Bookkeeping practices in dental offices may be relatively simple, but care must be taken to prevent employee theft. Well-chosen accounting software and routine office practices may facilitate smooth operations. Systems of internal control should be established to safeguard the practice’s finances. The dental practitioner should be very involved in their practice’s accounting to maintain order, prevent theft, and keep costs under control.
Basic bookkeeping as defined by licensed professionals and veteran bookkeepers or accountants provides a bright line area of subtle differences among the practices of many dentists. These differences, when seen from the viewpoint of a medical professional, are sometimes startlingly different than that of a veteran accountant or bookkeeper. What, then, is bookkeeping? Bookkeeping is the art of meticulously recording all the transactions of any business enterprise and consolidating them in a certain way, typically by type. It is defined by Webster’s dictionary as “the detailed recording of a company’s transactions such as its sales and expenses.” This article examines how practitioners interpret and implement their role as bookkeepers and discusses controls, appropriate documentation, and theft prevention.
Many beginning dental practitioners focus on collecting fees and paying bills; they record these transactions in a checkbook. Most fees are collected after patients are treated, and the fees range from deductibles, insurance billings, or full collection. Patients are sometimes assisted in filing insurance claims. Recently, many practitioners have developed creditor relationships that can facilitate quicker payments.
When opening a practice, practitioners often choose accounting software which allows them to bill an insurance company effectively. However, little coordination may exist between accounts receivable and their bill payment system, the result of which can be devastating.
Some practitioners employ a “one-write system” that allows them to document their transactions while paying their bills. This system is quite effective for recording expenses. It also allows for a classification of expenses and a simultaneous balancing of the practitioner’s checkbook. However, the summarization of these transactions requires tedious steps because the process is manual and each expense must be grouped (ie, classified) and totaled. Deposits may be summarized from the one-write sheets or check stubs, but the details affecting each patient must be recorded in a sub-ledger to ensure accuracy. In addition, the practitioner must adjust patient ledgers to reflect any discounts or similar adjustments. This process is susceptible to human error such as omissions and arithmetic errors.
The practitioner must also repeat identical procedures to record unpaid and paid bills. This is called the accounts payable system. Because numbers will have to be transferred to sub-ledgers for all suppliers, errors of omission, transpositions, and other related issues are likely to occur. The practitioner must also reconcile the checkbook. During reconciliation, in-house records are compared to bank records to ensure accuracy; all paid checks and collected funds are accounted for.
Because of the demanding nature of most manual accounting systems, the practitioner should choose software that does the following: records patient treatments via defined diagnostic codes; records transactions affecting accounts receivables and accounts payable; records cash transactions; simplifies summarization of data; and provides thorough reporting of all activity within the practice. Crucially, a summary of a patient’s history shows which vital services were rendered and when.
The art of recording transactions and “theft-proofing” one’s business requires every business owner to establish a system of controls. These controls are activated any time a transaction is recorded, changed or deleted. Importantly, these controls reveal if someone fails to perform any important steps. Professional accountants call this system of “checks and balances” internal controls.
A system of internal controls requires every practitioner to know the process by which transactions are initiated and recorded. The process encompasses fees for service, bill paying, and governmental compliance. Fees for service and bill paying can be managed completely in-house. Governmental compliance is started in-house, but it is reviewed at its end point by a governmental employee. Compliance is created through a payroll reporting and requires each employer to remit funds to the government regularly. In addition, extensive reporting must comply with the law to avoid a serious negative impact. The serious impact could include but is not limited to penalties, fines, interest, and other punitive mandates created by statute. Payroll itself can present problems for employers because of internal control weaknesses, (ie, unsupervised employees), inflation of hours, rate changes, and the creation of phantom employees.
Employee negligence in processing and remitting payroll liabilities can cause excessive penalties and interests. Accordingly, an outside payroll service, such as Paychex or ADP is recommended. However, before submitting time sheets to the payroll company, the manager should ascertain that all hourly, per diem, and salaried employees have accurately recorded their time. The manager should signify approval by their signature. Contact with the payroll company should be limited to authorized persons only. This limits any manipulation of the payroll.
All companies are required to file quarterly reports with federal and state authorities. Failure to comply can cause a business to be shut down. The primary system of checks and balances that fights employee theft begins with appropriate intervention and a state of mind. In designing and developing a system of internal controls, critical areas of operation are examined. In a dental practice, these areas are: fees for service; fee collection; cash management; bill paying; and payroll expenses. In managing the fee for service function, office personnel must have the ability to identify the patients treated and the collections made from them.
In addition, immediate control must be established over all daily cash collections. In small dental practices, the practitioner may be the most likely person to do this. In larger practices, an office manager usually assumes this role. In order to maintain tight control over cash, verification of daily collections must be done and deposits made regularly. All deposits must be verified by a second person; this minimizes any misappropriation. After daily collections are verified and deposited, the bookkeeper must record all amounts to update patient ledgers. The office manager or the dental practitioner should review patient accounts to ensure that they are updated. This step not only simplifies the collection process, but any “unrecorded” collections can be identified.
Many offices maintain a petty cash account that is used for emergency needs of the office. Withdrawal of petty cash funds should be authorized at the highest level possible. Each disbursement should be documented with a prenumbered receipt that is signed by the person receiving cash. The recipient should be required to submit a third party receipt for all funds being reimbursed.
For offices that use metered postage, an office manager should be required to validate postage needs before authorizing any distribution. Because a postage meter can be subject to unauthorized use, a key or password control should be employed. Several vendors, such as Pitney Bowes, typically lease postal meters and related equipment.
Also, the ordering of office supplies should be authorized and supervised by an office manager or the dental practitioner. This prevents or minimizes pilferage and abuse. Similarly, depending on its size or its frequency of use, certain items should be periodically inventoried. This allows the office to gauge usage and minimize pilferage. Some very large items may even be tagged with a control number to minimize theft of physical assets. Portable computers should be kept under lock and key.
Bill paying, like cash collection and petty cash, must be controlled to avoid a long term negative impact. All paid invoices must be voided to prevent duplication. Invoices must be reviewed for content and approved before being paid. Then, the dental practitioner can be assured that the purchases are valid.
A purchase order system should be in place to document the legitimacy of purchases. Purchase orders are used to streamline requisitioning of supplies and identify the person making the requests. All delivered products should come to an authorized person who is responsible for distribution. Receipt must be confirmed by someone’s signature on the delivery invoice. Purchase orders must be signed by the office manager or the dental practitioner. Any deviation from this system could result in pilferage of supplies.
If electronic payments are used (ie, online payment), password control must also be maintained at all times. Electronic payments and credit cards have become the more popular ways to efficiently pay bills. Company credit cards should be used only by those whose judgment can be trusted and, statements should be periodically reviewed and the dental practitioner apprised of all transactions. The review can be done by a consulting accountant. Also, payment must never be made against a statement, only against original invoices. One of the most effective methods of monitoring check disbursements, electronic payments, and credit card disbursements is through bank statement reconciliations.
Bank reconciliations must be periodically reviewed by an independent accountant. Cancelled checks should always be reviewed for double endorsements that could indicate questionable or irregular business practices.
In many small practices, all bookkeeping and related functions are executed by one person. Invariably, there are the stories about a dedicated bookkeeper who never took vacation, but who is then being prosecuted for embezzlement. It is imperative that the bookkeeper take their vacation when scheduled. In addition, the bookkeeper’s work should always be reviewed by an independent CPA to ensure irregularities are minimized or eliminated.
In addition to reviewing the bookkeeper’s work, dental practitioners should invest in easy-to-use software which effectively captures the entire recording and reporting function. Accounting software makes the recording of routine transactions efficient. The software should have an audit trail which would identify any unauthorized charges. Also, the software should enable good reporting and enhance the quality of frequent analytical reviews.
Whereas a bookkeeping system will probably never be “just basic,” its effectiveness will be based on its ability to make every transaction transparent as well as to preclude recording and concealing a fraudulent event. There is no solution for collusion; however, a system that includes timely intervention, as well as enough checks and balances, will ultimately strengthen a business.
How should a basic bookkeeping system be designed to minimize or prevent theft? The answer is: logically. Most accounting systems allow for the initial transaction to be recorded and then document the process to closure. Accordingly, any such system for a dental practice must encompass the following: initial office visits, treatment plan, payment method(s), collections, treatment plan enhancements, and follow-up documentation.
Modern technology allows dentists to transmit radiographs to an insurance agency almost immediately. In addition, unless an immediate clinical need is established during the first visit, a typical procedure requires that a patient start their soft tissue management. This is accomplished by having the hygienist or the dentist clean the patient’s teeth and take radiographs. At this time, a practitioner identifies the clinical needs of the patient. This process is called the treatment plan development.
Any software used by a dental practitioner should allow setting up such plans and enable a practitioner to track all billings. Because dentistry now includes much more than fillings, any treatment software should contain diagnosis/treatment codes to facilitate the efficient billing of all services.
The accounting software enhances the practitioner’s ability to reconcile services rendered and the receivable daily. In addition, the ability to routinely track one’s billing allows for better monitoring of receivables, ensures timely updating of customer ledgers, and facilitates a smooth collection process. To further illustrate how internal controls help to prevent or minimize employee theft, a nearly perfect scenario is described below.
The front desk schedules all patients.
The dentist or the dental hygienist takes full mouth radiographs and does a cleaning. A chair camera can be used to remit immediately to an insurance carrier.
After services are rendered, the collections clerk collects the fee stipulated from the standard billing chart and the appointment clerk schedules future appointments.
Patient chart is reviewed and signed by the doctor, who also verifies the services to be billed for.
The office manager reviews the appointment schedule at day’s end and compares services rendered to collections and insurance charges. A day sheet is signed by the manager to confirm accuracy and completeness.
Cash and check collections are summarized and sealed in an envelope after being double-verified by the manager and collection clerk.
The manager forwards the summarized day sheet and all collections to either the practitioner or a senior employee with responsibility for banking operations.
The practitioner or the senior employee responsible for banking operations prepares the day’s deposit. This person confirms the totals, signs the day sheet, and forwards same to the bookkeeper.
The bookkeeper updates the patient records.
The receivables are monitored by the collections clerk to facilitate timely collection.
An independent accountant is used to review and test transactions to ensure proper recording.
Although the above scenario describes a process managed by multiple employees, it underscores the practitioner’s need to cover many critical functions with limited staff. It is also a reminder as to why a practitioner must know what is occurring in the practice.
Avoiding theft is the ultimate goal. The creation of the right process provides quality results and helps good employees remain motivated. When screening employees, a background check may include fingerprinting and a search for a criminal record. Key employees who have control over cash should also be bonded. Bonding takes place after all background checks have been completed and the prospective employee’s record is clear. Bonding can be approved by insurance or surety companies.
After employees are screened, tested for alcohol or drug abuse, and fingerprinted, they should have their job descriptions presented to them. In addition, their compensation should be competitive with market rates. This allows an employee to feel employer loyalty, to feel confident based on their defined role, and to be a part of a quality practice.
The office manager should consistently prepare employee schedules to maintain consistency and a sense of orderliness. All hourly employees must have their time sheets reviewed and approved by a person at least two levels above them. Detailed attention must be given to days off, vacations, and personal time, as well as hourly rates. Unapproved overtime and inflated hourly rates can devastate a business; therefore, salaried employees should be utilized as much as possible.
In safeguarding the financial aspects of a dental practice, internal controls may rely heavily on the dental practitioner themselves or on the most trusted personnel. Effective control is achieved when no assumptions are made and when most, if not all, items are questioned by the dentist. Personal involvement is a must for all dental practitioners if they are to maintain order in their practice, prevent theft, and keep costs under control.