The Embezzlement Epidemic in Dental Support Organizations

A 2019 American Dental Association Survey reported that nearly 50% of dentists had been victims of embezzlement, with almost half of that group being victimized multiple times.

It is tempting to conclude that most victims were solo practices with weak financial controls, and that larger, more sophisticated DSOs would experience far fewer issues with employee theft. However, embezzlement is at least as prevalent in DSOs as it is in solo and small group practices.

Why DSOs are Vulnerable to Dental Embezzlement

Here are the reasons why DSOs are vulnerable:

1. 1. Perception as a Victimless Crime. Stealing from a solo dentist, who signs your paychecks and works nearby, requires considerable rationalization. It is much easier to justify theft from a DSO, which is often perceived as a larger, more successful, and more remote entity.
   2. Challenges in Financial Oversight and Inherited Systems. DSOs that grow by affiliation inherit a mosaic of software and practice-level control systems. Many inherited controls were designed to be supervised by an owner-dentist who is often no longer involved in overseeing practice finances post-affiliation. This results in inconsistent financial controls across the organization.
   3. Limitations of Centralized Controls. A centralized reconciliation department can typically compare high-level figures but often lacks the time or expertise to scrutinize the underlying transactions that generated those numbers.
   4. Expanded “Attack Surface” and Provider-Driven Fraud. The attack surface for financial misconduct is larger in a DSO. Beyond the employee theft risk common to all practices, DSOs are uniquely exposed to provider-driven fraud via business arrangements such as associate contracts and earn-out agreements with affiliated dentists. Furthermore, centralized head office departments represent an additional risk for employee theft.
   5. There are weak links in the chain. For example, in many DSOs, the reports used by reconciliation departments are generated by individual practices and uploaded to a cloud drive.  This creates ample opportunity for a thieving employee to manipulate or falsify the source reports used for central reconciliation.
   6. Inadequate Segregation of Duties. Despite central oversight, a DSO is fundamentally a collection of small business operations. In many DSO locations, a single individual is involved in all stages of financial transactions, creating significant opportunities for theft.

4 Strategies for DSO Fraud Prevention

Given the risks DSOs face, what can be done to mitigate risk?

1. 1. Engage Expert Assistance. A dental-specific forensic accounting firm brings a critical, specialized perspective on employee theft that most DSOs lack.
   2. Enforce Standardization. Homogeneity simplifies the oversight process and significantly reduces risk. While transitioning to a single, enterprise-wide practice management software presents short-term costs, it is crucial for long-term oversight. Standardization of practice-level financial controls, particularly for day-end balancing, division of duties, and bank deposits, will make undetected theft far more difficult.
   3. Institute an Effective Whistleblower Program. Employees in dental practices are historically less likely to report concerns than those in other industries. DSOs must address this reluctance by instituting a well-written policy that guarantees identity protection and offers financial rewards when information leads to the discovery of embezzlement.
   4. React Decisively. To communicate that theft is unacceptable, DSOs should promptly initiate investigations when embezzlement is suspected, implement proactive audit programs targeting statistical outliers, and, critically, ensure thieves are prosecuted.

A Specialized Resource for DSO Risk Management

Prosperident works with dental organizations of all sizes, from solo practices to DSOs supporting 1,000 or more practices. They offer specialized services designed to strengthen financial integrity and mitigate risk within these complex organizations.

For DSOs, specialized services include:

• • Control System Review and Design: Assistance with reviewing existing control systems and designing effective organization-wide financial controls.

• • Targeted Training: Providing training for reconciliation and loss prevention departments, as well as regional managers, on recognizing and addressing potential embezzlement situations.

• • Forensic Audits: Performing audits in situations where financial anomalies or confirmed embezzlement have been found or are suspected.

• • Proactive Risk Management: Assistance with identifying high-risk practices and implementing a proactive, risk-based audit program to prevent loss.

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  • Litigation Support: Offering litigation support services when a DSO is involved in legal disputes. This often includes litigation with affiliated dentists regarding misrepresentation during a practice purchase or disputes over earnout agreements.