Fraud Prevention

Although both logic and experience suggest that the threat of fraud could be heightened in the present economy, it is nearly impossible to gauge the true amount of fraud occurring in the dental technology marketplace. The vast majority of people who commit fraud take action to conceal their misdeeds, and these behaviors could potentially go on for years before the perpetrator is caught. In addition, if a company survives a major fraud, its reputation could be so badly damaged that operations are impeded for years to come. Unfortunately, fraud is now so common that its occurrence is no longer remarkable.

Since fraud can be a catastrophic risk, ask yourself: “Is my business vulnerable to fraud?” and “Do we have adequate controls in place to prevent it?”

A fraud prevention check-up can pinpoint opportunities to save laboratory owners money, stress, and time attempting to recover assets. There are a number of controls a business owner may institute in order to best monitor their cash flow and avoid fraudulent behaviors.

While some of these protocols may seem onerous, they will help create a more efficient and fraud-resistant operation. Good housekeeping is good business.

Managing Money

One basic step business owners may take to prevent fraud is separating duties. Have different individuals receive funds, disperse funds, write checks, sign checks, and reconcile bank accounts. Having one employee responsible for all cash and credit card related functions makes any business vulnerable to fraud. In addition, the business owner should be signing all the checks. This level of control may not be realistic in larger companies, but there are still steps owners can take to monitor outgoing cash. For example, create a protocol for checks requiring two signatures, or, if using a signature stamp, view all signed checks with the accompanying invoice attached before they are mailed.

Business owners should also be familiar with all of their company’s bank accounts and know what belongs on the different statements. Bank statements should be delivered to a personal e-mail or home address, or delivered unopened in the office. Review them for unusual transfers or balance fluctuations, look for missing checks, and ensure that there are no unfamiliar payees. Also be sure to examine electronic transfers to see if any differ from the norm. Business owners should also ensure that they reconcile all of their accounts promptly. Require account reconciliation of all bank accounts within 10 days of receiving your bank statement. Have your bookkeeper/controller promptly reconcile accounts receivable to sales and cash receipts, accounts payable listings, and inventory to the general ledger. Insist that you be alerted to any irregularities.

Materials and Vendors

Closely monitoring materials inventory is also important when preventing fraud. Require periodic inventory counts be performed by individuals who typically don’t handle these items. Unusual deficits may alert you to a need for better security procedures. Ideally, when it comes to high-cost items like alloys, attachments, implant parts, ceramic blocks/pucks for milling, and denture teeth, one individual should order materials, a different individual should receive them and verify the accuracy of the packing slip and order, and a third person should pay the invoice. Make sure that there are protocols in place for setting a price for billable materials and entering them into your billing software; requisitioning and disbursing materials and consumable items; and tracking the use of alloy and scrap recovery.

In addition, there should be a periodic review of vendor lists to ensure that the vendors actually exist and are not phantom payees. If you are no longer doing business with a vendor, confirm that the company is off the vendor list and that payments have ceased. Accounting software should create an audit trail of all changes made to vendor master files, including the employee who made the changes.

Keep an Eye on Employees

While the vast majority of employees are trustworthy, it does not hurt to have a protocol in place when it comes to expenses, vacations, and office security. Create strict standards for expense reimbursement and randomly monitor employees’ credit card statements and expense reports. Note any unusual expenditures and request further explanation. Do not permit personal expenses on company cards, and insist on petty cash documentation. In addition, insist that employees take vacation time, and be wary of those who hesitate to take time off. This is especially important in the accounting and bookkeeping area, where fraud is often caught when employees are on vacation. If you maintain a security system (video surveillance of the premises, key fob access, etc.), make sure that these systems receive proper maintenance and software upgrades. Periodically review who is authorized to access particular areas in your business and check for access to the building by employees at times other than their assigned work hours. It’s good for employees to know that you’re involved in and aware of the details. If you find something unusual, ask for an explanation and documentation.

If your employment application is legally up-to-date (check with your labor lawyer), it should request permission for the employer to initiate a background check on the applicant. In order to guard against liability, engage the services of a company that specializes in obtaining this personal data. There are a number of national companies that can perform this service at a modest cost.

Above all, treat personnel with respect. Employees who consider themselves well treated and adequately compensated are less likely to commit fraud.

Getting Professional Help

There are consultants, companies, and software out there that specialize in fraud prevention. Have an accounting software programmer, along with the company’s CPA, perform the installation and initial set-up of accounting software. This will verify which software features are enabled, disabled, the number of established users, and password protection for different levels of access.

Business owners can also put their minds at ease by consulting with a CPA firm to conduct an audit, or enlist the assistance of a Certified Fraud Examiner (CFE).

Over the years, studies have illustrated that there is a direct connection between fraud and leadership. If business owners exhibit questionable ethics, employees probably will mimic such behavior. In most cases, employees who feel that business owners keep their promises and exhibit ethical behavior concerning personnel, vendors, and customers are much less likely to commit fraud.

To protect your business resources from vanishing due to criminal behavior, motivate all of your employees to work as a team, remain vigilant, and take proactive measures to discourage fraud.

Robert Gitman is the company administrator at Thayer Dental Laboratory in Mechanicsburg, PA.