Substantial theft and embezzlement do occur in veterinary practices regularly. Opportunities for both abound.
Every 12 months or so, we read of a huge loss some practice incurred and how it transpired.
As a veterinary practice owner/manager, how can you mitigate losses? Before we discuss specifics, let's review what constitutes
the practice systems that the accounting profession calls internal controls. The integrity and strength of these systems significantly
impact the practice's economic health.
Internal controls are the built-in safety features that safeguard assets and mitigate liability. These administrative systems
include the methodologies and personnel assignment for maintaining records and custody of practice assets.
Your CPA might describe internal controls in terms of reconciling the computer statement of deposit and cash collected with
what is counted from the till each day. But the theory of internal controls applies to much more than cash-receipt accounting
The efficacy of controls affects every aspect of your practice — from employee hours to maintenance of laboratory equipment
to collection of receivables to sending patient reminders.
To underscore the importance of internal controls, consider the assets making up a typical practice:
» Cash and cash equivalents
» Drug and medical-supply inventory
» Prepaid expenses
» Medical and professional equipment
» Office equipment and furniture
» Computer equipment
» Practice vehicles
» Real estate
» Computer software
» Patient and client records
» Other records and documentation
» Good will
Strong internal controls revolve around the principle of segregation of duties. In other words, the more that record-keeping
can be segregated from maintenance of an asset, the better. If a person is responsible for maintaining the record and the
asset, there is greater potential for procrastination, oversight abdication or worse.
For example, if the person who receives an inventory shipment (control of the asset) is the person who pays the bill (control
of the record), it is conceivable that large amounts of inventory could be stolen unless checks and balances are in place.
Often, these systems are virtually non-existent in veterinary practices.
In designing a system for internal control, you must determine the acceptable level of risk for the practice owner/administrator.
The risk assumed will dictate the system established. Think of it like buying an insurance policy — decide on your level of
comfort and come to terms with the system's weaknesses (and potential losses). Internal controls can be so tight they are
too costly to maintain or they paralyze operations.
A practice manager/owner who maintains all inventories under lock and key will suffer the discontent of doctors unable to
access the drug they need for patient treatment.
No system will be able to catch all defalcations or thefts. Materiality is an issue. If some risks are small and the possibility
of loss is negligible or acceptable, controls can be loose. When a loss becomes material, such as the misplacement or theft
of a case of expensive flea-preventive product, a higher level of control is necessary. Controlled risk becomes an educated
risk, which balances the commercial realities of policing individuals with the benefits derived.
Owners are responsible to keep the highest level of integrity for internal controls. It is not the responsibility of your
accountant, attorney or insurance agent to monitor practice assets or to detect loss, fraud and defalcation.
Realistically, it is not even the responsibility of a practice manager, because the owner must maintain some oversight and
control over that individual. However, we assume the practice manager was engaged to provide systems of internal control,
oversight and maintain accountability to the owner.
Management engages the assistance of professionals but assumes ultimate responsibility. Review of your accounting records
will sometimes show weaknesses. But, do not rely exclusively on that information. Ratios that are askew may have valid reason
from factors other than theft or embezzlement and may come months after the fact. It is management's responsibility to review
practice operations contemporaneously and assure assets are used for the purpose intended.
Occasionally, discrepancies occur. When they do, they are analyzed and reconciled.