I discovered the hospital director was embezzling

I discovered the hospital director was embezzling

This 2016 dvm360/VHMA Practice Manager of the Year entrant turned suspicion into an investigation, an investigation into an arrest, and an arrest into a happier practice.
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Aug 18, 2016

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Within two weeks of being hired as the first full-time hospital administrator of a shareholder-owned after-hours emergency veterinary clinic, I discovered what looked like financial improprieties. Here’s what happened.

Sixteen years before, the shareholders (all local practice owners) had hired a trusted, longtime technician employee to be the hospital director and oversee operations and finance. Before I came along, the clinic’s administration consisted of just two people: the hospital director and a bookkeeper.

At the first hint of potential embezzlement, I contacted local police and was told I needed clear proof before they could launch an official investigation. They coached me on what to look for and advised me to avoid mentioning my suspicions to anyone. Any leak to employees or shareholders could warn the unknown culprit.

As a brand-new employee, however, I thought I needed to tell at least one member of the board of directors about my concerns. The board chairman was a brand-new shareholder, which meant she couldn’t have been involved in any longtime financial scheme, so I informed her of the investigation.

My first task was to stop improper cash flow practices. I instituted daily close-outs with daily deposits that matched as well as cash counting at each shift. I never mentioned to staff that the previous cash handling protocol had problems. Rather, I matter-of-factly stated that I was instituting best practices for general principles.

Meanwhile, I conducted a covert operation to try to uncover proof of financial mismanagement. This proved difficult because the filing system was in complete disarray. The hospital director’s office had piles of random papers covering all surfaces, with important papers scattered throughout.

The bookkeeper came to me and expressed relief that best practices were being instituted. She came with a list of concerns she had previously brought to the attention of the hospital director, none of which had been addressed.

In the guise of trying to make a new budget by comparing last year's figures, I used documentation from our Practice Management software closeouts and actual bills paid to reconstruct the previous year's financial picture. I then used the bank's fraud division to compare actual bank records with recorded transactions. I saw that transactions from the bookkeeper were all accurate, but transactions made by the hospital director were not. I was then able to uncover proof that he kept a false set of books to show shareholders, and with that, I was finally able to get the police officially involved.

Police secured a secret warrant for the hospital director's personal bank records, and I hired a forensic accountant from a new firm than the one previously used by the board of directors to analyze data and losses over the past five years, the period within the statute of limitations. The police were then able to compare our documentation with the suspect's bank records.

The entire investigation lasted six months, culminating in an admission of embezzlement by the hospital director during police questioning at the clinic. When he was released from questioning, I had a lawyer present to hand the director an official severance document and confiscate all keys before the police escorted him off the premises. I had the locks changed that afternoon and altered the alarm codes as well.

The former hospital director was charged with a Class C felony but was able to plead to a Class D felony by returning more than $100,000 to the practice.

In the first full year since his firing, the clinic grew by over 20 percent in revenue and associated staffing, based on appropriate management practices. We were recently able to grow from an after-hours clinic to a 24/7 emergency facility and saw a 50 percent growth in case load over our first two months.

 

Dr. West is hospital administrator at the Greater Buffalo Veterinary Emergency Clinic, a faculty member of the Medaille College Veterinary Technology Department and a practicing veterinarian at the Summer Street Cat Clinic.

 

dvm360, Firstline and Vetted will be publishing personal stories, in-the-trenches advice and bright practice management ideas in the coming months—all from entrants in the dvm360/VHMA Practice Manager of the Year contest. The 10 nominees will be announced at CVC Kansas City in August, and the Practice Manager of the Year will be announced at CVC San Diego in December.

 

Embezzlement

Most, if not all, practice management software systems provide excellent safeguards to identify cash embezzlement. The practice owner, however, must set the standards by which managers, bookkeepers, and other employees follow those standards. If the practice owner him/herself is "working the system", that activity can rarely be concealed from employees and they will, in turn, assume the same level of honesty whether it involves cash or helping themselves to inventory and supplies. Another safeguard is to utilize a professional accountant to analyze monthly accounting documents to spot discrepancies and trends. Not all practice managers have the training and experience to provide those safeguards.