Opportunities for theft and embezzlement abound in veterinary practices. Every year, news articles draw attention to the huge
losses that some practices experience and how they happened. The reality is, substantial theft does occur regularly in veterinary
practices — maybe yours.
How can you as a practice owner or manager mitigate losses? Before we discuss specifics, let's review what accountants call
"internal controls." The strength of these systems directly affects the economic health of your veterinary practice.
What are internal controls?
Internal controls are features in your practice's organizational structure that safeguard assets and mitigate liability. They
mostly cover the policies and staff duties for custody of practice assets and maintaining records.
Your accountant may talk about internal controls in terms of reconciling the computer statement of deposits and cash collected
with what is counted from the till everyday. But internal controls are more than cash-receipt accounting and oversight. Internal
controls affect every aspect of your practice — scheduling employee hours, maintaining fluids in the X-ray processor, collecting
accounts receivable, logging shipments and so on.
Consider your assets
To emphasize the importance of well-managed internal controls, consider the many assets of a veterinary practice affected
- 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.
One to maintain, one to record
The driving principle behind strong internal controls is segregation of labor. In any given situation, the more record-keeping
duties that can be segregated, the better. If only one person is responsible for both maintaining the record and the asset,
there are more opportunities for procrastination, abdication of the task or outright theft.
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, without other checks and balances in place, he or she could steal a large amount of
inventory. Veterinary practices often lack proper checks and balances.
Choose your risk
In designing internal controls, you must determine the practice's acceptable level of risk. Remember, the risk assumed correlates
with the system established. It's very much like buying an insurance policy. Decide your level of comfort, and understand
your potential losses at a given level of control. When internal controls are too tight, they become costly to maintain and
can paralyze your operations. For example, a practice owner or manager who maintains inventories under lock and key runs the
risk of creating discontent among associates unable to easily access the drugs they need for patient treatment.
Of course, no internal controls protect against all thefts. If some risks are small and the possibility of loss is at an acceptably
low level, controls can be loose. When a loss becomes material, such as the misplacement or theft of a case of expensive flea
product, a higher level of control is necessary. Controlled risk becomes an educated risk, and it balances the commercial
realities of policing individuals with the benefits derived from the effort.
Practice owners are responsible for the strength of their internal controls. It is not the responsibility of an accountant
or insurance agent to monitor practice assets or to detect loss and fraud. It's not even really the responsibility of a practice
manager, because the practice owner must maintain oversight and control over the manager as well. However, we assume that
a typical practice manager provides internal control and oversight while maintaining accountability to the owner.
Don't just rely on numbers to discover problems
You can review accounting records to find problem areas, but don't rely exclusively on that information. Ratios may be askew
because of reasons other than theft or embezzlement, and they may come months after the fact. It is management's responsibility
to review practice operations contemporaneously and ensure that assets are used for the right purpose. Occasionally, discrepancies
will occur, and they should be analyzed and reconciled.
Seeing is believing
Keep in mind that appearances are important. Just the fact that employees know that internal-control systems are in place
can prevent theft. For example, when you require cash reconciliations that compare the cash reported on the deposit slip to
the cash reported on the end-of-day summaries receipt book, prior experienced overages and shortages seem to disappear.
Inventory works the same way. Regularly check the products that have a high predisposition for theft. Daily reconciliations
help the practice owner or manager start an inquiry immediately when a discrepancy occurs.
Hold the line
Physically restrict access to practice assets. Limit accessibility to only those individuals who have a business reason to
use the assets. Blank checks should be stored off-site or in a safe. Distribute small numbers as needed to the person preparing
Large caches of inventory purchased in bulk at the beginning of a season (heartworm preventive and flea preventive) can be
stashed in a central supply which is accessible only to a small number of people who disburse the cache to other areas of
An accountant or practice consultant can help you analyze your internal controls and the inherent risks. The practice administrator,
practice manager, and accountant or consultant should map out a plan to improve internal controls to tackle your practice's
areas of greatest risk.
Dr. Heinke is owner of Marsha L. Heinke, CPA, Inc. and can be reached at (440) 926-3800 or via e-mail at MHeinke@VPMP.net