Internal controls-real life horror stories and how to prevent them in your practice (Proceedings)

The internal controls of a veterinary practice is often overlooked by owners, and the ramifications of this can be financially catastrophic.

Internal Controls defined:

An accounting procedure or system designed to promote efficiency or assure the implementation of a policy or safeguard assets or avoid fraud and error etc.

Our experience has revealed to us that small businesses run an inherently greater risk of employee theft because of their lack of checks and balances.

Review actual horror stories, ranging from mildly irritating to severe.

A few important factors to remember about embezzlement and theft in small businesses:

     - If they occur, most thefts in your practice will only involve one person,

     - Generally, only the people you trust will be able to steal from you, and get away with it.

     - Most embezzlements continue for months before being discovered.

When designing an internal controls system for your practice, a few items to live by:

     - Division of responsibilities. Don't let any one member of your staff have too much control.

     - Pay Attention to employee behavior and moods.

     - Stay diligent. A small amount of supervision and awareness goes a long way towards theft prevention.

Discussion on different internal control areas that need attention:

Receipt of Cash and Check Payments

     1. Cash Payments by Clients

          a. Receipt

          b. Recording

          c. Verification

          d. Storage

     2. Check Payments by Clients

          a. Receipt

          b. Recording

          c. Endorsement

          d. Verification

          e. Storage

     3. Deposit

          a. Deposit slip

          b. Verification

          c. Storage

          d. Deposit receipt

          e. Handling of adjustments or NSF checks or notices

Receipt of Credit Card Payments

     1. Credit Card Payments by Clients

          a. Receipt clearly states credit card payment.

          b. Recorded as credit card payment in computer.

          c. Reports run

          d. Report comparison

Other Items

     1. Bank Statements/Reconciliations

          a. Bank statements go to owner un-opened.

          b. Owner peruses all check payees and endorsees for irregularities.

          c. Owner reviews all adjustments (NSF, debit or credit memos) on

          d. bank statement.

     2. Adjustments

          a. Allowed accounts receivable authorized by office manager and owner.

          b. Client write-offs

          c. Change of payments

          d. Other steps

     3. Petty Cash

          a. Maintain separate petty cash drawer.

          b. No cash from daily activity to be used towards petty cash

     4. Check signing

          a. Owner only. No exceptions.

     5. Payroll

          a. Office manager to continuously review employee rates and salaries.

          b. Overtime authorized by supervisor, signed off on by owner

          c. Owner periodically reviews employee rates and salaries.

     6. Vendors/Ordering

          a. Review process

Other issues to review and consider:

Invoicing of clients

Inventory on shelves

Computer back up procedures

Record-keeping

Computer security

Company credit cards

Employee vacation time/sick time

Employee handbooks