By Rick Collins
I am sickened by the many ways in which providers wind up spending money needlessly based on faulty or incomplete information. In this first of two articles, I identify two of the four most common areas which cause providers to waste money and make poor decisions.
Employees in Authority Without Financial Skills
In my experience, the most frequent unnecessary loss of money occurs when providers give financial authority to employees who know nothing about managing or handling money. Nurses, receptionists, secretaries, techs, and other employees can become good managers, but expecting them to take over a million or multi-million dollar budget with no financial knowledge or skills can be a costly mistake.
If you have or want to have such an employee in a management position that requires financial oversight, hire or contract with a reputable and experienced bookkeeper and a local CPA firm that has a broad client base in healthcare. As a provider, you want objective, experienced third parties examining your finances and asking questions. You want someone looking at trends in spending and revenues and advising you with how to best position yourself and your practice from a tax standpoint. You want someone to make sure your tax deposits, returns, and other tax forms are filed correctly and on time.
You should also require your management employee to sign up for any of a number of workshops and seminars that train managers in basic accounting and financial principles. The investment will be well worth it, especially considering the problems associated with unpaid taxes, unfiled returns, wasted expenses, poor financial planning, and lack of financial and spending controls in general.
Doing business with your friends or friends of your friends may sound like a good idea, especially when it comes to handling your money. Providers hire such people because they want someone they can trust to handle their finances. However, always check multiple references before you contract with anyone, even if your friend or associate is currently using their services.
The best way I can illustrate this point comes from an experience I had several years ago with a group of physicians whose practice and facilities generated exceptional amounts of revenue compared with others in their area. However, they could not seem to get a handle on their expenses. They hired our company to take over their billing and as part of our services I met with them in person quarterly to review their billing and accounts receivable reports.
At the first meeting I attended, the doctors introduced me to a gentleman from outside their company whom they described as the person who handled their finances. I did not have a lot of interaction with him at the time, but as the months went on I discovered that he had trouble understanding some basic financial terms and even struggled a bit with bank account reconciliations. This seemed odd for someone whom I had assumed to be a high-powered CPA.
As the months went by the doctors began to trust me more and I was invited to attend another part of their monthly meeting in which the gentleman provided financial and budgeting handouts. The budget and expense reports were in a format I had never seen. The reports were confusing, unhelpful, and did a very poor job of providing a picture of what was happening with the doctors’ funds. I asked if he brought financial statements and he replied that these were the only reports he had with him.
After the meeting, I asked the doctors about their profit and loss statements and balance sheets. The doctors were not familiar with those reports. In the end, I found that the gentleman was hired because another doctor who was friends with one of our docs told our doctor that this guy had helped him with his finances. The gentleman handling our docs’ money was not a CPA, an accountant, or even a bookkeeper. He had never prepared financial forms and he had the doctors’ taxes prepared by someone else. Unknowingly, the doctors had placed millions of dollars in the hands of someone who had no professional qualifications.
Once the doctors handed over their accounting to a local CPA firm, their decisions changed dramatically, not only regarding the expenditure of their funds, but also in their assessment of their practice manager (PM). The PM often looked bad in the previous gentleman’s odd reports, but when an accurate financial picture was rendered by the CPA firm, the doctors realized the PM had done a much better job of controlling expenditures in certain areas than they had previously believed. The doctors were able to make much more informed and better decisions regarding their future capital expenditures, their current spending, and personnel assessments.
In the next issue we will look at financial losses that occur due to dishonest management employees and dishonest and unethical vendors along with some ways to identify them and protect yourself.
Rick Collins is the director of business development for Sceptre Management Solutions, LLC., a company specializing in billing for outpatient ESRD facilities, nephrology practices, and vascular access. Your questions are welcome and he can be reached at email@example.com or 801.775.8010.