my life. When he said, david, I think my front desk person's stealing from me, and I really don't have anyone else to call.

So the guy caught me at the right time. It was the middle of August. There was nothing good on tv, and I felt sorry for him, and I said, sure, I'll meet you tonight at your practice after it closes, and we'll get to the bottom of what's going on. So I went over to his practice. I saw fairly quickly what the thief was doing, and my friend asked me to come back the next morning to help him fire the thief because he didn't want to face that by himself. So once again, I obliged him, and we got the thief fired. My friend promised to buy me dinner that I'm still waiting for. And I walked away thinking that was interesting, but I didn't really see a career for myself.

Well, two weeks later, everything changed. And what changed everything was that I was going into my own dentist's office for an appointment, and I was about to go through the glass door, and I looked through the glass, and I saw sitting at my own dentist's front desk, the same woman I helped fire two weeks ago.

Something I wouldn't repeat in polite company went through my head, and I ran to a payphone and I called the practice and filled my dentist in on the time bomb ticking away at his front desk. And he hired me on the spot.

And by the time I finished looking at his practice, a local rep from a dental supply company had realized what I was doing. And suddenly I had several more calls. And without a business plan, without any real preparation at all, I was suddenly in business.

So that's how I got started.

How long ago did you say that was?

That was, as we're doing this, 31 years ago.

Well, it almost feels like you were pulled into it by demand. And I think there is a significant need in the dental world for there to be a somebody who sets in place the right system to mitigate. Because you can never, as you've probably told me in the past, you can never completely eliminate the chance of fraud occurring, but you can help do some things to mitigate that and identify it and then respond to it correctly. A couple thoughts came to mind is I like how you call a spade a spade a thief. Some these people who are taking money are doing so deliberately, they know what they're doing and they're stealing money and you're calling them thief. Now on your website, you have this webpage called your hall of shame. Tell us a little bit about your hall of Shame?

Absolutely. It's where we.

Tell what needs to be told. We publish stories about people who steal from dentists, sometimes repeatedly. In other words, they are serial embezzlers who move from practice to practice and steal. And last time I looked, we had about 680 of them profiled in our.

Hall of Shame pictures and all.

Oh, yeah, we. We name names. We. We publish pictures and we tell stories.

Is that because when they're caught and they're. I don't know, they're found guilty, it's all public information? Yeah.

I mean, the court system operates in the public domain. So when somebody's been charged or convicted or has served time for stealing.

That information's public record, that doesn't necessarily mean that it's readily accessible to dentists. And one of the things our hall of Fame does is kind of collect a lot of information about a lot of people and make it available to dentists. And we've gotten a number of calls over the years from a dentist who said, yeah, you know, I was kind of browsing your website the other night, and I saw my office manager there.

When I was on it just the other day. I kept scrolling down and say, click here to scroll down to the next batch. And I just kept going and going and going. And I thought, I'm never going to get to the bottom of this. Well, so here's one of my initial questions for you is why is embed embezzlement? Do we have statistics on it? And why is it so prevalent in the type of business known as a dental office?

It's.

It's prevalent for a lot of reasons. We've recently rethought our. We've. We've received new information recently, rather, on probabilities of embezzlement, and the trend is clearly upward. So in 2018 west, the American Dental association did a study, and what they did was asked about 17,000 dentists, have you been embezzled? The good news is that about 52% of them said, well, as far as I know, I have not been.

For the other 48%, the response was either I've been stolen from once that I know of or twice or three times or four or more times.

Okay, so basic picture is this. About half the dentists had been stolen from, and half of those dentists had been stolen from more than once.

What's interesting, though, is that the American Dental association did a similar survey about 12 years earlier in 2007, and they asked the same question. And the answer then was that about 35% of dentists reported being embezzled. Okay, so over, over slightly more than a decade, the number of respondents who had been embezzled or who, who confirmed being embezzled went up from 35% to about 48%.

Now, if you're in the audience and you're asking yourself, what are the chances that I will be a victim sooner or later? Of course, you have to look at that 48% who said yes as being captured kind of at the midpoint of their careers. And all those people had some chance of being embezzled. All the people who said no had some chance of being embezzled in the rest of their careers. The real number for a new graduate, Wes, is probably about 80% probability that they'll be hit sooner or later.

At.

Some point in their career. In terms of why, I'm going to give you a very simple answer. And I know that our audience for this is generally young dentists and may not have thought of it in these terms, but let's pretend that I go to you as a cpa, Wes, and I say, I'm so excited. I'm starting a business here. And you say to me, david, that's great. How are you going to do the accounting? And I say, oh, I've got a great plan, Wes. I'm going to have one piece of software track my revenue and a totally different piece of software look after my expenses. And here's the best part of all. They're not even going to talk to each other.

You would say to me, as an, as an accountant, you would say, david, that's the stupidest idea I ever heard. I mean, there's no way that would work. And yet I just described every dental practice in the U.S.

Your audience may not know this, but most businesses, most other businesses have one piece of software that tracks their whole accounting system. In dentistry, it's broken into two pieces. And what I described is totally accurate.

They don't talk to you. You have their practice management software, which is their billing software, whether that's eaglesoft, Dentrix, some of the online ones, Curve.

There's a lot of them out there. That's where they track all their claims and the, and the billing, the collections, the collections that come in. And then what happens is a lot of CPA firms, including ours, will get the collections not from the practice management software, but from the bank, from the bank statement. Now, for some clients, we will provide what's called, I used to call it an embezzlement prevention.

Service, until you and I spoke. And we said, let's not call anything embezzlement prevention because there's no way to guarantee preventing embezzlement. There's many other ways to embezzle, but that doesn't guarantee anything. But at least it's sort of trying to connect up what is Eaglesoft or Dentrix, say, was collected and what actually hit your bank. And so if we're not doing that, because that's a lot more work because we have to get the report from the client. There's oftentimes adjustments for things like care, credit and things that don't, you know, don't tie out. Exactly. And it's just a lot more work to tie that out, although it is a really valuable function if that system can be set up in place.

So, so, but that's, that's, that's just a. That's just a great point. Because the accountant for almost all dental practices, the vast majority of them, the account isn't going to know what should have hit the bank account that never did. Nor are they always going to know about an expense that was an illegitimate expense. Because if there's something that shows up for Amazon, well, doctors are paying for business stuff on Amazon all the time. We're on every month for most of our clients, we're seeing an Amazon here, a Costco there, and we don't know if that's the front office going and buying a cart full of food for their family. We have no idea. That's why I tell all of our clients, one of the steps in our accounting program is I want them every month to review the general lever ledger transactions. This is at least on the expense side. Review all the transactions. Do they look familiar to you? Review every one. It'll take you 10 minutes. And do they look familiar to you? And then review your bank statements and look at your collections and just quickly print up your. Your collection report for Eaglesoft or Dentrix and let your front office know that you're looking just out of sort of a professional.

Process. You just do it, because that's what business owners do. And you take 30 minutes every month and you just go through this process of reviewing your numbers. Are those some things that might help?

Being involved in your practice financially is never a bad idea.

And, you know, looking in some detail at your numbers is always a good thing. What I tell practice owners is this. There's a report that comes out from your practice management software that can be printed at the end of each day that will tell the practice owner, here's how much my deposit should have been today.

If you don't.

Line that up with your actual deposit, then you're opening yourself up to very simple low level theft. Right. Somebody can just take money out of the bank account. And when we look at practicing dentists, approximately 60% of them look at that and 40% do not. If you're in that 40%, you're allowing the stupidest, laziest thief on the planet to take your money.

If you're in the 60% who compare the deposit to what the software says it should be, you can still be stolen from. But now it's a little bit more complicated because the person stealing from you effectively has to teach your practice management software how to lie.

Good point. And it's like you could. There are some basic things that probably every dental office should do which would limit the probability, not eliminate the probability, but, but at least limit the probability and make it harder. And that would be one of them. I call that the daily packet. And we have a kind of a document we give to new clients recommending what they staple together, or even the front office could staple it together and give it to the doctor so that A, they know the doctor's looking at these things, and two, the doctor doesn't have to spend 30 minutes at the end of every day to do it. But at the same time, that's coming from the very person who might commit the embezzlement. But if at least you're looking at the collection report and you're looking at your, you just log onto your bank account and see what was deposited, you can kind of map those two back by cash and check as one deposit. Visa, MasterCard and Discover as a second. Maybe Amex is bundled in there. CareCredit is another one. So you have to kind of define what those buckets of deposits are to be able to map them back. But at least it's a really good step, if not a, a, a complete step, but it's a good step in limiting the, the, the easy embezzlement that could, that could occur.

Absolutely. And of course, part of the challenge there, Wes, and you, and I understand this maybe more than, than some, some audience members will, but there's a timing difference for some deposits. In other words, when somebody pays the practice by, let's say, credit card, the practice management software records that as an amount on deposit today, whereas the money doesn't actually typically hit the doctor's bank account for a couple of days. So when they're doing this reconciliation, one of the challenges is there are some transactions that I kind of have to set aside and verify later.

And there's also something that happened that reverses the timing, and that's what's called an ACH or Automated Clearinghouse Payment. And that's where an Insurance Company or CareCredit puts money directly into the doctor's bank account. And that money will hit the bank before it hits the practice management software. So you have to do the reverse. And that all makes reconciliation a little more complicated than it was in 1989 when I started, when there was no such thing as a timing difference. And the practice carried everything to the bank that was deposited. Now you've got money kind of zipping into the bank account in different ways. And again, there are these timing differences and it makes it a little more complicated. But the basic job is the same if you don't reconcile.

And I'm going to add one thing to what Wes said a minute ago. I would like you to print your own reports as opposed to allowing a staff member to print them, because that gives you control over the parameters in those reports. If you don't do that, lazy thieves can steal from you. So let's. Let's apply Darwin's approach and let's weed out the stupid and the lazy.

Yeah. Which could be. A large chunk of the embezzlers that are out there are the ones that they're just. They're peeling from the top because it's so easy to do. So. And. And that's on the. That's on the revenue side. We'll get to the expense side in a moment. But I want to step back and just help doctors understand the mind of an embezzler a little bit and the context to it. Back when I was at school, way back in 2005, I was in their accounting program at BYU and they had a. There was one of the faculty members there who had had, I think, originated a. The cfe, the Certified Fraud examiner program. Can't remember his name, but. And. And I was a part of a club called the Anti Fraud Club. I was just always interested in this. And I had.

What's going through my mind right now is get a life, Wes.

Probably. But I had interviewed with a PricewaterhouseCoopers. They're a large accounting firm in their fraud detection group. And I didn't get an offer. They. They select people based on some criteria I couldn't think of, but that's what originally I wanted to go into. So I've always been interested in. In sort of understanding this and preventing it. But one thing Back when I was studying about that, I learned about the fraud, what was called the fraud triangle. Can you explain what that is? I think it's a simple way for a dentist to. To recognize that there might be the right context or motivating factors for fraud to occur in their office. What is the fraud triangle?

The fraud triangle is something that a criminologist named Donald Cressy, who is one of the most influential people in shaping how we think about white collar crime, came up with in the 1950s. And he wrote a book called Other People's Money. And what Cressy said was that there were three preconditions to fraud called pressure, opportunity, and rationalization. So pressure typically is financial pressure. You know, somebody loses their job, and all of a sudden a household that used to survive on two incomes now has to get by on one. Or you have a staff member who's going through a divorce and suddenly having to float two households on. On the income that used to support one household and pay a bunch of attorney bills, or you have a gambling problem or a drug addiction or something that turns finances upside down.

The other kind of pressure that I think people don't think about as much is emotional pressure. And emotional pressure happens when somebody believes that they're worth far more to your practice than you do.

And these people, I think of one in particular who we investigated, and she was working for a dental practice and stealing. And then she won $3 million in the state lottery.

And most people who win $3 million quit their job and on the way out the door, say things to their boss that they never dared say before. This woman did neither of those things. She kept working and she kept stealing. And, Wes, here's the most interesting part. After she won $3 million in this lottery, the amount she was stealing each month went up.

So she was taking more as a millionaire than she was before. And clearly, it was not about financial pressure. So pressure is kind of what. What drives somebody to steal? The second question is opportunity. Do they have a pathway to stealing? And I'll tell you gently that in almost every dental practice, certainly every front desk employee and probably some others, have a pathway.

And what the pathway determines is really how somebody steals. I mean, we're just finishing up a case where There was about $300,000 stolen by a bookkeeper. She had no access to the incoming money from the practice from patients or insurance companies, but she was the one paying the bills. So predictably, the way she stole involved playing games with paying bills. If somebody's on the front desk and they're receiving patient payments or insurance payments. That's how they're going to steal. And the third element is rationalization. And rationalization kind of involves a little bit of a suspension of reality. So we all learn from the time we were three years old that you don't take other people's stuff.

And rationalization is where somebody says to themselves, I know that in general it's wrong to take other people's stuff, but in this situation, it's okay because.

And what comes out of their mouth next is the rationalization. It's okay because the doctor was only going to waste the money anyway.

Or it's okay because I'm protecting the patients against this greedy dentist.

Or whatever. I mean, there are lots of potential rationalizations. I am worth far more to the practice than I'm paid as a rationalization.

It's where they, or even I've heard.

I'm going to temporarily take this and pay it back when I receive X, Y or Z in the future. And then, of course, that point in time comes up and they don't pay it back.

Yeah, you're absolutely right. A lot of people start with the rationalization that I'm borrowing the money and when my ship comes in, whatever the heck that is, I will pay it back. That one tends to get discarded over a period of time. I mean, eventually. First of all, most embezzlers who have been at it for a few years have totally lost track of how much money they've stolen.

And at some point, it just gets easier for them to lose the concept that this is all a big loan and I'm going to pay it back. But that is often kind of an.

Initial rationalization on the same subject of the fraud triangle. We. When I was at the Ernst and Young, which was another big accounting firm, and as I was learning and studying about the subject of fraud, embezzlement, how it occurs the way that you prevent it is the acronym is ARC A ARC C, which A stands for authorization, R stands for record keeping or recording, and C stands for custody. Now, correct me if I'm wrong on any of this, but basically what that means is you want a different person ide theoretically, maybe even you want a different person authorizing a specific transaction. You want a separate person recording it in the tech, in the tech system, in the accounting software, for example, and that you want a third person who actually custody's the check or the money. And if you can have those three things separate, it's much more difficult to commit fraud. The problem Is you have many dental offices have one person at the front desk, maybe two. And so the same person. And maybe they have a bookkeeper come in, but the same person that is sort of authorizing receipt of payment is also the one making the. Possibly even making the deposit at the bank. They're even holding the check. They might be. The front office might be doing your accounting as well and recording it, either in dentrix or maybe even they're doing a QuickBooks and recording it. There's. And so you've got this.

You don't have the right. Segregation of duties is what it's called in most dental offices. There's just not enough people. Do you think that's one of the reasons why that along with the fraud triangle and the convergence of opportunity, rationalization and pressure, or why it's so ubiquitous in dental offices?

That's part of it. And I'll add a couple more factors. First of all, if you ran a solo practice all your life, let's not even consider group practices you're probably going to go through over your career. 30, 35 staff. The chances that one of those people will be a rotten apple is huge.

We'll talk about hiring, I think, in a few minutes. But one thing I'll mention that a lot of dentists are unaware of 65 million Americans. So that's one in four adults has a criminal record.

The pool of dishonest people out there is pretty large, and the chance of you acquiring one at some point in your career is pretty high.

The other thing I'll mention, very gently, is that I know very few dentists who chose that profession because they really, really, really wanted to be a business owner.

Almost every dentist I've ever met got into the profession, first of all, because they did well in school, and secondly, because they wanted to help people. And dentistry was what they saw as a way to do that. And I think that dental schools kind of play this cruel trick on people in D4 when they say to them, oh, and by the way, it's not good enough to do good crowns and bridges and implants and whatever. You also have to run the business.

And at that point, the poor dental student is $400,000 in debt and says, okay, it's way too late to turn around now. I've got to keep going.

The other thing I'll say about dentists is that most of the dentists I've met are possessive of a very strong altruistic streak. They would almost do the dentistry for free if their financial advisors would let.

Them.

And you know, these are people with big hearts and embezzlers take advantage of that.

Yeah, I could definitely see that. I definitely see that. When I was up in Oregon with a friend of mine, we had started at dental CPN planning firm. This was back in 2009, 2010, and just down the street from us, literally like a mile.

A lady calls us and she found out she had been embezzled. And this was my first contact with it. Now I've had a few contacts with it over time. Now, she wasn't a client of ours at the time she became a client. But when we went in, we tried to uncover the amount that was embezzled. And you would think it's easy, but it's not often that easy to identify exactly how much has been embezzled, at least from my experience. But where we sort of stopped counting was somewhere around $350,000, along with a lot of the drugs from the practice had been stolen as well. And.

It was just an eye opener for me to realize that this isn't just a concept that I learn about or talk about or you hear about on some dental economics article. This is real. And I realized this has just cost this person. Imagine she was still pretty young. 350,000. That could have compounded in the market in say a 401k retirement plan for 20 years. That could have turned into $2 million. Could have been a good chunk of her retirement plan. And now, and now we don't have much to show for all of the hard work she put in. She didn't have much to show for. Well, somebody did and they had spent it. And, and yet she didn't want to report that person either. Which is, which is always kind of unique because I don't want my clients and people to know, my network to know that I had an embezzler in my office. I don't want people to know that that was a part of me and my system. Do you find that to be the case as well, out of curiosity, that people aren't reporting embezzlers once they're identified?

Certainly all of our clients report them. We.

We point out to the dentist the, the absolute necessity of that. But I agree with you, that.

Probably doesn't happen that way for people who are not our clients. One thing I'll say, Wes, and you mentioned embarrassment. You know, dentists come from what I refer to sometimes as a culture of accountability. In other words, they learn very early on in their education that crap rolls downhill. And dentists live in the Valley.

And a lot of them who call us are in some degree of embarrassment or guilt that this happened to them. And what I do with people when they call me, and this often happens in the intake process, is I say to them, you know, you have to acknowledge the inequality of the battle between you and the embezzler. And they have all the advantages. You know, it's tempting to think I'm well educated, I'm a fairly intelligent person. The. The people who are kind of my adversaries in the embezzlement battle, you know, may have a high school education or a couple of years of college, and I should prevail. And that's not true. Embezzlers have all day to study their dentist and learn their habits and what they look at and what they don't and craft an embezzlement that works within that framework. The way I describe it to some dentists is it's kind of like you and I having a poker game, but your hand is face up and my cards are conc.

So I say to them, you know, if. If you're feeling like there was something you could have done that would have prevented this, I'm not sure that's right.

Drive home for me how severe this could get. What's the largest amount of embezzlement you've been able to calculate to the extent you can?

We have.

A club called the Million Dollar Club. And this is. This is embezzlement's elite. It has nine members.

Over a million dollars. Man, there's a lot of dentists in their mid-50s who don't have a million dollars saved, and yet a million dollars embezzled from. From an office manager. Okay, now we.

Sometimes. This is a group practice, you know, and. And maybe it only equates to half a million dollars per dentist in the practice. Yeah, still a hell of a lot of money.

And it's over time. So the drip sometimes isn't noticed on a drip by drip moment. It's over time in the aggregate where it becomes significant.

You are so right. And we equate this to a dripping faucet in a couple of ways. As you say, it's small amounts over perhaps a long period of time. The other thing that is different between embezzlement and most crimes, if you think about it, is that embezzlement is repeatedly committing the same crime with the same victim. In other words, most people who steal cars steal one from you and one from somebody else and one from a third party. They don't keep stealing cars from the same person. But that's exactly what happens with embezzlement.

Which is why it's so painful to a doctor's attempt to become financially independent, which is what practice CFO really exists for, is helping, really helping our clients construct that system that enables them to eventually stop working if they choose to, because they have the passive income from assets to sustain them for the rest of their life, considering inflation and their lifespan. So we've really covered a lot about why it happens, talking about the fraud triangle, talking about the lack of segregation of duties, the opportunity that office people have or bookkeepers have or even accountants have to, to embezzle, the prevalence of it. Let's now pivot a little bit to number one, how it happens to the extent we can talk about the details. I know you're very, you want to be very hush hush about it, which I agree and I, I get, because we don't want people using this podcast, front office people as an education platform to go commit embezzlement. So to what extent, whatever extent you're comfortable talking about how it's done. And then next I want to jump into how we can then prevent, not prevent, but how we can set in place systems and protocols in the office to really reduce the probability of it occurring. So let's start off with.

What are some of the ways that embezzlers are stealing in dental offices?

In really broad terms, you can steal two ways.

You can steal on the expense side, which might include things like tampering with payroll or perhaps manipulating a bonus in a practice or creating a phantom supplier and paying them.

Or you can steal on the revenue side, which means hijacking patient payments or insurance payments. In most other businesses, most of the embezzlement that happens happens on the expense side. You know, if I worked for United Airlines and I was stealing, probably I would be padding my expense claims or I don't know, maybe stealing the little liquor bottles out of planes.

Very few people at United Airlines have access to revenue.

On the other hand, in dental practices, the overwhelming majority of stealing happens on the revenue side. The, the other word for that sometimes is skimming.

That's probably where 85% of theft happens.

As you say. We're not going to go into details about how that is done, but I did give people some clues. If the doctor is not overseeing that day end balancing process that Wes and I talked about, then people are stealing money by simply shorting the deposit.

If that avenue is not available to you, then people steal by playing games and practice management Software, and there are a lot of ways you can do it, but we should never assume that just because something is on a nicely printed report from practice management software that it reflects exactly what happened.

In that daily packet. One of the things that doctors I think should always look at are the adjustments made to patient accounts. And again, you've mentioned this in the past, that that's not a sure fire way of preventing embezzlement. But a lot of embezzlement on the revenue side is really done through that adjustment account. And doctors should ask about adjustments and I won't. I remember you were here in our office and it was just dentists and so you got much more open with the details, with how people did it. And I remember thinking, okay, I've been working with accounts for a long time, I'm a cpa. But my mind was just opened up to the, the so many different ways of creativity that a front office person who has been there for five or 10 years and knows every habit of the doctor is able to capitalize on, on opportunities and become very creative in the way they do it. But, but that's one of the things I think doctors need to do is always, always look at that adjustment account.

Here's a message for your audience, who I understand are predominantly young dentists. The view of a lot of dentists in practice is that practice management software is something that they can get through their whole career without knowing a lot about.

If you're thinking that way, let's lose it right now. That software is more important to your financial well being than your handpieces.

And everybody in the audience knows that handpiece like it's the back of their hand. But when it comes to practice management software, they all say, well, you know, I'm, I don't work at the front desk. That's not why I went to dental school.

You really have to learn about and embrace that software as being the vital link between the good work that you do in the clinical area of the practice and money showing up in your bank account.

I have found that for a lot of our clients who started up a practice and they bootstrapped it and they were wearing all these hats in the beginning and they were up at the front office lot because maybe they only had a front office part time and they were working the practice management software and they were of course looking at the reports and depositing the money at the bank and they were maybe doing their own accounting. As I've said in my Associates on Fire videos that it's a longer Pathway to revenue, to profit, starting up a practice as opposed to buying a practice. But I will say they definitely walk away with that education benefit when they're doing a lot of that stuff at the ground level early on, that will probably help them for the rest of their career. Where if you buy a practice, you just step into a machine that's already running and it's almost like the front office doesn't want you to get in their way. Like, hey new doc, I know what I'm doing here, this is my space. You just stay back in the operatory and you do your thing. As a dentist, don't tell me what to do or don't try to change things. And that's kind of hard for a new associate who's trying to maintain goodwill and relationship with their front desk and a sense of camaraderie. Do you have any advice for that new dentist who steps in at what point and how should they approach setting in place some changes to the system and getting involved so they understand these reports and the Dentrix software, Eaglesoft software, whatever that is.

Let's add one more ingredient, which is that the generation of dentists who are selling practices now for the most part trained before there was such a thing as practice management software. So it was introduced to them mid career and it was really easy for them to step back and let the front desk do as what, do what you say. So that's what front desk staff and these practices are used to. And it's also easy for a buying dentist to kind of acquire the culture of the selling dentist in these terms.

Again, I think what you have to say to yourself first and later on to your team is I'm not that guy. I've grown up with technology, I'm comfortable with it and I want to understand every corner of this practice management software. I want to know how to print reports. I want to be comfortable getting information directly from the software as opposed to asking a staff member and allowing that filter to be interposed between me and the raw information.

One suggestion I might have that they could do as they come in. And I like the way you phrase that. I'm not that guy. I grew up with technology, I love technology and I want to understand it. I think that's a good.

Understandable way for, to communicate that, that it'd be well received. One of the things I think a new dentist should do as they step into their practice is really think of it not as, as a dentist surrounded by some people to support them, but really view their practice even Though it might be, you know, a million dollar practice, it's not a 50 million dollar business. But think of it as an enterprise. And you can't do this will only help if you go into your business and you start to treat it like it's a system. And what I mean by that is you identify roles, who plays what role, and within each role, what are the daily projects or tasks that each position does and have everybody document that out. I've done that here at Practice cfo and we use an online software called Carbon. And in Carbon we have all of our projects that might be doing a monthly financial statement preparation, it might be preparing for a client financial planning meeting, it might be filing a 1040 tax return, whatever that is, we have that documented out who's responsible and all of the steps involved in producing that specific service. And by going through that activity over the past few years, as we've tried to treat ourselves more systematically internally, I have learned so much about what everybody does. And you could go into your dental practice and do the same thing, even if it's simply done on a Word document. Now, now there's project management softwares that are out there. There's a lot of them and you could use those. But, but the key point is that you document what everybody does and then you learn it yourself. You maybe run through it a few iterations yourself so you start to speak that language of claims and billing and what reports to print out of your practice management software. And you know, all of, all of the, how bills are paid and even some basic things on accounting. I want you to know how to read profit and loss statement and your balance sheet. And I want you to be reviewing your general ledger. All of that is a part of our Associates on Fire video program. All that stuff I think will help you be more aware, which might be the biggest thing you could do to help prevent or limit the possibility of embezzlement in your office because you're in tune with what's going on.

This is not a huge enterprise. I mean, I fully understand why the chief executive officer of Ford probably doesn't know how to build the cars.

Okay? That's an enterprise with hundreds of thousands of people. And it's totally understandable that the CEO doesn't know how to do every job. Dental practice is not that big. The corner that a lot of practice owners paint themselves into is that they don't do what you're saying and have at least a rudimentary understanding of all the jobs. Then they get in the position. Wes where they can't fire somebody, for example, because they have no idea how to train the replacement.

That's dangerous.

Let me now pivot just a little bit to what are some of the signs that might indicate embezzlement is occurring? And maybe we touched on this a little bit in the fraud triangle area about pressure and rationalization. But, but maybe more specifically, are there some signs that should raise radio, raise some flags?

There absolutely are. One that I'll point to and I, and I'm going to credit one of my younger investigators for kind of smacking me across the head with this one is lack of transparency. When you ask somebody a question who works for you, you should get an answer that is understandable to you and does not involve the person trying to kind of fill you with baffle gap to the point where you almost forget the question.

Another thing about embezzlers is that they'll be possessive about their duties and it will even extend to their workspace and their computer. This is the person who will get upset if somebody else sits at their desk.

A lot of thieves want to be alone when they steal. So they will try to engineer their lives so that they have some alone time in the practice. They will show up before everybody else, or they'll stay after everybody else goes home, or they'll kind of wander into the office on Saturdays to, quote, catch some things up.

Those are some good signs. And you could even track in your, in your practice the, the key log of when people come and go, because many times you're not going to know if they're coming in after hours or if they're coming in on a Saturday. So maybe, maybe periodically, if you smell something might be happening, maybe even check on that. I know when I was studying about embezzlement and I was even thinking about taking the certified fraud examiner program, was it would be a good idea if you could have some people take on their vacation, have somebody fill in for them. Almost like where you cross train some of your people and maybe you have an assistant who can also operate the front desk at a basic level and have them do that for a week, a year or something, because that's where sometimes anomalies are discovered and questions should be asked.

You raise a lot of good points in what you just said. First of all, make people take vacation. A lot of thieves will come up with lots of reasons why they don't need vacation. And of course, the dentist who, who tends to see the best in everybody will view this as a hyper, dedicated employee as opposed to the Opposite. And cross training is something that needs to happen full stop. If you own a practice, you cannot run the risk that your office manager gets run over by a tractor and a lot of your institutional knowledge just disappears.

So it comes back, Wes, to something you said early on. You know, people need to document what they do and, and cross training should not be a dirty word. Another one I'll mention is that a lot of thieves are threatened by the involvement of an outside advisor, whether that's practice CFO or a software trainer for Eaglesoft or.

An outside consultant. These people to the embezzler are a huge threat. I mean, they know they can fool you, the doctor, they've got that down to a science. But somebody who thinks about dentistry as a business more than a healing art and is not kind of under the embezzler spell, that's a huge threat. So when you go to your staff and you say, you know, I'm going to get Wes and his folks a little more involved, and there's an office manager who kind of has her arms folded and says, no, doctor, I think that's a waste of money. You don't need that. That's a warning sign too.

Yeah. That is such valuable content.

On your website you have something that you call an office protection system. Tell me a little bit about the experience of working with a company like Prosperitant. Somebody something smells wrong with the finances and the practice, there's a possibility of embezzlement. Is there? And so they contact you. I think you have them do an initial quiz just to see if they're is some possibility of it. What is a fraud investigation look like when you come into an office? And then tell me what is an office protection system that you mentioned when.

We do fraud investigation? And I'll, I'll start by mentioning that first of all, we only work with dentistry. Secondly, we're the largest company really in the world that does this. We currently have 19 investigators.

About half of who used to be dentists and the other half come from some other corner of dentistry. When we do investigations, the first thing I'll stress is that they are 100% stealthy. In other words, the staff in the practice have no idea that the doctor has asked us to look at the practice and we go to considerable lengths to make that happen. For example, one of the things that we do in most practices is we don't actually.

Do anything with the live practice management software. We make a copy of the data files and then we build our own duplicate copy of the practice Management software in our computer computer lab. And that's what our investigator looks at. And what that does is it keeps the firewall between us and the practice. And it also gives us the luxury of working with static data, which we wouldn't have in live software.

So our investigations are done in a stealthy way. They typically take eight or 10 weeks, depending on the scenario. And at the end, we will give the doctor a comprehensive report that says either yes or no if. If embezzlement is happening. Of course, our protocol is let you know as soon as we confirm that, which would be much sooner than our final report.

Office protection system is a product that we developed about five years ago because dentists were saying to us, okay, you know a lot of things about how to protect me from embezzlement. How about sharing?

And that part of our company is headed by a very interesting lady. She has an accounting background, but she ended up putting her accounting career on hold one day because her husband, the dentist, said suddenly, I need you, and I'll let you read between the lines there.

But she and her husband kind of went through an unfavorable experience, let's say, and she's really well positioned to protect people against what happened to certain dentists. Office Protection system involves looking at a doctor's systems. So everything from the way that people are screened before they're hired to what the dentist does at the end of each day with the information that they get to security settings in the practice management software. We really crawl over a lot of different functional areas in the practice, and the idea is to help the doctor identify the areas where they're vulnerable and then correct them.

What are some of the most important areas when you are hiring? Because I think that's if you can nip it at point of inception, which is when you hire. What are some of the. Just the most important things when it relates to the possibility of you onboarding an embezzler? Some of the most important features of that applicant you could look at.

I think we did this when I visited your office. If we put 30 dentists in a room and we ask them, you know, we say, okay, if you enjoy hiring staff, put your hand up. No hands go up. Dentists absolutely hate the hiring process. And like with anything you hate, when somebody offers you a shortcut to get out of that horrible job, you tend to take it.

And.

I'll. I'll make this very simple. As an example, very few dentists drug test applicants before they hire them.

When we look at that objectively, it makes Absolutely no sense. I cannot get a job with FedEx delivering the junk people buy on ebay without a drug test. I cannot work in most hotels.

Without a drug test. And yet I can work in a dental practice that has prescription pads sitting right there.

Okay, why? Because dentists are the ultimate altruists and they want to believe the best in people.

One thing that most dentists.

Fall down on is really simple. I do not hire anybody without speaking to their former employers, at least for the last five years.

And yet dentists, it doesn't take much convincing to get them not to do that. All I have to tell a dentist, Wes, is please don't contact my, my current employer because she doesn't know I'm leaving. And most dentists will dutifully nod and say, oh, okay.

If I'm a dentist and somebody says that to me, what I'm going to say to them is the following.

I understand your concern and I certainly will not do anything that jeopardizes your current employment. But I'm going to tell you right now that we don't hire anybody without having that conversation. Although I'm happy to push it off to the end of our process so that we don't cause you trouble with your current employer.

That should be your answer. I'm going to have that conversation, but I'll give you control over the timing.

And then if they opt out because of that, that could be a sign that, well, they're not the person you want.

People asking that are in one of two situations. Either it's a legitimate request and they haven't told their current boss that they're looking and they don't want to until they're ready to make a move. And I get that. Or this is a person who was fired three weeks ago and they're claiming that they're still working there. And please don't contact my current employer. It's just a way of preventing you from calling somebody who just fired them and almost certainly is going to have bad things to say. So the statement that I just gave is a great exercise in differential diagnosis. Let's, let's figure out which of those conditions it is and then, then we know how to handle it.

All right, so now let's say you were suspicious of an embezzler. Let's say we brought in prosperidant, one of your investigators. Six weeks later, we uncovered $200,000 has been stolen over a four year period. And so we have an embezzler and maybe we discover it ourselves. As a dentist now what do we do with the, with the embezzler? How do we handle the off boarding? What's the, what's the protocol? What do we want to make sure we as a dentist doesn't do anything that gets the dentist in trouble in the way that they handle that with the staff. From a, a labor law standpoint, what's your recommendation?

A couple of things. First of all, in all states but one, you exist in an employment at will environment, which means the theory is that you can fire anybody for any reason, anytime, or I guess really for no reason. That's the theory. The practice is a little bit different because a lot of employees are in a protected class. So there's anti discrimination legislation in every state and it prevents you from making employment decisions on certain bases, like for example, firing somebody because of their gender or their sexual preference or in some cases their age.

Every employee who's fired for whatever reason is going to consider themselves to have been discriminated against. Why? Because there were eight other employees and they didn't get fired. It was just that I did. Everybody has a little bit of selective perception and the fact that I've embezzled may not enter into it. So we need to be mindful that every employee who's fired, especially in a time when it's hard to find another job and now might be one of those times because of COVID.

Are going to try to make a case for being discriminated against. So we need to anticipate that we probably need some HR assistance, especially if an employee is in an obvious protected class. You know, we're firing a 60 year old employee who's been with the practice for 15 years. We have to assume that an age discrimination claim is coming. So that's where we come in. That's where your HR advisor comes in. There is no problem whatsoever with firing somebody who's been stealing from you. And they have, if you do it properly, no real chance of any kind of wrongful termination action. It's just there's a, a series of steps that need to be followed. It's also equally important that you lock down the practice properly. And I'll tell you what happened to one dentist in Indiana. He fired his office manager. What didn't occur to him at the time of firing was that the office manager had access and still had access to the office Facebook page. The office manager, the former office manager then posted something saying the office would be temporarily closed while the doctor Deal dealt with his narcotics addiction, which of course wasn't true. But Imagine trying to walk that message back in the community.

So there's a series of steps for termination. There's equally a series of lockdown things that need to happen when you fire somebody. We have a termination checklist. And certainly if anybody listening in is ever in this position, I'd encourage them to reach out to us. And we're happy to share the termination checklist with them.

Great. David, any parting words for associates buying a dental practice on how they can stage themselves to have the type of practice that won't be as.

It won't run as high of a risk of embezzlement? We'll say.

I'll say a couple of things. First of all, I will quote a deceased President of the United States who said a long time ago, trust, then verify.

The second thing, and we didn't really talk about this today, and I don't think we have time to get into it. But the other issue facing an associate who's making the transition to practice owner is what happens if I walk into a problem. Either I buy a practice from a dentist and embezzlement is taking place and the dentist isn't aware of it, or the situation that we get called into sometimes, which is I buy a practice and perhaps the seller isn't totally forthcoming with me. Possibly they're exaggerating some of their numbers.

Or.

They'Re doing what a term that Wes has heard that maybe some of the people listening have not called window dressing, which is when somebody contrives to make their financial results look better than they are.

Buying a practice is a huge investment.

And yet a lot of dentists who, who do that will not do things like engage advisors who are familiar with dentistry. There's a huge difference when your attorney is somebody who specializes in dental transactions versus a general purpose lawyer who's helping you with this transaction. There's a huge difference between a CPA who specializes in dental practices and one who does corner stores and pharmacies. And oh, I have two dentists. As clients.

You need advisors who are experts. It amazes me, it absolutely astounds me the number of dentists who buy practice and don't do a pre purchase chart.

Audit.

Which is one of the great chances to uncover a lot of the games that people play when a practice is being sold and tried to make, tried to be made to look like more than it is.

I cannot understand. I mean, nobody, nobody would buy a house without walking through it, you know, and having a structural inspector come in to see, you know, is the house in good shape or Is it going to fall down in three years? Nobody would do that. And yet people buy dental practices without that. I don't get it.

Yeah, I, you know, I sympathize with, with young dentists who have 5, $600,000 in student loans and they want to buy a practice and every dollar matters so much for them. But, but, but I can't agree with you more just how important it is that when you're not only about to make that investment, but you're about to lock yourself into a loan and you're about to lock yourself into a lease, and you can't back out of that easily and without there being significant collateral damage on your credit score and your financial condition and the ability for you to move on to eventually on another practice. And the banks realize that as well, which is why they will lend working capital on top of the purchase price if the price is within a reasonable range so that you have cash to sort of help you with some, some of those onboarding costs of acquiring a practice. Well, David, I really appreciate you being on our program. I think this is one I think doctors should listen to actually more than once as they buy a practice and come back to this and have you in their Rolodex as a contact in the event of either just setting up a good system in their office to ideally prevent it or reduce it from the chances of it happening or, or if they suspect something might be occurring, to call you into action. I have on our Associates on Fire website.

In the Fuel cell number three in the downloadable resources, so if you scroll to the top listener and you go to the resources section of the Associates on Fire website and then you click on Fuel cell number three among the resources, we have something called an Embezzlement Protection Guide. Now, because I've got David here listening to me, I'm going to change this from Embezzlement Protection Guide to Embezzlement Control Guide, because there is no full protection, right, Dave, against embezzlement. And I know you brought that to my attention and that was an oversight on my part. But that guide is there and it talks about some statistics, the fraud triangle, the profile of an embezzler, which, by the way, oftentimes is that person that you would least expect to be an embezzler, somebody who comes practically to your family reunions. You're that close with, with that person, incredibly trusted. So we sort of list off some of those, that profile. We list off some symptoms of embezzlement in an office. We talk about some of the causes and methods. Now, this is locked on our website and you have to register and fill out a profile questionnaire in order to. To get that. And some safeguards you can put in place as well. There's a lot of safeguards here, and it's probably overkill, but at the end of the day, it's really. I really want you to learn some of that language around business and around embezzlement and these symptoms and how it occurs and what you can do so that you're.

Educated on this really important subject. Because the last thing that you're going to want to find out is you've been working in dentistry for 10 or 15 years and maybe you have some money saved aside. If you're working with us, you are going to have some money saved aside because of the system we're going to put you on. But you don't want to suddenly find out that, wow, I'm out $150,000 or I'm out $500,000 or I made the wall of shame on Prosperitant's website and I have a million. I was embezzled a million dollars. Think of the setback to your financial independence because we neglected that area in your business. Well, as a business owner, please don't neglect that again. David, thank you for being on the podcast. Maybe in the future we'd love to have you back on. There's so much more we could have spoken about and we'll do another seminar and we'll invite some of our clients and we'll do something to provide them, I think, some more resources on this important subject.

Perfect. Thanks for having me take care.

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