What Not To Do: Credit Balance Edition

Collecting payment for goods or services provided is such an essential function in a company that there are teams of people devoted to it. A well functioning accounts receivable team is critical for a company's success. With the focus on collecting money, what happens when too much comes in? In other words, what does a company do with credit balances on its books?

Companies are generally reluctant to part with any money that they have collected even if they are not legally entitled to it. While the specifics and many exceptions are governed by a wide range of laws, regulations and contracts, generally a company should work to return credit balances to the customer or payee or report them as unclaimed property.

One dental practice in New Jersey and Pennsylvania is now a story of what not to do with credit balances. Allied Dental Practices of New Jersey just settled a whistleblower lawsuit that said the practice had wiped out credit balances on patient accounts. All told, the dental practice wiped out approximately $173,000 in credit balances. Some of these balances should have been returned to Medicare and Medicaid. The dental practice will now pay $200,000 to US and New Jersey for the Medicaid and Medicare balances, $75,000 to the New Jersey Unclaimed Property Office, and $87,500 to the whistleblower, a former employee of the dental practice. The total payments will more than double the credit balances wiped out by the firm. The actions shed bad light on a company which may cause current customers to go to other providers and may also put in jeopardy future Medicare and Medicaid contracts.

In addition to possible whistleblower lawsuits, companies can also be subject to unclaimed property audits. During an audit, the burden of proof is generally on the holder to prove that a credit balance is not unclaimed property. One of the first questions on an accounts receivable audit is whether the company has or had a history of write-offs for credit balances. Can you show that each write-off was justified?

Barganier and Associates has unique solutions to help companies both before and during an unclaimed property audit to minimize unclaimed property from accounts receivable credit balances. Contact us today if your company may be at risk of large assessments, penalties and interest from improper handling of credit balances.

See Also:
Overreaching State Authority in Unclaimed Property Audits
How Reporting Unclaimed Property Can Help Your Company
UP 101: Small Amounts are Reportable as Unclaimed Property