The ugly truth: Why veterinary practice cash isn't flowing

The ugly truth: Why veterinary practice cash isn't flowing

A new survey shows the many ways theft hurts your veterinary practice
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Sep 01, 2011

Although you would never knowingly hire thieves as employees, money pressures at home—especially in this economy—can result in your team members committing crimes against your practice. You can reduce cash flow woes is to start paying attention to potential shrinkage and embezzling, shoring up prevention systems and asking questions.

Fraud is a real problem in veterinary practices. Theft occurs at some level in every practice—no exceptions. And many times, the most trusted employees perpetrate fraud generating the largest losses. According to the Association of Certified Fraud Examiners 2010 Report to the Nations on Occupational Fraud and Abuse, the typical business loses 5 percent of its annual revenue to fraud. In this worldwide study, 60 percent of the 1,843 cases studied were from the United States.

Even worse, veterinary practices are more susceptible to fraud compared to other professional service businesses due to several factors. They have relatively few employees to assign divided responsibilities. Their owners appear to be very trusting. They deal mostly in payment at time of service. They store large stocks of mostly unsecured and highly valuable inventory.

My own firm conducted a survey of 183 veterinary practices to understand the magnitude of fraud in the veterinary industry. We found out a lot:

> 67.8 percent of practices surveyed had been the victim of fraud, theft or embezzlement

> 60.5 percent of the fraudsters were identified but not prosecuted

> The average duration of fraud was 12.2 months

> In 38.3 percent of the cases, fraud was discovered through an internal controls audit.

When does fraud occur?

What motivates someone to commit fraud? The motivations are as diverse as the people who commit them. We do know that fraud is more likely to occur when the following three elements are present:

1. Incentive/pressure. Greed and lack of money are two obvious factors, but pressure may stem from a variety of reasons: personal or family medical bills; addictions to gambling, drugs, shopping or other triggers; the loss of a spouse's job and more.

2. Perceived opportunity/weak systems. Thieves don't believe they'll be caught. The weaker the practice's checks-and-balance systems (internal controls), the greater the perceived opportunity to escape detection. When owners aren't involved in the day-to-day operations—or one team member has an inordinate amount of responsibility—the potential for fraud and theft is compounded.

3. Attitude/rationalization. Perpetrators must be able to justify their theft in their own minds. One common rationalization is the belief that there are no other options to the person's financial difficulties. Another is perceived mistreatment by the employer, which evolves into internal dialogue along the lines of "I deserve it—they've cheated me." Sometimes, when individuals begin committing fraud, they see it as "borrowing" with an initial, sincere intention of future repayment that never pans out.