Keep Out, Fraudsters: Vaccinating Your Practice Against Veterinary Fraud
Sun, April 18, 2021

Keep Out, Fraudsters: Vaccinating Your Practice Against Veterinary Fraud


Managing your own veterinary clinic is tough considering rising costs and diminishing revenues, noted Fritz Wood of Today’s Veterinary Business, the NAVC’s (North American Veterinary Community) official journal. Transaction and new-client numbers have plateaued, the same goes for the pet population. There is also competition in the pharmacy industry, hindering practices from earning a solid income stream.

But aside from earning, veterinary practices also need to be aware of theft and fraud. Practices draw in fraudsters and thieves as they are small businesses with trusting owners. They also have minimal internal controls and given the size of practices, they often have fewer checks and balances. Practices are also less likely to segregate duties than larger businesses.

Survey On Fraud, Theft, and Embezzlement In Veterinary Practices (2011)

Marsha L. Heinke of Veterinary Practice Made Perfect (VPMP), whose focus is to aid veterinarians in planning and making decisions in their life journeys, sent a questionnaire to all members of Veterinary Study Group Inc. (VSG) Veterinary Management Groups. 71.2% of participants responded to the survey and 67.8% of practices had been the victim of employee-perpetrated fraud, theft, or embezzlement.

When asked which precautionary measures they do on prospective employees, the respondents answered employment history (78.5%), criminal background (29.8%), drug testing (25.4%), and education verification (24.3%).  Only 14.9% said “none of the above.” 60.48% said the fraudster was identified but not prosecuted while 27.42% said they were identified and prosecuted. Only 12.10 said the fraudster was not identified. Collusion is defined as a covert collaborative work between people to make them to illegal things or underhand them. When asked if this was involved, 75.8% said “no,” 18.5% said “unknown,” and 5.6% said “yes.”

The positions held by the fraudsters were receptionist (33.6%), technician assistant (12.1%), veterinary technician (10.3%), office administrator (8.6%), lodging/kennel attendant (7.8%), and associate veterinarian (6%). The fraud was committed “in the area of cash” (51.7%) and “in the area of inventory” (43.1%). The fraud was discovered through internal controls audit (38.3%) and owner’s suspicion leading to the investigation (36.5%). It was also discovered when there were missing records and/or destruction/tampering involved (20.9%) or when the tip/complaint was investigated (15.7%).

The respondents also said that the fraud was discovered through the following means: confession (7.8%), recurring computer system issues (7.8%), security cameras (7%), other (7%), vacation or job change (5.2%), and CPA/accountant (3.5%). When asked which fraud symptoms were present, the participants cited accounting anomalies (25.9%) like faulty journal entries or incorrect ledger balances, internal control symptoms (24.1%) such as the lack of segregation of duties, etc. and analytical anomalies (15.5%) like transactions or events that take place at odd times or places.  

Other fraud symptoms mentioned by the respondents were change in attitude and/or behavior, tips and/or complaints (15.58%), lifestyle changes (8.6%), and none (32.8%; the signs were evident in hindsight).  



Studying the Fraud Pyramid

The first part of the pyramid is pressure, said VBA (Veterinary Business Advisors), a provider of business, practice management, and human resources management. This happens when employees face financial burdens like excessive debt, addictions, etc. Regardless of the individual’s reason, the aforementioned factors are often perceived as shameful. Hence, they may have a hard time sharing their struggle with their loved ones and colleagues.

The second part is perceived opportunity, wherein desperate people find places with weak internal financial controls. They will then exploit a vulnerability within the system of checks and balances. A person who plans to steal from a practice will see increased responsibility as an opportunity so that they have more access to the business’s financial system. The last part is rationalization. Even in a well-managed organization, the fraudster often succeeds with the crime to the point that they justify it. This means that a small loss for the practice is okay if it “helps” the criminal gain more financial standing. Fraudsters or thieves see no other option for addressing their own financial problems, arguing that their employer mistreats them or that the stolen items or cash are provided for them as “tokens” for their contributions in the practice. Many of the criminals believe that they are “borrowing” from the practice, adding that they are planning to repay the veterinary clinic after having a more stable financial standing.



How Fraud Is Done

The most common rationale for committing fraud is “free or deeply discounted treatment for the animals.” Fraudsters can cheat your practice’s financial system by not documenting sales, including destroying or omitting sales slips. Fraudsters may also tamper with your business’s cash register to understate cash sales reports.

They also overcharge clients to pocket the difference. Thieves and fraudsters can collect controversial charges, reporting them as uncollectible. This allows the fraudster to become a write-off, allowing them to take the money. The individual may also engage in unauthorized borrowing or redeem vendor rewards for their own personal gain if they have access to these accounts.   

How Practices Can Prevent Fraud

According to VBA, the best way to address fraud is to prevent it before it happens. For example, practices can conduct background checks when hiring new employees. It is also recommended to regularly examine your practice’s internal controls. Embezzlement becomes a success when your books are not double checked, so it is best to require your employees to verify their work with each other. This way, committing theft will be much more difficult.

Consider segregating duties among your employees and help them build a system of checks and balances. You can implement this on inventory counts and when depositing checks. Reconcile all bank accounts every month, as thieves and fraudsters can bury withdrawals when statements do not match with the transactions your practice engage.

Review your employees’ payroll reports before submitting them to ensure that their salary, time clock reports, and check payments are accurate. Many of the amounts in the payroll remain constant, so try to discern any discrepancies in the numbers.  If there any discrepancies, then that might signal a potential problem. Make sure that your employees have limited access to company credit. Establish limits and only extend credit when necessary to ensure that your business grows and becomes sustainable.

Competition between practices may be intense, but they also have to safeguard their business against thieves and fraudsters. Fraudsters can tamper with the payroll or overcharge clients. To prevent fraud, practices need to learn to discern red flags and examine their internal controls.