GP practices are busy places, with constantly evolving business processes, staff turnover and compliance issues to navigate. And like all busy businesses at some point errors or omissions unknowingly slip through the cracks. Over the last few months though, we have seen several recurring compliance issues in GP practices. And while often these overlooked issues are small, they do need attention now to ensure they don’t snowball into costly problems as your practice grows.
1. Overstated practice income
GP practices typically engage doctors who are running their own business as a consulting GP. They will then agree with the doctor on a service fee (paid as a percentage of the GP’s billings) for the use of the practice’s rooms, staff and systems. The key concept in this arrangement is that the GP is running their own business and they are providing services directly to patients via their own Medicare provider number.
Practices may receive the GP’s patient income as collection agent under the services agreement – however, this does not mean that these patient fees should be declared and shown as income of the practice. The revenue of the practice from these GPs is the Service or Management Fee collected.
To most practice owners and managers, this is no surprise and falls into accounting 101 for medical practices. However, we have been alarmed over recent months to have seen a number of practices reporting all GP (including non-employee GPs) income as sales and revenue of the practice. Presenting financial data in this way may risk the practice exposing themselves to additional taxation and obligations such as payroll tax, superannuation and employee entitlements. This may also trigger issues with incorrect Business Activity Statement reporting, reporting misleading practice income to lenders and ruling out access to small business tax relief in the future.
2. “Forgetting” the GST collected
In most cases, GP income is GST free. However, some services such as the provision of medical reports, and supplementary or cosmetic services will attract GST. The GST on these services provided by a GP to the patient should be reported as GST collected by that particular (non-employee) doctor – not by the practice.
We have seen many practices who don’t report GST collected correctly when providing billings reconciliations and paperwork to GPs. In turn, GPs are not correctly accounting and remitting GST in their own business BAS. On a per doctor, per fortnight basis the GST impact is likely to be small (which is why many practices do not account for it correctly!) however over a period of months to years and with many GPs this GST this mistake could be sizeable.
On a compliance level for the practice, if GST is not disclosed correctly to GPs, it is also possible that applicable GST is not being recorded at all. In this case, the practice is running the risk of retaining GST receipts which should have been remitted to the ATO.
3. Slack billing, receipting and bank reconciliation processes
Medicare billing and reporting of correct income and GST amounts is ultimately the provider GP’s responsibility. Although the practice may provide the administration in these areas under an agreement, this does not take away from the GP being the ultimate supplier and provider of services. Therefore, it is imperative that practices deal with recording and reconciliation of patient fees billed and cash collected to a high standard – not only for their own benefit but for that of their GPs.
Many GPs take little interest in the accuracy or processes around billing and receipt collection at the practice level – trusting that the practice has a methodical and accurate system in place for this. In reality, many practices are using generic accounts and lump sum clearing entries to manage their collections and align their bank account and accounting system to the practice management system. Often individual receipts or amounts due from Medicare or Health Funds cannot be traced should the need arise. Unexplained variances at the end of each month or quarter are the norm.
In the worst cases, cash collected from patients on behalf of a supplying GP has been used in the practice to fund practice expenses (such as petty cash, maintenance or staff amenities) and is never actually banked or accounted for correctly. With no check and balance in place, internal fraud is, unfortunately, a common business risk, leaving both GPs and practice owners unaware and out of pocket.
4. Nurses and support staff allowances missed
GP practices or their advisers need to be on top of the relevant awards for employees. In most cases, the Nurses Award and the Health Professional and Support Services Award 2010 will be relevant. Navigating through the levels and pay points for employees can be a challenge, and by the time the practice has completed this exercise, allowances are often forgotten.
Mandatory allowances are frequently overlooked – such as uniform allowances, on-call allowances, telephone allowances and meal allowances. Disgruntled employees not in receipt of their correct allowance payments have often been the cause of a workplace and payroll audit. Needless to say, disgruntled employees and audits are not a pleasurable experience for the practice or the wider team and should be avoided at all costs.
5. Missing records
This issue is not specific to medical practices, however, we do see that many practices do not have a systemised and streamlined system for maintaining evidence of expenditure. This can partly be because of the rise of cloud-based systems where bank accounts are directly linked to accounting software and often expenses are recorded form the bank account data rather than an invoice.
Additionally, it is quite common that the practice owner is the bill payer for the practice and the administration staff and practice managers may never actually see some of the bills or invoices coming through the practice. A reminder that in general records need to be kept for 5 years and can be kept in electronic format.
Address issues now.
If you suspect your practice could be lacking in one of these areas take steps to rectify this situation now. With modern accounting tools and automated technology, systems can be put in place to accurately reconcile and account for billings and GST collected on behalf of practice GPs – saving time and ensuring the integrity of the practice’s processes. If record keeping systems or employee entitlements need reviewing, take the time to talk to your adviser about getting up to date with best practice methods.