This presentation covers the definition of occupational fraud, the risk factors, the fraud triangle, how motive, opportunity and rationalization all play into fraud, what to do when fraud is detected, and actionable anti-fraud steps.
Raise your occupational fraud awareness.
Provide information and ideas for your practice.
Questions we will address:
• Percentage of occupational fraud cases in dental offices?
• What type of behaviors should dentists look for?
• How can dentists minimize occupational fraud risk in their office?
• What is the best method to approach an employee if there is a
suspicion of occupational fraud?
• Can and should a dentist legally pursue an employee if they have
evidence of occupational fraud?
3. Occupational Fraud Defined
Employee deliberately misappropriates or
misuses company assets for personal benefit.
“Company assets” is not just cash.
Might be referred to as embezzlement or theft.
Detection is difficult because you only see what’s
showing……like an iceberg.
4. Occupational Fraud Risk Facts
5% of annual revenue lost to fraud
Median loss of $150 thousand (18 mos.)
85% of fraudsters are first time offenders
79% displayed warning signs
Asset misappropriation, billing and check
schemes were most common frauds
Weak or no internal controls
Too much control limited to one person
Most common detection....tips!!
5. Fraudster Example 1
Financial coordinator for dental practice
Time frame 18 months
Stole 237 checks written by patients and
Employee deposited into personal account via
Total loss $85,353
Discrepancies discovered in office’s operating
bank account – deposits per bank did not equal
amount posted to accounts receivable
6. Fraudster Example 2
Manager for medical practice
Time frame 2008-2011
Employee wrote checks to a business they
owned located out of state
Employee made electronic credit card and
student loan payments
Employee gave themself a bonus and paid for
unauthorized health insurance
Total loss $871,728
Uncovered via a tip from fellow employee
7. Fraudster Example 3
Office manager of dental practice
20 year “loyal and most trusted” employee
Wrote self 243 extra paychecks for various
amounts over several years
Total loss $359,458
Discovered when dentist received notices from
the IRS regarding shortage in payroll tax
When questioned, fraudster indicated:
“I did not feel it was stealing, but thought it was
owed to me for extra efforts both during the day
and after hours”
8. The Fraud Triangle
• Three common elements of fraud:
(MOR…. as in more than they deserve)
When motive and opportunity meet,
rationalization is just a baby step away.
Motives are ever changing.
What motivated you at age 20, today, tomorrow?
Personal finance issues
Addictions (drugs, alcohol, gambling, etc.)
Health issues and medical costs
Elderly parent care
Living beyond their means
“The thrill of steal”
(The Keys to the Kingdom)
Whenever someone in the organization can initiate, execute and
conceal a monetary transaction without any checks and
Giving someone signature authorization on your checking
account without compensating controls
Allowing employees access to the office at times other
than normal working hours
Allowing employees to make deposits with no crosschecks
Not reconciling bank statements timely and accurately
Not reviewing your 401K employee deferral deposits
Not reviewing your payroll tax deposits.
This is the only factor in the fraud triangle you have any control
(aka moral breakdown)
Rationalization for fraud can take many paths:
I am not paid enough
I work hard, I deserve this
I’ll just borrow the money and pay it back
No one will ever miss it
Wow, wonder if I can get away with
My kid really needs a new cell phone so his
friends won’t make fun of him
12. What’s wrong with this picture?
- prepares and files claims
- opens the mail
- prepares and makes bank deposits
- posts receipts and makes adjustments to the
accounts receivable system
- receives billing inquiry calls from both patients
- reconciles the bank accounts
Billing manager rarely takes a vacation
Billing manager has new car, new clothes and
increased spending habits
13. OK, now what do I do?
Perform a risk assessment of your practice (foundation)
“Follow the dollar” - study your internal processes from start to
finish and ask yourself “what could go wrong”?
Identify where you have weak internal controls such as no checks
and balances, security, daily reconciliations (such as scheduling to
billings or deposits in bank to daily receipts)
Pre-employment criminal background checks for all employees
plus a credit check for anyone with a financial role
Follow through with reference checks and get references from the
Consider obtaining fidelity bond insurance on employees
14. OK, now what do I do?
Establish internal controls (walls)
Establish the controls around the position….not
the person – very important
You have protocols for dental procedures, why
not written finance policies and procedures?
Communicate your financial policies and
procedures in writing and establish a fraud
policy as well as a robust anti-fraud program
Be sure systems are secured and backed-up
daily where only you can control access.
15. OK, now what do I do?
Monitor and Maintain (roof)
• Be unpredictable, periodically:
– open your mail for a few days
– periodically compare the deposit slip to cash posted to AR
– review the reconciliation of the daily schedule to the billings
– review the amount your employees are being paid
• Approve all accounts write-offs or adjustments
• Review the system audit trail for changes to prior
periods or other unusual or off-hour activity.
• Change your routine by arriving earlier than normal or
staying later than normal from time to time
• Require mandatory vacations and rotation of duties
• Re-evaluate changes such as opening a second office
16. Actionable Anti-Fraud Steps
Motive + Opportunity + Rationalization
Don’t give your employees a reason to take from you.
Be aware of changes in employee habits or circumstances.
However, don’t get too close on a personal level as it could
cloud your skepticism radar.
Establish AND Maintain the perception of detection.
Design your controls around the position not the person.
Clearly communicate expectations to all personnel in writing
as well as verbally, including ethics training.
Consider a fraud tip reporting mechanism for employees.
Be sure your systems are secured and backed-up daily where
only you can control access. Test your backups!
Be proactive and unpredictable.
Have your outside CPA conduct “surprise” inspections
17. What to do about Suspected Fraud
If you suspect fraud, contact your attorney immediately.
You do NOT want to make a rash decision/false
accusation. Avoid the temptation to dismiss
immediately, as that may open you up to wrongful
Do not confront the employee (as it may provide them
an opportunity to destroy evidence), but work through
the attorney to gather evidence and preserve
documentation. This may include the need for a fraud
investigator or forensic IT professional.
Act quickly but not rashly.
You may inadvertently destroy key evidence.
18. What to do about Suspected Fraud
Once you do have proof, you should have your
attorney quarterback and coach you through the
issue every step of the way:
If you find proof and have to let an employee go, you
must show them some evidence to justify your decision,
but NOT all the evidence. This should be done in the
presence of a witness.
After this, with the guidance of your attorney, determine
next steps (i.e. what kind of remedies are you looking for
and what do you want to get out of this).
Consider hiring a compliance consultant or creating
compliance manuals that the staff are aware of.
19. Specific Considerations for
• If the fraud is on the billing side, and it involves in
Medicare/Medicaid, then the legal ramifications
are much more complex.
Liability includes potential personal financial
loss, suspension or revocation of provider
number, and recoupment of payment from
• This requires extremely quick action and self-
disclosure You, the dentist, must come forward
to explain specifically what has happened,
including the exact dollar amount compromised.
22. If you have any questions, please feel
free to contact Jerry or Erick at:
Jerry Murray: (214)-635-2519
Erick Cutler: (214) 635-2541
Dawson, Steve. (2015). Fraud Prevention and Detection. [Lecture]. Fort Worth
CPA’s Free CPE Day.
Association of Certified Fraud Examiners – 2016 Report to the Nations on
A special thanks to Daniel Tatum, Attorney at Law from Friedman & Feiger:
Hinweis der Redaktion
We’ll use the words interchangeably
Look to your left then right, one of you will likely experience the above
Think back when you were 20 years old…..what motivated you then?
Now consider what motivates you today and what might motivate you in the future.
Can you control what motivates someone else?
There is not a 100% solution to completely eliminating fraud risk, however, the perception of detection can be your strongest tool to mitigate the risks.
“Perception of Detection”
“Trust but Verify” and “Inspect what you Expect”