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How to select a CPA firm; there's more to it than number-crunching.

There's more to it than number-crunching

Selecting an accounting firm is one of the critical decisions a long-term care administrator must make. Of all the advisors you hire, your CPA can have the greatest impact on your operation's financial condition.

Having worked as a facility's controller, and now as the consulting accountant for several long-term clients, I know how important it is for CPAs to know the industry as well as they know accounting and taxes.

Virtually every new state or federal long-term care regulation affects not just how the operation is run, but also how its cost reports, tax returns and financial statements are prepared.

In Connecticut, we've seen three different reimbursement systems introduced over the past three years. To further complicate matters, the Department of Income Maintenance, which administers Medicaid reimbursements, issues a steady stream of regulations that often conflict with those of other regulators.

For example, the State of Connecticut does not recognize the federal depreciation allowance under Internal Revenue Code Section 179. That means our clients have to use two depreciation methods: one for the state and one for the federal government.

If any of this sounds even remotely familiar, then you know that having the advice of a CPA who's familiar with these kindsofregulationscanhaveatremendous impact on your financial decision-making and, ultimately, your facility's overall performance.

Conducting Your Search

If you want an accountant firmly in place by the end of your fiscal year, start the search six months in advance, aiming for the engagement to begin three months before year-end. That way your new advisor will have enough time for the year-end planning, and to prepare government reports due at the end of the year.

When you're ready to solicit bids, try to obtain at least three but not more than six proposals. If you're looking for firms with long-term care expertise, contact other facilities in the area or your local industry association for some recommendations.

When requesting a proposal, be prepared to provide the following information so that the accounting firms can make accurate estimates:

1. A list of required services, such as

preparation of financial statements, cost

reports, tax returns, etc.

2. The most recent Medicaid (Title XIX)

Cost Report.

3. If a skilled facility, the previous year's

Medicare (Title XVIII) Cost Report.

4. Prior year's state tax return.

5. Prior year's federal tax return.

6. Financial statements: the prior year's

and most recent interim report.

Fees and Charges

Ask the bidders to indicate which services will be furnished on a fixed-fee basis and which will be billed hourly. For projects billed on an hourly basis, ask for an estimate of the time required to complete each project.

Usually, a firm will quote a fixed amount to prepare financial statements, and charge hourly or flat fees for tax returns and cost reports.

Since it's often difficult for both parties to estimate how much time a new engagement will ultimately take, you could ask for a range of total costs for the year.

If you're not sure whether quoted rates fall within the ranges for your geographic area, check with your state's CPA association. The average 120-bed facility in your area incurs between $10,000 and $20,000 a year for all accounting services.

Any firm that prepares your financial statements and tax returns should be prepared to support you during an audit by a government agency. There is, however, usually an additional fee for those services.

Your accountant should be able to provide financial statements as often as you need them. The frequency depends on your needs, which are determined by the size of your organization and the requirements of your lender, board of directors and state government.

Types of Accounting Firms

CPAs may be part of a one or two-person practice, members of medium-sized regional firms, or affiliated with much larger national firms (also called the "Big Six"). Which type of firm is best? It all depends on your financial needs, the facility's size, and its ownership structure.

An independent, family-owned operation might do very well with a small CPA firm that handles basic accounting and tax needs. It's unlikely, however, that this type of firm would have extensive knowledge of the industry, or be able to prepare Medicaid and Medicare cost reports.

Under these circumstances, some facilities engage the services of reimbursement specialty firms to prepare their government cost reports. If you opt for that kind of arrangement, make sure your accountant and reimbursement firm work together closely. Specifically, the accountant will need to supply your tax depreciation schedules and reconcile these to your cost reporting, especially since some states have regulations affecting this. Connecticut's Medicaid agency, for example, does not recognize the depreciation figures used in tax accounting. The CPA will help you sort through the bureaucratic tangles.

Larger facilities and those in closely held chains are often well-served by regional accounting firms with 50-100 members. Here's where you're more likely to find long-term care specialists and a wider array of services.

Publicly owned chains typically need the services of large national CPA firms. Some may use a national firm to prepare the published financial statements and corporate tax returns, and a local or regional firm to service their individual facilities.

What Kind Of Service Should

You Expect?

Most regional and national accounting firms assign a team of professionals led by a partner to service each account. When you're ready to meet with your prospective CPAs, invite the whole team so you can discuss who does what and whom you should call about specific issues.

Try to get a sense of the partner's availability, if that's important to you, and how much nursing home expertise the partner and other team members bring to the table.

In the interview, discuss how they will perform the engagement and how much time they will need to spend with your staff. The accountants shouldn't simply pick up the ledgers and crunch the numbers back at the office. For example, I like to get a feel for the financial staff's job duties, staffers' efficiency, how receivable? billing is handled and methods used in compiling the general ledger. Not only does this give the CPA more detailed feedback, but it gives the owner or administrator the satisfying sense that the CPA is "on the job."

Finally, ask the firms you interview for suggestions on how to increase reimbursements, or to cut expenses and taxes. Identify those answers that match your business philosophy.

Optional Services to Consider

Given the Medicare requirement that long-term care facilities automate their billings, it's imperative that a CPA firm be computer-literate. If you're not computerized yet, your accountant may be able to help you automate accounting, billing and other financial functions.

Because so many facilities are family-owned businesses, another special service worthconsidefingishelpingownersgrapple with special problems when it's time to pass the business on to their heirs. Without proper estate planning, the value of a privately-owned facility could be subject to estate taxes approaching 55%. What's more, every time there's a change in ownership, a comprehensive inspection ensues that could result in costly renovations by the new owner.

Estate planning is usually available from regional-sized firms on up. Perhaps a smaller firm, if you prefer to work with one, might be able to recommend a firm to handle this for you.

The Decision

To help facilitate the selection process, rank your service and cost priorities, and then rate each firm accordingly. Include interpersonal skills, but don't give that category too much weight. Otherwise you may end up with a great conversationalist who can't get your reports out on time.

Be sure to get input from the staff members who will work closely with the CPA. And schedule quarterly reviews to make sure the engagement is proceeding as planned.

As with any major investment, you'll have to balance cost, quality and service. But by having a clear idea of which clement is most important to you, you'll have a better chance of making the decision that's right for you.

TIPS ON SELECTING A CPA

1. Start well in advance of the fiscal

year-end.

2. Talk to other facility owners and

administrators for references.

3. Select 3 to 6 firms for bids.

4. Make a list of required services.

5. interview selected firm teams.

6. Weigh service priorities and rate

each firm accordingly.
COPYRIGHT 1992 Medquest Communications, LLC
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:certified public accounting firm search by long-term care facilities
Author:Day, Roberta A.
Publication:Nursing Homes
Date:Nov 1, 1992
Words:1388
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