The best practices that safeguard your dental practice’s profits
Designed to prevent fraud and identify errors and irregularities, internal control procedures are policies and processes that are implemented to ensure the ongoing reliability and accuracy you need. Remaining in control of your dental practice’s financial outcomes by mitigating risks increases your likelihood of hitting your objectives.
Establishing internal controls and further supporting them through a robust spend management solution puts you in the driver’s seat, helping you pinpoint possible problems before they become actual problems.
Below we list the seven risk-reducing internal control procedures you should consider for the safety of your practice.
1. Authorization Requirements
Requiring that specific transactions such as issuing of a purchase order or that payment be authorized by a particular manager or set of managers adds a layer of protection against errors, poor judgment, and fraud. Approval requirements should commensurate with the significance of the transaction and are typically set by dollar amount. Before approving, authorized persons should perform a thorough review of the transaction and supporting documentation to validate their accuracy and validity.
To ensure adherence and efficiency, delegations of signing authority and authorization requirements should be managed digitally and further documented in writing.
2. Physical Audits of On-Hand Inventory and Assets
Physical audits of your on-hand inventory and assets include counting by-hand dental supplies, office supplies, instruments, small and capital equipment or any other assets that are tracked in your accounting or procurement management system. The frequency of counts is dependent on the item, value, necessity to production, and regularity of use.
Ensuring regular counts allows you to discover accounting discrepancies as soon as possible, allowing you to mitigate the risks of causing a stockout and affecting production rates and service levels. However, we always believe in keeping it real, and we understand the challenges faced by dental offices in doing so. Scanning barcodes on boxes as they are pulled from stock rooms or relying on a Kanban process to signal timely purchases are potential workarounds we can help clients to establish.
3. Periodic Reconciliations
Periodically reconciling the account balances in your accounting systems against the account holder’s balance, such as banks or suppliers. The process uncovers errors on the side of either party, thereby validating the reliability of your data and the efficacy of your processes and controls.
Consider which of your supplies are either physically secured or given limited access to through written policy. Although it may be unrealistic to keep all of your dental supplies under lock and key, you need to ensure the safety of your assets while not impeding work. Nor do you want to create a feeling of distrust. However, despite how much you trust your employees, the possibility of theft must be considered.
Theft aside, however, the more people who have access to your supplies, the less accountability there is, causing your stock shelves to very quickly become disorganized and chaotic. This can lead to items going missing or unfound as well as possibly incur damage. Additionally, the lack of using the First In First Out (FIFO) method due to disorganization can cause unusable expired inventory to be taken as a financial loss.
5. Segregation of Duties (SOD)
Also referred to as the separation of duties, SOD involves distributing responsibilities to eliminate or lessen the potential for fraud. As an example, avoid having one team member in your practice do both the purchasing and the receiving. Other risk-mitigating actions may be taken in offices with a small employee base where the splitting of tasks may not be possible. For more on SOD, the risks, and deterrent actions, see Segregation of Duties, The Best Practice that Safeguards Your Practice.
6. Standardized Documents and Procedures
Standardizing documents used for financial transactions or within the procurement cycle, such as requests for quotes (RFQs), Purchase Orders (PO’s), and invoices, allows for consistent record-keeping and more digestible data. A lack of standardization can cause transactions to be missed or misinterpreted when reviewing past transaction records. This allows for standardized processes such as the three-way-match, which ensures validation of data before payments being issued and eases the finding of discrepancies. It also facilitates the gathering of historical data that can then be used to inform decision making.
To aid in training and promote consistent adoption of policies and procedures, as well as ensure clarification of responsibilities, when at all possible, it is best to ensure they are formally documented, including an ethical procurement policy, purchasing, and inventory control procedures.
7. System Access Controls
Controlling access to electronic processes and information via password requirements or lockouts restricts unauthorized employees from performing functions or accessing information that does not fall under their authorization level. It also brings the additional benefit of easing the audit process when looking for the root cause of any errors or discrepancies.
Method was explicitly designed for the dental industry, with the internal control procedures at the core of its functionality. These preventative measures are designed to safeguard your assets, protect you from fraud or theft while promoting effective and efficient practices. Accurate records and reliable financial reporting is the epicenter of good business management, allowing dental practice owners to rest assured and get on with putting smiles on your patient’s faces.
Contact us today to schedule a demo and see how our software can help you effectively control your dental purchasing processes!