Orthodontic clinic embezzled by bookkeeper

 

Aho & Associates was retained by a Bay Area orthodontic clinic to determine whether the clinic’s previous bookkeeper had embezzled funds over a two-year period.

 

The practitioners had decided to sell the clinic and retire but discovered irregularities in its books while preparing the clinic’s financials in anticipation of due diligence exams by prospective purchasers.  We conducted a forensic examination of the clinic’s books, accounts, and payroll, and discovered that the clinic’s previous bookkeeper had engaged in a number of schemes to defraud the clinic of over $300,000.

 

The first scheme by the bookkeeper involved writing clinic checks payable to herself and payable to cash.  She attempted to hide these disbursements on the clinic’s ledgers by categorizing them as wages, patient refunds, loans to shareholders, and reimbursements for various office purchases.  In addition, the bookkeeper intentionally failed to reconcile accounts or retain receipts.

 

The bookkeeper created a second scheme where she withdrew funds from an account that received state disability payments on behalf of a disabled employee.

 

Although neither scheme was particularly sophisticated, the bookkeeper managed to steal approximately $310,000 over a fairly short period of time by exploiting weak internal controls before abruptly quitting and moving out of state.  The clinic submitted our report to law enforcement authorities and is awaiting a referral to the District Attorney's office.  In the meantime, we tightened the clinic's internal controls and reconstructed its books to satisfy due diligence questions by prospective purchasers of the clinic.