4 tips to help you nab fraudsters in your veterinary practice
Although you may not want to believe it, theft is real. Every practice experiences theft. The question is simply whether or not it’s been uncovered. Many times fraud is perpetrated by trusted “friends.” According to the Association of Certified Fraud Examiners (ACFE), the typical organization loses 5 percent of its annual revenue to fraud. And the problem is worse in small business such as a veterinary practice.
“Small organizations tend to have far fewer anti-fraud controls in place than larger organizations,” the ACFE states. “Furthermore, small organizations are victimized by fraud more frequently than larger organizations and they suffer a disproportionately large median loss.”
In 2011, my firm conducted a survey to try to understand the magnitude of fraud in the veterinary industry. Our 183 respondents across both companion animal and equine practices answered questions about their veterinary practices. We discovered:
• 68 percent of practices surveyed have been the victim of fraud, theft or embezzlement.
• 64 percent of fraudsters had been employed in the practice for three years or less.
• 34 percent of fraudsters were reported to be the clinic receptionists.
• In 38 percent of the cases, fraud was discovered through an internal controls audit.
• The average duration of fraud was just over one year.
While fraud is widespread, there are actions your practice can take to deter fraud:
Tip 1: Hire a tip hotline provider. Occupational fraud is more likely to be detected by a tip than any other method, the ACFE says. Most of these tips are from employees of the victim organization. Your employees are the eyes and ears of your practice. But while they may witness something they believe to be unethical, they may not be comfortable speaking up. A tip hotline is an economical way to help uncover fraud incidents. It gives your employees, vendors and clients an anonymous way to report dishonest behavior.
Tip 2: Draft a practice code of conduct. A practice code of conduct is a set of rules outlining the responsibilities of and proper practices for individuals in your practice. Visit www.vpmp.net/resources to download a sample code of conduct for use in your practice.
Tip 3: Ask questions and check documents. Our fraud survey indicated that accounting anomalies such as faulty journal entries, nonexistent or fraudulent source documents, and incorrect ledger balances were present in 26 percent of fraud cases. Expect responsiveness and information in a timely fashion. Financial reports should be ready when you ask for them. Make it known that you check documents on a regular basis—and do it.
Tip 4: Encourage honesty. Treat employees fairly. Employees should believe that their jobs are worth having and keeping. Hire people with integrity. Ask about core values. Check references as well as police records.
What motivates someone to commit fraud? The motivations are different for each person, but fraud is more likely to occur when the following three elements are present:
Perceived opportunity/weak systems. A fraudster believes that he or she will not get caught. Therefore, if internal controls are weak, management is not involved in the day-to-day operations, or one person has an inordinate amount of responsibility, there is an opportunity.
Financial pressure. Pressure to commit theft can include almost anything: medical bills, addictions, a spouse’s job loss, financial troubles, love of shopping and so on. The incentive could simply be greed.
Rationalization. A person must be able to justify the fraud in his or her own mind. Rationalizations include the belief that there are no other options to solve financial difficulties, perceived mistreatment by an employer, and seeing the theft as borrowing with intent to pay the stolen money back.
Want to know more? So do we. We’re currently conducting our 2013 Survey of the Veterinary Profession on Practice Embezzlement, Fraud, and Loss and want you to be a part of it. Please go to the following link and take a few minutes to complete the survey. Your individual practice information will be kept completely confidential. Survey results will be shared in a summary report with all respondents, and all those who complete the survey will receive a discount code for our internal fraud control checklist: