After a year of moderate revenue growth for both VHMA and non-VHMA practices (5-6%), growth jumped up significantly in January 2023 to 11.5% for all practices. However, January 2023 had one additional workday compared to January 2022, which is no doubt a part of the increase, and growth continues to be similar to pre-pandemic levels.
Patient visit numbers also increased by 3.5% for VHMA practices and 3.4% for non-VHMA practices in January 2023, following a decline of over 1% for the past year. However, the additional workday is again a driving force in the January 2023 increase.
New client numbers continue to decline. Although the rate of decline is less in January 2023 compared to the prior month, the additional day in this month clearly impacts this metric in the same fashion as the ones above. As noted previously, most of the data captured here is from “traditional” veterinary hospital models; it does not include data from alternate care models such as mobile vaccine clinics, pop-up clinics seen in pet stores or other retail locations, and the newer de novo practice types. We don’t know if the decline seen here is across all practice types or if there is some movement of pet owners from more traditional to alternate care providers of veterinary services.
Strategic planning and tracking performance are even more important when facing economic uncertainty as we are now. Last month we talked about one component of this--the importance of accurate data in planning and monitoring practice performance and the framework for setting up good quality systems.
This month we will detail the internal controls needed in these systems. The numbers needed to manage a hospital successfully primarily come from the accounting system and the practice management information system (PIMS) software. The systems need to be set up in a clearly defined, logical way, with good quality, easy-to-use software to aid in the collection and manipulation of data and the appropriate controls in place to identify and prevent errors and misappropriation of assets.
Internal controls are the methods and procedures put into place to help prevent errors as well as theft, fraud, and embezzlement. They have to do with how all financial transactions are authorized, how physical assets are safeguarded, and how financial records are scrutinized and tracked for accuracy. Two of the most important assets that need to be handled accurately and safeguarded in a veterinary practice are cash (in all forms—petty cash, checks, bank accounts, etc.) and inventory.
Checklist: key internal controls-cash
Electronic payments
- Who has access to bank accounts and can authorize these payments?
- What “paper trail” and prior approval is needed before payments are made?
- Have background checks been run on those individuals with access?
Checks
- Are checks signed in advance?
- Who is allowed to sign checks?
- Are checks kept locked up?
- Are checks pre-numbered and sequence maintained?
- Is a signature stamp used?
Practice management system (PIMS)
- Is an end-of-day payment/PIMS reconciliation performed EVERY day, and are discrepancies investigated and correcte
- Is the end-of-day payment/PIMS reconciliation reviewed by a practice owner or manager?
- Are the PIMS audit reports reviewed regularly by a practice owner or manager?
- Are invoices given to all clients?
- Is there a sign at the reception desk encouraging clients to ask for invoices?
Drawer and petty cash
- Is cash locked up when not in use?
- Who has access to cash?
Bank reconciliations
- Who prepares the bank reconciliations?
- Are discrepancies investigated and corrected?
- Who reviews them?
- Are they prepared promptly?
Credit cards
- Who is allowed to use credit cards?
- Who reconciles statements and supporting charge slips?
- Are they reconciled promptly?
Vendor payments
- Are products received compared to a list of what was ordered and the packing slip?
- Are invoices approved before payment?
- Does the check signer or individual making electronic payments review all supporting documentation?
More safeguards
- Are payroll calculations regularly reviewed by someone other than the payroll preparer?
- Are employees required to take their days off and vacations?
- Are cash and credit card refunds reviewed regularly?
- What are the practice’s hiring policies?
- Are PIMS discount reports reviewed regularly?
- Are invoices audited against medical records regularly?
Inventory in a veterinary hospital is particularly tempting to employees and clients. More people are likely to take inventory items than cash for many reasons, including it doesn’t seem like a crime as much as stealing money does; there is so much of it; it won’t be missed; most things are small and can easily be slipped into a pocket; almost everyone has pets and why pay those retail prices when it costs the owner so little, etc.
Controlling inventory is a particular challenge because there is so much of it; it is held in many different locations throughout the clinic, and it is not feasible to have it all under lock and key. In addition to the controls listed above in the cash section, specific controls to safeguard inventory include:
- Physical counts
- Physical control
Small quantities kept on hand
Small quantities kept in easily accessible places
Remainder is locked up
Empty boxes displayed in public areas
- Medical record audits
- Vendor invoices compared to product received
Other controls will likely be needed depending on how the systems are set up, but these lists include many of the most important. One of the most critical overall controls is a segregation of duties so that one person does not perform all of the financial tasks and that employees who do have financial responsibilities are rotated, so they don’t do the same tasks every time. It is essential that the practice owner be involved in at least some of these steps. Not only is there a big deterrent factor in having the owner review the end-of-day cash reconciliation report or count inventory and compare it to the computer value, but who else can truly be trusted? No matter how long employees have been with a practice or how impossible it seems that they would be dishonest, the owner should always stay involved. And, of course, internal controls aren’t just about preventing theft; they are also used to ensure the accuracy in information. In systems such as those involving cash or inventory, errors are likely simply due to the volume of transactions. The more controls in place, the more these errors can be avoided.
➤ Download Insiders' Insights - KPI, February 2023 Report
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Karen E. Felsted, CPA, MS, DVM, CVPM, CVA of PantheraT Veterinary Management Consulting, www.PantheraT.com, provide data review and commentary.
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