Dental Tribune Indian Edition

5Dental Tribune Indian Edition - April 2013 World News “Most dental practices will encounter fraud” An interview with expert David Harris, United States The potential for embezzlement and theft is a problem no business is im mune to. And research shows that smaller businesses are more likely to experience problems than larger ones. For dental practice owners, it’s not just being small that incre ases risk. The typical dental office management structure is inherently vulnerable to fraud. Adding to the challenge, detection can be trickier in a dental practice compared with other small businesses. And the bad news continues: David Harris, who has 20 years of experience in dentalpractice fraud investigation, puts little stock in deterrence. In stead he emphasizes early detection as the only viable defense. Recently, he shared those thoughts and more with Dental Tribune US editor Ro bert Selleck. Robert Selleck: What is the like- lihood of a dental office experien- cing fraud? David Harris: There have been se veral studies by the American Dental Association and others. Collectively they suggest that the probability of a dentist being a fraud victim in his or her career is between 50 and 60 per cent. However, such statistics are ne cessarily low because there is an un quantifiable amount of fraud that is never detected or is detected but not disclosed. Are there any reasons why dental practices would be more likely or less likely than other types of small businesses to experience fraud? Two main points influence the pre valence of fraud in dentistry. First, the clinical responsibilities carried by dentists effectively reduce them to being absentee owners in their own businesses. Second, the fact that so much of dentistry is paid for by third parties removes one of the most basic controls that businesses depend on. Is there a difference in potential for fraud in a three- or four-person office compared with a practice with 20 or more? Intuitively, one would think that a larger practice should be able to have tighter controls through increased se paration of duties. But many group practices are essentially several solo practices sharing space, thus offering no particular administrative synergy. When a group practice is run as a sin gle unit, the dentists owning the clinic tend to delegate oversight of the admi nistrative functions to a single dentist. Given that there are many thefts per petrated against a solo dentist, ima gine the fraud possibilities when one dentist is overseeing a much larger business activity. Do you have statistics for average or median losses to fraud based on various sized dental practices? Unfortunately, there isn’t any published data specific to practi ce size. Bill Hiltz, who heads our investigation department, has a hypo thesis that frauds typically range between 4 and 7 percent of monthly revenue while the fraud is going on. In its 2007 Survey of Current Issues in Dentistry, the ADA surveyed den tists who had been fraud victims. The average estimated loss was US$18,174. Based on our own expe rience, this number is tremendously low. That’s not surprising because in the same survey only 51.3 percent of the dentists who were fraud victims completed a fraud investigation, rai sing questions on how the remainder determined their losses. We normal ly find that the amount of fraud that dentists are able to identify without the benefit of professional assistance is far less than the true fraud. We surveyed our own files several years ago and found an average theft of more than US$150,000. This is superficially consistent with the As sociation of Certified Fraud Exami ners number of US$200,000 for the average small business loss, but many of its “small businesses” are much bigger than most dental practices. We have seen a number of dental frauds of more than US$500,000 and a few exceeding US$1 million. What are the most typical types of fraud cases seen in dental practices? Most of the fraud that we see is “re venue fraud.” Some examples are wri ting off amounts that were actually collected, deleting treatment that was done so that collections are “off the books” and billing the full amount to two insurance companies when some one has dual coverage. A second type of fraud that we are seeing involves creation of “phantom” revenue. Insurance companies are billed for work that was never done, with funds either stolen directly or “lapped” (used to pay someone else’s balance to cover a stolen payment). Obviously, if discovered by an insurance company, this type of ac tivity can have serious consequences for the innocent dentist. Most thieves use more than one method of stealing; very few stick to a single methodology. Also, we are continually seeing new variants. For example, we recently saw a thief take advantage of a server crash to decrea se some accounts receivable balances. When patients paid the correct balan ces, they would be paying more than the “official” balance in the practice management software, with the thief pocketing the difference. Is there a type of fraud more pre- valent in a dental practice compared with other small or similarly sized businesses? Since we investigate only dental embezzlement, my knowledge of fraud patterns in other small busi nesses is limited to what I read. My perception is that much of the fraud committed against other businesses involves expenses: payroll, paying nonexistent suppliers, padding ex pense claims, etc. The majority of embezzlement that we see in dental practices involves revenue. While we do see a fair number of thieves who will steal revenue and also manipulate their payroll or create a phony supplier, very few will com mit expense fraud while concurrently resisting stealing some of the cash that patients hand them daily. What about fraud that’s more indirect, such as questionable wor- kers’ compensation claims? We have seen an astonishingly wide variety of unconventional thefts, everything from stealing the gold that is recovered from old restorations to misappropriating dental supplies and instruments and selling them online. However, embezzlement typically in volves larger amounts and takes place undetected for a longer period. What motivates the typical perpe- trator? We see two types of fraudsters. One type we call “dishonest”—the se people typically believe that they should live better than their “official” compensation permits. I immediately think of one thief who rented a private plane with stolen funds for a New York City shopping trip with girlfriends. Funds from ano ther major theft were used to purchase a yacht and the most expensive BMW available. The other group I would characterize as “desperate.” These people struggle to meet basic needs. There might be an addiction, an unin sured medical condition, a divorce or an unemployed spouse. In contrast to the dishonest fraudsters, these people have their moral compass altered by their desperation. Many initially plan to repay what they “borrow,” but a continuing deficit frustrates this. In terestingly, the desperate thieves have normally worked for more than eight years at their office. What are the strongest deterrents? Deterrence is effective with crimes of opportunity or where thieves can choose their target. Embezzlement is not a crime of opportunity; it is care fully planned with complete aware ness of the control systems in place, and it is crafted to bypass these con trols. Adding more controls simply in creases the circumvention challenge. Most of the thieves we see can easily adapt. Because shoplifting is a crime of opportunity, control systems such as video cameras and radiofrequency identification tags on merchandise are effective at helping to prevent pilfera ge; however, such deterrence is unli kely to work in a dental practice. The other point I will make is that fear of punishment seems to be vir tually ineffective in deterrence. Em bezzlers we see are well aware of the consequences of their actions, which include loss of livelihood and poten tially, loss of liberty. Because of the needs of each group, we should not expect punishment to deter either the dishonest or the desperate fraudsters. Are there any effective deterrents? My suggestion is that deterrence strategies that provide no collateral benefit (i.e., are done only to discou rage fraud) are a waste of resources; instead dentists should focus on early detection of fraud. I will again disagree with much of the collective “wisdom” that exists on dental embezzlement when I say that for a dentist or advisors to try to con firm fraud by some form of audit or analysis is unproductive and possibly dangerous. Because there are many possible ways to steal from a dentist, without considerable knowledge and some specialized software, this acti vity is looking for a needle in a field of haystacks. Fortunately for dentists, even though there are myriad ways to steal, the behaviour of embezzlers is remarkably consistent. With the right knowledge, identifying embezzle ment through behavioural analysis is painless and reliable. David Harris (DTI/Photo AVAVA) → DT page 6