Internal Controls – Managing Vulnerability in the Practice

By Shelley Johnson, CVPM

Veterinary practices, like many businesses, have many exposures to risk, theft and business loss as a result of lack of internal business controls. Internal business controls are those planned processes by which a business maintains an environment that reduces corruptibility and deters fraudulent activities that may occur because

of management and/or employees. The processes provide safeguards for business operations and should be planned by the business owner and his/her professional advising team.

It is important to recognize the potential exposures as one prepares to create a plan for protection. A starting point is to describe and acknowledge the risk level for all areas of business operations. The process of reviewing systems, protocols and efficiencies can be time consuming. Understanding what one is searching for may be challenging at times due to lack of familiarity with general operations of some of the business processes. If that is the case, the mere exercise of reviewing vulnerability will be rewarding in so far as having confidence that operations are running in a well-planned manner with checks and balances in place.

Some of the areas business owners should seek to review include, as mentioned above, business operations as well as the leadership structure in the practice. With both of these areas within your view, it is an important step to dial in your guiding thoughts on what management characteristics look like in your business.

The reason is twofold: understanding your management characteristics, as well as understanding those characteristics a manager or leader might have in your practice. A self-assessment on these characteristics should highlight, at the very least, the level of knowledge, skills, proficiencies and comfort with the following:

• Knowledge of profession, business, job

• Understands business vision and value system (belief system)

• Moral and ethical character

• Consistency in performance

• Team participant

• Integrity

• Effectively enforces policies

• Leadership capabilities

Let’s explore two general scenarios with leadership assignments that have become recognized as potential areas of vulnerability. Often, there is a tendency to “recruit and promote from within.” Each practice is unique in their operations and leadership development and, that noted, there can be vulnerabilities in handing over the baton (of responsibility) to an experienced employee without having clear expectations, structure and oversight in place. The key operational word is oversight. When a “trusted” employee is promoted and leadership falls away to leave the employee to do his/her new job, this increases the opportunity for undetected issues to develop and gain momentum.

The second scenario arises when an experienced applicant is hired as a manager and/or leader (technician leaders, CSR leaders, etc.); the relief of having a responsible person in place may feel like a cue card to the practice owner to bow out and let the new person assume their responsibilities. In both of these scenarios, the absence of owner oversight can leave the owner feeling out of control and business operations left to chance.

Taking a proactive approach with planning and carrying out an intentional hiring process are keen steps in developing oversight checkpoints for a practice owner. How well do you understand the hiring process in your business? And, at what level do you participate in the hiring process? Review the process for the last three employees to join your team and note any gaps or misses in the processes. In addition to fostering the desired workplace culture you imagine (that is a tall order and should be under your control), areas to evaluate in your hiring process should include: determining a need to bring a new employee onto the team, managing the expectations of the posted position, establishing screening processes, employee “onboarding” and directing/ overseeing performance processes.

Understanding and participating in the process are the only avenues into understanding who is coming onto your team. Barriers often noted for lack of participation are not having enough time and lack of knowledge regarding hiring processes. Planning around those barriers will net a greater role in the hiring process as well as create improvements in owner responsibility and oversight. Eventually, participation in the hiring process can shift into a responsibility of oversight when a manager is trained to conduct the steps to hiring an employee. The human resource internal control outcomes should include:

• Consistent pre-hire techniques

• Improved hiring practices

• Defined roles

• Improve readiness for new employee onboarding

• Communication between owner and manager

• Improvements to core understanding of business to employees

• Improved employee engagement

• Improved training

• Improved performance evaluations

Eventually, with a specified plan and intentional hiring, the vulnerability factor decreases and the opportunity for planning and goal-setting increases. To drill into this a little further, goal setting will help identify areas of accountability, therefore providing the framework for improved internal controls.

Monitor Goals to Improve Controls

As human resource (HR) controls are intentionally dialed in, the continuation of internal control assessments can continue. With the intent to create a less vulnerable environment for fraud, several benefits can result. The opposite can be true as well: With the intent to create a beneficial work environment, the business is less vulnerable to fraud. Either way, your business successes depend upon your ability to introduce, implement and carry out your business with a work team that operates through your belief system and reaches for goals you have outlined.

Now that employee considerations are done, let’s see how having the right people in place contributes to overall better controls. Moving into areas of employee job responsibilities, there are several key areas to review when assessing the vulnerability of control systems in your practice. Inventory controls is a large area to oversee. To assess the inventory areas, it is important to understand that having an inventory management (IM) system in place is a tremendous structure to reduce risk and isolate potential problem areas. An IM system should illustrate, at the very least, procedures for the following:

• Ordering/receiving/stocking

• Controlled substances

• Dispensing

• In-hospital use

• Injectables

• Bulk purchase parameters

• Inventory in the practice management software

Keep in mind that the system will only be as effective as your planning and implementation (carried out by appropriate delegation – nice work on the intentional hiring) of people and jobs. As a review of your current state, it makes great sense to explore what systems you have in place and who has responsibility for those jobs. Accountability left to chance is vulnerability lurking in your practice.

Shelley Johnson, CVPM brings over 20 years of experience from the veterinary clinic to the classroom. She is dedicated to improving companion animal health through teaching responsible veterinary practice management to managers. She walks the walk when it comes to ongoing learning and exposure to topics and trends in veterinary management. Shelley is a writer and national speaker on veterinary practice management issues, which complements her role as a Patterson Veterinary University instructor.