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From the VetPartners Experts: Fraud, Theft, and Embezzlement: Is It Happening in Your Practice?

Jun 5, 2019 at 12:13 pm
Tera Nance

What if your practice was experiencing high profits, the schedule was always booked solid, and you had numerous new clients, but at the end of the month, you never had any cash in the bank and were struggling to make payroll each pay period?

This could be an indication that your practice is suffering from fraud, theft, or embezzlement.

Fraud, theft, and embezzlement: The statistics

  • In a 2014 AAHA survey, a whopping 86% of respondents said employees had stolen from their veterinary clinics.
  • In a 2011 survey of 183 Veterinary Study Group (VSG) member practices, nearly 68% reported being a victim of fraud, theft, or embezzlement by an employee.
  • According to the Association of Certified Fraud Examiners (ACFE) in the 2018 Report to the Nations, employee fraud goes on for an average of 16 months before detection.
  • The median loss for businesses with fewer than 100 employees was $200,000.

Have you heard of the 10-10-80 rule? Fraud prevention experts cite that 10% of people will never steal no matter what; another 10% of people will steal at any given opportunity; and the other 80% may steal depending on how they rationalize a particular situation.

The statistics are scary! Veterinary practices of all shapes and sizes are at risk. Family members, trusted friends, legacy employees, and even some owners are capable of stealing from the business.

Characteristics of employees who steal

  • Long-term and trusted employees
  • Have excessive control issues or behavior irregularities
  • Refuse to take vacation and continually work unnecessary overtime
  • Disgruntled or feel entitled

Why employees steal

Unfortunately, there are many reasons employees steal. The embezzlement triangle below is a framework that explains an employee’s decision to commit fraud: incentive, opportunity, and rationalization.

  • Incentive — May be created by personal financial problems, such as supporting an unhealthy addiction, large medical bills, or an unemployed spouse.
  • Opportunity — Most of the time, it’s simply far too easy to steal; the opportunity was just too tempting to resist.
  • Rationalize — Or justify the crime in their minds. They may feel entitled, justifying that they deserved the money since they haven’t had a raise in several years or they aren’t appreciated enough. They could also decide that the owner makes too much money and the wealth should be shared. The list goes on and on.

Fraud, theft, and embezzlement: The warning signs

  • The practice is profitable but has unexplained low cash flow
  • Constant discrepancies in reconciliations of day sheets, bank accounts, credit cards, or petty cash (banks and bookkeepers do make mistakes, but not consistently and rarely for large amounts)
  • Mounting credit card bills or unusual transactions
  • Discrepancies in inventory reconciliations, missing items, or unexplained purchases

How to prevent fraud

The easiest way to prevent fraud is to implement internal controls, which are protocols and systems to protect your practice, ensure accurate financial reporting, and promote efficient and effective operations.

  • Reconcile daily reports from the practice management software to the cash, checks, and credit card slips each day. Have a different person take the deposit to the bank.
  • Limit check signing duties to only the practice owners. Never sign blank checks.
  • Divide the check writing, recording, and bank reconciliation duties between two or more employees.
  • The person placing inventory orders should be different from the person receiving and verifying the orders.
  • The practice owner or a different employee who processes payroll should review it before it is submitted.
  • Reconcile bank and credit card statements in a timely manner. Always research discrepancies, never “plug” or ignore differences.
  • Limit access and issuance of company credit cards. Strictly enforce policies and closely review all transactions.
  • Within your practice management and accounting software, assign appropriate security roles and rights.
    • Frequently review and update them.
    • Ensure no one has the ability to delete anything.
    • If a mistake needs to be corrected, implement an approval process that requires at least two people, including a manager or owner, to execute the correction.
  • Incorporate careful hiring practices and run background checks on all potential employees.
  • Something that can appeal to the consciences of the 80% of people who may or may not steal from you, is simply to be involved.
    • Walk around your practice, be seen in the pharmacy, and sit with the bookkeeper and review the numbers. Make an effort to ask questions and learn about all the processes.
    • Your simple attention to finances could deter an employee who is considering stealing.
  • In staff meetings, talk about integrity and honesty, and clearly communicate that there is zero tolerance for anything less. Set a good example with your own behavior of always doing the right thing.

What to do if you suspect fraud in your veterinary practice

  • Conduct a discreet investigation and gather as much evidence as possible.
  • Once you have hard proof, consult an employment attorney or the police.
    • Immediately start the legal process of prosecution, repayment plan, or whatever you decide is best for you and your practice.
    • Immediately remove the employee from your practice and do not allow them to return. Get their keys and any other company property they have, and change passwords the same day.

We often hear practice owners say “it can’t happen here” or “we are all like family.” Unfortunately, many of those same owners saw red flags but ignored them because of those misconceptions. No matter the size of your practice, there are internal controls, processes, and systems you can implement to protect you, your employees, and your practice. If you suspect that fraud could be happening in your practice, take it seriously. Don’t shrug it off thinking it will never happen to you. Protect yourself, your employees, and your practice. It’s not paranoia; it’s prudence!

 

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Tera Nance
Tera has deep roots in all financial aspects of veterinary practice management. Since 2010, she has served as a financial manager and accounting consultant for several large equine and mixed animal practices across the country. Tera started her accounting career as a staff accountant and auditor for a CPA firm in 2002. From there, she was a cost accountant for a large publicly traded company, managing international accounts. After 5 years in corporate America, she found her home in the veterinary industry as controller for Equine Sports Medicine & Surgery in Weatherford, Texas, and later as the director of accounting and finance for Inova Partners. She is now a financial consultant for Summit Veterinary Advisors, a veterinary consulting firm based in Littleton, Colorado. Tera has a BBA in accounting from Tarleton State University. She is a certified valuation analyst and a member of the VetPartners Valuation Council. Tera speaks nationally on financial reporting, fraud prevention, cash management, and understanding practice value. Tera's passion for making a difference in people's lives combined with her teaching skills and accounting knowledge help her clients better understand and manage the business facets of their practices. From developing budgets to consulting on exit strategies, Tera has the experience veterinarians need to help them manage every stage in their practice's lifecycle.

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