Keeping tabs on cash flow

December 2, 2005

If you're not, your office could be leaking money. We tell you how to do a spot check.

Are you sure that all the money coming into and going out of your practice is ending up in the right place? Unless you've set up rigid protocols for handling and tracking your finances, you probably aren't.

Ask your accountant to do a spot review. CPAs know how to establish and confirm appropriate controls for a business. At minimum, your adviser should look at:

Database integrity. Three totals-charges, payments, and adjustments posted to the billing system-should be manually added on a calculator daily. The resulting paper-tape sums should be used to compile a running total of accounts receivable that can be compared with the computer's A/R total at day's end. This is to ensure that source documents (multipurpose claim forms) agree with computer files (the actual accounting). The prior day's closing A/R balance, plus today's new charges, minus payments and adjustments, should equal the new ending (and tomorrow's opening) A/R computer balance.

Some doctors are afraid that instituting these controls will make employees feel they're not trusted. But if you never have balancing activity, you'll never catch honest errors. For example, it's easy to transpose numbers and someone could easily post "72" instead of "27." It doesn't help to proofread your own work; you'll just keep making the same mistake over and over. The work needs another pair of eyes.

On the security side, if unscrupulous employees know someone will be checking their work, they'll think twice before trying anything shady. I've rarely heard of an embezzlement case that involved two employees.

Charge controls. In a spot review, your CPA should make sure all charges are being recorded. That means sampling office and hospital charge batches and comparing them with computer postings. The accountant will need to confirm that all serially numbered office charge slips are present and that the serial numbers are continuous day to day.

Adjustment controls. A sample of EOBs should be reviewed to determine whether adjustments to patient accounts are justified by documentation and supported by the contract on file. Adjustments over the authorization threshold should be approved by the appropriate supervisor.

Payment controls. The total of payments received in the office and by mail each day should be compared with what is entered in the computer and what has been deposited in the bank. All payments must be recorded.

Cash controls. The CPA will also inspect the petty-cash account to verify that all fund withdrawals are supported by receipt or voucher documentation. Cash on hand, plus receipts and vouchers, should total the original petty-cash balance. The change fund for office cash payments should also be inspected to confirm that total cash equals the original balance plus payments taken during the day.

Accounts-payable controls. Canceled checks should be reviewed to be sure that all have been signed by a physician, that the payee on the check matches the check stub or check register, that endorsements are by the payee, and that amounts are supported by appropriate documentation.