Embezzlement can happen to any practice, and the culprit is often a most trusted employee. She was a wonderful person. Everyone agreed. She had been working at their practice for years. She was the practice bookkeeper, a part-time position whose job it was to diligently check invoices against packing slips, record them in QuickBooks, pay the bills, record the payroll, double-check the bank deposits, and carry the money to the bank. The team knew she had some past financial troubles. Her car had broken down and the repairs were expensive, but she seemed to have managed it with little fuss. Then, one day, the practice owner discovered an odd discrepancy in the funds. He could not quite make the numbers work out so he began an investigation. It was then he found over the course of many months this “wonderful person” had stolen over $6,000 from their hospital. A crime, once caught, she readily confessed to. Same ol’ story This would be remarkable if it was a unique story, but unfortunately it happens way too often. In an American Animal Hospital Association (AAHA) survey from 2014, 86 percent of respondents said employees had stolen from their veterinary clinics. Of that, 83 percent of the thefts were money, and 32 percent drugs. The U.S. Chamber of Commerce estimates nearly 75 percent of all employees have stolen from their employers at least once, and one in three business failures is the direct result of employee theft. The Association of Certified Fraud Examiner’s 2022 report to the nation1 found 50 percent of theft occurred because of improper systems and lack of internal controls. These lack of controls are usually even more evident in smaller practices where staff multitask and are often looked upon as part of the family. Many years ago, a friend of mine who owned a practice discovered his longtime employee, who started at 15 and years later was promoted to practice manager, had failed to pay months of the payroll taxes for the business. Imagine his shock when the IRS appeared on his doorstep and threatened to padlock the practice. She had stolen well over $300,000 and had used the company credit card as her own, even buying her son a car. She was able to do this all because of her longevity and the total trust the owners had in her. Creating a strategy So, how do we plug the holes in the dike of embezzlement in our practices without creating Fort Knox? Creating systems of checks and balances, dividing duties, and monitoring accounts is the key. My first piece of advice to practice owners is to always have your bank statements mailed directly to your home rather than the office. Then review them for discrepancies. Creative managers have been known to write themselves checks, pay their own personal bills, and give themselves payroll bonuses. Surprising to many practice owners, even if you have insurance covering employee theft, it will not cover payroll. Do not give anyone but the owners the power to sign checks. One sure way to help monitor for money embezzlement is to run a profit and loss statement every month. Practice owners should know what their practice norms are, just as a veterinarian should know the values of a normal chemistry panel. In the review, if you see discrepancies that cannot be explained, it is time to take a deeper dive into where your cash is going. You always want to run your profit and loss statement with a column that shows expense as a percentage of income. It is easier to note discrepancies in percentages than it is in dollars. It is also advisable to set your chart of accounts to the American Veterinary Medical Association/AAHA categories for ease of benchmarking. Money follows a path. There are many stops along the way, and at every stop there is an opportunity for theft. The best idea is to keep the same people from controlling multiple steps in the path. For example, each CSR should have their own cash drawer, which is counted at the beginning of their shift. When they go off shift, balance their drawers against the invoices they have processed. Most software systems will run cash drawer reports based on the initials of the CSRs. The end of the day should be run by team members who rotate the duty. The drawer should be required to be balanced at the end of every day and mistakes documented. In addition to the end of the day reports, I kept records of the daily deposits on a single spreadsheet. There was a running total for the month, a column for each kind of credit card payment, a column for cash, another for checks, a column for discrepancies, and then a column for the initials of the person who ran the end of day. The advantage of this sheet, at a glance, was it is easy to see the days the cash drawer was out of balance and who was working the shift. It is important to note the mere act of monitoring the money this closely discouraged theft. It is often the practice manager or lead CSR who is responsible to take money to the bank. This is fine, provided they are not the same person who balances at the end of the day. One practice owner hired her boyfriend as her practice manager only to discover when he took the bank deposit every night he removed all the cash. When she caught him, he told her he was using it for staff incentives…except he was the only staff member benefiting. Another way to deter theft from the cash draw is random audits. All during the day when we would have a slow moment, the CSRs would quickly run a cash drawer verification report and then check to confirm the drawer was accurate. The best part of this habit was at the end of the day, any honest errors get caught and corrected, and they could close quickly and walk out of the door shortly after closing. If practices want to reduce theft by they can do three simple things: 1) Make all staff take mandatory vacation time off (crooks will build a “house of cards” that will be discovered if others take over their duties for a week). 2) Have a fraud and theft reporting hotline. 3) Perform random audits. Honest employees hate a thief, so they are often the ones who know about and report another employee’s criminal behavior. Obviously, money is stolen, but the second most common theft is products. Food and preventives are easy targets, and in larger hospitals both are usually heavily stocked. Controlled drugs are certainly a lucrative item when sold on the street. Due diligence It is challenging when crimes are not prosecuted because of investigation costs and time away from the office in court. These bad actors then simply get off scot-free to do it at another practice. Pay for background checks! Thieves move around, but they will leave a trail. A recent trend when criminal prosecution fails is to sue in civil court for the loss. If someone is going to handle your finances or your inventory, it is appropriate to run background checks on employment history, credentials, drug tests, criminal checks, and credit checks. You will need written permission from your candidate, but if they refuse, you may have saved your company a lot of money because they know they cannot pass muster. The Certified Fraud Examiners 2022 report noted 43 percent of thieves had no background checks run. Of those who were checked, only 27 percent showed a history of fraud. So, a combination of screening and good monitoring systems is needed to slow the opportunity to steal. Employees are not the only ones who steal from hospitals. One practice, under financial duress, had to fire its accountant, a longtime family friend. Incredibly, when the owner’s wife began keeping the books, the practice began to recover. It was then discovered their accountant had embezzled over $200,000 from the hospital. Sales reps and employees have colluded to create false invoices and split the payments. Associates steal services for friends and family. Even partners can steal from their partners. The moral to the story is, pay attention. “Trust but verify” is a quote attributed to Ronald Reagan, but it rings true for our practices. Follow the money: know who has a hand on it and where it goes. Interrupt the path with multiple people. Unless you are the owner, you should never have one person take in the money, deposit the money, distribute the money, and account for the money. The same goes for inventory. I once asked a high-ranking police officer, “Why do people steal from their employer?” He said, “It is a crime of opportunity.” Don’t give people the opportunity. Debbie Boone, BS, CVPM, Fear Free Certified, has worked in the veterinary profession for more than 35 years. Her business, 2 Manage Vets Consulting, helps practices develop team communication and business skills, enhance patient care, improve profitability, and increase practice value. Reference Occupational fraud 2022: A report to the nations. bit.ly/3vBkPH3
