webinar discusses safeguarding your practice with financial controls
DESCRIPTION
Financial Controls—consider them a security system for your medical practice. With the correct internal controls in place, your practice can better protect its assets and minimize the risk of loss from errors, lawsuits, and fraud. “Medical Practice Financial Controls…or Lack Thereof” was the topic of a recent National Association of Certified Valuators and Analysts (NACVA) Consultants Training Institute (CTI) webinar presented by PYA Principal Lori Foley and Senior Manager Tynan Olechny.TRANSCRIPT
Medical Practice Financial Controls
(or Lack Thereof)
Page 2November 12, 2013
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© 2013 National Association of Certified Valuators and Analysts
Medical Practice Financial Controls
(or Lack Thereof)
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This Practice isProtected
by “Financial Controls”
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What Are Internal Controls?
Methods and procedures used to:
• Prevent, detect errors
• Encourage adherence to policies
• Safeguard against misappropriation
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Internal Controls Protect Practice Assets
Reduce the risk of loss from:
• Errors
• Lawsuits
• Fraud
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Internal Controls Protect From:
Too Busy Risk of Errors
Misfiled
Miscount Forgot
Lost
Mistyped
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Internal Controls Protect From:
Government Risk of Lawsuits
Patients
Partners Employees
Managed Care Companies
Suppliers
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Risk of Fraud
$5.3 trillion annually
Median loss of $140,000
Small companies most vulnerable
Physician practices often targeted
1
2
3
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Source: Association of Certified Fraud Examiners.
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• Desperate people do desperate things
• Regulatory requirements
• Competition
• Rapid changes
• Need for capital
• Complex transactions or structure
• Absentee owners
Fraud Risks
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The Practice is Often at Fault…• No (weak) internal control policies, procedures
• Trust
• Conflict avoidance
• No time, energy, resources
• Complex business environment
• Failure to prosecute
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Who Commits Fraud?
42%
38%
18%
3%
EmployeeManagerOwnerOther
Source: Association of Certified Fraud Examiners.
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How Fraud Occurs
• Poor internal controls
• Management override
• 3rd party collusion
• Other – 2%
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Fraud Techniques
Theft of cash or inventory‒ Taking co-pays or petty cash‒ Taking equipment or supplies
Using company checks or credit cards for personal items
Theft of blank checks or credit
False employee or vendor Creation of a false
employee or vendor for monthly payment
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How Frauds Are Discovered
• Internal controls work• Falling out among thieves• Disgruntled associate• Observant patient,
supplier• Accident
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Red Flags
• Personal financial pressure• Vices• Extravagant lifestyle• Real or imagined grievances against
the company or management• Increased personal stress
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More Red Flags
• Management pressure• Short vacations, unexplained hours• Overly neat, territorial• General lack of ethics• Unusually close vendor relationships
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The Triangle of Fraud
“I was just trying to save the company.”“If I only could have gotten the bank loan, everything would have been fine.”
Need
Opportunity Rationalization
Source: Sage Investigations, LLC.
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Situational Fraud
Always: 5% to 10%
Never: 5% to 10%
Situation Arises: 80% to 90%
Situational Fraud
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Myths Surrounding FraudFraud is most often committed by people who have done it before.
Long-term employees will not commit fraud.
Employers (physicians) are good judges of character and understand their employees.
Myths
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More Myths CPAs can be relied upon to discover fraud.
Checks made out to banks or companies cannot be converted to personal use by third parties.
Losses due to fraud are covered by insurance.
Myths
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Factors of Effective Compliance• Internal control policies, procedures
• High-level person responsible for monitoring
• Do not give authority to persons you know or should have known had propensity
• Communicate the policies and procedures
• Reasonable steps to achieve compliance
• Respond appropriately
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Internal Control Procedures
Involvement
Checks and balances
Segregation of duties
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Internal Control System Should Be...
Organized Documented
Communicated
Cost effective
10 Key Questions
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Question 11. Does the practice know
the typical daily, weekly, and monthly volume of the practice, and do they promptly investigate any material deviations?
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Question 22. Are charge slips, cash receipt slips,
and checks pre-numbered, controlled, and accounted for, including voids? Are blank documents stored safely and is access limited?
Sally “loses” her friend’s charge ticket.No charge = No write off = No money
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Question 33. Are cash-related duties
appropriately segregatedamong staff members?
Recordkeeping vs. custody vs. approval
• Who opens the mail?• Who posts payments?• Who does the bank reconciliation?• Who reviews the payroll journal?
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Question 44. Are accounting records, including
charge posting, payroll reports, and bank reconciliations, kept up-to-date and balanced daily and monthly?
• Monthly day sheet reconciliation
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Question 55. Does the practice restrict check
signature authority to physician owners only, insist on personal signature instead of a signature stamp, and inspect back-up invoices before signing checks?
• All parts of the check are complete; original invoice approved and canceled; packing slip attached; expenditure is reasonable.
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Question 66. Are all checks stamped with
the practice’s “For Deposit Only” endorsement stamp immediately upon receipt? Are un-deposited checks stored in a safe place pending deposit?
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Question 77. Are all employees required
to take annual vacations? Is there a back-up person for all positions?
• Big bus theory
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Question 88. Are all contractual adjustments,
patient refunds, and non-contractual write-offs approved or monitored by an authorized supervisor?
• Ignorance? Innocent mistake? Deliberate?
Sally’s friend incurs $3,500 in patient responsible services. Sally’s choices:
Put friend through normal collection procedures.Write friend’s balance down to zero.
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Question 99. Does the practice check the
references of new hires carefully and screen candidates and current employees regularly for exclusion from or sanctions by Medicare and other federal programs? Does the practice obtain a background check/credit report?
• www.exclusions.oig.hhs.gov• www.sam.gov
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Question 1010. Does the practice use the “sentinel”
effect? Occasionally sample postings, review the general ledger, inspect reconciliations, check the cash drawer, and ask questions?
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Conclusion
Embezzlement opportunities are plentiful and practices ripe for the picking!
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Thank You!Lori A. Foley, CMA, PHR, CMM
Tynan P. Olechny, MBA/MPH, [email protected]
PYA GatesMoore3424 Peachtree Rd N.E., Suite 700
Atlanta, GA 30326(404) 266-9876
www.pyagatesmoore.com