PE diligence finds banking problems before lawyers do. They open the bank portal first. They look for things you've stopped seeing.

Here are the six red flags that turn a 30-day diligence into a 90-day mess. Each one has killed deals. Each one is fixable in a quarter if you start now.

What Auditors Actually Look For

Auditors care about three things in MSO-PC banking:

• Money stayed in its lane (PC first, then MSO via documented fee)

• Signers match the entity (clinician on PC, manager on MSO)

• Records back up every transfer

If any of those break, the rest is paperwork. Audit teams aren't trying to catch you. They're verifying what your model claims, and the bank is the easiest place to check both at once.

Red Flag 1: Commingled Accounts

Patient checks deposited into the MSO account. Payer EFTs hitting an account in the wrong PC's name. A "joint" operating account holding funds from two PCs.

This is fee-splitting at the bank level. Most state medical boards treat it as a felony. PE will pause the deal until it's unwound.

Fix: separate accounts per entity. No exceptions.

Red Flag 2: Missing MSA Paper Trail

The PC paid the MSO $500K last year. Cool. Where's the invoice? Where's the rate card? Where's the methodology?

If you can't show the math, the IRS calls it disguised distribution. State boards call it self-dealing.

Fix: every management fee transfer references an MSA line item. Every quarter has a reconciliation memo.

Red Flag 3: Off-Pattern Management Fees

Round numbers every month. Big spikes in December. Fees that don't track collections.

If it doesn't look like the MSA promised, auditors assume the MSA isn't real.

Fix: tie fees to actual cost-plus or percentage-of-collections schedules. Document any one-time true-ups.

Red Flag 4: Signers in the Wrong Place

A non-clinician signing checks on the PC account. A managing physician signing for the MSO. Cross-entity signing authority.

This is the fastest way to fail a CPOM check. Signers are how auditors read corporate intent.

Fix: PC signers are clinicians. MSO signers are managers. No overlap.

Red Flag 5: One Bank Login for Everything

A single login that gets all entities, with full access for every user. No per-entity permissions. No audit trail.

Auditors call this "no segregation of duties." PE diligence calls it a control gap.

Fix: per-entity logins, role-based access, immutable audit logs.

Red Flag 6: A Bank That Can't Explain Sweeps

You have $4M in cash. Your treasurer can't tell you which entity holds what or where the FDIC ceiling lands. The bank can't either.

This isn't paranoid. It's the question every diligence pack asks first.

Fix: a bank that ships per-entity FDIC reports and sweep documentation.

Fix This Before Diligence

Three things to do this quarter:

1. Pull every account statement and tag the entity

2. Reconcile management fees to MSA terms, line by line

3. Confirm signer authority on every account

If you can't do this in a day, your bank is the problem. Lemma's multi-entity dashboard does it in an afternoon.

Diligence problems aren't found at the deal table. They're found in the bank portal. Fix the portal first.