Internal Controls for Your Dental Practice

Dental practices of every size should have strong internal controls. Optimum financial performance is one reason, but more importantly, internal controls can prevent fraud. It’s estimated that three to five percent of revenue is lost to employee fraud or misconduct every year. How much is that, exactly? As an example, if a dental practice is pulling $1 million in annual revenue, that means up to $30,000 – $50,000 each year can be leaving the practice.


Keep these internal control best practices in mind for 2018 to prevent money leakage and improve your practice’s financial management.


Segregate Duties

This can be challenging to do in a small dental office, but do what you can. The same person who approves invoices should not also write checks. The person who handles the bank deposit should not also oversee reconciling bank statements. Other areas to separate job duties are opening the mail, preparing and posting payments, bank deposits, write-offs, and bank reconciliation. As the dentist owner, be prepared to be part of this process, especially in a small office.


Reconcile Bank Statements and Credit Cards

This should be done monthly. Sometimes, fraud can happen when the dental practice isn’t diligent about checking statements – there’s an opportunity. Limit that opportunity by reconciling monthly statements as soon as they come in. Compare transactions with what’s in the billing system. Check that deposits are in the bank account. Require original documentation and business purpose for credit card transactions. Download bank statements directly from the bank’s website for an added level of control – and convenience. No need to wait for the mail!


Assign Responsibility for Petty Cash

The petty cash account is among the most susceptible to misuse. Assign an independent employee to oversee deposits and withdrawals, and require original receipts for all purchases. Prohibit petty cash withdrawals over a certain limit, say $100, and set a clear policy for how petty cash is to be used. Proper handling of petty cash starts at the top – don’t break your own rules.


Conduct Employee Background Checks

Your staff is like an extended family, which can make it even harder to detect and deal with fraud. We recommend enlisting the help of a third party to conduct background checks, and always call the former employer to check references.


Processing Payments

Billing and check tampering schemes are more common than you think, and they are fairly easy to perpetrate. One of the easiest ways to prevent this type of fraud is to segregate duties. The person who writes the checks should not be the same person who signs the checks. When signing checks, review the invoice and ensure the vendor is approved and legitimate. Look for out of order invoice numbers, double payments, or variances in similar invoice numbers. Be skeptical of checks made out to cash. Also consider implementing a two-signature rule for checks over a certain dollar amount.


Tip: When reviewing vendor information, ensure the billing address is the same as the delivery address.

Non-Cash Assets

In a dental office, you have a significant investment in your equipment and supplies, not to mention drugs and prescriptions. Physical assets are easy to steal and misuse, under the right circumstances. Make it harder to walk off with your equipment and supplies by:

  • Installing security cameras
  • Checking inventory quantity to vendor orders and delivery
  • Reviewing for inventory with a negative quantity balance
  • Writing a policy that prevents employees from using practice equipment or supplies for personal use    


Other Internal Controls and Fraud Prevention Policies

Go one step further to safeguard your dental practice.

  • Enable anonymous reporting with a fraud hotline
  • Implement an ethics policy
  • Enforce your vacation Policy
    • Why does this matter? Sometimes, fraudsters never take time off because if they do, they’re afraid someone will discover what they’re up to. Enforcing your paid time off is not only good for business – your staff deserves their break time, after all – but can also play a small role in preventing fraud.