You have, no doubt, heard the story about the quiet, loyal employee with many years of service to the business who one day sends his boss a postcard from Rio de Janiero, saying that he’s not coming back. Then the owner discovers that a large amount from accounts receivable is missing.
In a situation such as that, the chances are good that the basic control, reporting, and accountability standards that are in place in almost every other business were not in place in that medical imaging office. As a result, there is a greater potential for embezzlement and theft.
Lori Laubach, CPA, is a health care partner at Moss-Adams, LLP, an accounting firm headquartered in Seattle. At the Fall Educational Conference of the RBMA in San Antonio, Laubach presented Top 10 Control Items to Score and Manage Your Practice, during which she offered basic guidelines for holding the cash-management departments accountable in order to avoid fraud.
“This occurs most often in practices where there is a shortage of people or a lack of business knowledge.”
—Lori Laubach, CPA, health care partner Moss-Adams, LLP, Seattle
Laubach’s top 10 areas of financial control and management to help a practice avoid embezzlement and theft follow.
First, accounts receivable: Laubach observes that accounts receivable are often not on the financial statements due to cash-basis reporting, that there is very little reconciliation of items on the financial statements to billing-system reports, and that data from billing-systems reports are restated and can be skewed.
Second, cash receipts: Some of the red flags here are checks that are not restrictively endorsed when received or prior to posting; cash receipts that are stamped periodically throughout the day (and, sometimes, not until the end of day when the deposit is created); and out-of-balance monies that are obtained from the over/short fund, with no record of the imbalance in the general ledger.
Third, charge capture: Here, key issues include old, nonupdated fee schedules; missing fee ticket reports that are not cleared; no ability to track missing tickets or charges; and a lack of understanding of the impact of the conversion factor on reimbursement.
Fourth, cash disbursements: Many practices suffer from not knowing or controlling costs, from the lack of a documented purchasing policy, from using a signature stamp on all checks written, from having bank statements delivered directly to the person who is also responsible for reconciling cash, from lack of a vendor-approval process, from having credit cards that are used inappropriately, and from having no formal process for employee reimbursements.
Fifth, refunds: There is no record kept of original patient or insurance checks returned because the business office has determined the checks to be duplicates; unidentified payments are kept in the safe until resolved, but there is no log or system to ensure that they are being pursued; and uncashed refund checks are voided.
Sixth, collections: Many offices fail to create a defined policy and process related to the timing of sending patient accounts to collections. In addition, there are no financial arrangements with patients, there are no alternative means determined for collections, there is no financial hardship policy, and payment plans do not match the dollar amount of the service.
Seventh, follow-up actions: Often, denials are not posted to the billing system or tracked, or are not followed up on a timely basis. There also are issues of duplicate claims filed and changes to items on claims that are paid with no trail.
Eighth, front desk: At the point of entry to the practice, several mistakes are common. Copayments are not posted to the system when the patient checks in, the cash-receipt processes are too cumbersome, there is no scanning of insurance cards or drivers licenses, the cash drawers are unlocked or not fireproof, and the credit-card machine is not closed out properly
Ninth, payroll: Problems include a lack of segregation of duties for setting up new employees and payroll processing; lack of direct deposit; employees not being required to take annual vacations; paid time off (PTO) or vacation balances that are incorrect; and email being consistently used as a method of approval for things such as payroll changes, PTO approvals, and pay advances.
Tenth, general month-end accounting: Some staff members are unable to understand and communicate financial results, there are inaccurate