Did you know that the oldest U.S. veterinary clinic — Patterson Dog and Cat Hospital in Detroit — has been in business since 1844? I sometimes wonder what walking into a 19th-century clinic was like. Did you need an appointment? What did the reception area look like, feel like, smell like? Lastly, how did clients pay for services decades before debit and credit cards? They used cash or bartered.
Did you also know that a Dayton, Ohio, entrepreneur named James Ritty invented the mechanical cash register in 1879? A bell would ring when a clerk pushed keys showing the transaction amount, alerting everyone, including the manager, that a sale was happening. The register was crucial in minimizing employee theft and embezzlement, right? Not so fast! Whenever companies introduce a financial safeguard, someone will find a way to steal.
Employee theft isn’t new. The Association of Certified Fraud Examiners estimates that 5% of an organization’s revenue is lost to fraud each year. The association’s 2024 report, available at bit.ly/4d9XtNJ, found that the highest median loss, $141,000, occurred at companies with fewer than 100 employees.
Many veterinary clinics are small businesses, meaning team member responsibilities often aren’t shared. Instead, particular tasks, especially back-office duties, are often assigned to one person, weakening internal controls. And where an opportunity lies, the chance of fraud rises.
But let’s be honest. Just because theft or embezzlement opportunities exist doesn’t mean employees will automatically commit crimes. To understand the “why” behind employee theft, check out my article Sticky Situations at bit.ly/stealing-TVB.
The Average Perpetrator
Statistics show that 7 out of 10 times, the perpetrator is a 31- to 45-year-old man with a university degree who held a finance role, was employed by the company for more than 10 years and colluded with another fraudster.
In the veterinary industry, 8 times out of 10, the perpetrator is a 36- to 45-year-old woman who has worked at the practice for over five years and holds a management position.
That’s not to say your clinic has a problem if either profile describes one of your employees. I’m sharing what the statistics suggest in the hope that clinic owners remain diligent and mindful in looking for red flags.
Warning Signs
Here are common indicators that someone might be preying on your assets:
- Unexplained changes in financial metrics.
- Transactional errors or issues.
- Excessive discounts, returns or voided sales.
- Discrepancies between bank deposits and posted amount.
- A large number of write-offs in accounts receivable.
- No or infrequent payroll reconciliations.
- Abnormal inventory shrinkages.
- More inventory purchases but no rise in sales.
Employee red flags might include:
- Overprotective of financial records, job duties or workspace.
- Life events that could cause financial distress.
- Job dissatisfaction.
- Decline in job performance.
- Increased irritability, including annoyance at reasonable questioning.
- Tendency to blame others.
- Not taking paid time off (due to the possibility of discovery).
- Carrying unusually large sums of money.
Remember that warning signs aren’t proof that something is wrong. Investigate first, and if you discover an honest error or simple mistake, consider more robust internal controls.
The Association of Certified Fraud Examiners’ report pointed out that the primary contributors to employee fraud are a lack of internal controls (32% of cases), an override of existing internal controls (19%), no or little management review (18%) and a lack of competent overseers (9%). Even if your practice has adequate internal controls, don’t forget that dishonest employees can collaborate to overcome them.
Detecting Fraud
The fraud report also looked at how cases are initially detected. The most common ways are these:
- Tip: 43%
- Internal audit: 14%
- Management review: 13%
- Document examination: 6%
- Account reconciliation: 5%
- By accident: 5%
- External audit: 3%
Who are the tipsters? In 52% of cases, it’s another employee. Customers (21%), anonymous people (15%) and vendors (11%) also see, hear or suspect something and report it.
Honest employees want to work for an honest company. Your practice should have an anti-fraud policy and share it with all new hires. A sample fraud policy is at bit.ly/3UcIZF7.
Veterinary practices aren’t immune to theft or embezzlement, no matter how well-run they are or how trustworthy their employees seem. Stay vigilant and regularly review your internal controls.
CRIME-FIGHTING TECHNOLOGY
- Billing: Accounts payable fraud is common. Consider investing in Plooto (plooto.com), Bill (bill.com) or another platform that sets up users with different permissions. Under such a safeguard, one employee initiates a bill payment and another can approve it. Exceeding a dollar limit might require a second approval. The software should have audit trails and recordkeeping so you can review who did what and when.
- Payroll: I recommend electronic timecards with geolocation. Check out Homebase (joinhomebase.com), Gusto (gusto.com) and QuickBooks Time (bit.ly/3Ui3f8z). Also, consider outsourcing your practice’s payroll duties or utilizing a payroll platform that makes tax deposits on your behalf.
- Accounts receivable: Ask your practice management software provider about lock periods. Ensure that each user has a personal login with a custom set of permissions.