Six Ideas to Help Improve Internal Control Processes within Your Practice

By Bob Galiszewski, CPA and Cory Chaney, Senior Accountant

WHILE OPERATING A practice, a physician is forced to delegate duties to trustworthy employees. Sometimes, this trust is not warranted and the temptation to take something knocks down the protective walls of honesty. A good adage to keep in mind is that fraud is typically committed by someone we would normally trust. Understanding how and why fraud occurs can help you prevent it.

There are three major reasons that individuals commit fraud:

_ Pressure – pressures from an employee’s personal life, such as financial need, debt, lifestyle or gambling addictions, can be the driving force behind these acts,

_ Opportunity – the employee works in an environment where his or her work goes unchecked due to the stress of the day, time constraints or negligence; exceptions are frequently made by various employees for a variety of reasons and often go unnoticed. The organization lacks proper segregation of duties and adequate checks and balances, so that errors in accounting are often undetected.

_ Rationalization- employees believe that their actions are warranted in some way. They may say to themselves, “I’ll pay it back,” “They won’t miss it,” “I’m underpaid” or “I didn’t get a raise from my last review.”

Medical practices in today’s economy are constantly facing reductions in reimbursement and other outside factors that affect revenue generation. The last thing a practice needs is to suffer additional losses due to internal fraud. A practice can reduce the potential for fraud by recognizing the reasons why employees may commit fraud and by immediately establishing and maintaining an environment where all employees from the top down are in compliance.

The most common ways that employee dishonesty or fraud occurs is paying fictitious invoices or absconding with receipts of the business and marking accounts paid. To prevent these types of fraud, we recommend the following steps:

  1. The bank statement should be received unopened each month by a trustworthy employee, or preferably the physician. This individual should not have any responsibility for maintaining the accounting records, paying bills, billing, etc. When the statement is received, the physician or designated employee should carefully review the signatures on the checks for any improprieties or forgeries. Physicians should also look at the payees to ensure these are vendors with whom your business is dealing. Another precaution you should take is to watch for double endorsements on canceled checks, which could be a sign that funds have been diverted from the original intended payee. A reputable business is not going to co-endorse their checks.
  2.  All incoming mail, especially the payments on account, should be opened and received by an individual who has no accounting, billing or bookkeeping duties. All posting to accounts receivable records should be done by reports generated from the deposit slips or the actual deposit slips themselves. If someone is going to abscond with cash, they will mark an open account as paid and divert the payment. Do not make the mistake of thinking that, because the customer is issuing a check to your business, these funds cannot be diverted. Horror stories abound about individuals who have opened up corporate accounts with falsified documents.  Banks will open up an account with a board of director’s resolution and financial paperwork. Both of these can be falsified.
  3. Spot check any voids or credits to your accounts receivable records and ensure that these were properly authorized and warranted. In the medical profession, there are substantial write downs. You should receive a report of these monthly
  4. Pay careful attention to sales returns and voids of the medical supply sales. This is a common way that a dishonest employee can pocket supplies.
  5.  On a monthly basis, review reports that show accounts receivable aging, services by procedure, checks made to cash, and miscellaneous and voided checks.
  6.  Carefully inspect what you sign or pay. “Rubber stamping” or signing documents without thought creates a temptation for your staff.

The above suggestions can be easily implemented to improve your practice’s internal control processes – and your bottom line!


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