Two Steps Every Dentist Can Take to Avoid Fraud – Episode #377

If you don’t believe fraud will happen at your practice, you’re not paying attention to the high number of dentists who get embezzled by a staff member. On this episode of the Dentist Money™ Show, Ryan talks about fraud in the dental industry with David Harris founder of Prosperident, a forensic investigation firm that specializes in protecting dentists from financial crimes. 

 

Show notes:
Prosperident.com

 

 

 

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Podcast Transcript

Ryan Isaac:
Hey yo, everybody, welcome back to another episode of The Dentist Money Show, brought to you by Dentist Advisors, a no commission, fee-only fiduciary comprehensive financial advisor just for dentists, say that 10 times fast. Check us out, dentistadvisors.com. Today on the show, an old friend, has been on for a while, David Harris from Prosperident, some shocking data about the number of dentists who are actively being stolen from on any given year. It’s kind of eye-opening. There’s not a lot of things you can do to prevent it from never happening but there’s quite a few things you could do to be on the lookout for it and mitigate it, lessen the risk.

Ryan Isaac:
So David has been in this industry for a very, very long time, has probably seen all of it and probably just the most insane stuff out there, so it’s always a pleasure to have him on the show and sharing some of his experience and wisdom, and some really important tips for our listeners. So thanks, David, for joining us today. That was awesome. Thanks to all of you for tuning in as always, and if you have any questions for us at Dentist Advisors, we love answering money questions and pointing you in the right direction. Just go to dentistadvisors.com. Let’s have a chat. Thanks for being here, enjoy the show.

Announcer:
Consult an advisor, 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. This is Dentist Money. Now, here’s your host, Ryan Isaac.

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 with a long-time friend of the show, David Harris from Prosperident. David, what’s happening? Thanks for being here, man.

David Harris:
Great to be with you, Ryan. Always glad to see your face.

Ryan Isaac:
Yeah, man, likewise. The subject matter though is… It’s helpful, but it’s a little bit of a downer sometimes, but this is so important. You were on the show… I’d have to go look at the episode, but it was probably a couple of years ago, and unfortunately, the subject that you deal with and work on and have for a long time is just so common and prevalent, and every time I hear even a whiff of this stuff, I’m like, “Oh man, we gotta get back in touch,” so how about for anyone who might not know who you are in Prosperident, how about just give us a little refresher on who you are and what you guys do.

David Harris:
Absolutely. I’m a forensic CPA and a private investigator in terms of qualifications, but what I do is I’m the CEO of Prosperident, and as you mentioned, which is a company that investigates financial crimes against dentists. So we are a dentist-only forensic investigation company. We don’t help medical doctors or pharmacists or anybody else, it’s just dentists-only.

Ryan Isaac:
I had a few questions that come to mind, what started you in the dentist-only path?

David Harris:
I’d like to tell you that I had some kind of master plan.

Ryan Isaac:
Yeah, we didn’t either.

David Harris:
Yeah, the truth is a little bit different. And we’re going back a fair distance here. We’ve been in business for 34 years.

Ryan Isaac:
Geez, yeah.

David Harris:
So in 1989…

Ryan Isaac:
Wow.

David Harris:
I had to quit my job, I was an investigator for a bank. I had left the bank, I was sitting at home bored silly, and the phone rang and it was a guy who I had been in high school with, who was now a dentist, and he thought that his office manager might be stealing from him. So he reached out to me ’cause he said, “I have no one else to call,” and he caught me at the perfect time, I really had very little going on in my life, and I was kind of glad for a diversion, so he said to me, “Can you please come help me out with this?” And I said, “Sure, I’ll meet you tonight at your practice after it closes.” And I went over there now, this was before computers, so it was the old peg board system that was kind of the antecedent of practice management software. As I said, we’re going back [0:04:10.4] ____.

Ryan Isaac:
It’s going back. Yeah, that’s alright.

David Harris:
Yeah, this is ancient history.

Ryan Isaac:
Very experienced.

David Harris:
And he shoved a bunch of books at me, like ledgers and stuff, and I said to him, “Now we’re gonna go at this a little bit differently, tell me where she works,” and my friend showed me her workspace and I started going through her drawers and what I found was her cheat book. And when people start adulterating the records, they need to keep track of what’s real and what’s fiction, so she had a book. And in those days it was a notebook, where she kept track of what was happening. And once I found it, the whole thing unraveled pretty fast. Nowadays, you’re more likely to see that cheat book being an Excel spreadsheet on a computer, but back then, it was pen and paper. So I showed my friend what she was doing, he thanked me, he asked me to come in the next morning to help him fire this woman because he didn’t wanna face that on his own, and I knew that my boredom wasn’t gonna disappear by tomorrow, so I said, “Sure, no problem, I’ll come back in.” Helped my friend fire this lady, he promised to buy me dinner that I’ll mention, Ryan, and I’m still waiting for it.

Ryan Isaac:
You’re still waiting? Yeah, well, let’s get you that dinner man, geez.

David Harris:
Thank you. Thank you. Yeah, somebody should. And I walked away from this whole episode thinking that was interesting, but I didn’t really see a career for myself. Well, two weeks later, lightning struck, and the way that it struck was I had an appointment at my own dentist’s office, and imagine for a minute what went through my mind when I had my hand on the door handle and was about to go in, and I looked through the glass panel, and what I saw sitting at his front desk was the same woman I helped fire two weeks ago.

Ryan Isaac:
Oh my gosh.

David Harris:
What I said was a little less polite than that. [laughter] I ran to a payphone, called the office, used a little bit of trickery to get put through the doctor, and I told him about the time bomb he had ticking at his front desk.

Ryan Isaac:
Whoa.

David Harris:
And he asked me in a panicked voice what he should do next, and about a sentence and a half later, he had hired me.

Ryan Isaac:
Whoa, okay.

David Harris:
So that’s how I got started.

Ryan Isaac:
Geez.

David Harris:
Now a lot has changed since 1989. First of all, my company, which in those days was just me, is a whole lot bigger. We’re now to about 24 people, and the internet and the ability to move data around have radically changed what we do and how we do it, but the basics are the same.

Ryan Isaac:
Yeah, just thinking about that story, that’s a pretty common thing is… That actually shocked me how many people can get busted for fraud in a dental practice and then go work down the street.

David Harris:
It’s so true. And a lot of factors there. The first is that… I did this last week. I was speaking to an audience in North Carolina, there were about 80 dentists in the room, and I said, “I just wanna take a little survey. How many of you enjoy hiring staff?” No hands went up, and it’s just like any other job that you despise, when a shortcut appears, you grab it. The job I despise is cleaning the garage. And my favorite moment cleaning the garage is when my son walks by not doing a whole lot, because the next thing I say is, “Ethan, get in here.”

Ryan Isaac:
You’re cleaning it, buddy. Yeah.

David Harris:
“You’re helping me. Or even better, you can just take over.” So shortcuts appeal when you hate the job, and shortcuts when you hire are you don’t call former employers, you don’t do a criminal records check, you skip over those kind of vigilant steps that really should happen. Just a basic statistic that should send shivers down a fair percentage of the audience, the number of Americans with criminal records is 70 million, so that’s one in four adults have criminal records.

Ryan Isaac:
Whoa.

David Harris:
If you’re a dentist and you don’t do criminal records checks, you’re playing the lottery and you’re gonna lose sooner or later.

Ryan Isaac:
We might be skipping ahead ’cause I wanna ask questions about common pitfalls, common mistakes, the typical stuff, things to look out for, but are you seeing this more of a problem now in the last couple of years when hiring is so difficult in offices and people are even more desperate to get just somebody to fill a seat?

David Harris:
Yeah, if you post a job on Indeed and you get, let’s say, two applications, or maybe you get five applications, but two of them actually show up for interviews; at that point, your logic is, well, beggars can’t be choosers and I need to grab one of these people before somebody else does. And that’s exactly the place where bad stuff can happen. And the thing I’ll say about the criminal element is they know. They know dentists are very casual about pre-employment screening, so I think some of them actively seek dentists, and of course, we also see serial embezzlers and these are people and who have victimized, in some cases, up to 15 different practices.

Ryan Isaac:
Oh. Wow.

David Harris:
And here’s what I say to dentists, a shortage of people may make you compromise your standards. I totally get that. What you need to know though is by how much. I mean, would you, for example, hire somebody if you knew they were a child molester? And if I asked dentists that question, the answer is, “Well of course not.” Okay, so now you need to do a criminal records check so that you know whether that person is, in fact, a child molester.

Ryan Isaac:
Man, okay…

David Harris:
We got [0:10:14.4] ____ everything pretty fast here.

Ryan Isaac:
Yeah, we did, we took this down a notch, but this is real, so start us off with what percentage of dentists out there will face this issue of embezzlement or do.

David Harris:
Absolutely, and the answer is a little bit long-winded, but I think the audience needs to hear it.

Ryan Isaac:
Go ahead, please.

David Harris:
So the ADA did a study in 2019, and what they did was they asked 17,000 dentists, have you been stolen from? And I’ll give you the good news first. About 53% said, “No, I don’t think so,” because of course, it’s hard to give absolute answers to this question. 53% said, “I don’t think so.” So the other 47%, yes. The next question the ADA asked the 47% was, “Okay, how many times?” And now it got a little bit interesting, so 26%, in other words, about half those who said yes, said, “Once, as far as I know,” we have 11%, twice, 2%, three times and the one that really rattled my cage was 8% of respondents said, “I’ve been stolen from at least four times.”

Ryan Isaac:
Oh my gosh.

David Harris:
So the first thing you can do is take 26% times one, 11% times two, 2% times three, and 8% times, let’s assume just four… And if you do that and up with 86 embezzlements per 100 dentists, so that’s what’s already happened. Right? That’s…

Ryan Isaac:
Okay, that’s reported.

David Harris:
When we’re asking about somebody’s kind of lifetime probability, we have to consider that, but we also have to consider the probability that these people will be victimized or re-victimized in the rest of their careers. The best answer I can give you is there’s about a 70% chance that a dentist will be stolen from. Now, two other things I wanna mention about this. The first is there’s a pretty strong upward trend. So I mentioned that 47% of dentists had reported being embezzled in 2019; go back 12 years earlier to 2007, and the ADA asked the same question. And in 2007, 35% of dentists reported being embezzled.

Ryan Isaac:
Oh geez.

David Harris:
Over a 12-year period, the prevalence of this went up by about a third.

Ryan Isaac:
Do you, just pause it there, do you… Is that because it’s happening more or people are just now realizing it more? Maybe they just didn’t even know back in 2009 or whatever.

David Harris:
I hope it’s the latter but I think it’s both.

Ryan Isaac:
Okay.

David Harris:
The other noteworthy thing is that all of this stuff is pre-COVID. And we’ve noticed some trends and it’s a little early to really be able to study them properly, but we’ve noticed some trends since COVID, one of the things we track internally is called our strike rate. What the strike rate measures is the percent of people who call us where embezzlement is actually occurring. In other words, sometimes people call us and it’s not happening, and our strike rate, very steady over a long period of time at around 70%. Since COVID, it’s actually tracking at 78%.

Ryan Isaac:
Why? Why do you think that is? I could guess, but.

David Harris:
I don’t know. I’m gonna make a wild guess here, people steal for two reasons: One is that their financial security is jeopardized. So you might have somebody who’s two months behind in their mortgage payment, there’s something draining in the family finances, maybe it’s an uninsured medical cost or…

Ryan Isaac:
Totally.

David Harris:
Maybe a gambling problem, who knows? Something’s straining their finances. And then you have greedy people who steal because they feel like they deserve it, and what COVID’s done, and we’re straying fairly quickly from my turf into yours but I think it’s made a lot of people aware of how precarious their financial existence is. And when spouses started getting furloughed and they didn’t have any savings and they… Fortunately, for most people, that furloughing didn’t last very long, but I think everybody became aware that for some of us, we’re kind of one step ahead of bankruptcy and it won’t take much to push us over. So I think that’s a factor. And I think at the same time, people see, the greedy people see other people getting ahead faster than they are, and that bothers them. And when we look at what’s happened to the stock market since COVID, and I think 2022 is a bit of an anomaly, but in 2021, the market was moving ahead fairly fast, real estate prices were climbing until the Fed cranked interest rates. I think it was a chance for some people to see others making a lot more progress than they were and it bothered them, so there may be a couple of factors at work, but embezzlement is… Were active since COVID than it was before.

Ryan Isaac:
It makes me wonder too, about the amount of free money that got dumped into all these practice bank accounts, not only at the federal, but the state level for a lot of people, and had to have been a lot of staff that saw that, just piles of cash sitting around and because a lot of doctors got the money in and sat on it for a while too. Still sitting on it.

David Harris:
Yeah. And let’s face it, for most dentists, and there are probably exceptions, but for most dentists, there weren’t… The pain from COVID was fairly short-lived and for the most part, made up fairly quickly.

Ryan Isaac:
Totally, yep.

David Harris:
When we look at stats for 2020, in terms of how practices did financially, according to the ADA’s numbers, the average practice was off 9%. And you’re right, a lot of them got more than that in kind of government funding.

Ryan Isaac:
Oh yeah.

David Harris:
So they were actually ahead in 2020 and sure, that wasn’t lost on staff, whose spouse may have been laid off from work.

Ryan Isaac:
Totally.

David Harris:
Or had their hours cut back or whatever. Yeah, that could certainly be a motivating factor.

Ryan Isaac:
I want you to take this conversation wherever it’s most natural to take it, in terms of… I think people are just gonna wonder what’s the typical profile of an embezzler? What are the steps? What are the common pitfalls? What can I do immediately? Can it be avoided or just prevented or mitigated, take that wherever you want, but I’m curious, what’s the typical profile, who’s stealing?

David Harris:
Well, it’s somebody who has opportunity, and let’s define opportunity in a dental practice. Conversely, every office manager has the chance to steal; front desk people, receptionists, treatment coordinators, financial coordinators certainly have the chance. Back office people steal, but it tends to follow a different pathway. In other words, they might steal tangible items and sell them as opposed to the monetary theft that we tend to see from the front office. Somebody who’s a bookkeeper has certain access, the way they steal might be different than, say, an office manager, so…

Ryan Isaac:
Can I ask that… Is that happening very often, like third party, like bookkeeping?

David Harris:
We see it, it tends to be an in-house bookkeeper, more likely than an external one because the external ones tend not to have access. In other words, most external bookkeepers are given bank statements and canceled checks and they don’t necessarily have direct access to the bank account.

Ryan Isaac:
Okay, yeah, they have data, but not control over the money. Yeah.

David Harris:
Yeah. That’s right. In general, and again, there are different kinds of relationships, but it’s the in-house bookkeeper who typically will have the checkbook and prepare the checks for the doctor to sign and things like that. And that gives them a different level of access.

Ryan Isaac:
Okay.

David Harris:
So how somebody steals is a function of their access. In terms of profile, this really defies any kind of demographic profiling; in other words, they could be 25 or 65 years old. They can be male or female, they could be any education level, any…

Ryan Isaac:
It could be a highly compensated employee still stealing, a low compensated employee still stealing.

David Harris:
It could be any of those things. There’s no overt profile where you could sort of apply a filter to all your employees and say, “Let’s get down to the three who fit the demographic profile.”

Ryan Isaac:
What about family, not family?

David Harris:
Nothing.

Ryan Isaac:
Nothing there.

David Harris:
It really defies that kind of stuff, the way it also defies the victims. Something I get asked a lot is well, is an orthodontist more or less vulnerable than a general dentist or a periodontist? And the answer is, there’s no pattern in that way.

Ryan Isaac:
It’s access, pure access.

David Harris:
Stealing happens because somebody who works for you wakes up one morning and they decide, “As of today, I have more entitlement to the doctor’s money than she does.” And the thief doesn’t stop to think about the victim at all. Nobody says, “Oh yeah, you know what, I work for an orthodontist, and there’s just no way I could steal there.”

Ryan Isaac:
Yeah, no. Yeah.

David Harris:
They don’t think that way at all. So the conventional criminal profiling just doesn’t work here.

Ryan Isaac:
From feedback from people who steal, is there… It’s kind of what you’re saying, I’m just guessing there’s a sense of like almost… It almost feels victimless because these dentists in people’s minds are so rich, they have so much money, there’s so much cash, so much income, they have houses and boats and blah, blah, blah, and it’s like they’re not gonna miss five grand, they’re not gonna miss 10 grand, right?

David Harris:
Yeah. I mean, there are kind of three pre-conditions to stealing, and I mentioned opportunity already. That’s the first one. The second one is that people who steal are under some kind of pressure, and it might be financial pressure, which is that needy thief that we talked about, or it might be emotional pressure, which is the greedy thief. And the third element, which you just flagged, is called rationalization. So we all learned on the playground when we were 3 years old that you don’t take other people’s things. And what a thief needs to be able to do is to say, “I know that in general, it’s wrong to steal, but it’s okay here because… ” And whatever comes out of their mouth after the because…

Ryan Isaac:
Is their reason.

David Harris:
Is the rationalization. And sometimes it’s, “The doctor wouldn’t miss it,” as you call it, the victimless crime. Sometimes it’s what’s called the metaphor of the ledger, which means, “The value that I contribute to this practice is many, many times what I am paid, and I’m gonna take what I think I should be paid in the first place.”

Ryan Isaac:
Got it.

David Harris:
Sometimes they think the doctor rips off patients or cheats on their taxes or something and they kind of deserve what’s gonna happen to them next. There are lots of potential rationalizations. But yeah, people need to be able to suspend what they know is reality.

Ryan Isaac:
Yeah. So you’ve described a situation that is not detectable based on a demographic whatsoever.

David Harris:
Right. Now, there are characteristics. They tend to be behavioral.

Ryan Isaac:
Okay.

David Harris:
And why don’t we talk about those?

Ryan Isaac:
Yeah.

David Harris:
And I’ll give you a few. I mean, there are a lot of behavioral markers of embezzlement, but some of them… The first one I’ll point to is the control freak. A lot of thieves tend to be pretty territorial, they don’t want to delegate what they’re doing, they don’t wanna share knowledge with other team members, cross-training, they think is a really bad idea. They may do the passive aggressive thing where they say to the doctor, “Yes, I understand cross-training is important, and I’ll get on it right away,” and then they just ignore it, knowing that the dentist will get distracted with something else and forget all about it, so.

Ryan Isaac:
For someone who’s really controlling and defensive about anyone else peering into what they’re doing, day-to-day tasks, systems processes, that can be flagged.

David Harris:
It might even extend to their work space in their computer. And I get four or five calls a year from dentists who say something like, “Well, my office manager was at lunch and somebody else sat at their desk and did something on their computer, and the office manager came back and found them there and got very upset,” and that’s just an extension of that territoriality. So that’s one thing. And the motivation behind it is obvious. Thieves need access, and if you take their job and divide it up among multiple people, you remove some of that access.

Ryan Isaac:
Yeah.

David Harris:
Another characteristic is, a lot of thieves will work their schedule so that they get alone time in the practice. They might come in before everybody else, they might stay later than everybody else, or they might slide into the office on the weekend to “catch up” on their paperwork.

Ryan Isaac:
Which… Isn’t that interesting? Because I think most doctors will look at that and be like, “Oh, I’m so glad I have this person who cares as much about the practice to be there before and after and on a weekend to just get stuff done and help out,” and that almost lends more trust and more autonomy to that person as a team member.

David Harris:
It does. And that’s one of the paradoxes. I’ll say the same thing about the control freak. What does every doctor want? They want a take-charge office manager who will assume responsibility and leave them free to be a great clinical dentist. And I’ve had to say to more than a few doctors, “You know, superficially, working for you and working against you don’t look all that different.” Another behavioral marker is that thieves are often pretty reluctant to take vacation.

Ryan Isaac:
Reluctant. Okay.

David Harris:
Now, if the whole office is closed, they’ll go away, but they really don’t like the thought of the office being open and functioning while they’re not, because when they’re in the office, they can control the flow of information, they can control what information gets to the doctor and what stuff they just deal with. When they’re gone, they don’t have that anymore. So that’s another marker.

David Harris:
I’ll give you a couple of more subtle ones. One thing about a lot of thieves is that they cut corners. And this might appear in other parts of their life. I mean, this might be the person who runs out on their landlord of their apartment halfway through the lease. It might be the person who the patients view as the insurance fixer, the one who can get stuff covered by insurance that nobody else can seem to. And the way I describe their ethics is, if you’re walking down the street in your town and you see somebody’s wallet fall out of their pants, what most of us would do without giving it a whole lot of thought is we’d bend down, pick up the wallet, walk a little faster, give it back to somebody and say, “Hey, you dropped this.” And a thief might do that too, but they have a little different process. They’ll ask some questions that most people probably wouldn’t, like, “I wonder if anybody else saw this wallet fall. I wonder how much money is in it.” Again, the final behavior might not be any different, but they just get there via a little different process. The final one I’ll give your audience to think about is what I call conspicuous displays of honesty. So honest people don’t need to reinforce when they’re being honest because they just do it all the time.

Ryan Isaac:
Yeah, they’re not insecure about it.

David Harris:
Yes, exactly. When somebody says, “I’m being honest with you,” what that tells you is that most of the time, they’re not.

Ryan Isaac:
You hear that a lot in sales pitches. You hear that a lot from salespeople a lot of times, like, “I’m gonna be honest with you here, Ryan. I’m gonna cut to the chase and be honest. I’m gonna be clear with you.”

David Harris:
Well, we’ve all bought cars and you know what happens. You test-drive the car, you tell the salesperson you’re gonna go home and think about it and you just know you’re gonna get a call that night from the salesperson who says, “I’m not supposed to tell you this, but after you left, somebody else came and they really want that car. So if you want it… ” Like it’s that sort of disclosure. And I suspect most of the audience have bought enough cars that they know this is just a big game and the car is gonna be there tomorrow and next Friday if you want.

Ryan Isaac:
Yeah, yeah, yeah. Okay, so you find that… And they’re kind of verbal, even, interactions with people there. It’s like they’re letting that slip a little bit.

David Harris:
They are. I was involved in a deposition, so this is where a suspect is being questioned, and I was kind of feeding the lawyer with questions to ask this person, and the deposition went on for almost two hours, and during that time, she said 12 times the words I swear to God. And whatever came out of her mouth after she said, “I swear to God,” every time was untruthful.

Ryan Isaac:
Wow.

David Harris:
And if you think about any religion that I can think of, first of all, honesty is part of your duties, and secondly, you don’t need to take the deity’s name to confirm that you’re doing what you’re already supposed to do.

Ryan Isaac:
Sure. Yeah, it’s a big tell.

David Harris:
It was a big tell with her.

Ryan Isaac:
Is it an immediate red flag… This is pretty common. I have a lot of consulting friends. A dentist hires a consultant, and people’s jobs feel a little threatened just by nature of a consultant coming in, but is that necessarily… Yeah, it’s pretty common. Consultant comes in and then there’s like one person who is just protesting that there’s anyone else outside the business looking the biz. That’s happened in our… I become a financial advisor and requested a P&L or asked something about production, just for general, like see what the cash flow is like, and I’ve had office team members really put up some blocks to try to just really protest that someone’s asking.

David Harris:
That is a massive red flag.

Ryan Isaac:
Okay.

David Harris:
From the perspective of a thief, they know they can fool their doctor.

Ryan Isaac:
Yeah. “Doctor’s busy, doctor doesn’t like the stuff anyway, doctor’s gonna delegate.”

David Harris:
Well, not just that, but, “I know the doctor, I know how she thinks, I know what she looks at and what she doesn’t. I may even know the best… ”

Ryan Isaac:
When she’s there, schedule.

David Harris:
The best day of the week to steal. All those… And the way I describe embezzlement is it’s kind of like you and I have in a poker game, but your cards are face up and mine are hidden, because I know how you think, I know what you look at and, of course, what you don’t, and I will build my embezzlement as a crime of navigation, so I will skirt around whatever you look at. So if you are somebody who compares the day and report to the bank deposit, I know that, and my stealing is going to be done in a way that it doesn’t create an out-of-balance situation between what your software says you collected and what went in the bank. The problem for an embezzler is when the doctor says that magic word consultant or financial advisor, now all of a sudden, you have a new actor in the game. And first of all, that actor is not under the thief’s spell, and secondly, they think of dentistry as a business first and a healing art second, so to a thief, that’s a tremendous threat. And I know hundreds of consultants in the dental world, and they all have a story.

Ryan Isaac:
Oh yeah.

David Harris:
“You know, I got hired, and I walked into this office and the office manager quit the day I walked in.” Or as you say, you asked for some basic financial information and you got this big pushback from a staff member about financial information that belongs to the doctor, not the staff.

Ryan Isaac:
Yes.

David Harris:
So it’s a little hard to separate the natural resistance to change because the whole reason doctors hire consultants is to get the staff to do things that the doctor themselves have not been able to accomplish. So there’s some element of the consultant being the hammer and the staff being the nail.

Ryan Isaac:
As you just said that, and I’m sure you know hundreds of consultants, do they act like a barrier… I’m sure you’ll get to this too, like what are some things you can do to mitigate or reduce the chances of this, but do they act kind of like a barrier for the dentists? Do consultants report that to you or the CPAs or anything, that behavior?

David Harris:
We get a lot of calls from the consulting community, from accountants, anybody who deals with dentists. And it happens in two ways, one is sometimes those people end up being first responders, or if somebody has a concern about embezzlement, they call their practice management consultant and say, “What do you think?” Those calls then often come to us. Sometimes accountants will see something in the numbers that doesn’t make sense to them, and maybe it’s the staff expense ratio, in other words, the ratio of staff costs to revenue that climbs, or gross production to adjusted. Different accountants look at different things, and some of them really spend very little time on the billing numbers, they really only look at collections and expenses, but we get calls from CPAs, we get calls from software companies because their support people will get a call that they flag as a potential embezzlement issue and they’ll call us. So it comes from a lot of different places.

Ryan Isaac:
Yeah, as you’re just saying that, I’m like, “I wonder how we could even just train our small group of advisors here to be better or watch people over that section?” I mean, that’ll happen sometimes when we’re trying to measure somebody’s just income, gross income out of the practice cash flow, and someone will have a really healthy high profit margin, but have no money, like no money is actually coming out of the practice, even though their margins are really high, and you’re just like, “Oh, where is that going then? I don’t get it.”

David Harris:
Yeah, and that might be a red flag, any kind of change. And typical embezzler will take 2-4% of collections.

Ryan Isaac:
Oh, okay. I was gonna ask that. Yeah, typical, average, two different.

David Harris:
Now, there are outliers in both directions, but I often describe this as being more like a leaking faucet than a broken pipe. In other words, you will see very few embezzlers who will take 15% of collections. They might like to, but if your practice has 70% overhand, which is about the average in the US, and somebody takes half of what’s left, even the least attuned dentist is gonna notice that.

Ryan Isaac:
How do you… I’m sure you’ve seen this a ton of times, and I’ve seen it more than I wish, where the embezzlement was in six-figure range, and not that big of a practice. And so you’re talking about double digit percentage of collections over time. Is it just… It lasts for a long time? Or I guess that’s another question, what’s the average length of embezzlement from start to…

David Harris:
The average to detection is about two years.

Ryan Isaac:
Jeez. Yeah.

David Harris:
But there are people who get away with it for a decade.

Ryan Isaac:
Yeah. Oh yeah.

David Harris:
And they get good at kind of titration. In other words, they get good at figuring out what they can steal that is below the doctor’s pay point, and that 2-4% number is a pretty good one, which equates to somewhere around 10% of net. And when you think about most doctors, Ryan, that’s kind of the difference between them being able to pay their bills and take out enough to cover their cost of living, versus being able to do those things and save for retirement.

Ryan Isaac:
Exactly. Yeah.

David Harris:
So the doctor who says to you, “Yeah, I work pretty hard, I have a good practice, but I just can’t seem to get any money into my 401k,” there could be lots of other causes, but one possibility is that they have this hole in their pocket called the office manager and they just don’t realize it.

Ryan Isaac:
Well, when you’re talking about probably 70% or upwards of that being in this category, then yeah, it’s a likelihood that should be on every CPA, bookkeeper, financial advisor and consultant’s mind, for sure.

David Harris:
It should. And as I say, every consultant has a story. I am very sure that if you canvas your group of talented advisors that there will be 20 or 25 stories that come out of them collectively. And yeah, there’s a lot of this that happens. I gave you that 70% probability earlier on. If you spread that out across the dentist career, if you had 100 dentists in a room, 8 or 10 of them are being stolen from today.

Ryan Isaac:
Gosh. Man.

David Harris:
And when you look at your portfolio of dentists who your firm services…

Ryan Isaac:
We’re like 500. We’re like 500 plus in the whole country.

David Harris:
So you probably have 40-50 of them who are being victims now.

Ryan Isaac:
Currently, yeah.

David Harris:
Currently.

Ryan Isaac:
I’ve heard you say in the past that you can’t prevent this thing from happening. There’s not really any way. I’m sure, like you said, it used to be in a notebook and a desk drawer. Now it’s more sophisticated than that. Feel free to talk about any of the most common methods. A couple of questions on my mind would be, what are the common methods? What’s typically happening right now? And what are, if anything, measures that can be put in place to at least, if you can’t prevent to it, to at least detect it as soon as possible, or mitigate if possible?

David Harris:
Yeah. And I’m not gonna get into a whole lot of specifics about how it happens. Let’s start with the first generality, which is that some embezzlement happens on the expense side of the ledger, so this would be things like tampering with payroll or buying stuff on the office Amazon account. Those are expense side examples.

Ryan Isaac:
Okay.

David Harris:
The majority of embezzlement happens on the revenue side, so that means stealing either patient payments or insurance payments. One thing that surprises the heck out of most of the dentists I talk to is that they just have no idea how easy it is to cash a check with somebody else’s name on it. In other words, they tend to assume that money coming in by check or by credit card or by electronic funds transfer is kind of invaluable, and really their whole vulnerability is around the cash payments they take in, and they say to me, “I really don’t take in much cash.”

Ryan Isaac:
And it doesn’t matter.

David Harris:
And I say two things. “First of all, you don’t know how much cash patients pay, what you know is what is turned over to you, which might be a different amount. But beyond that, I’m stealing to scratch an itch that I have. And if embezzlement… If stealing the amount of cash that I think I can get away with doesn’t satisfy my need, then I’m gonna look at how I can convert some other kind of payment.” And they can all be adulterated if somebody sits and thinks about it for a little while.

Ryan Isaac:
Yeah, you’re totally right. There’s probably so many ways that this can happen. I’ve seen a couple of cases that were really surprising where fake companies, fake vendors were being created and paid out. Like things that on the expense side and the P&L seemed like normal vendors. Similar names to other existing vendors.

David Harris:
Yeah, create a phantom dental lab and hand the doctor some lab bills and cash the checks. Sure, that can happen.

Ryan Isaac:
Yeah.

David Harris:
Most stealing is not all that sophisticated. Most stealing happens because doctors ignore a couple of basics. And let’s turn the conversation, if we could, to what should happen.

Ryan Isaac:
Please, yeah.

David Harris:
And the first thing I’ll say is every practice management software keeps track of what’s collected, and it produces a report at the end of each day that says, here are the collections. And the idea is that the office manager should do what’s called day-end balancing, in other words, to match those collections to the bank deposit. And there are two kinds of doctors. There are those who supervise this process, in other words, who will look at the day and report themselves and go on their online banking and make sure the right amount of money came in. And then there’s the other 85%.

Ryan Isaac:
[chuckle] Okay. Yeah.

David Harris:
And if you are one of the people who never looks at that, who simply trusts that what the office manager is doing is right, what you do is you allow the laziest, dumbest thief on the planet to successfully steal from you. In other words, if I’m the office manager and today $21,400 comes in, but I can get away with depositing only $20,200, it’s a simple, easy theft. I don’t have to do anything exotic in practice management software to hide what I did, I just short the deposit. And if you’re not looking at it, I’ll get away with it. And if you think your accountant is looking at that, you’re mistaken. In general they do not.

Ryan Isaac:
Not every day, yeah, for sure.

David Harris:
Typically, not at all.

Ryan Isaac:
Not at all? Yeah, no way.

David Harris:
There are exceptions, but most accounting firms don’t.

Ryan Isaac:
It’s not their job. Yeah.

David Harris:
Yeah. What was billed is not relevant to them. All they care about is what was collected because that’s the kind of top line… That’s the top-line on your income statement.

Ryan Isaac:
Yep.

David Harris:
So if you’re not doing that basic check, then you’re incredibly vulnerable. If you do that, you can still be stolen from, but now what somebody has to do is a lot more elaborate. Now what they have to do is make the practice management software lie to you about how much money came in. And I’m not going to give anybody any ideas there, but I will say it’s not that hard to do.

Ryan Isaac:
Okay.

David Harris:
First step is supervise the day-end balancing. And it’s not something you necessarily have to do daily. In other words, what I’d rather see doctors do is take a month-end total of collections from their software and compare that to a month’s deposits, which is a whole lot less work than doing that 20 times each month.

Ryan Isaac:
Yep.

David Harris:
The other confounding factor that makes this a little hard on doctors is what we call timing differences. So if you receive a check in the mail, the check gets posted to practice management software and deposited the same day and everything should line up. However, think about what happens when a patient pays by credit card. Now, the software captures that as a payment today, but it probably won’t hit your bank for a couple of days.

Ryan Isaac:
True.

David Harris:
So you have this little offset. And if you’re looking at a day at a time, the proportion of the day’s collections that can be timing differences can be pretty big. On the other hand, when you look at a month at a time, all the timing differences that started and ended within that month have kind of self-corrected. And really, all you have to deal with is stuff that overhangs the first day of the month and the last day of the month, which is a whole lot less. So if doctors want to make their lives easier, they get away from the concept that, “I need to check today’s work,” and they move to, “I need to check a monthly total against a monthly total.”

Ryan Isaac:
And you’re talking about how much time to do that once a month?

David Harris:
If you’re organized, it should be 20 minutes. But having said that, you still need to look at each day’s report. I’m not saying, forget about daily reports. You’re looking at them for another reason. Did everything that happened today get captured accurately by software? So we still need to look at daily reports, but the concept of trying to align that daily report up with a bank deposit is the one that I think is pretty inefficient.

Ryan Isaac:
Okay. And you’re saying majority of dentists don’t do this. So easy step one, it’s not going to totally prevent it, but an easy, obvious step one is everything you just described.

David Harris:
Yep. I signed off on a report this morning by one of my investigators, and from 2007 to 2022 the doctor involved had lost $609,000, and it was all visible on the difference. It was all deposit deficiency. In other words, software said that X was collected, but something less than X totaling $609,000 got deposited.

Ryan Isaac:
One person? There’s just one embezzler?

David Harris:
One thief, solo practice. And it all happened, Ryan, because the doctor was not and the accountant was not and nobody was confirming that amounts the software said were collected were actually deposited. Now, if you shut that one down, do people evolve and try to steal other ways? Absolutely, they do.

Ryan Isaac:
Totally.

David Harris:
Those ways are more difficult. They’re more catchable, in general. You’re pushing people into higher risk activities when you shut that one down. So start there.

Ryan Isaac:
Okay.

David Harris:
Second thing I tell doctors is print your own damn reports. When somebody prints a report for you and hands it to you, you have no control over the parameters used to generate that report. And you make it really easy for somebody to do selective reporting. When you print your own reports, that doesn’t happen. Now, whatever is in the software is what you’re going to see. So again, if something is happening, you’re going to make it more likely that it becomes visible to you. And let’s face it, there’s a subset of the dental population that would like to go through their whole careers without learning the very first thing about their practice management software.

Ryan Isaac:
Very true. Very true. And their P&L and basic… Yeah, totally.

David Harris:
And what I tell them is, “You know what? That software is more important to your financial well-being than your hand pieces.” And you know the hand piece like it’s your fourth child. But when it comes to your practice management software, it’s like, “Oh I might break something.”

Ryan Isaac:
Yeah, I think it’s really over… Yeah, they’re busy. It’s probably not their interest… Area of interest for most dentists. It’s overwhelming to think about learning a P&L for the first time where software is so bloated and so huge.

David Harris:
It is, but…

Ryan Isaac:
You’re talking about simple, basic things in the soft… You don’t have to know the whole thing inside and out.

David Harris:
You don’t have to know how to build the watch, you just have to know how to tell time.

Ryan Isaac:
Yeah, okay.

David Harris:
And there are people out there… And we do this for dentists. One of the things we do with dentists is we work proactively to help them put systems in place, and part of that is teaching them how to oversee their practice. So we spend a lot of time because the problem is a lot of them will… If you hire a software trainer, because all the software companies have software trainers, but what they’re used to doing is teaching staff how to do staff functions. And they don’t necessarily appreciate, here’s what a doctor needs that’s different than staff. In other words, I don’t care if a doctor knows how to book an appointment or not, or enter a payment or not. To me, those aren’t meaningful functions for a doctor. What I want them to be able to do is know which reports to look at, know how to obtain them, and to know what they mean, and how to recognize an outlier in those reports. That’s the stuff that’s important to me for a doctor to know about software. They don’t have to be able to replace staff and their functions. If a doctor wants to learn that, great. But that’s not really what, in my mind, is important to their function as a practice owner.

Ryan Isaac:
So I’m going to recap. Number one, run your daily reports, do it once a month, but still look at the daily reports to see how they line up throughout the month. Number two, “print your own damn reports.” That was your quote.

David Harris:
It was my quote.

Ryan Isaac:
[laughter] Print your reports. Yeah, two really simple things to begin the process. Now, like you’ve said in the past, it doesn’t prevent. Thieves will still figure out what they want to do to get the job done. I’ve been wondering during this conversation, do people engage with your firm only when there’s an obvious problem or they think there’s one, or is there like a maintenance mode, like an embezzlement maintenance that should be happening at a certain time interval in a practice?

David Harris:
We really offer two services. The first thing we do is audit base service. So that’s when we’re looking at what’s happened in practice management software in the past. And the purpose of an audit is really to answer one simple question, do staff members have their hand in my pocket? So we do that. We will do it in situations of elevated concern. We also get people who come to us and say, “You know what, I don’t think I’m at high risk, but the thought that somebody might be stealing from me really bothers me, and can you guys help me sleep better at night?”

Ryan Isaac:
Well, given the percentages of people this is going to happen to and actively is happening to right now, it seems like that’s a fairly… How often would you recommend if someone doesn’t suspect anything, just getting an audit for the sake of getting an audit?

David Harris:
You know, I’m a little reluctant to give somebody a schedule because it really varies. If you had a five-location, seven-doctor empire, we probably should be doing those five locations in rotations. So maybe we do one a year. If you’re a one-dentist, one-hygienist practice and your spouse is your office manager, then unless you’re worried about getting divorced, I’m not sure any schedule would would be a good use of your money.

Ryan Isaac:
Okay.

David Harris:
The second thing we do is we offer a product called Owner Proactive Strategies, and that is our proactive work. So now we’re working with dentists to help them plug the holes in their practice that somebody could take advantage of it. It might be everything from not screening people properly before they hire them to the doctor’s oversight to division of duties between staff. We will look at all those things. We’ll also help the doctor outsource some of the mundane stuff that they can do that will give them a higher level of comfort about the integrity of their numbers. In other words, that checking of deposits against collections, for example, that’s a mechanical exercise. If a doctor wants to do that, great. If they don’t, there’s a bookkeeper somewhere who will take on that mantle for them for a couple hundred dollars a month. It’s one of those things. So one of the things I think that keeps people from exercising proper oversight over their staff is they think they have to do it themselves, and that’s not the case always, and we’re happy to help them get set up with a third party that will do it for them.

Ryan Isaac:
Cool.

David Harris:
So those are the two things we do. The proactive work that we do is intended really to help the doctor change their behavior and put systems in place that will protect them, and that should be permanent. That shouldn’t be something that they need to do annually or every three years or anything like that.

Ryan Isaac:
Yeah, it’s a system that should be ongoing from then on out.

David Harris:
Yeah. Now, sometimes, people will come back to us after typically 5-8 years and they’ll say to us, “Okay, so, David, I’ve had a 30% staff turnover since you worked with us in 2017 and we’ve probably regressed into some bad habits. Can you take another look?” And we’re happy to do that. But the concept of putting systems in place is really a long term one, not something that should require frequent tune ups at all.

Ryan Isaac:
Do you think that a lot of dentists assume a CPA is looking at this stuff?

David Harris:
Yes.

Ryan Isaac:
Yeah, I would think that they do too. They just assume that’s happening.

David Harris:
We get asked that question a lot. And I tell dentists a couple of things. First of all, your accounting records that the CPA keeps are kept on what’s called the cash basis of accounting. In other words, it is not relevant to the CPAs work, how much you bill the patients. Their work starts at how much is collected. So doing the comparison between billing and collection, they might do it as a way of kind of telling you how you’re doing or identifying problems that you have with your revenue cycle management, but they’re not really… They don’t have to do that in order to come up with how much tax you owe, which is the basic function for which most practices use their accountant.

Ryan Isaac:
Totally.

David Harris:
And if the bank needs P&L’s to do an annual renewal of your loan, that’s probably the other main reason why. So in most practices, accountants really fulfill a compliance function. And some of them, the ones who work with a lot of dental practices, might go into looking at, as I say, the receivables of the practice and how they’re managed, and is there some kind of change in collection ratios and things like that. Some accountants do that. Most don’t. Most dentists don’t want to pay their accountants to go beyond the compliance functions. So they really aren’t looking at the stuff that would let them find embezzlement. And I’ll give you a statistic on this, because as you know, I’m full of numbers.

Ryan Isaac:
I love it. Yeah.

David Harris:
When you look at all industries, so dentistry and everything else combined, and you look at how much of embezzlement is found by the accounting profession, it’s about 40%. When you narrow the focus to dentistry only, that number falls to about 5%.

Ryan Isaac:
Oh, wow.

David Harris:
So they really are not… If you’re a listener to this or a viewer of this episode, and you think that your accountant is kind of the frontline of your defense against embezzlement, those numbers should suggest otherwise.

Ryan Isaac:
Yeah. Yeah. I’m glad that you hit that topic, because I think that’s an assumption that a lot of people make.

David Harris:
Yeah. And the way I describe the relationship between accountant and dentist is this, for most of an accountant’s clients, they have one piece of software that tracks both their revenue and their expenses. So if I own a gas station and I’m using QuickBooks, QuickBooks will track my revenue and also my expenses, and also, gas stations really don’t have receivables. So the accountant is looking at the whole picture. In dentistry, revenue is tracked by practice management software, and expenses are tracked by QuickBooks, and the two don’t even talk to each other.

Ryan Isaac:
Yeah. Not even close. Yeah.

David Harris:
So there’s a real disconnect there, and that basically puts accountants on the sidelines for looking at the place where most embezzlement happens in dentistry.

Ryan Isaac:
I think you just gave an idea for an accountant to go out and raise some VC money and build some new software. Probably not though.

[chuckle]

David Harris:
Yeah. Well, nobody’s gonna leave practice management software.

David Harris:
Why practice management software doesn’t integrate better with accounting software is a question I can’t really address. And we talked about cash accounting, your audience, unless they’re real financial geeks, probably don’t know, the other way to do it is called accrual accounting. And accrual accounting treats your revenue as what you bill as opposed to what you collect. And if practices worked on accrual accounting, that would force accountants to go deeper into the revenue side of the practice. On the other hand, it also is a lot more expensive when the accountants do their work, so your accounting fees are higher.

Ryan Isaac:
Yeah, and no one really does that. Yeah.

David Harris:
Yeah. The DSOs of a certain size kind of have to.

Ryan Isaac:
Totally. Yeah.

David Harris:
But yeah, nobody who has a choice will opt for accrual accounting when they could use cash accounting because the cash accounting is just a whole lot simpler.

Ryan Isaac:
Gets the job done. It’s cheaper, faster, simpler. Yeah.

David Harris:
Exactly.

Ryan Isaac:
You mentioned earlier, I feel like I could let you, like, we could keep going forever.

David Harris:
We can just break this into two episodes if you want.

Ryan Isaac:
Honestly, yeah. I was thinking it’d be really cool, we do a monthly webinar where we have people live asking questions. This would be a really cool webinar to do sometime, if you’d be open to it.

David Harris:
Yeah, sure would.

Ryan Isaac:
I want to ask two questions. You said you were speaking earlier, do you do a lot of speaking? Are you going around and doing, like, can people invite you to come speak or they just come find a place where you’re… Do you do CE or how does that work?

David Harris:
Yeah. We absolutely do a lot of speaking and we’re happy to come speak to a study club or a state dental association or something like that. Personally, I speak around 40-45 times a year, and my team includes three other speakers. We have lots of availability, if somebody wants to put us on a podium.

Ryan Isaac:
Awesome. And how do people find you? Where’s the best place to reach out and get in touch?

David Harris:
They can easily go to our website, which is www.prosperident.com. That’s probably the easiest way to find us. And there’s a contact form there, so if they want to be… If they want to reach out to us and have us contact them, we’re happy to do that. My personal email is david@prosperident.com, and certainly, if a listener has a question and wants to send me an email directly, we’ll get it dealt with.

Ryan Isaac:
Very cool. We didn’t get to talk about your hockey playing. We’ll tease that for part two, David’s hockey habits. [chuckle] I like that. We’ll get into that. It’s cool that you do that, though. David, thanks for taking the time, spending so much time. This is invaluable and something that needs to be on top of mind every single year, I think. So thanks for coming on and adding a lot of value to our listeners. Appreciate it, man.

David Harris:
Well, it’s a pleasure. You and Reese do great things for for dentists, and I am honored to be on your show.

Ryan Isaac:
Thanks, man. Thanks to all the listeners for tuning in as always, and we’ll catch you next time on another episode of The Dentist Money Show. Take care, everybody. Bye bye.

Practice Management