Your Financial Systems: Achieving Accuracy and Accountability

Dental schools do a good job teaching the clinical fundamentals to prepare us for our professional careers. Unfortunately, they don’t teach us anything about business! We graduate ready to take on the clinical world, but then reality hits that there is also a financial side to dentistry. For those of us in private practice, we are clinicians and small business owners, and we definitely have an economic interest in maintaining accurate financial records.

Without accurate systems in place, we are going to have a difficult time monitoring practice performance. While clinical care always comes first, we expect to be financially rewarded for our efforts. Ensuring accuracy in financial reporting provides excellent practice management feedback and allows us to make modifications in our business processes to maintain efficiency. Failure to spot unfavorable trends can lead directly to declining performance.

Additionally, accurate financial records help detect innocent mistakes that can negatively impact our practice management reports. Such mistakes can make it difficult to detect negative trends that might affect practice performance. We have all heard the adage “garbage in equals garbage out.” If incorrect data is entered or omitted in our practice management or accounting software, the generated reports are going to be essentially useless. The only way to ensure dental practices perform at a high level is to ensure that processes are in place to minimize mistakes.

Less common, although an unfortunate reality, is that embezzlement can be involved. Obviously, embezzlers are not making innocent mistakes. In these cases, the data input is intentionally inaccurate in an effort to hide embezzlement. Any report subsequently generated is not only going to be inaccurate, but also intentionally misleading.

The Essential Review

Unless the proper business systems are in place to ensure accuracy and accountability, how are we going to detect errors, whether innocent or intentional? It is essential that we utilize and rely on our software reports to monitor performance, spot negative trends, and ultimately increase practice productivity. First and foremost, the only way to determine if software reports are accurate is to compare them to some type of external financial statement. For example, the practice management software can create a collections report. The way to determine if the report is accurate is by comparing the collections report to a bank or credit card statement. If there is a significant discrepancy (whether innocent or intentional), something is wrong. Without performing reconciliation, erros will be difficult to detect.

I am going to review what I feel are essential reports that should be created by your team and reviewed by you or someone other than a team member such as your spouse, accountant or other advisor. I am by no means suggesting these are the only reports you need, but  the following are highly recommended.

Daily Activity Report

On a daily basis, there should be a report that lists production, collections, adjustments and deleted entries. In some programs, these may be listed on one report while others may require multiple reports to gather this information. Many programs will generate a “Day Sheet” report which at a minimum provides production and collections for the day. Simply generate what is needed to retrieve adjustments and deleted entries as well.

Collections Report

When reviewing collections, payment types should be reconciled separately. Most reports will sort collections into cash, patient checks, insurance payments, credit cards and third-party payers such as CareCredit. I can’t stress enough the importance of reconciling payment types separately as opposed to simply looking at the grand total (I can’t go into details in this article but looking only at the grand total can allow some types of embezzlement to be hidden).

For example, if collections include cash and paper checks, a deposit slip will be filled out by a team member. Once the deposit is made, the bank will provide a receipt confirming the deposit. This receipt should be returned to the office and attached to the day sheet or collections report. If the amounts do not match, something is wrong. Most likely it is an innocent mistake, but keep in mind that undetected innocent mistakes can get expensive over time. I should also note that I like the idea of scanning checks from your office to reduce the number of trips to the bank. When checks are scanned, a report is generated which can then be compared to the software report.

For credit card payments, make sure a report is generated from the merchant terminal (or the vendor’s web site) which shows all the credit payments for the day. Compare the merchant terminal report to the Day Sheet or other collections report and confirm they match. The same process is performed for any third-party lender, such as CareCredit, if applicable.

It is also important to monitor adjusted and deleted entries. I have found many doctors have no idea how much of their production is being adjusted. Quite simply, an adjustment or deletion means there will be no payment received! Occasionally question your team members in a non-suspicious way regarding some specific adjustments or deletions. This sends a message that you are checking the reports and should improve accuracy when entering transactions.

At the end of the month, the process is repeated. All collection types should be totaled for the month and compared to the corresponding financial statements. Some doctors will only perform this reconciliation on a monthly basis, but I recommend both daily and monthly reconciling. Daily reconciling detects errors more quickly and sends constant accountability messages to your team members. Likewise, adjustments and deletions should be monitored monthly to detect troublesome trends before they become harder to manage several months later.

Accounts Receivable Report

Lastly, an accounts receivable report should be generated every month. It is vital to understand how much is owed to the practice. An increasing accounts receivable balance is a warning sign that team members may not be collecting payments in a timely manner or that statements are not being sent on a regular basis. Either scenario results in decreased cash flow. Additionally, the older a patient’s balance becomes, the harder it is to collect. Uncollectible accounts that are written off have the same effect as any other adjustment—the doctor does not get paid!

Another important item to monitor in the accounts receivable report is the number of patients with credit balances. A credit balance results when a patient or third-party payer makes an overpayment. Most states now require patients with credit balances be notified of the credit balance. If the patient chooses to apply the credit balance to future treatment, that is fine. The important point is that patients need to know if they have a credit balance. Should a patient discover a credit balance that was not brought to their attention and they file a complaint with the state (this is rare but does occur), a difficult situation can result. Some states are now aggressively issuing fines to businesses that improperly manage credit balances! It is vital to review accounts receivable on a monthly basis to minimize the financial damage that could occur either in fines or having to issue patient refunds.

Another recommendation I strongly encourage is to eliminate insurance payments issued via a credit card number. Numerous third-party payers are trying to reduce paper checks, so they encourage electronic deposits. If a doctor chooses not to accept electronic deposits, the third-party payers will often provide a credit card number with the explanation of benefits statement. The team member then enters the number into the merchant service terminal. While this may seem convenient, there are two problems:

One is the temptation of diverting the payment. Again, most team members are honest, but having a credit card number most doctors never see can be a tempting target.

Second, when the payment is entered in the merchant service terminal, it is treated as a credit card payment and you are charged a merchant service fee just as if a patient had paid by credit card! Also, there is a good chance you have accepted a fee reduction from the third-party payer. Why give your merchant service provider another 2-3% on top of the fee reduction? You have the right to contact the third-party payers and insist they stop paying claims in this manner.

The Big Lesson: Monitoring is Important for Everyone

I admit this is a cursory overview of some basic business processes. The overall point I am trying to make is that there are basic reports than can be monitored and reconciled to financial statements. It doesn’t take long to complete this process, and the returns can be significant. It is hard to reclaim collections that are lost due to excessive adjustments, deletions, mistakes or intentional errors. Additionally, verifying reports sends a strong message to your team that accountability and accuracy is important for everyone. After all, team members benefit when the doctor benefits!