The Devil's in the Details

August 12, 2020

The Devil's in the Details

7 Minute Read

National Leader, Forensics and Litigation Support

How data analytics can help you save time, prevent fraud, and monitor your practice

Professionals in North America are routinely defrauded. Sometimes I’m approached to investigate suspicions of fraudulent behaviour in practices. More often a fraud comes to light that leaves the owner baffled and frightened because they never suspected it.

All practice owners must come to grips with two unfortunate truths: Fraud is significantly more common among professional practices than other small businesses — and fraudsters are specifically targeting professional practices.

You might think this seems unfair, because it is. But you need to be aware of the factors that make you an attractive target:

  • Compared to other small businesses, professional practices offer the impression of being a massive income generator
  • Though highly skilled in their trade, professionals tend to have less knowledge, interest or time for business and accounting matters
  • Administrative staff believe they work as hard as professionals and practice owners, but their compensation is generally far lower
  • Practices tend to operate with few administrative personnel who often perform tasks most businesses believe to be mutually exclusive due to the risk of fraud

Fraud isn’t going away on its own, especially considering today’s economic circumstances. We often see what I call “serial defrauders” — office administrators who move from practice to practice, defrauding each in turn. But given the right conditions, anyone can succumb to the temptation to dupe your business. You must take steps to protect yourself.

Assess your practice

To gauge the effectiveness of your fraud prevention systems, consider your response to each of the following statements:

  1. I have created an internal culture that is intolerant to fraud or financial abuse
  2. I have policies and procedures designed to prevent and detect fraud — and all my employees are aware of them
  3. I have appropriately segregated duties to reduce the risk of fraud
  4. Accounting reconciliations are prepared monthly and reviewed by an individual independent of the reconciliation process
  5. I know my employees’ history and circumstances and require them to take regular vacations
  6. All banking activities require my oversight
  7. I manage and track inventories — particularly items with a secondary resale market
  8. I have software controls in place which leave an audit trail and track access to financial data and online banking
  9. I know what my financial results should look like and I monitor bank accounts and financial reports regularly
  10. I monitor my client management software system for unusual transactions such as deletions, corrections, reversals and fee overrides

If you cannot answer yes to at least six of the 10 statements, you’ll want to consider additional risk management procedures in your practice.

A new approach to prevention and detection

I’ve spent years trying to convince practice owners to implement stronger internal controls to prevent or detect fraud. Yet many are still hesitant. Not because they don’t see the value, but because they see the process as tedious, or confusing — or they simply want to spend their non-client time on other matters.

Rather than trying to force the issue, I’ve turned my attention to the role technology can play in making fraud detection more effective and efficient. I now recommend a program called The Six-Month Checkup.

This process involves using data analytics to perform a rigorous examination of your banking, patient management, and accounting data on an alternating six-month rotation. Data analysis is efficient cost-effective and can provide you with important feedback on:

  • Reversals, deletions, corrections, and write-offs of services in the practice’s operational program data and accounting data
  • Unusual recipients of funds
  • Unexpected timing of dollar-value payments
  • Unexpected general journal entries
  • Unusual patterns of payments or deposits
  • Automatic digital payments or transfers
  • Unexpected transaction types — such as foreign currency or bank drafts
  • Cash withdrawals
  • Lack of cash deposits
  • Unexpected funds transfers
  • “Unbundling” of composite procedures

In other words, red flags for fraud for your professional practice.

Making your technology work for you

Ideally, practice management software will track client visits and corresponding revenues, which will reconcile to recorded accounting and bank transactions. Analyzing operations, banking and accounting data can help identify red flag transactions and areas where you expect a reconciliation, but one doesn’t occur — or is forced to occur by a “plug” accounting entry.

Peripheral benefits to proactive data analytics include:

  • Increased deterrence resulting from practice staff knowing you are proactively monitoring financial risks (surprise visits are recommended)
  • Marginal time investment required in each analysis cycle — except to assist with interpreting results and verifying unusual transactions
  • Decreased insurance costs
  • Greater efficiency and accuracy of accounting staff in recording transactions
  • Streamlined year-end accounting and tax work
  • Easier management of multi-location practices

A Pound of Cure

It’s important to recognize the methods employed in the Six-Month Checkup do not, in themselves, prevent fraud from occurring. Rather, the process uses technology to deliver more robust oversight of your key business data without requiring a significantly greater time investment from you. It’s also a means of deterring would-be fraudsters from attempting anything, because they know you’re paying close attention to the business.

And this is far from trivial. Most instances of fraudulent behaviour are opportunity based and depend on you not detecting it over a relatively long timeframe. The simple act of knowing you’re committed to preventing fraud in the business is often enough to keep bad actors in line. And even if they do attempt something, you’re more likely to catch it early enough to minimize the potential damage. You’ll also make it easier to investigate the issue and implement policies to prevent similar incidents from happening in the future.

As the old saying goes, “the Devil’s in the details”. Details matter. Data analytics can be a successful solution to reduce the risk of fraud in professional practices, especially when the practice owners don’t want to remain mired in details themselves.

For more information or to learn how MNP can help protect your practice, contact Lisa Majeau Gordon, CA, CPA, CA?IFA, CFE, CFI, CICA, CFF, National Leader, Forensics, at 780.451.4406 or [email protected]


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