A South Carolina veterinarian shares his story of how prescription pharmaceuticals from his practice’s inventory appeared for sale on the Internet
Michael Kolatis, DVM, owner of Fort Lawn Animal Hospital LLC in Fort Lawn, S.C., has learned an interesting lesson about inventory. Buying in bulk can yield good discounts on pricing. But having too much on hand can lead to losses, even theft.
“Stock what you need and count what you stock,” says Kolatis, who discovered earlier this year that his office manager stole several thousands of dollars worth of drugs over a two-year period and listed them for sale on his eBay account.
Kolatis acquired the practice in 2008 from the wife of the previous owner, after her husband passed away. Because Kolatis had worked in Rock Hill, about 20 minutes away, he knew the Fort Lawn practice was sound and enjoyed a good reputation in the community. Since acquiring the practice, he has built on that foundation, increasing his client base by 2,000 accounts. Still, it’s fairly small, with part-time assistance from a second veterinarian; two full-time, crosstrained, non-licensed veterinary techs (to assist with reception, pharmacy, X-ray, surgery, exams and boarding); a part-time tech to assist with surgeries on Tuesday and Thursday mornings; and an on-call, fill-in tech.
A gut feeling
Two years ago, Kolatis noted that revenues were down about $7,000 for the year. “It was a gut feeling,” he says. “I didn’t think much of it until I felt that same way in 2012.” Still, he didn’t connect it with missing product.
But in April of this year, a flap over an order for Frontline Tritak led to his first inkling that something was wrong. Two staff members disagreed whether or not the practice had had a supply of Tritak on the shelf when the order was placed. (At Fort Lawn, all items are put on a “want” list as practice members determine a need. Then orders are placed. “No one person has this task,” says Kolatis. “However, we are small, so only four people at that time would have permission to do it.”)
A month later, a couple of Merial managers invited Kolatis to lunch. He assumed they wanted to talk about Fort Lawn’s participation in Merial’s 12-12-12 heartworm preventive campaign, which the practice had implemented with favorable results. Instead, they informed him that Merial had found Tritak product sold to Fort Lawn Veterinary Hospital on eBay. “I was surprised and dismayed, as they were able to point out that the eBay account belonged to my practice manager. They stated I would likely find more losses.”
In fact, the practice manager – a young man – had worked for Fort Lawn prior to the acquisition by Kolatis, and came with a glowing recommendation from the previous owner’s spouse. Kolatis was positive about the young man’s future, and was paying for him to get practice management training, so he could attain certification.
150 separate sales
Using the history in the eBay account (plus eBay sales feedback), Kolatis traced more than 150 separate sales of threepack or six-pack Frontline Plus, Certifect and Tritak back to February 2011. (The sales focused on EPA-approved, fleacontrol products, he points out.) Interestingly, many eBay sales were below the practice’s cost. All told, though, the sales fell into felony range in South Carolina, he says.
“I called him and stated what was found that night,” recalls Kolatis. “He said, ‘Oh, God,’ and stated he would get the money from his grandmother to pay me back. He asked if there was anything he could do to keep his job. I advised this was not possible.”
The man’s mother called Kolatis the next morning and asked what could be done to keep her son out of jail. “I said I would speak with my wife, as we were tallying losses.” At the time, Kolatis’s wife, Barbie, had just passed the bar in South Carolina. “We decided we would avoid law enforcement if payment for losses could be made amicably and quickly,” he says. “It was.”
Kolatis did not contact eBay, as he did not file a police report. “However, our tally of missing product seemed to closely correlate with what was sold. We used the sales history still visible on the account plus the feedback from the various buyers to get the numbers.”
Fort Lawn’s total losses exceeded $14,000. That is the sum of product replacement costs, 8 percent South Carolina sales tax, as well as the practice management classes and locksmith and security monitoring fees.
Hiring and firing
Kolatis says he has emerged from the experience wiser about a couple of things. The first is about hiring – and firing employees. The second has to do with inventory control.
Carefully check the references of prospective employees, he says. “Ask if they are eligible for rehire. Make sure there are no unusual gaps in the employment timeline. Have at least a 90-day trial of employment. Go with your instinct when something seems fishy.” And monitor the employee’s behavior after he or she is hired. Is he introverted? Avoiding out-of-office events? Getting calls from debt collectors? Living beyond his or her means?
In retrospect, Kolatis says he was lax in his inventory control techniques, focusing solely on controlled drugs (which were never missing) while occasionally spot-checking other products.
“Now I know that have to spend the time to know your practice management software,” he says. “You can easily track your invoices, your pricing and your quantity-on-hand with simple reports. Then, you have to randomly spot-check products to make sure the quantity on hand in the computer system matches what is on the shelf. You also can make sure that no figures in the computer have been altered; usually, the system can also print those reports and you can set permissions on who can make alterations.”
Once the practice has a handle of inventory on hand, the challenge is to keep levels low. “Streamline inventory to what you use, as opposed to what you think you need,” he says. “Your objective should never be to see what can sit on the shelf the longest. As a business, you still must turn over product. You can provide all the veterinary services you like, but at the end of the day, you still have statements that need to be paid to vendors, and shrinkage losses can be huge. So, respect inventory.
“We used to base bulk quantity orders on previous purchase history, using our office management software. In theory, this led to better buying discounts. However, I stopped that, as I feel it allowed for more temptation. So, we pretty much only buy what we need when we need it. Our inventory is leaner now.”
Distributors can help, by encouraging their customers to take some CE on inventory control and practice management. “Even offering security advice or stockroom design tips would be helpful,” he says.
“Efficient management of inventory allows for turnover of product and better cash flow, which, in turn, allows for bulk buying discounts. But the profit of a bulk buy is quickly negated by theft, so there is a lot to be said for encouraging inventory control.”
Before hiring a new employee, veterinary practice owners or managers should:
• Ask if the person is eligible for rehire.
• Make sure there are no unusual gaps in his or her employment timeline.
• Have at least a 90-day trial of employment.
• Go with your instinct when something seems fishy.
After bringing a person onboard, the veterinarian or manager should pay attention to these warning signs:
• Has the employee become more introverted?
• Is he avoiding staff dinners or out-of-office events?
• Is she getting calls from debt collectors at work?
• Is he living beyond his means?
• Does social media indicate drug or alcohol abuse?
• Is the employee failing to complete tasks formerly completed?
• Are office supplies – toilet paper, paper towels, etc. – missing? (Theft starts somewhere….)
• Is the employee diverting blame to other employees?
• Are clients dropping hints that he is not as good as the practice owner thinks?
Source: Michael Kolatis, DVM, owner of Fort Lawn Animal Hospital LLC in Fort Lawn, S.C.
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