Reconcile, or Reckless?

By David Harris CFE, CPA, CMA, CFF, FCPA

A dental embezzler’s approach is predictable. They ask themselves whether the reconciliation process in your practice is thorough and complete.

“Reconciliation” is the oversight of the daily and monthly balancing done by staff. Reconciliation is simply the process of ensuring that what your practice management software says you received actually got deposited.

If a thief realizes that your reconciliation process is flawed (probably the case in 75% of practices), he or she can steal by simply “shorting” the deposit; they can steal without needing to tamper with patient accounts to conceal it. Pilfering from the deposit does not require high intellect or any in-depth understanding of your practice management software.

However, if a would-be thief believes that a deficient deposit would be noticed, he or she is faced with a much greater challenge. While it is possible to pocket patient or insurance payments and conceal the theft by not recording the payments in practice management software, this will result in “phantom” patient balances. Accordingly, this approach tends to be self-limiting. If this “snatch and grab” approach is employed, patients may realize that amounts owing to the practice are overstated, and these patients complaining may get the thief caught.

Therefore, a “tight” reconciliation process forces embezzlers into riskier, more complicated embezzlement schemes where tampering with individual patient accounts is needed. This requires a smarter embezzler with knowledge of your software.

What does this elusive reconciliation process entail?

It consists of both daily and month-end activities, and omitting either is problematic. Reviewing only day-end information and ignoring month-end reporting creates vulnerability to “day-off” transactions performed on non-working days, and challenges reconciling credit card and bulk payments, when are timing differences between when funds are deposited and when receipt is recognized by practice management software.

Ignoring daily reports and focusing on a month-end review degrades your ability to spot suspicious entries.

There are some basic rules for reconciliation:

  1. Print your own reports. When delegating this function, you abdicate control over the choice of information for the reports, exposing you to “selective reporting”.
  2. Review the day-end report that day. Postponing review, even by a day, diminishes your ability to spot inaccuracies.
  3. Daily and monthly information must articulate. Monthly totals must equal the sum of the daily reports.
  4. Receivables at the end of a period (a day, month, or year) should always equal the following: Starting receivables + fees – payments – adjustments.

What should you review?

The most important daily report is the practice summary, which may have a different name in your software. It will summarize fees today, adjustments and payments that took place today.

Your review should include:

  • Review of the procedures billed for accuracy.
  • Review the payments received. Are your collection policies for co-payments followed?
  • Review the amount and categorization of adjustments. Require adjustments to be specific —separate categories for each PPO, and separate codes for each marketing discount). Any “miscellaneous adjustment” needs a detailed explanation appended.
  • Compare amounts deposited against the report. Use online banking to verify amounts actually deposited, and “lag” your review by several days to allow resolution of timing differences.

Happily, the more tedious part of monthly review can be outsourced. Reconciling of bank, merchant (credit card) account and third-party financing, payment-management or collection agency accounts against practice management software is important but mundane. A dental bookkeeper or your CPA firm are good candidates for this work.

However, there are things that need personal attention monthly:

  • Ensure that the total for the daily practice summaries you reviewed equals the month-end practice summary’s total.
  • Review your receivables report. Focus on the overdue amounts, and on the collection efforts being taken by staff.
  • Practice management software normally has an “outstanding insurance claims” report. Review this actions taken to finalize outstanding claims (is resubmission needed, or has the insurance company asked for additional information that is outstanding?)
  • Review the following:
    • Adjustments report
    • Deleted transactions report
    • Modified transactions report
  • Review the “entry log” from your alarm company to check for staff members visiting at unexpected times. This is a strong symptom of embezzlement.
  • Ensure that the month has been “closed” in your practice management software. Do this by checking the software directly; don’t ask a staff member. If you aren’t sure how to check this, your software has trainers and a help desk to teach you how.

Performing day-end and month-end reconciliation properly will not catch all embezzlement. However, it will eliminate the easiest ways to steal and completely thwart unsophisticated thieves.


Contributor:

A rule-breaker in his youth, David changed his direction and has spent much of his adult life in the world of investigation and enforcement, where he uses his unrivaled ability to understand the criminal thought process to help educate and protect dentists.

David is the Chief Executive Officer of Prosperident, the world’s largest firm investigating financial crimes committed against dentists.
David is a Forensic Certified Public Accountant, a Certified Fraud Examiner and a licensed private investigator.

View David’s full bio