Minimizing Fraud in a Medical Practice
In today’s medical practice, physicians are being forced to accept
less for services they perform. This in turn reduces profit and ultimately
physician income. One way to help counter this “squeeze”
is to minimize intentional and unintentional cash drains to the practice.
Internal controls can protect a practice from revenue loss and potential
employee embezzlement.
This article discusses different forms of internal controls and why
they should be implemented in your practice. Although there is no guarantee
employee embezzlement, fraud or similar defalcations will be detected,
a practice can minimize these activities by implementing and monitoring
sound internal controls.
SEGREGATE JOB DUTIES
One primary internal control step is to divide selected job duties.
In most small medical practices this is a difficult task. However, there
are certain duties that must be segregated to create an environment
with effective internal controls. An individual should not be allowed
to both open the mail (i.e., initially handle the money) and post payments
to the computer. Dividing the two duties helps to prevent an employee
from stealing money from the practice and then manipulating patients’
accounts in the computer, usually by writing off the balances as contractual
adjustments or bad debts. In an ideal situation, one person opens the
mail, another prepares the deposit slip and a third posts the payment
to patients’ individual accounts in the computer.
FIDELITY BOND INSURANCE
Every medical practice regardless of the size should consider bonding
all personnel who will or may come into contact with money. Bonding,
most commonly known as fidelity bond insurance, is relatively inexpensive
and will reimburse the practice for embezzlement by office personnel.
This type of insurance also covers theft of practice funds by someone
other than an employee. For example, a staff member is taking the daily
deposit to the bank. Along the way he or she stops for another errand.
While away from his or her car, the car is stolen.
CONSENT OF PHYSICIAN FOR WRITEOFFS
A patient’s account balance should never be written off as a
bad debt without the written consent of a physician. This avoids the
situation where monies can be diverted away from the practice without
any kind of trail. The office manager should review patients’
accounts weekly and document activity. The physician should review all
patients’ accounts monthly. There should be an explanation for
all balances over 90 days describing what has transpired and future
plans.
DAILY RECONCILIATIONS & DEPOSITS
The sign-in sheet (beware of issues here due to HIPAA) and the appointment
schedule are good internal control tools. They should be compared to
the report of daily charges. This tool will assist in finding errors
as well as potential embezzlement. Also from an internal control standpoint,
the practice needs to make daily deposits so the corresponding reconciliations
can be performed. Daily deposits also reduce the possibility of lost
checks and problems related to having cash and/or checks in the office.
LOCKBOX DEPOSITS FOR MEDICAL PRACTICES
Lockboxes are a service provided by most financial institutions today.
They set up a mailing location for all cash receipts. Since the receipts
are received directly by the institution they become available more
quickly. The financial institution will provide a daily report to the
practice of who paid what and in some cases they will even provide a
copy of the checks received for the day to assist with proper recording
against patients’ records.
DIRECT TRANSMITTAL OF FUNDS BY PAYERS
Where possible, the practice should set up mechanisms to be able to
receive funds directly into their bank accounts from payers. In addition
to providing similar controls to a lockbox, staff time to post payments
will be reduced, to allow the staff more time to spend collecting.
PRENUMBERED PATIENTS’ ENCOUNTER FORMS
Controlling the charge tickets/patients’ encounter forms can
be done by pre-numbering and controlling the flow of the forms. A gap
in the numerical sequence may indicate an oversight in posting patient
services or some other problem.
MONITOR CONTRACTUAL ADJUSTMENTS FOR REASONABLENESS
Contractual adjustments should be segregated by category from other
bad debt expense. This makes monitoring the amount of adjustments within
each contract easier thus highlighting large variances.
ACCOUNTS PAYABLE
Mistakes and improprieties are not limited to cash receipts and billing.
Payables offer similar opportunities. The best way to control the outflow
of cash is to limit signing authority on checks to one or two physicians
and attach a vendor invoice to each check when it is signed. For checks
over a pre-set amount, two signatures should be required.
SUMMARY
Strong internal controls strengthen a practice’s record keeping.
Poor records aid embezzlement, fraud or mistakes. While implementing
internal controls does not guarantee there will not be mistakes or improprieties,
it does strengthen the practice’s ability to protect itself against
those types of losses.
Karl A. Jarek, CPA, ABV, CFS, is a Shareholder and member of the
Business Valuation/Litigation Support Group of Alpern Rosenthal. He
can be reached at 412.434.8204 or kjarek@alpern.com
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