A financial process is similar to an assembly line with multiple steps. Any initiative to consolidate on a single platform or to increase volume will have implications for the staff at the end of the assembly line, typically the accountants, treasury, or billing departments, whose task is to confirm that all the steps in the assembly line are complete and correct. With labor at a premium, how does one manage increasing volume without adding staff?
The retail industry is a leader in this area, and healthcare providers can benefit from their knowledge. How do Target, Sears, and Radio Shack, each with hundreds of stores, handle many thousands of payment transactions? They do not have rooms of clerks, manually comparing sales data with bank deposits. They use automated reconciliation software to manage the task.
Exhibit 1 shows a schematic of a reconciliation. The business purpose is to reconcile expected bank deposits (left side of diagram, where the data are obtained internally from a billing system or point-of-sale system) with the actual bank deposits (right side). There could be as few as two files to compare or many more. These files are loaded into the reconciliation software, which employs user-specified business rules to match data from differing files.
Other possible reconciliations include:
- Payroll check data from payroll software to paid payroll checks from bank
- Checks issued by accounts payable to checks paid at bank
- Charges from radiology system to charges successfully loaded in billing system
Common characteristics of automated reconciliation software include:
- Ability to input multiple files from different sources
- Ability to compare data within the files to identify common items
- Business rules that govern how to reconcile items and how to handle exceptions
- Output in either report or file formats (for example, to load data to general ledger)
- Tools for automating research of exception items, such as a computerized e-mail to a department to describe a discrepancy and ask for explanation (see Exhibit 2).
The last characteristic, use of e-mails, serves two purposes: to ask the office for an explanation of a difference, and to make office personnel aware that corporate staff have noticed the delay or error. Over time, compliance and accuracy improve because of the constant feedback and monitoring.
The University of Pittsburgh Medical Center has used automated reconciliation software for the past four years, allowing staff to be reduced from five to three FTEs who reconcile expected receipts to confirmed bank deposits. During this period, the volume of payments collected per month has grown from 75,000 payments per month to 113,000 payments per month. Deposits are made from more than 500 locations, using multiple banks. Because headquarters follows up daily on missing deposits, physician and hospital locations make deposits more promptly, thereby improving cash flow. Losses have been reduced. Compliance with the Sarbanes-Oxley audit process is easy to demonstrate.
The multiple applications possible with this type of software make it a valuable tool in a quality accounting and audit process.
Linda Zang is assistant treasurer, University of Pittsburgh Medical Center, Pittsburgh, and a member of HFMA's Western Pennsylvania Chapter (email@example.com).
Publication Date: Tuesday, July 01, 2008