Are Your Books Accurate?
Author: Cynthia M. Roehr, CPA, CMPE
On the evening prior to Christmas Eve twenty-six years ago, a physician called me at my home and asked a simple question: Why did the deposits to his PC bank account not equal the amounts shown as receipts on the billing reports? He brought in his bank statements the next morning and the work began. In the end, we found that a billing manager had been embezzling from roughly 20 physicians for over 5 years and had absconded with over a half-million dollars.
Times have changed. Most deposits are now made directly to your bank by the payer. But if you go online and tally your bank “credits,” do they equal your billing reports? The short answer is that they shouldn’t – and the differences should be easily identifiable and obvious. But the process is typically not as straight-forward as you might think and the reality is that this important step is missed by many practices.
There are deposits to your bank account that are not from your billing operations. Examples include hospital stipends, government PPP and CARES money, COBRA receipts, business insurance rebates, speaking honorariums, etc. (Is someone making sure that these amounts are received and accurately reported?) Once these “administrative” deposits are subtracted from your total bank deposits, does the remainder match your billing reports? Probably not…
Even if we only focus on billing operations, there SHOULD be differences between the amounts booked and amounts actually deposited. For example, credit card payments take 2 to 3 business days between the day the transaction is initiated (which is typically the day it is booked) and the day the money makes it to the bank. So at the end of each month, there should be 2 to 3 days-worth of credit card payments in transit. And those same deposits should then appear in the bank account in the first days of the following month. Similarly, if the practice is still couriering checks and cash to the bank, those might be booked on one day and taken to the bank the next – if so, these would also be an overnight in-transit item. All of these items would self-clear within a few days.
Patient refunds can cause issues. Some billing companies record them as “negative payments” while others record them as “adjustments.” If recorded as negative payments, they will be a non-clearing item in your reconciliation. (Who is making sure the tally of refund checks written equals those recorded in your billing system?)
The toughest item to monitor is whether all the checks that arrived in the mail were posted and deposited. Capturing the total of the daily mail received and reconciling that to the actual deposit is an essential control. Lockbox services, while pricey, fill this need. However, a second reconciliation is needed to assure that all deposited money is posted. Variances can arise when a payment cannot be matched to an account or duplicate payments are received. Errors and omittances pop-out in the reconciliation processes.
The most common disparity between deposited and posted amounts arises from direct deposits that are not accurately posted or that have never been posted. Most issues are simple human errors. But as cited above, the reconciliation practice can also spot deposits that are diverted. I’ve heard of embezzlements where worker’s-comp payments being made by faxed credit card numbers were instead diverted and deposited into an employee’s personal business account. Unfortunately, another fairly common scheme is that of writing refunds without recording them. As you are aware, there is no end to the creative schemes that can be devised to divert funds.
While billing companies certainly have controls in place, I’ve found few that take the extra step of providing a reconciliation of deposits to posted amounts to their clients on a monthly basis. It’s not sexy enough for the glossy reports, but it’s important enough that I recommend a detailed, itemized reconciliation for all of my clients. This monthly exercise catches those items that are languishing in someone’s to-do pile or otherwise unnoticed.
When leadership in the practice is reviewing these reconciliations, it is important to periodically look to see if the reconciling items clear in the subsequent bank activity. Everything should clear within a few days. Make inquiries on anything not resolved within a week. Growing or stagnant reconciling items are a cause for concern.
I assisted a client by automating a daily reconciliation and journal entry process and she affirms that it is the best thing ever because it catches the errors while they are fresh. It has made their monthly bank reconciliation process a breeze and their controls even more airtight.
Perhaps you are not as "excessively particular" as I am on assuring that every penny gets put in the right place. Or maybe you are just more trusting that everyone is doing their job perfectly. But if you have doubts, requiring a reconciliation of the reports to actual cash activity will help you sleep more soundly.
Here’s to wishing you all a less stressful 2021!
Cindy Roehr is a CPA with over a quarter-century of anesthesia and practice management experience. She has been a frequent speaker at ASA and MGMA conferences and consults with groups on provider performance evaluations, hospital contracting, governance, financial modeling and RCM issues. Additional information about Ms. Roehr and additional articles pertaining to practice management may be found at www.roehrconsultingllc.com