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Embezzlement Warning Signs You Need to Know – Episode 175


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During your career, someone is likely to defraud you. Here’s how to prevent it from happening.

Ryan takes the mic on this Dentist Money™ podcast. His guest is David Harris, founder of Prosperident, a forensic investigation firm that specializes in investigating, and protecting dentists from, embezzlement. If you think embezzlement won’t happen to you, statistics show it’s highly likely to occur during your career. Ryan and David discuss what leads people to embezzle; they profile what a typical embezzler might look like, and they give you warning signs that might tip you off that something is awry.

To find out why you should always be wary of dental fraud.

Podcast Transcript:

Ryan Isaac: Hey, Dentist Money Show listeners, this is Ryan Isaac. I’m very excited about today’s interview. This is with the great David Harris from Prosperident. I’m not joking when I say we talk about murder, and fake names, and disguises, and lies, and fraud, and deceit, and embezzlement. It’s crazy how common embezzlement is in dental practices. Grab a pen and a paper, take lots of notes. You’re not going to want to miss this episode.
Just a reminder, please join us in our free Facebook group, where we post questions, and polls, and have great discussions. Go to dentistadvisors.com/group, and join up, or, if you want to chat with us, go to dentistadvisors.com, click on “Book Free Consultation,” and schedule an appointment to chat with one of our advisors today. You can also call or text us at 833-DDSPLAN. Thanks, again, for tuning in to this episode with David Harris. Thanks for listening, enjoy the show.

Speaker: Consult an advisor, or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors, a registered investment advisor.

Ryan Isaac: Welcome to the Dentist Money Show, where we help dentists make smart, financial decisions. I’m your host, Ryan Isaac, and I’m here today with a new friend of the show, Mr. David Harris, of Prosperident. How you doing, David?

David Harris: Good! How are you, Ryan?

Ryan Isaac: I’m doing well, man. I was just saying, I’m excited to have you on the show. You’ve worked with some of our clients in the past. I’ve been listening to other interviews you’ve done lately, so I’m excited to have you. I have a lot of questions here.

David Harris: I thought you might.

Ryan Isaac: Yeah, that’s the point here. I’m excited to have you on here. So, I’d love for you to, and you do this all the time, but I’d love for you to give a little background on where things started for you. I’ve learned for myself that you’ve had a really cool background. I wrote some of these quotes down. You called yourself a “self proclaimed miscreant,” and a “self proclaimed underachiever,” and now you run this massive, the biggest, dental fraud embezzlement firm in the world, probably, right?

David Harris: Yeah, you know, when I was in high school, I think my parents disbarred that I would ever make anything of myself. Actually, I ran into my old history teacher a couple years ago, and he remembered me because I was so undistinguished, and I said to him, “Yes, I remember you trying to teach me history, and that it was painful for both of us.”

Ryan Isaac: Mm-hmm (affirmative).

David Harris: Academically, I wasn’t much of an achiever, and got in some trouble, and ended up joining the Army, because it sounded a whole lot better than jail.

Ryan Isaac: Oh, that’s right, yeah. I remember hearing that.

David Harris: I had a chance, there, to really sit and think about hoe differently criminals thought than everybody else. I had a job where I was breaking into military bases as a way of improving the security.

Ryan Isaac: Really? Your broke errand is like my dream job. I watched those shows where they take ex-cons, and they bring them into the FBI to, you know, no offense to everyone I work with, I love my job, but that’s kind of my dream job, to do that. You know? That’s really cool. You kind of did that.

David Harris: I did that, and that’s when I really started thinking about how, as they say, “Criminals approach the world differently than everybody else,” and that knowledge is something that I still use everyday, and certainly our good investigators are really adept at putting themselves in the shoes of a criminal in a certain situation, and saying, “Okay, If I was going to steal in this situation, how would I do it?”

Ryan Isaac: Yeah.

David Harris: That’s what distinguishes a skilled investigator from an average one.

Ryan Isaac: Yeah.

David Harris: Yeah, I spent a lot of time thinking that way, and then I had one of those chance occurrences. After I left the Army, I worked for a bank for about five years, I had quit my job there, was sitting at home sort of thinking about what I was going to do next, and I got a call, and it was a guy I had been in high school with, who is now a dentist, and he said to me, “I think my front desk person is stealing, and I have no one else to call.” So, I really wasn’t very busy that day, so I said, “Alright, I’ll come over to the practice after work.” So, once he closed up, I came over, and we found what she was doing fairly quickly. This was back in the days before computerization, so they don’t peg board system.

Ryan Isaac: Okay.

David Harris: Some folks with gray hair remember it fondly. The way I found this embezzlement wasn’t exactly what the doctor thought I was going to do. I got into the practice, and he shoved the ledgers at me.

Ryan Isaac: Yeah.

David Harris: I said, “No, we’re going to approach this a little differently.”

Ryan Isaac: We’re going to think like this person’s probably thinking.

David Harris: What I started doing was going through her desk, and taped underneath one of her drawers, I found her cheat book.

Ryan Isaac: Oh, my god. That’s like Mafia style.

David Harris: Well, embezzlers, especially if they’re carrying on for a long time, need to right down what they do so they can keep track of what’s real, and what’s fiction. In those days, the cheat book was like a notebook.

Ryan Isaac: Wow.

David Harris: Now, it’s more commonly an Excel spreadsheet on the computer.

Ryan Isaac: Yeah, like ion the phone or something.

David Harris: Yeah, it was a book. So, I found the cheat book, and once I found that, the whole thing unfolded really fast.

Ryan Isaac: So, one of the things I’m thinking right off the bat, now, that I’ve always wondered, when you actually help somebody discover that it is, in fact, happening, how do they feel? Is there a relief, is it relief mixed with, “Aw, crap. Now what?” How does that work?

David Harris: In part, I think it depends on how suspicious they were. We get people on call-outs and say, “I don’t really have any particular reason to think I’m at risk, but the possibility of embezzlement bothers me, and I’d kind of like to know.”

Ryan Isaac: Yeah.

David Harris: And if we find embezzlement in those situations, which happens sometimes, they’re shocked. They’ve really been looking for reassurance that it’s not happening.

Ryan Isaac: Ah, yeah.

David Harris: Then you have the people at the other end of the continuum who are pretty suspicious, already. They want to get an expert involved, and in those cases, relief is probably the best emotion. What the two groups share, though, is really a sense of violation. This is not a crime like when somebody, your car is parked in a parking lot somewhere, and somebody smashes out the window, and takes your [inaudible].

Ryan Isaac: No, this is personal.

David Harris: This is done by somebody who you know really well, whose daughter’s wedding you were at three months ago, not really realizing that you were funding it. There’s a sense of violation.

Ryan Isaac: Yeah. Okay, so, I want to still give some context around how you led into this, and maybe just two minutes about Prosperident, too. You’ve said before, and I think this is very true in this subject, and probably a few other financial subjects in general, sometimes people just don’t want to know things, because it’s hard news, you know, it’s human nature. We’re kind of just like, “Eh,” you know? Ignorance is bliss, so you work in that area. You work specifically just for dentists to catch this stuff, and it’s an area where people don’t want to know. So, from that experience, helping your friend, to today, Prosperident, you were just saying, employees all over the country, the biggest firm in the world, only dentists. What bridged that transition? How did it get from there to where it is today?

David Harris: Well, you know, when I found the embezzlement at my friend’s place, and he made that promise of dinner, I just kind of walked away, and I didn’t give it another thought.

Ryan Isaac: Okay.

David Harris: I certainly didn’t…

Ryan Isaac: It wasn’t like a business idea for you at the time.

David Harris: No, not at all. I was trying to help my friend, and I went back to thinking about my future, and then two weeks later, lightening struck, and the way lightening struck was that I was going into my own dentist office for an appointment, and think about how I felt, and what was going through my mind. I had my hand on his front door, and I was going to go into the practice, and I looked through the glass panel on the front door, and I saw, sitting at his reception desk, the same woman who fired at the other practice two weeks earlier.

Ryan Isaac: No!

David Harris: That isn’t exactly what I said.

Ryan Isaac: It’s like a movie at this point. You’d could write a movie on this. This is crazy!

David Harris: It was one of those weird things. So, at that point, of course, I still wasn’t thinking about a career. What I was thinking about was, “How do I let this guy know?”

Ryan Isaac: How do I tell this guy? Yeah.

David Harris: So, I turned around, and I hope she didn’t see me, and I sprinted to a payphone, because in those days a cellphone was bigger than what you’d carry around…

Ryan Isaac: Yeah, that’s true.

David Harris: …And I called the office, and I didn’t know a whole lot about how dental practices worked, but I suspected if I put “Doctor” in front of my name, I’d get put through.

Ryan Isaac: Ah, yeah.

David Harris: So, I knew the name of a local orthodontist, and I just used his name, and the doctor picked up the phone, and when he answered, I said, “It’s not Doctor Jensen, it’s David Harris. I’m the guy whose supposed to be sitting in your chair right now. Let me tell you why I’m not.”

Ryan Isaac: Oh, my gosh, man.

David Harris: Well, that’s just about word for word what he said, and he asked me in a panicked voice what he should do, and I started answering him, and he hired me.

Ryan Isaac: Yeah.

David Harris: That was really where it became business.

Ryan Isaac: That was it.

David Harris: By the time I had finished helping him, I had another call, and another one after that, and it really just kept going. I did this pretty small scale for a long time, and then what really…

Ryan Isaac: It was all you. You were the main investigator, you were traveling around…

David Harris: …And, in those days, it was typically done on sight, which meant that, you know, you’d sneak into the premises after they’d closed, and you’d pull the all-nighters, and do your work. What revolutionized everything was the internet, and the ability to move data.

Ryan Isaac: Yeah.

David Harris: We reached a point about fourteen years ago, where we didn’t have to physically go into the office anymore to do the work, and that changed the geographic scope from what you could travel to easily, to anywhere on the planet. I mean, our folks do some work in Australia, for example, and it’s all done through the cloud. So, that’s really where the growth curve started, and where the business started to get bigger.

Ryan Isaac: Okay, and then, so today, if we fast forward a little bit, I’ve heard you say you have, and I want to get into how common this is, because…

David Harris: Yeah, absolutely.

Ryan Isaac: …It’s pretty mind blowing, but this is a very specialized business, and people you have here. This is only for dentists, not general medical, only embezzlement investigations, but you have subspecialties on your staff. You have people who are ortho embezzlement only.

David Harris: Yeah, we do, and what happened there, orthodontic practice management software is quite different from general dental. When you think about a lot of dental specialties, they can comfortably use the same software as a general dentist, so a pediatric dentist, a periodontist…

Ryan Isaac: It translates fine.

David Harris: Yeah, for the most part. I mean, there is specialized software for endo, and perio, but a lot of endodontists, for example, use general dental software. The two groups who are really outliers, in terms of their software, in the underlying business model, are orthodontists, and oral surgeons. Originally, we had the same people who worked with general dentists try to cover those specialties, and it just didn’t work very well. I mean, I got a lot of complaining internally when I said to somebody, “Okay, I have an orhto file for you next.” They were like, “Oh, God.”

Ryan Isaac: “Oh, God, I don’t want to deal with ortho,” because you can’t pull the data. The data wasn’t good enough, it wasn’t clean enough.

David Harris: When you think about the orthodontic business model, the software records the income up front,…

Ryan Isaac: Mm-hmm (affirmative).

David Harris: …Which makes sense to every orthodontist. It makes no sense anybody who is used to thinking about general dentistry where, you know, if you treat somebody over a two year period, it’s going to be income recognition as you go, and not, kind of, all up front.

Ryan Isaac: Yep.

David Harris: So, we started hiring people with experience in those areas. The lady who heads our ortho department is just amazing, and, you know, she’s got twenty five years plus. We also have some investigators, who also used to be dentists, and one of the investigators in our ortho department is actually an orthodontist.

Ryan Isaac: Oh, still practicing, some of them?

David Harris: No.

Ryan Isaac: Kind of out of it now?

David Harris: She had a medical condition that caused her trouble to practice, but, Lamine is very good, and she’s certainly not happy sitting a home, so she found us, and it’s been a good success.

Ryan Isaac: Unfortunately, there will never be an end to the work that you guys can do as a company. I mean, tell us, how common is embezzlement in dental practice?

David Harris: I can’t give you a definitive answer, and the reason I can’t, Ryan, is that there are two unquantifiables, here. The first one is that there is some amount of embezzlement that never gets detected.

Ryan Isaac: Yeah. Do you think that’s large? Do you think that’s healthy? Your own experience, where would you…

David Harris: I don’t know. Just by its nature, it’s unmeasurable.

Ryan Isaac: Yeah.

David Harris: And then there’s a further amount that the doctor finds, and they just kind of sweep it under the nearest carpet, and don’t tell anybody, anywhere. Those two amounts stay out of the statistics. Based on what’s reported, and, probably, the most credible studies, is the one that the American Dental Association did about ten years ago, but I don’t think much has changed.

Ryan Isaac: Yeah.

David Harris: 35% of the dentist they have surveyed had been embezzled. So, you know, it was a big enough study that it’s a safe assumption that those surveyed were, on average, at the midpoint of their careers, so therefore, if you double it, you’ve got the lifetime probably, something around 70%.

Ryan Isaac: Yeah.

David Harris: That’s based on what was reported. What we don’t know is how many of the other 65% either, had been embezzled and didn’t know it, or had been embezzled, and chose not to disclose it.

Ryan Isaac: Yeah. This is a question I’ve had, because I’ve seen this actually happen with clients that we’ve brought on, and they’ve had embezzlement in the past. I’ve seen it where a doctor will, I don’t know if it’s bleeding heart, if it’s like a mission of mercy, where the doctor will keep the person, try to rehab them, try to get them back on the right path in life, or whatever. Is that common, or is it like a bleeding heart, where, “I want to fix the person?”

David Harris: It’s more common than it should be, and I guess there are a couple possibilities. First of all, dentists in general have big hearts. They are some of the altruistic people I have ever met.

Ryan Isaac: A lot of charity work. A lot of free community work. Yeah, definitely. It’s a big part of their identity.

David Harris: They tend to want to see the best in people. Of course, I come from somewhere where we get exposed pretty routinely to the worst in people, and I don’t quite have the same rose colored glasses.

Ryan Isaac: Sure.

David Harris: The second possibility that I’ll raise is that sometimes the doctor’s been cutting corners himself, or herself.

Ryan Isaac: Okay.

David Harris: They’ve kind of weakened their position. For example, if you’re cheating on your income tax, and your staff see that,…

Ryan Isaac: Yeah.

David Harris: … Now, you’ve kind of leveled the playing field.

Ryan Isaac: Yeah.

David Harris: So, sometimes it’s something like that, or, to articulate the worst nightmare, you’re having an extramarital affair with the embezzler.

Ryan Isaac: Ah.

David Harris: That makes them pretty close to bulletproof.

Ryan Isaac: You’re saying this because you’ve seen it. Yeah, you’re not making up scenarios here. So, on that note, one of the things I was interested in when I had listened to some other interviews with you is, you have division in your company, if I remember, you call it the “Special Cases Division,” it reminds me of some kind of…

David Harris: Special Investigations, yeah.

Ryan Isaac: So, what’s this special unit taskforce?

David Harris: Special Investigations do the investigations that none of our other people, in the same moment, would touch. There are a couple of possibilities. One is, it’s some offbeat software.

Ryan Isaac: Okay.

David Harris: We’ve even seen cases where the doctor wrote their own software.

Ryan Isaac: Really? Okay.

David Harris: Now they need an investigation. We have nobody here familiar with it. We need somebody who is kind of adaptable. Some of our investigators are really good at Dentrix, or EagleSoft, or something, but that’s their comfort zone, and if you take them outside of it, they don’t function well.

Ryan Isaac: Sure.

David Harris: The folks in S.I, One of their distinctive characteristics is that they can sit down in a foreign software, and make it talk to them quickly. Another situation is, what refer to internally as, is fratricide. What we’re talking about there is a group practice where one doctor is stealing from another.

Ryan Isaac: Ah, yeah. I’ve heard you say this, and that is fascinating to me.

David Harris: It really boggles the mind.

Ryan Isaac: It does.

David Harris: A lot of dentists, certainly when I speak to groups, and bring that topic up, the looks on some of their faces…

Ryan Isaac: Are there some uncomfortable shifting in the…

David Harris: Not so much that, but just, “I understand how a staff member could do this, but a brother, or sister dentist who has the same education as I do, and the same code of ethics. No way.” The number of active cases that we have at any point in time kind of varies between 60, and 100.

Ryan Isaac: Okay, man.

David Harris: Typically, four, or five of those is fratricide.

Ryan Isaac: Really?

David Harris: When you think that it’s a relatively small minority of dentists who practice in group practices.

Ryan Isaac: Yep. It’s a big representation.

David Harris: It’s a factor.

Ryan Isaac: Yeah.

David Harris: Yeah, we’ve seen some spectacular…

Ryan Isaac: One of my questions…

David Harris: [inaudible]

Ryan Isaac: So, on this note then, one of my questions, what I’d love to get to, it probably has a few different parts to it is, who’s the typical embezzler? Let’s just stay on this topic, then, if you’re in a group practice, what’s the profile of a partner who is going to end up embezzling from his or her other partners, which, does seem kind of like, “Man you’d think everything aligns. Why are we doing to his to each other?”

David Harris: A lot of embezzlers, and if I step backward, and talk about embezzlers in general…

Ryan Isaac: Okay, yeah.

David Harris: … They sort of come in two flavors, which I’ll call needy, and greedy. So, needy thieves are stealing because their household can’t pay for necessities in life.

Ryan Isaac: Yeah, desperation.

David Harris: Yeah, they’re two months behind on their rent, or their mortgage payment, and they’re about to get evicted.

Ryan Isaac: Are these ones smaller in terms of magnitude, usually, in dollar amounts?

David Harris: Typically, because they’re stealing to fill a hole.

Ryan Isaac: They need 2,500 bucks, yeah.

David Harris: So they steal that, and they feel bad about it, Ryan, but they just don’t see that they have a choice.

Ryan Isaac: Right, yeah.

David Harris: Then we’ve got the other group who I call greedy.

Ryan Isaac: Mm-hmm (affirmative).

David Harris: These people are stealing to scratch an itch in their ego, and not their wallet.

Ryan Isaac: Mm-hmm (affirmative).

David Harris: So, they think that society isn’t properly rewarding them for what they do, and they’re really stealing to address that.

Ryan Isaac: Get back at that, yeah.

David Harris: So, you know, if I’m an office manager, I may look at my doctor as, I’ve said in other interviews, “A high functioning moron with good hands.”

Ryan Isaac: Yep. I’ve seen this attitude from staff, and clients, and it makes you wonder, “Man, why do you treat the owner of the business so… Why do you [inaudible] him so much?”

David Harris: In their mind, the only reason the practice is successful is because they do a good job of filling the chair, and collecting money from people who leave it.

Ryan Isaac: So, they kind of deserve it.

David Harris: They look at the doctor, and they forget some things. They forget the years in school that the dentists spent,…

Ryan Isaac: All the risk that it took to even…

David Harris: …And the amount of student debt they came out with, watching their friends go and, you know, get jobs out of undergrad, and already have houses, and cars, and all [inaudible] of being grown up, and they forget all of that.

Ryan Isaac: Yep.

David Harris: The other thing is that most staff grossly underestimate how much the doctor takes home.

Ryan Isaac: Mm-hmm (affirmative), oh, yeah.

David Harris: They sort of tend to equate gross, and net.

Ryan Isaac: Yeah, “We’re collecting a 1,000,000 bucks. This guy must make a $1,000,000 a year. They must be swimming in money.”

David Harris: Exactly.

Ryan Isaac: Oh, yeah.

David Harris: They forget about overhead, even though they’re a part of it.

Ryan Isaac: Yep.

David Harris: So, to them, it all just seems really unfair, and they’re stealing to take what they think somebody should give to them. When you move that concept forward to fratricide in a group practice, typically what you have is a doctor who thinks that he or she contributes more than everybody else does.

Ryan Isaac: Okay.

David Harris: When you think about it, income sharing formulas in group practices, they’re tricky. It’s difficult to come up with a formula that works under all sets of assumptions, and I’ve seen a lot of group practices where you have, lets say, two dentists practicing together, and each of them has the perception that really they’re the one floating the boat. They’re contributing more value than they’re taking out.

Ryan Isaac: Yep.

David Harris: You couldn’t have it that both people were contributing a higher value than what they were taking out. I mean, if one’s overpaid, then the other one must be under.

Ryan Isaac: Under, yeah.

David Harris: Just like when you survey 100 people, and 80 of them say they’re an above average driver.

Ryan Isaac: Yeah, those are always interesting surveys, yeah.

David Harris: You have a perception by this person that, perhaps, the income formula that, you know, made all kinds of sense when they agreed to it 10 years ago, is unfair now, or something like that, and they’re taking what they think they should receive.

Ryan Isaac: So, would you say these partnerships where this happens, they fall into the greedy category?

David Harris: Yeah, for the most part.

Ryan Isaac: Over time they kind of develop that sense of [inaudible].

David Harris: Not a lot of dentists are two months behind on their mortgage, and at risk of getting evicted.

Ryan Isaac: Needy, yeah.

David Harris: Most can at least can provide for the necessities of life. It’s the stuff beyond that where, sometimes it’s a struggle. As you say, they’re the greedy thieves, not the needy ones.

Ryan Isaac: Okay. So, while, we’re on the topic, then, of the general personality, or characteristics of an embezzler, how do you watch out for it? Is it something you can spot during an interview process, are there warning sides, or red flags, on the greedy side, maybe or even on the needy side as it’s developing in someone’s practice?

David Harris: Yeah, there are certainly [inaudible] red flags. If we’re talking about needy thieves, there will be phone calls to the office from collection agencies.

Ryan Isaac: Okay.

David Harris: Or, maybe a garnishee order where the doctor has to set aside some of that employees wage, and pay it to, you know, some third party. I mean, sometimes there’s stuff like that. A lot of people who have money issues and are a little bit communicative about it, or you’ll see them make some choices like, the whole office is going out for lunch, but they just say, “I brought a lunch. I’ll just stay here.”

Ryan Isaac: Okay.

David Harris: One way, or another, if somebody has money trouble, the doctor should probably have some sense of it.

Ryan Isaac: Is it ever preceded by, maybe a life event that you, as an owner, are aware of? There’s a divorce, or a bankruptcy, or a job loss, or an illness, and then… Hindsight’s everything. I think I’ve heard you say, “Everything’s clear in hindsight,” but can you know any of this beforehand.

David Harris: You nailed the big four. Most of those things would be known to the dentist. It would be very atypical that a staff member is going through divorce, and the practice owner doesn’t know that.

Ryan Isaac: Right, yeah.

David Harris: We can all understand the mathematics of divorce. You used to have two incomes supporting one household, and now you have two incomes supporting two households, and a bunch of attorney bills.

Ryan Isaac: Yep.

David Harris: That strains anybody’s finances.

Ryan Isaac: Is it on the dentist, then, the owner, to just start being more aware of someone’s role, and responsibilities, and control that they have over things when they go through things? I think what’s hard is we don’t want to see the worst in someone. We don’t want to suspect things of people, and maybe we avoid doing what we should, because we don’t want to offend, or we don’t want to make someone feel like we don’t trust them anymore, but should a dentist do something different when they notice an employee, or staff members going through something like that?

David Harris: Other than taking note of it, and being aware of other possible manifestations that come out at the same time, no. Lots of people get divorced. It doesn’t mean they’re stealing.

Ryan Isaac: Right, yeah.

David Harris: When somebody’s going through a divorce, and they suddenly start staying late at the practice, and they don’t want to take vacation, and they tell the doctor, “No, you don’t need to upgrade that practice management software, because the version we have now is just fine.” When you start seeing a confluence of symptoms, that’s when the radar needs to go off.

Ryan Isaac: Work habits, and work attitudes start changing a little bit. “Let’s not bring in the consultant. I don’t want them to come in today,” or “I don’t want to talk to your CPA.”

David Harris: “You don’t need that expensive consultant. We have all the expertise you need right here.”

Ryan Isaac: “We can do it.”

David Harris: You mentioned trust a minute ago, and the way that humans handle trust is kind of interesting. When you first meet somebody, you kind of size them up, and you decide, are they trustworthy?

Ryan Isaac: Yeah.

David Harris: Once you decide that, you lock it away in a box, and you don’t revisit that [crosstalk]. We, as humans, are not particularly good at saying, “Okay, when I hired them five years ago, they were trustworthy, but something’s changed, and I need to revisit that question.

Ryan Isaac: Okay.

David Harris: The first thing a lot of people who call me say is, “I trust my staff, I trust my bookkeeper, I trust whoever,” I want to say to them, “Okay, but is that a decision you reevaluated yesterday, or is that one that you made 10 years ago, and just haven’t been over, yet?”

Ryan Isaac: Well, I think I’ve heard you use the phrase, when you’re talking about the nature of embezzlement and fraud, as interactive, and adaptive, and that’s probably what you’re touching on, is these things, they evolve, and they change, ane what the relationship was 10 years ago, isn’t the same as what it is today.

David Harris: That’s true. What I’m really getting at with the adaptation, or the evolution, is I have a little frustration with what a lot of people have been told to do about embezzlement.

Ryan Isaac: Okay, some misconceptions about how it should be handled, or something.

David Harris: Yeah, and the classic advice that’s given to people is, “Get more involved in your numbers.”

Ryan Isaac: Okay.

David Harris: I’ll never say that’s a bad idea.

Ryan Isaac: Sure, yeah.

David Harris: It’s a really good idea.

Ryan Isaac: You should be doing that anyway, probably, on some level.

David Harris: What I would say, instead though, is get more involved in your people. The basic problem with numbers is this: Every embezzler, when they decide they’re going to start to steal, the first exercise they go through, is the study their environment. Their environment is largely the dentist.

Ryan Isaac: Yeah.

David Harris: So, what does this person look at, at the end of each day? What do they look at each month? Do they reconcile the bank against the practice management, or not, you know? Is there a third party doing that, or is nobody doing it? Does the doctor ever print their own reports from the software, or did they simply rely on the ones someone else printed? Who takes the money to bank, and if a staff member takes it to the bank, is there any kind of reconciliation afterwards? These are the questions an embezzler asks.

Ryan Isaac: They see this day to day. There’s no one who knows the doctor better than the staff that’s there every single day, the schedules he has.

David Harris: They have all day to think about this [inaudible], while the doctor is trying to maintain their clinical output, and coincidentally spend a few minutes each day running the practice.

Ryan Isaac: Yeah.

David Harris: It’s a very unequal battle, and what the embezzler will do id come up with a plan based on the doctor’s patterns. I’ll give you an example, Ryan. There was one female dentist who we dealt with, and she had an activity with her kids on Thursday nights that her husband could not drive them to. So, she had to be out of the office at five o’clock on Thursdays. What the enterprising embezzler did was kind of save up all the emergencies that came in Tuesdays, and Wednesdays, and put them in the doctor’s book on Thursdays.

Ryan Isaac: Yep.

David Harris: Step one: Make the doctor very busy, make her run late.

Ryan Isaac: Rush, yep.

David Harris: So that Thursday, at five, she was sprinting to her car, peeling off her practice clothes as she went, and the last thing she’d be thinking about is…

Ryan Isaac: Day sheets, and reconciliation.

David Harris: Right. So, the practice was closed on Fridays, and really, the first chance the doctor would have to look at Thursday’s reports would be on Monday, when, let’s face it, what happened on Thursday was a pretty distant memory.

Ryan Isaac: Yep.

David Harris: So, the stealing happened on Thursdays, and again, it was all well engineered to do it in a way that it was least likely to be scrutinized. So, that’s what I mean about adaptive, and the other things is, of course, if I work for you, and you change your behavior somehow, that’s not going to make my need for money go away. Let’s say, for example, that so far I’m taking the deposit to the bank, and I’m stealing money out of it. Then, one day, you come into the practice, and you’ve been on some course over the weekend, or you’ve read an article, and you say, “You know what? I’m going to start taking the deposit to the bank myself.”

Ryan Isaac: Yeah.

David Harris: That does not send me to join the church choir. I have to rethink.

Ryan Isaac: It’s water. You’ll just have to find the path of the least resistance, you’ll just find another way to go.

David Harris: I’ll find another path, and I’ve got lots of places. So, that’s the downfall of folks who say, “Here are five things, or two things, or whatever that you need to do in your practice to prevent embezzlement.” There’s no prevention. There’s forcing your embezzler to go at it a different way.

Ryan Isaac: Would you say, out of all the misconceptions there are about embezzlement, that there is prevention? That you can prevent a criminal from being a criminal? That’s not true.

David Harris: You would have to get inside their mind, and [inaudible] in a way that we all wish we could.

Ryan Isaac: Yeah, change who they are fundamentally, yeah.

David Harris: When I talk to live audiences, I say, “Okay, I want you to think back to the last time that a staff member was doing something inconsequential, that annoyed you, and you just couldn’t get them to stop,” you know? Everybody’s got an example.

Ryan Isaac: Heating up fish in the microwave on lunch break.

David Harris: [crosstalk] Everybody’s got an example. So, you couldn’t get them to stop that, which you realize is inconsequential. Now they’re stealing, which really benefits them, you know, do you think that there is any possible way that you can sort of touch them with the motivation stick, in a way that they will not want to steal from you anymore? Not a chance.

Ryan Isaac: Yeah, okay. So, on that thread, then, there’s concept of, there is no prevention, you can’t change people by putting in some safeguard or something, and, what you said earlier, don’t just get involved in your numbers, get involved in your people. Be in your people’s lives. How do those things coordinate then? There is no prevention, and be more involved with your people.

David Harris: What we’re after, here, is really detection. On average, embezzlement goes on for about two years before somebody realizes it.

Ryan Isaac: What about magnitude? I don’t think we’ve said this yet. What’s the average magnitude, here, that we’re talking about?

David Harris: I haven’t seen any [inaudible] numbers across the industry. The only numbers I can give you are internal ones, and the last time we looked, which was about three or four years ago, the average amount that a thief stole, to the point where they got caught, was just over $100,000.

Ryan Isaac: That’s a lot.

David Harris: It’s a lot of money, and we, in this conversation, understand the time value of money, and certainly if that happens to a young dentist, what that takes out of their retirement estate is massive.

Ryan Isaac: Yeah, not to mention the ones that you’ve seen a lot of, I’ve seen a handful of, where its half a million, 400 grand, 600 grand.

David Harris: Yeah, we have a part of our website called “The Hall of Shame” where we…

Ryan Isaac: That’s how, I think, how I found you years ago, and I was like, “What is this?”

David Harris: It’s the Hall of Shame, and we have a subset of the Hall of Shame called The Million Dollar Club.

Ryan Isaac: Oh, my gosh. How big is it?

David Harris: I think it’s nine people now.

Ryan Isaac: My goodness. That’s devastating. That’s life changing, future changing.

David Harris: Of course, it is. Then, there’s the little bit less exclusive, Half a Million Dollars Club. It’s got about 20 members.

Ryan Isaac: That’s just huge, though.

David Harris: The scary thing about the Hall of Shame is what’s not on it. In other words, the only embezzlers who are there, are people who have already entered the public domain somewhere else anyway. We never publicize embezzlement until somebody has been charged criminally.

Ryan Isaac: Okay.

David Harris: For every embezzler in the Hall of Shame, there are a number of others who should be in there.

Ryan Isaac: Yeah, they’re not charged, they’re not caught. Okay, so back to what you were saying then, there’s not necessarily prevention, but there’s detection, and there’s being involved in people’s lives. So, what are some of those things that you would suggest for people?

David Harris: There’s a fairly lengthy list of behaviors that are correlated with embezzlement, and I’ll say something that I said a minute ago. The fact that somebody’s going through divorce, doesn’t automatically mean they’re embezzling. What it means is that they have a vulnerability, and you need a couple of other ingredients before embezzlement is really possible. To be stolen from you need three things. Somebody need to be under some kind of pressure, and it could be financial in the case of needy thieves, or emotional for the greedy. They also need an opportunity to steal, and that’s not one we have to talk about a lot, because that opportunity is there for basically everybody in a practice, front office more so than back office, but everybody has opportunity.

Ryan Isaac: And in multiple ways, which we won’t go into, but yeah.

David Harris: The third thing they need is rationalizations. We’ve all been taught, since we were two or three years old, you know, you don’t take other people’s stuff.

Ryan Isaac: Yep.

David Harris: That was ingrained in all of us from an early age, so we all know that it’s wrong. What rationalization means is when somebody gets to point where they say, “It’s okay to do what I know is wrong because…”

Ryan Isaac: I’ve heard behavioral scientists say, over and over again, that we are the best story tellers to ourselves. We can rationalize anything.

David Harris: Certainly when you look at people who are sociopathic, their ability is to construct their own truth, and then believe that it is true.

Ryan Isaac: Mm-hmm (affirmative).

David Harris: The science of polygraphing, lie detectors, which is now largely discredited. One of the big reason is, it just doesn’t work on sociopaths.

Ryan Isaac: Isn’t that crazy? They believe the stuff they’re telling them.

David Harris: It works on people when they know they’re lying, and lying bothers them. When people can construct their own reality, and then buy into. There’s no physiological response to saying the lies, because in the sociopaths mind, they’re true.

Ryan Isaac: Yeah.

David Harris: So, as you sort of progress down the ladder of sociopathy, then people find it easier, and easier, and easier to rationalize.

Ryan Isaac: I think there’s lot of misconception, too, about false sense of security with, you know, “I have a CPA,” or “I have a book keeper,” or “I have a financial planner.” Who are the people that can actually help with this stuff in the detection, as you say, or getting involved in the people’s lives?

David Harris: A lot of people think that their CPA is really on the front line of their defense against embezzlement.

Ryan Isaac: Yeah.

David Harris: The American Dental Association did a kind of interesting survey about ten years ago. What they did was, they asked embezzlement victims, “What tipped you off?”

Ryan Isaac: Ah, I’m so glad you brought this up. I was going to as you about that. Yeah, how did they find it?

David Harris: How did they find it? The answer, “My accountant found it” came up four percent of the time.

Ryan Isaac: Four percent of the time, accountants found the embezzlement.

David Harris: Yeah, and to almost every accountant I’ve ever met, what happens in a doctor’s practice management software is kind of a black box.

Ryan Isaac: Sure. They’re really robust nowadays. I mean…

David Harris: What accountants do is they take polls from the practice management software, and those become the start of the accounting process.

Ryan Isaac: Yep.

David Harris: But, to understand what went into that number is beyond their expertise, and to be fair, also beyond their mandate.

Ryan Isaac: Yeah.

David Harris: That’s where most of the bodies are buried in embezzlement in dental practices. Most embezzlement is found by luck. All of the systems that are put in place don’t perform as well as luck.

Ryan Isaac: I’m sure you’ve seen the dozens of lucky examples, since that’s the reason the majority of the reason they find them. What are some examples?

David Harris: One that I did share pretty early in my career, what happened was, the embezzler broke her leg skiing on the weekend, so Monday, she wasn’t in the practice. The phone calls that she normally would have fielded went to somebody else. That person, shortly after lunch came to the doctor, and said, “There’s something strange going on here, because I’ve gotten three of these very strange phone calls this morning, and they just don’t make sense.” That was what unfolded the whole things. So luck, obviously, is not something that we can play to, plan for, or anything else, but that just plays to the ineffectiveness of most of the approaches that people take.
The other thing that I hear from doctors a lot is, “Well, I check my day-end report everyday, and I make darn sure that it balances to my bank deposit.”

Ryan Isaac: Yeah, those are one of those check list things that you get at a seminar, or a blog post, or something. Good things to do, yeah.

David Harris: It is really, really good advice to check your day-end report, but if it matches to the bank deposit, that means only one thing. It means, whoever is holding onto the money knows how to add. There is lots, and lots, to use a phrase, that’s [inaudible] these days, fake news in reports from practice management software.

Ryan Isaac: I like when you said, “Where the bodies are buried,” that’s a very fun accounting term, it’s very Mafia, but all the bodies have been buried way before that final number is tallied, and obviously they know that. They know how to…

David Harris: Even if you look at your day-end report, I’m not going to discuss specifics here because there’s probably someone listening to this podcast for all the wrong reasons…

Ryan Isaac: If they’re smart, yeah.

David Harris: … And I’m not going to help them, but it’s not that hard to make a day-end report lie. The fact that equates to the bank deposit doesn’t mean anything, other than, as I say, that somebody’s got the basics of math figured out.

Ryan Isaac: Okay, one other thing, you know, I think about sometimes, and I had one of our clients hire you guys not too long ago, and one thing I was thinking about the whole time is, “If there’s something found, is there ever recourse on this stuff? Does things happen to the embezzlers? Do they get money back? How often do they get compensated for this?”

David Harris: Everybody gets something back, and how much you get back is a function of a couple of things. First of all, most dental practices have some amount of insurance for this, and it’s a fairly modest amount, typically. I mean, the number we see almost always is $25,000 in coverage.

Ryan Isaac: This is something I haven’t thought through in terms of higher levels of insurance. Can that be increased? Can that be self-insured?

David Harris: Absolutely. If you go back to your insurance company, and you ask them for a higher coverage, most of them will go to $75,000 pretty quick, and it doesn’t cost that much.

Ryan Isaac: Okay.

David Harris: For your listeners, that’s a really good idea. First of all, to check how much coverage you have, and…

Ryan Isaac: Who do they call?

David Harris: This is the property insurance, so it’s State Farm, or Farmer’s, it’s the company that insures them against fires, and floods, and things like that.

Ryan Isaac: SO, this would be a no brainer tip, just make sure you have the maximum coverage that your current company is going to give you for this issue.

David Harris: Absolutely, and it’s not big dollars, typically, to increase that coverage.

Ryan Isaac: Yeah.

David Harris: Now, in terms of recovery, that’s the low hanging fruit.

Ryan Isaac: As I was telling you before, I’ve been listening to some of your other interviews, and some surprising takeaways for me, even though I’ve seen this happen in client’s lives, unfortunately, is it’s not preventable. You can’t deter someone who is bent on stealing, from stealing. So, not preventable. It’s discovered most often through dumb luck. It’s not because you have a CPA, or consultant, or something, it’s just dumb luck, pure luck. It’s happening way more than I thought it was. I mean, if we could kind of see from statistics, recorded that were in 1/3 of all dentists, and it’s probably twice that, given the part of career, and then all the unreported stuff. I mean, this is a very probable thing in a dentist’s life if you work for 30 plus years.

David Harris: When we work, it’s done stealthily, which means the thief will have no idea, whatsoever that they’re being looked at, and…

Ryan Isaac: You don’t show up in a black van with a team of people, and, yeah.

David Harris: So when we work, our total process should take eight to ten weeks for a practice. If embezzlement is happening, we’re likely to find it much more quickly than that.

Ryan Isaac: Okay.

David Harris: It’s eight to ten weeks until the point where we issue a report.

Ryan Isaac: Okay.

David Harris: As I say, 100% stealthy, so there’s no chance that embezzler will realize that we’re on the job.

Ryan Isaac: Okay, so I imagine, in my head, because it feels like such a crisis when you start to expect, do they just pick up the phone, and call you? Do you have hotline that people call into?

David Harris: We have a lot of ways to reach us. The easiest way, probably, is through our website, which, once you hear it, you’ll remember. It’s www.dentalembezzlement.com. The only trick, there, is spelling embezzlement correctly. Google can help you. If you spell it wrong in a Google search, it’ll tell you the right spelling.

Ryan Isaac: It’ll get you there. Okay.

David Harris: They’re also welcome to call our toll free line, which is 888-398-2327.

Ryan Isaac: Great.

David Harris: When they come on our website, there’s a chat feature there. It’s manned about 12 hours a day. If somebody goes on the website, and they want to talk to a live person, the can easily start it there, and if somebody’s available, normally the chat operator will move it fairly quickly to a phone call, or at least schedule a time when a phone call can happen. That’s probably the best way, or call us.

Ryan Isaac: We were talking about this earlier, but it’s kind of one of those things, that if you do expect, it’s kind of like I took my puppy to the vet, over the weekend, and it turns out nothing’s wrong, and it’s nice to spend the money, and hear that there was no problems, and I feel the same way when I go to my dentist too. I had a client go through the same thing with your company, spent some money, turns out it was other problems that was causing the financial pains, and that was hug relief, you know? It’s good to just know that wasn’t an issue, so I imagine that’s an outcome, too, but that’s still, to me, as a consumer of services, it’s still worth paying for things, to know that nothing’s wrong.

David Harris: Nobody gets upset when they buy fire insurance for a year, and their house doesn’t burn down.

Ryan Isaac: They don’t use it. Life insurance, the same way.

David Harris: Nobody’s mad at that.

Ryan Isaac: Yeah, that’s true. Well, David, I’m really glad we had you on today. Thank you for taking the time. I feel like this is super helpful information for our audience, and, as you’ve been saying, I’m surprised how common this is, what a problem this actually is, so thanks for your expertise, and your time, and your information, and thanks for being here. We’ll do this again another time.

David Harris: I’d love to.

Ryan Isaac: All right, thanks, everybody. Carry on.
My many thanks, again to my new friend, David Harris from Prosperident. That was a wild, and informative, and a little scary, of a conversation. We’re so glad that he mad the time, and we had him on the show. A reminder to go check out our free Facebook group where you can post questions, and jump in the conversations, and add questions for upcoming Q&A shows for the Dentist Money Show. Go to dentistadvisors.com/group for our free Facebook group, and if you want to chat with us go to our website, book a free consultation. We have a wide open calendar for you, dentistadvisors.com, click on, “Book Free Consultation,” or just shoot us a text or call us at 833-DDSPLAN. Again, thanks to David Harris of Prosperident, thanks everyone for listening, carry on.

Practice Management, Getting Organized
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