FOR AN UNCLAIMED FUNDS AUDIT

PREPARING YOUR DENTAL PRACTICE FOR AN UNCLAIMED FUNDS AUDIT Reports to run & Coaching to smooth out this experience JILL NESBITT Practice Administrator & Dental Consultant Mission 77, LLC 615-970-8405 jill@dentalpracticecoaching.com www.dentalpracticecoaching.com

Preparing your dental practice for an Unclaimed Funds Audit Preparing your Dental Practice for an Unclaimed Funds Audit Reports to run and coaching to smooth out this experience By Jill Nesbitt www.dentalpracticecoaching.com Copyright 2013 Jill Nesbitt Introduction We re the winner of the lottery! Woo hoo! Lucky us! Okay, not so much because the lottery we won was to be selected to receive an audit for unclaimed funds. What, pray tell, is an unclaimed funds audit, you ask? Allow me. Apparently, the state of Ohio (and other states as well) has decided that any money businesses owe back to their customers should no longer be kept as a credit on the customer s account. Instead, this money should be sent to the state. Then, the state will add this person s information into their unclaimed funds website where, if the person can find this website and provide the proper identification, they can receive this money. To accomplish this, Ohio has hired auditors (ours showed up wearing a gray zipper sweatshirt & chomping on gum) to spend a day or two in the business to identify any unclaimed funds for the last 3 years. The work involved To produce this information, we ran reports to find credit balances. Then, we had to manually review each one to make sure that the patient wasn t scheduled for an upcoming appointment (or more often, a family member) - or, that the credit had been requested to be left there by the patient as they were building credit for major treatment. Ohio s rules are that if the credit amount is over $50.00 and over 3 years old, then we are to send a letter to the patient letting them know that this credit 2

exists and without their response, we will be sending this amount to the state. Oh, and we get to fill out a special form along with this amount as well. For amounts under $50, we are to add up the amounts of the credit, write a check to the state and create a final adjustment to bring the patients balance back to zero. There are 4 auditors for the state of Ohio and we were lucky enough to be selected for this audit. Bring on the Powerball tickets! In my opinion, the state is gaining nothing by auditing my practice for credit balances. We have a strict collection procedure that asks patients to pay their portion promptly and we make collection phone calls and send letters to anyone past due even a few weeks. With this type of collection policy, we feel it s our duty to also keep track of our refunds. If we expect to be paid on time for the work we do, then we understand that patients expect to receive their refunds in the same timely manner. Items to include in a refund system A refund system should include the following: 1. Regular reporting such as reviewing your aging report and looking for all credit balances, especially those over 30 days. 2. Confirmation of accuracy is this a legitimate refund due? 3. Patient contact - Ask patients how they would like to use this money? Maybe this is a step towards saving for whitening or maybe they have a couple kids overdue for checkups and we want to leave that on to cover their co-pays or maybe they want a refund. They choose and we do it. 4. Documentation I assume that every state has its own version of unclaimed funds audits but chances are, you won t be as lucky as we were. However, even without an audit, it makes sense to have an organized system for handling refunds to patients. This can help to avoid patient complaints in the future and manage your accounts accurately. Preparing for the Audit So, you re holding your letter from the state and wondering, Huh? I ve never heard of an unclaimed funds audit. This brief report will help you to prepare and give you some coaching to smooth out this experience as much as possible. Each state has a Division of unclaimed funds that, as Ohio s website claims works hard to reunite citizens with their hard-earned money. However, how the states are getting this money is a very interesting story. This is an interesting article: http://www.bankrate.com/finance/investing/states-grab-unclaimed-property-1.aspx which explains that the reason states are freshly motivated to find unclaimed property and funds, isn t to return it to its rightful owner, but instead to escheat which means take over by the government. With the states in budget shortfall, this is an opportunity to increase their income. 3

You can face penalties and even daily fees if you do not fully comply with the audit, so this is nothing to mess with. At the same time, it s not nearly as extensive as a full tax audit. Some businesses (not dental practices) hire accounting firms to review their procedures to make sure they are prepared for an unclaimed funds audit. However, it seems that states auditing dental practices is a new trend as of 2013, so this report is designed to help you through this process. Let the Paperwork begin First of all, the Records Request (received along with your letter) will tell you exactly what information you re supposed to have ready. Generally, you will have to have a handful of items: 1. General ledger from your accounting software 2. Aging from your dental software or a special report showing credit balances before a certain date 3. Your policy & procedures for patient refunds 4. Copies of unclaimed funds reports submitted to the IRS from the past several years 5. Bank statement & account reconciliation monthly including any outstanding checks for the past several years for: a. Payroll checks b. General checks c. Patient refund checks d. Employee benefit checks Next, you need to fill out the Audit Questionnaire. Filling this out properly can cut down on the scope of the audit. If your accounting software only goes back 3 years and the audit requests 6 years back, be sure to document this. Also, if you handle payroll through direct deposit this eliminates the audit of payroll checks. So, be sure to document direct deposit only where it asks for Type of Payroll checks issued. If you haven t switched to direct deposit, this may be a great reason to make the change! Let s review the items to print for the audit. It s straightforward to print a general ledger report from your accounting software. I recommend printing the special report of credit balances instead of an aging. 4

For Dentrix users: 1. Go to Office Manager Letters 2. Choose any report you like usually one in Misc and click Edit 3. Next select the following characteristics: Status: Last visit dates according to the dates required in your audit letter, Balance beginning -$5000 and ending balance -$1 4. In the data fields, checkmark first & last name, last visit date, balance - ok 5. Click on Create/merge Merge data file only 6. Then copy this data into Excel 7. Next, I recommend adding a column for Family visit and another for Qualifying Credit here s an example: LName FName Balance LastVisit Family Visit Qualifying Credit Jones Tom (12.00) 4/27/ 2009 1/16/2013 Mozart Amadeus (12.90) 10/4/ 2006 ok (12.90) Plan to spend time cleaning up this list Once you paste your list into excel, here s where you re going to invest some time to start to cut back on the list you ll provide to the auditor. As long as someone in the family has had a last visit date within the last three years, then they do not qualify for the unclaimed funds list. The state is looking for people who haven t been seen for the last few years and have a leftover credit. So, go into your ledger and look at the whole family to find the last visit date. You can enter it into this column and if you find someone who doesn t have a recent last visit date, just note ok. One other item to check as you re going through these accounts were any of these credits created from a new patient discount or other marketing offer that 5

wasn t fully realized? For example, if you had a new patient that only came to your practice once and received a special discount that ended up leaving a credit balance after insurance paid these accounts should be evaluated for applying a debit adjustment to clear up this balance. Or, some dentists offer free services as a marketing offer to attract new patients if your marketing leaves a credit balance, again you should consider applying a debit adjustment to set this balance back at zero. This is a great conversation for your insurance manager to know how to handle this type of account in the future. You may also want to update your marketing promotions for new patients to accurately reflect their responsibilities in returning for regular recall in order to receive the new patient marketing promotions you create. Another item to check for as you re going through these accounts were any of these credits created from an overpayment by insurance compared to the negotiated fee schedule entered into the ledger? Let s say you ve joined a PPO plan, like Delta. If you have a patient with a $12.00 credit but this credit was created because the patient came in for a filling 4 years ago and the fee entered in the ledger was $142, but the insurance paid $154. It s not right to count this as a refund, since all the fees are correct except for the negotiated fee entered in your ledger. To resolve this credit, you need to apply a debit adjustment to clear up this balance. Insurance managers in dental practices that accept PPO plans know this is a common occurrence. Hours and hours are spent calculating the proper insurance adjustments using credit and debit adjustments to meet the requirements on the EOB. This work is even more important when facing an unclaimed funds audit. Reviewing this list to check for family last visit dates and account accuracy for insurance adjustments will take a significant amount of time. Decide who is going to be responsible for checking each patient s ledger. Write clear instructions for that person and give a deadline for when you want the review completed. Since this is account work, it can be done remotely, so you may want to offer this as an extra project to one of your front desk team members that is already set up to work from home. A sample system for refunds Next, do you have a procedure for sending patient refunds? The state will want this procedure in writing. A realistic protocol would include some regular system of running a report to look for credit balances and then contacting the patient to decide how to handle this credit. Here s a sample system for handling patient refunds: 1. Quarterly, run a Dentrix report to find all existing credit balances 6

2. Transfer this report into Excel and sort to put the largest credit balances at the top of the list. 3. Starting at the top of the list, research this patient: a. Is the patient (or a family member) coming in for a future appointment? Perhaps this is a pre-pay? b. Does the patient (or a family member) have an outstanding treatment plan? Perhaps they would like to use this credit as a down payment on their treatment? c. Is the patient (or a family member) due for a dental cleaning or perio maintenance visit? Again, perhaps they would like to use this credit towards their visit? 4. Call the patient hopefully you can encourage them to use this credit instore for a future visit for someone in the family. 5. If the patient and family don t need any treatment, then you can offer to send them a refund if paid by credit card, you can apply it back to the card they used, or you can send them a check. Ask them to be sure to cash it immediately we certainly don t want this showing up on a future unclaimed funds audit! 6. Be sure to clear the account in Dentrix once you send a refund. Before the auditor arrives Finally, when you gather all your bank reconciliation statements, expect that the auditor will randomly select some to review. For example, our auditor selected one out of every quarter for the years we had available. She will review any outstanding checks in her list and you will be expected to provide proof that these were cashed. For example, go to your bank and give them the names you find that have outstanding checks ask them to see if they can confirm these checks were cashed. If they can, ask for a copy of the cashed check or some other documentation to present to the auditor. Before the auditor arrives, you re welcome to contact as many patients as possible to discuss how to handle their credit and issue refund checks if needed. Don t feel that you need to save a few for the auditor. Unfortunately, there will most likely be a few you can t get in touch with. Normally these patients have 30 days to respond to your letter informing them of their refund, and if they do not respond then you will be sending their money to the state. 7

It s good to know that you re not in a rush to work through this audit process. You will schedule the auditor for her visit when it fits into your schedule and even after the audit, there is time reserved for you to wrap up your research on the list the auditor creates. Then, you will contact these patients and they get 30 days to respond. This entire process can stretch out to a few months. To speed this up, start cleaning up your list as soon as you receive your audit letter. Or, even better establish a system for handling client refunds and monitoring your credit balances before you are audited. The Auditor in Your Office You are expected to provide a quiet place for the auditor to work for 2-3 days. The auditor will bring her own laptop and she will review all the paperwork you provide. The auditor may ask a few clarification questions, but generally, she will work independently. When the auditor wraps up her time in your practice, the real work is just beginning. The auditor will send you her final list reflecting the patients that you will need to research and contact in order to complete a refund. You will be responsible to send a letter to these patients informing them that if they do not respond that their credit balance will be sent to the state. The patient has 30 days to respond to this letter. After this time period has passed, expect to communicate with the state again and either provide proof of a completed refund or send a check to the state for the total of all the refunds due. Conclusion If you ve been selected to go through an unclaimed funds audit, you re not alone. Dental practices are now on the radar of the state for this type of audit and the more prepared you can be, the smoother this process will go. Now that you know what to expect and how to run your reports, the key is to get started early doing the research into your accounts that have a credit balance. The cleaner your patient accounts, the shorter your list for the auditor and the less money you ll have to send to the state. 8