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Published 2/1/2013
Larry Elisco, CPA, ABV, CCS-P

3 Key Financial Controls for Your Practice

In the current economic climate, the healthcare field is filled with uncertainty and insecurity. To survive, independent orthopaedic practices will need to implement financial controls and focus on effective management.

Commercial businesses already know the importance of implementing financial controls and safeguards, which should become just as prevalent in physician practices. The following three financial control processes will help physician practices safeguard their assets without a considerable amount of manpower.

Segregate duties
One key process is segregation of duties. An effective way to accomplish this is to develop job descriptions and map out office processes with flow charts. An important caveat is “Do not put someone in a position where he or she can both perpetrate and conceal a crime.” The goal is to prevent fraud and error. It’s more difficult for someone to orchestrate a conspiracy than to embezzle on their own.

For example, a bookkeeper who is in control of writing checks and posting cash receipts (eg, using a program such as Quickbooks) should not be opening the mail containing bank or credit card statements or in control of electronic transmission of these statements. Another person needs to receive and review the statement activity before giving the documents to the bookkeeper. In most cases, this reviewer could be a practice manager or some other employee privy to the activity of the practice, such as a physician. The reviewer can then ask questions about any nonroutine items that appear on the statements.

Another example is the practice manager who not only has the responsibility for preparing and making deposits but also has the ability to issue credits to the accounts receivable balances of patient accounts. This individual would be able to embezzle from the practice by stealing payments from patient cash copayments and then writing them off as adjustments. Adjustments should be reviewed each month by someone other than the person who authorizes and records the credits.

Crosstrain staff
Another important control is crosstraining (or backing up) financial functions. Many practices do not have enough employees to facilitate the segregation of duties. When one employee is absent, another must be trained to perform that function. This makes good business sense and provides a strong financial control because many embezzlements are discovered when an employee is ill or on vacation.

Each person in the practice should write down the procedures for each task so that someone unfamiliar with these responsibilities could execute the task. For example, a bookkeeper would document what is done each day. Using the documentation, another member of the staff—the practice manager or biller, for example—would then go through the bookkeeping process under the bookkeeper’s supervision.

This crosstraining process should take place across the practice. The practice manager would most likely crosstrain with a physician, given the proprietary nature of their responsibilities. Crosstraining is valuable from both control and operational perspectives, given that backups should always exist.

Reconcile record
Finally, because cash is king, the cash collected per the accounting records of the practice (generally Quickbooks) should be reconciled to the collections reports provided by the practice management system. Although this seems simple, it may not occur because it is deemed too difficult.

The posting of each daily deposit should tie into the end of day reports, which should tie into the payments received. This holds true for all reports reflecting collections or payments for the month. All reconciling items need to be addressed monthly and explained in detail with supporting documentation.

In connection with this process, the bank reconciliations of the practice must also be examined, as undeposited funds more than a few days old may be indicative of a cash shortfall. This process should be performed by someone other than the bookkeeper or the person making the deposits.

With these commonsense controls in place, a physician should be able to monitor the financial process and review results monthly without taking an inordinate amount of time away from seeing patients.

Larry Elisco, CPA, ABV, CCS-P, a member at Weltman Bernfield LLC, specializes in providing physicians with best business practices.

Bottom Line

  • Implementing financial controls is key to the success of a medical practice.
  • Segregating duties to ensure that one person does not have control of both income and outflow is one way to discourage fraud.
  • Crosstraining staff can help identify irregularities in recordkeeping.
  • Reconciling cash and bank records regularly is a way to monitor cash flow.