HEALTH & LIFE’S BEST PRACTICE NEWS ALERT Current circulation:
6958
DATE: ISSUE NO:
7th April 2006 119
Welcome to Health & Life’s free email newsletter service. Tell a friend that we would be happy to add their email address to the distribution list. This service is to provide Health and Life’s clients and those who attended our presentations with up to date information on key financial and practice management issues that may affect your practice. Please do not use this as a substitute to seeking professional advice.
Writer in charge: Mr David Dahm CPA, BA Acc, FTIA, FFin, FAAPM,GLF.
Are you being paid correctly? - Practice Fraud or Error on the rise! The Problem – Practices cannot account for all patient income deposited We just received another suspected fraud call (third one this year) from a practice this month. A staff member has been accused of transferring a large sum of money to their own personal bank account. The Court case is in a week’s time so time will tell whether it has been a mistake or deliberate. The bottom line is providers get very upset when their pay is not right - we all do – it is human nature. Clearly if a practitioners income is dependent on fees billed or collected, it is critical that the billing and collection system of the practice ARE 100% CORRECT. Very few practices have got this right which we will explain in this issue. Unfortunately it is not enough to print out a software billings report that states that $1000 has been deposited on “XX.XX.XX” and presume it is correct. Then proceed to multiply a practitioner’s income on a clunky excel spreadsheet and come up with any figure. The most common error practices make! What many practices forget to check is what was reported has actually been deposited into a bank account under a providers name and it actually appears on their bank statement. It is not hard to pocket $20 cash on the way to the bank and write off the difference in your billing system and record it as an unexplained “reversal”, bad debt or discount. This broadcast identifies the most common errors practices make when calculating and accounting for a providers’ income. Solutions are available and our suggestions will show how this will save your practice time and money and provide a better service to your providers.
1. Who Does this affect? This affects all providers whether you are an employee, contractor or associate, self employed or a partner and doctors in private practice arrangements in public hospitals. Those most at risk include: 1. Owners of practices such as service trusts and Corporates who bill on behalf of doctors; 2. Associates, Employee and Contract Practitioners who are paid on a percentage of gross fees received or billed; 3. Practitioners who rely on the practice to raise and collect patient fees on their behalf; 4. Practices where each practitioner individually banks their receipts; and 5. Public Hospitals who have Private Practice Agreements or arrangements that charge a service fee against receipts collected.
2. The Practice or Billing Entity has a Legal Responsibility when handling someone else’s money. In writing, by doing or saying you or the practice will “handle or do the billing and/or banking of someone’s income on their behalf” a serious legal obligation exists to make sure it is right. A practice can be sued for negligence for not having the right system in place or procedures. The practice must account for every cent and is liable if money goes missing. In addition at the end of each BAS period and at the end of the financial year a practice must report to each provider (who are not employees or sub contractors): 1. 2. 3. 4.
Gross Receipts/Billings GST Free and Not GST Free Pay 100% of all GST collected on behalf of the practitioner (depending on their arrangement) Issue a tax invoice for management fees charged and add 10% GST Ensure that the correct amount has been collected on behalf of and paid to the practitioner by reconciling it with the practice’s bank account (MYOB/QuickBooks) NOT just the billing software and the practice’s calculations such as a spreadsheet. This last step is the one most overlooked or poorly administered.
By not having the right systems and procedures in place will lead to errors and possibly fraud. Additional accounting, taxation and BAS errors lead to additional accountancy fees, right through to practices possibly being sued for negligence for failing to have the right systems in place and for failing to report the correct information to a provider on a timely basis. At the end of the day practices should try and avoid putting themselves or their staff in a position which leave open to question the practices own competency. It is interesting to note a bookkeeper who was the wife and mother of a Chinese restaurant owner in Adelaide was personally fined and jailed by the Tax Office for not keeping proper records and misleading its owners. Background – Fraud is on the increase Increasing fraud is not surprising. The cost of living is rising and more practices are reducing bulk billing and increasing patient gap payments. The temptation to “borrow” a couple of dollars from the cash register that won’t be missed can be tempting for some. The increase in available pokie
machines and other gambling venues in recent years has further increased this temptation to “borrow”. Rising practice fraud was reported in an article by The Australian Doctor called “Watch for thieves among us” on 9th November 2005. The AMA in NSW reported we quoteG “GPs have been warned to conduct monthly audits to ensure they are not being defrauded by staff members, in the wake of a spate of fraud cases reported to the AMA…. …..Fourteen NSW GPs were collectively defrauded out of about $65,000 by practice staff in 2004, with one GP losing $15,000, the AMA NSW has revealed…. However, given that only half of GPs were AMA members, the true extent of the problem was likely to be much higher, the association said. …AMA NSW director of workplace relations Ms Fiona Davies said no GP was safe, with longterm trusted staff members as likely to be the culprit as new staff members”
How Practices leave themselves open to fraud and Error?
A prominent health bureaucrat once said G”where there is confusion there is opportunity!” Common Mistakes: POOR ENVIRONMENT 1. Practices who believe their accountants would tell them if there was a problem Check your accountants’ disclaimer they are not responsible for detecting fraud. For accounting purposes, accountants account for legal entities legally required to prepare annual company and tax returns. Many practices maintain multiple bank accounts that are not related to the legal entity such as a separate bank (commonly referred to as a “slush fund” or “clearing”) account. These are also known as a “billings trust account” or “practice account” or they are bank accounts where practitioners “individually bank” their receipts in. In these accounts are deposited some or all practice fees which is maintained “outside” the practices legal structure. At most risk are providers who individually bank their receipts. To keep accounting fees down, accountants usually rely on the practice manager of the practice to calculate and attest to the correct income generated by say, a service trust. Accountants would not look at the income generated by individual practitioners, unless they are a specifically requested to do so. Most assume the individual practitioner is looking at this – which is a fair but incorrect assumption. This is a practices weakest link and greatest opportunity for fraud and error. We recently picked up a practice with a $3 million practice fee turnover and it had not accounted for $300,000 of income that was owed to doctors.
SOLUTION: Ask your accountant to check all bank accounts and review your system. Deposit all fees into one bank account. If you have a service trust, set up a separate bank account. Do not mix the two accounts. This bank account should be in the individual names of the provider. Ensure they are reconciled to the billing software by provider on a daily basis using QuickBooks and MYOB. To simplify this process we have developed a software program (flyer attached) called the Doctors Pay Calculator. The program ensures all money is correctly banked and calculates a provider’s pay and a practices management fees based on the provider actual deposits. It also produces a BAS and Income Tax Extract by provider so it actually reconciles to the practices bank account and the provider’s tax return. 2. Practices that allow “separate banking” of individual practitioner receipts Following from the point above, this problem is highlighted when the practices individual doctors maintain their own bank accounts and are issued a service fee each week or month to cover costs. It is impossible to detect fraud or errors under these arrangements. Any staff member can easily pocket money on their way to the bank. This is arises from the practice failing to print out and reconcile a banking report from their billing software by provider against cash physically deposited in the treating providers bank account (unless the practice has physical access to all individual bank statements). Furthermore, the individual’s bank account needs to be reconciled the same way one would reconcile their bank accounts on MYOB or Quick Books. The practice cannot guarantee to a doctor all cash has been banked and accounted for. The practice should issue a disclaimer accordingly and ask for an exemption and indemnity should a claim arise if they wish to continue with such an arrangement. SOLUTION: Centralise banking as described in the last point.
3. No Password Protection and Unauthorised Bank Transfers Emerging banking technology is great however, in the absence of appropriate internal controls this can also make it a potential nightmare in the hands of the wrong person. Staff including practice managers should not be allowed to transfer funds without an owners approval, consent or signature. The number one rule in fraud prevention is to never allow the person doing the bookkeeping to also do the banking and also provide an authority to transfer funds. Such an arrangement makes it easy for someone to pay themselves a higher salary without detection or to set up dummy suppliers and bank accounts and transfer monies into these accounts undetected. Do not encourage a situation where the bookkeeper, the banker and person that authorizes the cheques or bank transfers are the same person. SOLUTION: Separate banking, payment from the bookkeeping role. Only owners have access to bank accounts and cheque signing authorities. Payments should be made on a monthly basis and not made on a adhoc basis.
PRACTICE PROCESSING MISTAKES 4. Poor or no front desk banking controls This occurs where an “owner doctor” does not review and approve what patient accounts are written-off, discounted or adjusted from computer generated software billing reports. Commonly no reason is written or provided on the computer generated adjustments, reversal or discount reports which detail why the reversal or adjustment to the accounts have occurred; A $20 cash gap can be pocketed on the way to the bank and a patient bill can be “discounted” on the computer billing system. SOLUTION: Print out all reversals, adjustments at the end of each month. The owner should review and sign the report. Ensure practice staff records reasons for unclear or no explanations for reversals, adjustments and discounts. Ensure the staff members notes their initial against each entry in order to keep an audit trail.
OTHER THINGS TO WATCH OUT FOR…….! 5. No monthly financial reporting of profit and loss, balance sheet and bank reconciliations and fee adjustments; SOLUTION: Request written reports every month and owner to sign all adjustment reports
6. Staff members refusing to take annual holidays and those with financial problems SOLUTION: Annual leave is mandatory; 7. After hours money not banked when banks are not open SOLUTION: Purchase a envelope deposit safe box, staff members should counter-sign any deposits;
Where to from here? 1. Decide to review your existing systems and procedures 2. Engage your external account to review all practice bank accounts 3. Consider centralizing all banking of fees and reconcile to software billing reports and MYOB and Quick Books accounts and save on bank fees. 4. Consider installing the Doctors Payroll Calculator Software Program to prepare reconciled and accurate pay reports, BAS and Income Tax Extracts Summaries for providers. Attached is a brief Overview Email us for a detailed Overview or visit our website Doctors Pay Calculator(software). 5. Seek professional advice if you are in doubt what the correct arrangements should be for your practice. We are providing a free teleconference consult call us on 1800 077 222 to make an appointment.
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