Chapter 9

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3. Compare the deposits recorded in the checkbook with the credits listed on the bank statement. A deposit listed in the checkbook but not recorded by the bank at the time the statement was issued is called a "deposit in transit." 4. If the checking account earns interest, record the interest as a credit, similar to a deposit, in the checkbook. 5. Complete the reconciliation form following the directions. If the final amount on the reconciliation form does not agree with the amount in the checkbook, compare the monthly statement with the checkbook again. Recheck the deposits entered on the bank statement against those you have en- tered in the checkbook. Confirm that all service charges shown on the statement are entered in the check- book and have been properly deducted.

Negotiable Checks.

A check is an order to a bank to pay a specific amount of money. In order for the check to be negotiable-that is, to allow the legal transfer of money, it must meet several requirements. It is important for vou to know what these are; you should examine all checks given to vou before accepting them. To be negotiable, a check must state the specific amount to be paid. The amount should be printed in figures and in dollars and cents. For example, $125.00 would also be written as "one hundred twenty-five dollars and 00/100." It is recommended the wording be printed, not written in cursive, be made out (made payable) to the payee. The payee may be the title of the prac- tice rather than the physician's name, depending on the title of the account. carry the name of the bank that is making the payment. specify the date on which payment is to be made. be signed by the payer, the person who writes the check and is promising to pay the money. Be sure that you understand and follow office policies about accepting checks. For example, a patient visiting the office for the first time may be required to present iden- tification before the check is accepted. The following kinds of checks are usually not acceptable: Postdated checks: The mindset of "A check dated in the future (postdated) cannot be cashed until that future date" is incorrect. A postdated check can be presented to the bank for cash or deposit when the check is written! If a postdated check is accepted, ask for a explanation why the check is postdated. If the patient does not have funds in the account when the check is written but will have funds on the check's post date, it may be in the best interest of the medical practice to wait until the date of the check to deposit the check. Fees and penalties may be incurred by the practice if the check is presented to the bank and funds are not in the account. Predated checks: A check dated in the past should only be accepted based on the medical practice's financial policy. Financial institutions should be consulted for acceptance of predated checks. Predated checks may be expired and nonnegotiable. Third-party checks: In this case, third party refers not to an insurer but to anyone other than the patient. A third-party check is a check written to the patient by a person unknown to the practice. • Checks annotated "Paid in Full": When the amount of the check does not corre- spond to the total or full amount due for the services rendered, the office should not accept a check marked "Paid in Full." Accepting a check with the notation "Paid in Full," "PIF," or "PFIC" and consequently presenting it to the bank for deposit or cash means the practice agrees with the amount on the check and accepts it as a full settlement of the patient's account.

FICA Tax

A law known as FICA (Federal Insurance Contributions Act) governs the Social Security system. This law requires that a certain amount of money be withheld for Social Security. The employee pays half the required contribution, and the employer pays the other half. This amount is deducted in two separate payroll taxes: One helps finance

Petty Cash

A petty cash fund contains small amounts of cash (such as $40-$100) to be used for small expenses. These expenses are usually so small that checks would not be

ESSENTIAL FINANCIAL RECORDS

Administrative medical assistants help with accounting-the methodical recording, clas- sifying, and summarizing of business transactions-in the medical office. The physician must have a record of all transactions and must be able to prepare tax records. Either an accountant employed by the practice or the Internal Revenue Service (IRS) may wish to perform an audit, or review of all financial data, in order to ensure the accuracy and completeness of the data. The assistant also makes all records available to the IRS and keeps all source documents for tax purposes. These tasks require a working knowledge of tax tax regulations and of the accounting process. The part of the process that is the ac- curate recording of transactions is called bookkeeping. Accounting for the practice may be done in one of two ways: on a cash basis or on an accrual basis. If the practice operates on a cash basis, charges for services are not recorded as income to the practice until payment is received and expenses are not re- corded until they are paid. With the accrual method, income is recorded as soon as it is earned, whether or not the payment is received, and expenses are recorded when they are incurred. Whichever way the practice decides to keep its accounts, there are certain essential records that must be carefully kept and maintained. The assistant's task is to enter data accurately the first time and to perform the task of posting to records, or transferring amounts from one record to another. The financial records that are used daily in the practice include the following: The daily journal: The daily journal is a record of services rendered, daily fees charged, payments received, and adjustments. It is also called a general journal, day sheet, or daily earnings record. Most medical providers now use computerized daily journals (day sheets), commonly referred to as a procedure day sheet (which will be discussed later in this chapter). Charge/receipt slips: Charge/receipt slips provide a record of the physician's services and the charges for these. These slips are also called patient encounter forms (discussed earlier in the text). Ledgers: Patient ledger cards contain a patient's name, services rendered, charge, payment, and balance. Computerized patient ledgers are referred to as simply "patients' accounts." Accounts payable (A/P) ledgers record expense amounts owed to a supplier or creditor. Examples of accounts payable are rent, equipment rental, and office supplies. Accounts receivable (A/R) ledgers record the balance of pay- ments due from patients or others (third-party payers) on current accounts, Summaries: The monthly summary shows the daily charges and payments for an entire month, The annual summary provides the monthly charges and payments for an entire year. In some practices, quarterly summaries are prepared (a quarter is a 3-month period). Each of these records may be maintained electronically, and most offices, even if they have not fully implemented EHRS, maintain their financial records with electronic software The assistant is responsible for accurately entering the data and keeping these essential records current. Data input errors have a ripple effect. When a mistake is

Check Endorsements.

All checks received should be endorsed as soon as they are ac- cepted. This lessens the chance that they will be lost, stolen, or forgotten. Three types of endorsements may be used (Figure 9.5): Blank endorsement: In a blank endorsement, the signature of the person to whom the check is payable (the payee) is placed on the back of the check. Once a check is endorsed this way, the check may be cashed by anyone. Blank endorsements are not used in business. Full endorsement: A full endorsement indicates the person, company, account num- ber, or bank to which the check is being transferred, followed by the payee's name. Restrictive endorsement: A restrictive endorsement is the safest and most com- monly used endorsement in business. The check is "restricted" by being marked "For Deposit Only." The use of the check is thus limited because the party to whom the money should be paid and the purpose have been stated. The restric- tive endorsement is convenient for business use. The assistant may use a "For Deposit Only" rubber stamp and may deposit the check without obtaining the physician's signature.

Employer and Employee Identification Numbers

All employers, whatever the size of the business, are required to have a tax identifica- tion number. This Employer Identification Number (EIN) enables the IRS to track the financial activity of employers in meeting payroll and tax obligations. An example of an EIN is 12-3456789. The nine-digit number is obtained by requesting Form SS-4 from the IRS. Employees are required to be identified by Social Security Numbers.

Checks and Checking Accounts

An order (written or electronic) to a bank to pay a specific amount of money to another party is referred to as a check, The practice may have at least two types of checking accounts-one regular business checking account and an account that pays interest. There may also be a savings account in the name of the practice. Money for taxes or expenses that are not immediate will be kent in a checking or savings account where it will earn interest, or money paid by the bank to depositors in return for the bank's use of the depositor's money, You will use the regular business account most frequently: to deposit patient payments and to draw checks for the payment of office expenses. Although this account may not pay interest, it allows for availability and flexibility.

Banking Electronically

Banking by computer can contribute to both efficiency and accuracy. The tasks that you have when banking electronically are the same as those you perform when using paper procedures. You are still responsible for recording and physically depositing checks (unless the check was electronically deposited or paid). You still need to recon- cile statements but do not need to wait for a hardcopy statement to be mailed. Online banking is typically in real time and is up to date. However, the software makes all the calculations automatically. This not only saves time but also reduces the chances for error. You no longer need to worry about a secure storage place for the checkbook and deposit slips. The password you use to access the bank account is the only item you must protect. Banks' software systems allow you to check account balances. receive electronic deposits. find out which checks have cleared. transfer money from one account to another. • pay certain bills. Menus in banking software are user friendly. Main menus present broad topics, such as "Pay Bills," "Payment Center," and "Transfers." Reconciling monthly state- ments may also be done electronically with a computerized version of the reconciliation form. Technical support is available with most online banking software 24 hours a day, 7 days a week. The software is updated and maintained periodically, however, and dur- ing that time online banking transactions cannot be processed. In June 2000, federal legislation (ESIGN) was signed that granted electronic signa- tures, or e-signatures, the same legal standing as printed signatures. An e-signature is a unique identifier, or "signature," created for each person through computer code. It can be a computer image of a person's handwritten signature or other digital marker (such as a code of numbers). Verifying the identities of those doing business in cyberspace is still an issue to be resolved. Many medical providers and other businesses are becoming technologically equipped to use e-signatures for processing financial and other docu- ments. This practice will continue to grow as the technology becomes more efficient and economical. The practice may also authorize a payer to transfer funds electronically. That is, a third-party payer, such as the federal government or an insurance company, deposits payments to the practice electronically directly into the practice's account.

Creating Employee Payroll Records

Because accurate records are required and because the process is complex, you will want to create a payroll information record for each person employed in the practice. For each employee, list the following information: Name, address, Social Security Number, marital status, and number of dependents (W-4 form) • Pay schedule; show how often the employee is paid-weekly or biweekly, for example Type of payment; show whether the employee is paid a straight salary or an hourly wage • Employee-requested deductions; an employee may have payments to an employer- sponsored insurance plan, a flexible healthcare spending account, contributions to a savings plan sponsored by the practice, or additional tax contributions withheld If any employees are not citizens of the United States, they must be authorized to work in the United States. A completed Employment Eligibility Verification Form (Form I-9) must be filed with the federal government within 3 business days of the date when employment begins, and a copy of the 1-9 form, along with supporting identifica- tion documents, should be kept with the payroll records. This document verifies that the person is a legally admitted alien or a person authorized to work in this country.

Covered Accounts

Covered accounts that must be protected are any personal accounts that allow multiple payments or transactions. This qualifies medical patients' accounts, as they usually are the primary source of financial transaction documents for a patient. Also, if there is a reasonable and predictable risk to the patient/customer or to the safety of the creditor. the account is considered a covered account because it is a transaction account A transaction account is any account from which or into which the owner (patient) makes payments and/or transfers. If "covered accounts" are part of the medical practice an identity theft program must be followed.

Taxes Deducted from Earnings

Direct earnings are salaries (fixed amounts paid regardless of hours worked) or wages (pay based on an hourly or daily specific rate) paid to employees. Indirect earnings are specific employer-paid benefit programs, such as paid leave and health insurance premium. When employees are first hired, they must complete the Employee's Withholding Allowance Certificate (Form W-4), on which they state the number of allowances or exemptions to be used when the employer is calculating how much money to withhold from their salaries as deductions. Employers should verify annually that the informa- tion on file is still current. A new W-4 should be completed when major life changes (marriage, divorce, births, or deaths) occur. Name changes should be made only when the change is verified by a new Social Security card. The amounts to be withheld from an employee's salary for federal and state taxes are determined from wage-bracket tables supplied by the IRS. The amount withheld depends on the amount of money earned, the number of exemptions claimed, and the current tax rate. The IRS also supplies wage-bracket tables that apply to various payroll cycles: daily, weekly, semimonthly, and monthly. Refer to the state and local tax tables to determine the additional amounts of money to be withheld.

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Double-entry method: This system requires more knowledge of accounting principles than the single-entry method does. It is a method based on the accounting equa- tion: assets equal liabilities plus owner equity. In businesses where this method is used, one account must be debited and another account credited after each trans- action. Thus, the system takes more time to use.

Red Flag Implementation

Each company/organization that fits the definition of a creditor with covered accounts (covered entity) must follow the Red Flag Requirements, also known as the Red Flag Rules. If a medical practice does not meet the criteria of a "covered entity," it is still a good financial practice to develop and implement an identity theft policy based on the Red Flag Requirements. The following are the parts of the Red Flag Requirements: 1. Recognize and list red flags (warning signs) pertinent to your practice. Each practice should study and identify triggers that suggest identity fraud. Make a comprehen- sive list. Alerts and updates from a consumer reporting guide may be used to list red flags. Other red flags may be in the form of suspicious documents, a change in PHI (such as an address change), and unusual account activity. 2. Describe how your practice will discover/detect each red flag. a. Put steps in place to obtain identifying information and to verify the identity of an individual who is seeking services. b. Implement effective methods of authenticating the identity of the patient requesting service or other transactions. Traditionally, a photo ID, such as a driver's license, was sufficient. However, more stringent methods may need to be used. Primary and secondary identifiers should be listed as acceptable forms of identification. Primary identifiers may include a valid driver's license or state ID card, valid passport, U.S. alien registration card, and military ID. Fingerprint readers may be used to authenticate identity. Examples of second- ary identifiers may incl include Social Security cards, firearm licenses, insurance cards, and voter registration cards. Patients should present either two primary identifiers or one primary and one secondary identifier-the policy of identifiers should be established, in writing, by the practice. c. Monitor the activity of your patients' accounts. d. Verify the authenticity of a change of address. Identity thieves will change the legitimate address on the account, so that all fraudulent activity is sent to the changed address. 3. Prevent and diminish identity theft with appropriate responses. The medical office should respond to identity theft triggers to an appropriate degree. For example, an account may only need to be monitored for identity abuse, or it may need to be closed. 4. Update the Red Flag Requirements plan. The effectiveness of policies and proce- dures needs to be evaluated to ensure that they cover the current red flags. A Red Flag Requirements plan should be overseen by individuals who are senior in the practice, such as the physician, office manager, and head nurse. Also, the plan must include steps for training medical team members in identity theft triggers and detection. Using guidelines from the federal government, medical offices should design and imple- ment a plan that is appropriate for the size and nature of the practice. Many helpful websites contain information and suggestions for developing a Red Flag Requirements plan, including the Federal Trade Commission website, at ftc.gov.

Bank Reconciliation

Each month the bank mails or sends an electronic statement of the checking account, such as the one shown in Figure 9.7. The monthly statement shows the beginning bal- ance, total credits (deposits added to the account during the month), total debits (checks paid out of the account during the month), any service charges that apply, and the resulting new balance. The new balance on the statement must be compared with the checkbook balance to determine whether there is a difference between the amounts. This process is known

Employees' W-2, 1-9, and 1095 Forms.

Employees need payroll information from the previous year to file their taxes with the federal and state governments. Employers prepare a W-2 showing wages and deductions for each employee who received earnings during the previous year. Employer identification information is also listed on the W-2. Employers are also required by federal law to verify the identity and employment eligibility of each employee. A properly completed Form I-9 must be completed for each hired employee. Additionally, employers who offer health insurance coverage to employees are re- quired by federal law to provided Form 1095-B or 1095-C for each employee. Basically, Form 1095 is used to show if an employee had medical insurance coverage during the calendar year, who (dependents) was covered, and if any gaps in coverage occurred. Form 1095-B is used by employers with 50 or fewer full-time employees. Form 1095-C is used by employers offering medical insurance coverage with 50 or more full-time employees or the equivalent of 50 full-time employees. Other forms may be required by state and/or federal laws; therefore, the employers should always be current with the requirements.

Employers' Tax Responsibilities

Employers are required to help fund the FUTA (Federal Unemployment Tax Act) ac- count, which is used to help those who have been without work for a specified time as they seek new employment. This dollar amount is a percentage of each employee's gross earnings but is not to be deducted from the employee's earnings. Usually, pay- ments into a state and federal unemployment fund are applied as credit against the amount of FUTA tax. FUTA requires only the employer to contribute to the unemployment insurance fund. An employer is required to pay FUTA if $1,500 or more has been paid to an em- ployee in any calendar quarter in the current or previous year.

Who Must Comply

Financial institutions (that is, banks, credit unions, and other lending institutions) and other creditors must comply with federal Red Flag Requirements. Whether a medical practice is considered a "creditor" has been the topic of much debate. In 2010, the Red Flag Program Clarification Act amended the original definition of a creditor. Three re- quirements were defined in the act. If an entity, including a physician's office, uses any of the three criteria in the course of normal business, it would need to develop and implement an identity theft program utilizing the Red Flag Requirements. The three creditor criteria are 1. The practice obtains or uses consumer reports, either directly or indirectly, in con- nection with credit transactions. 2. The practice furnishes information to a consumer reporting agency in connection with credit transactions. 3. The practice advances funds to, or on behalf of, a patient based on an obligation of the patient to repay the funds. An individual may obtain medical services by using another person's identity, creat- ing risk that the victim's medical records will be intermixed with the criminal's records. This may lead to serious consequences when the victim seeks medical treatment. Therefore, medical practices must know with a reasonable amount of certainty that persons seeking and receiving treatment are who they say they are. Even if a medical practice does not meet the criteria of a creditor, developing and implementing an identity theft program will help medical practices verify a patient's identity and protect patient information.

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In addition, programs such as Medisoft provide other useful summaries, such as aging reports. This analysis lists the amounts of money owed to the practice, and the report is organized according to the number of days due. In such a report, the "aging" begins on the date of the transaction and will report those debts that are current-or "0 to 30 days"-and several other time frames of past due debts. See the example of an aging report in Figure 9.4. Software spreadsheet capabilities also enhance the physician's ability to analyze the performance of the practice. These spreadsheets may be designed to provide profit and loss reports, expense reports, and budget planning documents. To create a program to serve your practice, the designer customizes the spreadsheet by specifying the format and creating formulas that will provide the desired calculations.

Summaries

In many practices, the physician will want to analyze charges, cash receipts, and dis- bursements at the end of the month, at the end of each quarter, and at the end of the year. The purpose of analyzing summaries is to compare the present financial perfor- mance of the practice with its performance last year, last quarter, or last month. The physician, and in some cases an accountant, will look at cash receipts from certain kinds of services (such as EP Level III E/M codes), the expenses involved in running the office, and other categories. The analysis will help the physician plan for the future of the practice by cutting back on expenses, for example, or by investing in equipment that will enable the practice to offer more patients a particularly profitable service.

BANKING

It is clear that handling the banking functions of the practice accurately and promptly contributes to the financial health of the practice. The administrative medical assistant is responsible for many of these banking duties, including preparing deposits and reconciling bank statements. Banking tasks require absolute accuracy, correctness that is 100 percent, because the assistant acts as the physician's agent in these matters.

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Make sure no check has been drawn that has not been recorded in the checkbook. Compare all checks with the stubs to make sure the amounts agree. • Review the list of outstanding checks to see whether an old check is still outstanding. Recheck all addition and subtraction. When the checkbook is reconciled, make a notation to that effect in the checkbook on the last-used stub or register line.

IDENTITY THEFT IN THE MEDICAL OFFICE

Medical identity theft is a fast-growing area of criminal activity. Thieves steal an indi- vidual's personal information-such as a patient's name, Medicare or other provider identification number, and Social Security Number-for purposes of securing health- care, obtaining drugs, submitting fraudulent claims to gain illegal monetary benefits, or other illegal activity. This type of illegal activity can be conducted by medical personnel who know the workings of the medical insurance system. Computer hackers also attempt to gain access to a patient's personal information for purposes of medical identity theft. The thief who commits the crime can also be someone the patient knows and trusts. The medical office assistant must pay close attention to ERAS/EOBS and verify that their actual patient did receive the service listed. Just as HIPAA regulations were implemented to protect patients' nonpublic health information, regulations known as Red Flag Requirements focus on identifying and veri- fying individuals in relation to information presented to the practice. In other words, the medical practice must make sure that persons presenting for services are who they say they are. Using the criminal act of identity theft to acquire medical and other types of services illegally is a growing challenge for society.

Computerized Daily Journal.

Medical management software provides electronic daily journal forms. The example shown in Figure 9.2 is a feature of Medisoft. It is called the procedure day sheet and lists numerically all procedures performed on a given day. It also provides patient names, document numbers, places of service (POS), and debits and credits.

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Medicare, and the other helps fund Social Security pension benefits. These amounts. dictated by the IRS, are a percentage of the emplovee's taxable earnings, considerme payroll periods and allowances claimed, Because Congress can change this amount yearly, you must obtain information from the IRS or from the physician's accountant.

Accounting Software

Most practices use an accounting software package to perform all necessary accounting functions. Several software applications have been customized with vocabulary and fea- tures specific to medical practices. Software programs require some effort to learn and manipulate. However, they save time by automatically performing routine tasks and most mathematical calculations.

Calculating Payroll

Spreadsheet programs perform these complex calculations very quickly. It is important for you to understand the formulas used and the process involved. Websites sueh as www.adp.com offer the opportunity to use free online payroll calculators. Gross earnings: Calculate gross earnings, For an employee on salary, the salary amount for the period is the employee's gross earnings, regardless of whether or not the employee worked more than 35 or 40 hours. For an hourly wage worker, the hourly rate multiplied by the number of hours worked vields the employee's gross earnings. If an hourly wage employee works overtime hours, the hourly wage is typically paid at the rate of 150 percent of the base pay. This is commonly re- ferred to as "time and a half." For example, if an employee is paid $12 per hour base wage, the overtime hourly wage would be $18 ($12 x 150%). • Exemptions; state and local tax deductions: Find the number of exemptions the employee claimed on Form W-4, Refer to the IRS tax table (Circular E) for the amount to be deducted, based on the gross earnings and the exemptions. State and local taxes are often at a set rate-for example, 5 percent of gross earnings. Subtract this amount from gross earnings. FICA taxes: Withhold, and deduct, half the amount due for the pay period from the employee's gross earnings. The other half is paid by the practice. There is one rate for the Social Security deduction and another for the Medicare deduction. Verify the current withholding rate prior to calculating the amounts. Voluntary deductions: Deduct any amounts the employee has requested for insur- ance, a savings plan, additional tax withholding, and so on. Deductions are either pretax deductions (deducted from the employee's pay prior to calculating the taxable amount of income) or posttax deductions (deducted after the employee's taxable amount of income has been calculated). An example of a pretax deduction includes contributions made to retirement accounts. An example of a posttax deduction would be a contribution to a charitable organization. Employer's obligation: Post the employer's FUTA (see next section), FICA contribution, and taxes due to federal and state unemployment funds to the physician's account. Net earnings: When total deductions are taken from gross earnings, the result is the employee's net earnings. • Net pay statement: Prepare an itemized statement, either hardcopy or electronic, of gross pay, deductions, and net pay, and include it with the employee's pay.

Returned Checks.

The bank may return a check that has not been completed prop- erly: The check may be missing a date or signature. The check will also be returned if there is not enough money in the account to cover the amount shown on the check. In this case, the check is stamped, or identified "NSF." or "nonsufficient funds." The bank may charge a fee for returned checks, and in turn the practice will charge the patient a fee for the returned check. After the returned check has been received, make a debit entry in the patient's account, recharging for the amount of the check. Include the re- turned check fee on the account. Notify the patient of the returned check and related fees. Usually, payment from the patient should be a cash or debit/credit card payment. Be sure to inform the patient of the due date and to document information discussed with the patient (if not in letter format).

Deposits.

The checks and cash placed into the account belonging to the practice are called deposits. Once the daily monetary intake from endorsed checks and cash has been verified using the procedure day sheet, a deposit slip is prepared. For a sizable practice, depositing checks daily is important because it improves the cash flow and ensures that checks sent by the practice will not bounce. If the practice is specialized or very small, deposits may be made less often during the week. The bank where the check- ing account is maintained provides deposit slips. These are preprinted with the title of the account and the account number. A sample deposit slip is shown in Figure 9.6. On the first line, marked "Cash," the amount of currency-bills and coins-is entered. Some deposit slips list "Cash" and "Coins" on separate lines. Beneath this entry, each check is listed separately. Some banks prefer to have the check identified by the signature name on the check, the check number, or the bank name. If needed, some deposit slips may allow for additional deposit information to be recorded on the back of the form. Transfer the total from the back to the front of the deposit slip. Subtotal the front and back amounts. When money is to be given to the depositor from the deposit, place the amount to be withheld from the deposit on the front of the slip. This is called "Less Cash Received." Subtract the "Less Cash Received" amount from the subtotal to

Daily Journal

The daily journal, manual and electronic, is used to record daily fees charged and pay- ments received. It is, then, the financial source document (journal) used for accounts receivable (fees charged) and cash receipts (payments received). Fees charged, pay- ments received, and adjustments must be recorded promptly in the daily journal. It is necessary to have an accurate balance of accounts. The manual daily journal, used with older manual systems, in Figure 9.1, shows typical entries and balances en- tered onto a manual daily journal. There is a section, usually in the lower left corner of the page, labeled "Proof of Posting." In this case, proof does not mean that the correct amounts were charged. Proof means only that the columns balance. Accuracy is ob- tained by using the section at the bottom of the journal page, in the center, labeled "Accounts Receivable Control." Accounts Receivable in the label refers to the balance due from patients on current accounts. By maintaining this section of the daily journal, the practice keeps a "control" on the amount of money it is owed. Every day, the charges are added and the payments are subtracted from the previous day's balance. The result is the current day's accounts receivable balance. The section labeled "Daily Cash" in the lower right corner is used to account for the daily cash flow, or the amount of cash received that day, normally from patients

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The following are some examples of possible identity theft: Checks with a different name than the patient's Patient complaints about bills for services they did not receive Medical records showing treatment that is inconsistent with the physical exam and/or history as reported by the patient

The Banking Policy of the Practice

The physician must indicate the persons in the practice authorized to sign all checks. One person may be authorized to write checks, and another may be authorized to sign. This is a good internal system to avoid mistakes and misappropriations. The physician may require two signatures for each check or may set limits on the amounts of money for which anyone other than the physician may write checks.

Payroll Records: Contents and Retention

The practice is required by law to retain payroll data for a minimum of 4 years. However, a longer retention period may be required to prove income and deductions. A typical format for this record is shown in Figure 9.9. Each employee's earnings record must contain the employee's name; Social Security Number; address; number of exemptions claimed; gross salary earned; net

Employers' Deposit and Tax Return Obligations.

The practice must make federal tax withholding payments and FICA payments to a federal deposit account in a federal re- serve bank or in another authorized bank. The money must be deposited at least monthly. The IRS imposes a severe penalty for the failure to make these deposits. The employer is required to file a quarterly tax return, Form 941, to report federal income and FICA taxes withheld from employee paychecks.

PAYROLLt

The total earnings of all the employees in the practice is called the payroll. Services, such as ADP (Automatic Data Processing, Inc., at adp.com), will process payroll for companies. However, if you are responsible for handling the payroll in your office, you will be completing the following tasks: Calculating the earnings of employees • Subtracting the correct amounts of taxes and other deductions, or amounts of money withheld from earnings Creating employee payroll records Preparing salary checks Submitting payroll taxes Keeping current with IRS formulas and regulations that affect payroll; many tax tables and other information can be found on the IRS website (www.irs.gov)

Computer Summaries.

The use of a software program to provide summaries is an ef- ficient way to assemble information. The database can be manipulated to provide a sum- mary by procedure code or by number of procedures within a certain time frame. It also can provide a comparative summary over time of payments used to make a deposit. Such software solutions are available in specialized medical accounting software programs. In Medisoft", for example, a practice analysis report may be generated monthly or for another specified period of time. The purpose of the report is, as its name shows, to analyze the revenue of the practice for a specified period of time. In the report, the description of and revenue of each procedure is shown first. This summary page at the end of the report then shows the total charges, patient payments, description of and revenue for each procedure is shown first, as in Figure 9.3a. A analyze the revenue of the practice for a specified period of time. In the report, the

Methods of Bookkeeping

There are two main methods of bookkeeping: single-entry method and double-entry method. A third and older method, which is a manual accounting system referred to as a pegboard system, was used extensively by medical practices in the past; but most med- ical offices have transferred accounting functions to computerized systems. Debits and credits summarized in columns at the bottom of the day sheet are used to balance manual day sheets. Single-entry method: This system requires only one entry for each transaction and is the oldest system. It is, however, a challenging system to use because it is not a self- balancing method; therefore, users find it hard to recognize errors.

Electronic Payroll: Direct Deposit

Through direct deposit, the employee's net pay is automatically withdrawn from the practice's account and deposited into the employee's account. The physician must con- tract with the bank for this procedure, known as EFT (electronic funds transfer), and employees must give employers their account numbers (bank routing number and em- ployee's account number). The employee receives a deposit stub showing the gross pay, net pay, and specific deductions. This aspect of electronic banking has many advan- tages for both employers and employees: 1. The loss or theft of paychecks is eliminated. When an employee is on vacation or absent, the check is deposited. 2. Productivity and cost savings are increased. Time and expense are saved because no paychecks need to be written. 3. Employees have the convenience of eliminating a trip to the bank to deposit a pay- check, and the money is available on the day of deposit.

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as reconciling the bank statement, or bank reconciliation. Many banks provide a recon- ciliation form, such as the one shown in Figure 9.8, on one of the pages of the monthly statement. You should take the following steps in the reconciliation process: 1. Compare the canceled (processed) checks returned by the bank with the items listed on the bank statement. When banks do not provide the actual canceled checks, miniaturized copied images of the checks are usually provided. These, in addition to the listing of the checks on the statement, may be used for reference. 2. Compare the checks listed on the bank statement with the checkbook stubs to verify that check numbers and amounts agree. Deductions, such as service charges, are explained on the bank statement. These must be recorded in the checkbook. Checks that were written during the last month but have not yet been paid by the bank are not included with the statement. These are called "outstanding checks" and should be listed on the reconciliation form as shown in Figure 9.8.

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calculate the total amount of the deposit. The amount of the deposit is then entered on the first unused checkbook stub or in the check register. When manually preparing any banking document, only blue or black ink should be used. Other colors are difficult for electronic scanning equipment to read. It is important to obtain a deposit receipt from the bank. All deposit slips, receipts, the checkbooks, and the check register should be kept in a secure and locked place in the office.

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made on financial data, other financial areas are also affected. For example, a patient was evaluated at a 99213 level but the code 99214 was entered. The error affects not only the patient's account but also the daily accountability of how many procedures of each type have been rendered and their daily, weekly, and monthly totals. Accurate data input is a key skill for medical office personnel. Financial records are the basis for ongoing decisions about collections and dis- bursements, and they provide a picture of the financial health of the practice. In all businesses, the managers speak of the importance of the balance sheet, the financial statement for a particular date that indicates the total assets (possessions of value, such as equipment), liabilities (debts), and capital (available dollars). Summaries are an im- portant part of the balance sheet. Another important financial document of the practice is the income statement, which shows profit and loss for a stated period of time, such as a quarter or year. All income is categorized and reported as gross income (income prior to deductions). Expenses are also categorized and totals are listed. Taxes are included as a business ex- pense. A net total (income after expenses are deducted) is calculated. Income state- ments are a critical analysis tool for determining the financial health of a business.

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making payments using cash. "Petty Cash," mentioned later in this chapter, is used not to receive cash payments but to pay for small cash items.

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salary paid; income taxes withheld: and FICA, state, and local taxes deducted. The column labeled "Other" is used to record certain other deductions required by law or voluntary deductions made under an agreement with the employer. For example, many employers deduct, at the employee's request, amounts for savings bonds, insurance, or union dues. All amounts deducted by the employer are held in trust. The employer must remit the monies to the proper authority in a timely manner.

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written to pay for them: cab fares, postage stamps, payments to messengers, and delivery charges. Each time you make a payment from the petty cash fund, make an entry in the petty cash register or complete a voucher if this is the system used in your office. The register or voucher provides a record of these small expenses and ensures that only au- thorized payments are made from this fund. Receipts for expenditures from petty cash should be placed with the petty cash register/voucher. To obtain money for the petty cash fund, the minor expenses for the month are estimated. A check for the estimated amount is drawn, payable to "Cash" or "Petty Cash." The check is endorsed and cashed in an assortment of small bills and change. The money is kept in a secure place, such as a locked metal cashbox in a drawer. At the end of the month or when the amount of cash has been depleted to a predetermined amount, such as $25, the fund is replenished. First, from the record in the petty cash register and receipts, determine the total amount of disbursements made. Count the remaining cash in the fund. Be sure the two amounts add up to the original amount of the check that was last cashed. This procedure is called "proving the petty cash fund." A new check is then drawn to bring the fund back to its origi- nal amount.