By Reed Tinsley, CPA, CVA, CFP, CHBC
One of the most frequent comments I hear once the identity of an embezzler is confirmed is that he or she is “the last person I could imagine stealing.” Their surprise is understandable. We all have preconceptions about how criminals look, dress, speak, and act. Our mental image of the criminal is shaped by what we see on the news, TV dramas and by direct observation in our own communities.
Embezzlers will never fit this stereotype; many of them remind me of Sunday school teachers (which, in fact, some of them are). The explanation for why embezzlers do not fit the preconception is simple – you would never hire someone who looks your image of a criminal. So as an employer, you have already eliminated certain people because they haven’t passed your personal “smell test,” whereas everyone you hire has.
Criminologist Donald Cressey probably had the greatest influence on the development of our current understanding of economic crime. In his landmark 1973 book Other People’s Money, he proposed a framework called the Fraud Triangle. Cressey theorized that there were three necessary preconditions for fraud — Pressure, Opportunity, and Rationalization.
Pressure
Pressure can be either financial or emotional, and we sometimes label embezzlers with these characteristics as “Needy” and “Greedy” respectively. Needy embezzlers steal to address a financial need; some event has created a financial imbalance where more money is being spent by their household than what is being earned, and this deficiency has threatened their ability to keep themselves afloat. They steal to fund necessities like rent and mortgage payments. There are many possible triggering events. Some common ones are divorce, a spouse losing his or her job or an addiction of some kind.
In contrast, Greedy thieves steal to address an emotional deficit. In many cases, they feel that society (represented by you, their employer) has failed to recognize the true value of their talents, and they steal to address this perceived inequity (and to prove how truly smart they are). They may, perhaps even with justification, look at you as an intellectual peer. They conveniently forget the outlay you made to acquire your education and the financial and emotional burdens of practice ownership, and in their simplified worldview it seems unfair that you earn ten or twenty time what they do. Most of your staff, including any embezzlers you might be harboring, chronically overestimate what you take home. This overestimation increases the embezzler’s perception of inequity.
There are also those who derive emotional pleasure from the act of successfully taking a risk; they are somewhat analogous to the “celebrity shoplifters” we occasionally hear about. A spectacular example of this is one embezzler who we investigated who had been stealing from her doctor for several years when she won a $3 million lottery prize. If most physician staff members had that kind of lotto winning, they would probably quit their job, and on the way out the door would tell the doctor what they really thought of him or her.
This embezzler did not quit her job; she kept working. She also continued stealing and here is the interesting part. After her big win the amount she was stealing monthly increased. Since she clearly did not need the money that she was stealing, at that point her stealing was to address an emotional deficit and not a financial one.
One of the differentiating characteristics of Greedy thieves is how they spend their money. Needy thieves steal to protect their basic standard of living, but Greedy thieves spend conspicuously, and normally on luxury items that would otherwise be unaffordable; we have seen $140,000 automobiles, yachts and in one notable case the chartering of a plane to take friends on a shopping trip. The “egotistical” spending that we often see reinforces the view that the Greedy are stealing to address a self-esteem deficit.
A question I am often asked is whether embezzlement is more common when the economy is booming or in recession. Economic conditions affect our two cohorts differently. Tough times create more situations of financial desperation, and therefore more Needy thieves. When the economy is doing well, the perception that their friends are getting ahead more quickly than they are motivates some people to join the ranks of the Greedy. Embezzlement could take place at any point in a dentist’s career. An employee’s decision to become dishonest actually has relatively little to do with you, and is far more related to their own needs and wants. I would describe someone’s decision to start embezzling as a statistical “random walk.”
While there is no correlation between the existence of embezzlement and career stage, my view is that dentists who are in the first five or last five years of their careers are likely to take longer to realize that they have a problem than mid-career dentists. I think that in the case of new dentists, their inexperience in business, plus often trying to juggle their practices, the effort needed to build their clinical skills, and often raising young families at the same time. The dentists in the twilight of their careers are (hopefully) financially comfortable and probably are not watching the pennies as closely as they once did. Also, many senior dentists who started practicing before practices were computerized have never become conversant with their practice management software, and that puts them at a marked disadvantage when it comes to detecting embezzlement.
What isn’t often understood is how powerful the motivation to steal is, and how the combination of determination, cleverness, and knowledge of how your office operates creates a climate where embezzlement can be successfully carried out, at least for a time.
Rationalization
In addition to feeling some form of pressure, an embezzler needs to decide that stealing from you is an acceptable way to address the pressure that they are facing.
We are all taught from an early age that taking other people’s things is wrong, and every embezzler must get to the point where they can tell themselves that “it is ok to break that basic rule because…”. I often explain rationalization as an ethical “bar” that a thief must be able to jump over before stealing. This bar has different heights for different people, and various factors can have the effect of lowering the bar.
Sometimes (probably without realizing it) the actions of the dentist may have the effect of lowering the bar for someone in their office. For example, if staff members see you cutting ethical corners or cheating on your income taxes, or if you do something that a staff member interprets as rubbing your relative affluence in their face, you are making it much easier for them to justify stealing from you.
I remember a doctor taking his entire team to a conference in an exotic location – great idea, except that the doctor purchased plane tickets in First Class for himself and his wife, while the rest of the team were crammed into Coach seats on the same plane. Another doctor used to regularly complain to staff about how expensive repairs to his Mercedes were; you can imagine the animosity this caused since the car cost more than the annual salary of any member of his staff. At a minimum, this kind of behavior shows the doctor to be insensitive; it can also provide the would-be embezzler with sufficient rationalization to start stealing.
Other rationalizations that I have heard are that “the doctor would only waste the money anyway” or that the doctor is greedy or exploits patients or insurance companies.
Opportunity
The final precondition for embezzlement is opportunity, and opportunity exists in every practice.
The biggest misconception I encounter, and I think a major enabling factor for embezzlement, is the belief that policies, procedures and “checks and balances” can prevent, or reduce the likelihood of embezzlement. Unfortunately, this misunderstanding afflicts not only practicing dentists, but also the large community of those advising dentists.
To be clear, the misunderstanding is an honest one; most of us understand other types of crime better than embezzlement, and there is a tendency to assume that what is effective in controlling other criminal activity will also control embezzlement.
Most people understand that a burglar alarm installed in a house or business dramatically reduces the chance of burglary. Locking your car’s doors decreases the probability that your car’s contents will be stolen. We assume that the same approach (i.e., increasing the perceived difficulty of stealing) will reduce the likelihood of being embezzled, and that is where we have misapplied the analogy.
The difference between burglary and embezzlement is that it is quite easy for a burglar to switch victims. If a burglar is standing on your doorstep with the plan to rob your house, a burglar alarm sticker or loudly barking Doberman will cause them to reconsider. But what happens from their reconsideration? They do not abandon their plan to steal; instead, they modify it. So, if your neighbor’s house looks less protected, the burglar simply robs your neighbor instead. So, all of your control measures did not convert a would-be thief into a law-abiding citizen; instead they caused adaptation.
But here is where analogizing to burglary reaches its limit – for a burglar, changing victims is an easy adaptation. I simply walk a few yards down the street to find an easier victim. In contrast, changing victims is a major undertaking for a would-be embezzler; they would need to quit their current job and find a new one, preferably with a doctor who they have assessed and determined to be an easy mark. Then, the thief would need to spend sufficient time in the new practice to understand the controls in place well enough, and build sufficient trust with the doctor, to steal. Thieves simply aren’t that patient, and a much easier adaptation is to keep working for you and find a different way to steal.
Put another way, what embezzlers can control, and therefore what you can influence, is not their choice of victim; it is their choice of methodology. If you block an embezzler’s first idea for stealing from you, they will move on to their second, third or twelfth choice until they find something that works. And with medical (and dental) offices being highly porous in this respect, thieves have lots of options.
Relating this back to Cressey’s Fraud Triangle, I view Opportunity as a binary factor – it either exists or it doesn’t. For embezzlement, more opportunity does not correlate with increased probably of embezzlement, and reducing (but not eliminating) opportunity does not decrease the likelihood. Let’s assume that you have a motivated thief in your office who knows you well – what are the chances that they will be unable to find some method of going through or around your controls? Sadly, their chance is excellent.