Want to reduce possible embezzlement and detect fraud at your medical practice? Monitor your various financial accounts closely using these tips.
The management of financial accounts, accounts payable, accounts receivable, and adjustments are keys to protecting against and detecting employee embezzlement. Today's blog will address accounts (with more to come on managing accounts payable), accounts receivable, and adjustments.
Generally, all receipts are deposited into the operating account and operating expenses are paid from it. Transfers are made from this account to any other account of the practice. If the owner has time and energy to monitor only one account, this is the one.
In no case should anyone other than an owner be allowed to both prepare and sign a check, or authorize a transfer from this account.
Daily monitoring of the operating account is important because commercial accounts have only 24 hours to notify the bank of an unauthorized Automated Clearing House (ACH) transaction and reject it.
Traditional petty cash, as in bills and coins, is very difficult to manage. The amount of money is small, so controls are often casual. The practice should never send a message that it is acceptable to be careless in handling money.
If it is necessary to have cash on hand, put petty cash under the strict control of a single person and hold that person accountable for documenting disbursements and balancing the account. No one, even the owner, should ever "borrow" from petty cash. People notice and assume the same behavior is OK for them.
My preference is a petty cash checking account with a small balance and multiple signers. The check itself provides a record of the person responsible for the disbursement.
A transfer from the operating account funds the payroll account when a payroll is calculated and approved for disbursement. Once the funds have been transferred to employee accounts or employees have cashed their checks, the balance is minimal.
The purpose of the payroll account is to protect the operating account from both errors and modified payroll checks.
Banks and Credit Card Statements
Owners must be certain that they are seeing exactly the same numbers and activity as the financial institution. The three typical ways to achieve the goal are:
• Any statement mailed to the office must be delivered to the owner in the original, sealed envelope.
• Statements are mailed to the owner's home instead of the office.
• The owner accesses statements directly from the financial institution's website.
The third solution is preferred.
•It allows multiple owners to access the information without having copies of highly sensitive information floating around the office.
• It does not require remembering to bring the statements to the office.
• If a paper copy is needed for reconciliation, it can be easily printed.
Monthly Bank Account Reconciliations
The reconciliation requires a worksheet, either paper or electronic. Its basic form is:
Beginning Balance + Cash In – Cash Out + Interest Paid – Fees Paid = Ending Balance
The details for "Cash In" and "Cash Out" come from the practice's check register. Any item on the check register and not on the bank statement requires explanation, as does any item on the bank statement not shown in the check register.
The more orderly a practice's daily management of the account, the easier the reconciliation. Accounting software like QuickBooks can significantly expedite the process.
It is better if an owner or someone outside of the check writing and deposit process performs the reconciliation. No matter who performs the reconciliation, the owner must independently verify that:
• Beginning balance - current worksheet = ending balance - previous month's worksheet
• Beginning balance - current worksheet = beginning balance - statement.
• Ending balance - current worksheet = ending balance - statement
Credit Card Account Reconciliation
The process and advice are the same, with an additional step that has to do with the different natures of checks and credit cards. Each charge or credit on the credit card statement should be reconciled to an associated receipt and supporting documentation. It's the same support that should be supplied as each check is presented for signature.
Monitoring practice deposit and charge accounts and reconciling them at least monthly is essential to knowing the practice's financial situation. It is also one of the easiest ways to detect fraud.
Since physicians/owners are busy and seldom interested in performing accounting tasks, how can we help them accomplish this function?