Billing and Collections Audit
Test Step
I. Planning
1. Send auditee a pre-audit letter, which should include scope, approach and timing of the audit and
detailed document request.
2. Review any known best practices either from the internet or other sources.
3. Review any prior audit work for this area. Inquire about any prior recommendations that could be
pertinent to this review.
4. Obtain and review policy and procedures for this area.
5. Obtain organization chart pertinent to this review.
6. Conduct a planning meeting to discuss scope, approach and timing with the auditee.
7. Obtain the following:
 Authorization list and levels for adjustments and write-offs
 AR summary aging report by payor for most recent completed month
 AR detail by payor, i.e., Medicare, Medi-Cal, Self-pay, commercial
8. One month prior to fieldwork, send any self-assessment materials to applicable personnel.
II. Field Work
1. Conduct entrance meeting. Restate the scope and timing of the audit. Establish a schedule for status
meetings and communication protocol. Provide customer satisfaction form and discuss expectations.
2. Determine sample and obtain the following for testing:
 Daily receipts/collections report (sample 5 days). Select 2 patient payments each day, for a total of
10 payments. Test receipts to patient account to ensure proper posting.
 Denied claims report. Test a sample of 10 denied claims.
(a) Determine reason for denial.
(b) What are follow-up procedures?
(c) Include evaluation of admission and registration process to ensure accurate information
relating to insurance is being collected and routinely verified.
(d) Are co-payments routinely collected?
(e) Do services have required authorizations?
 Listing of re-billed accounts – review procedures
 Adjustments report. For a sample of 10 adjustments, review appropriateness and approvals.
 Listing of patient refunds. For a sample of 10, review procedures and ensure approval and
appropriateness.
 Credit balance report, test sample of 10 for follow-up, resolution and compliance with procedures
 Bad debt listing. Inquire to determine a process exists for appropriate reserves.
3. Review the AR aging; consider old items, i.e., >360 days.
(A) Test a sample of 10 patient accounts to determine adequacy of follow-up efforts.
(B) Ensure >360 day AR is in accordance with industry standard.
4. Gain an understanding of procedures for account processing: charges, payments, adjustments,
contractual allowances.
5. Determine if processes are in place and adequate for:
 Billing and follow-up on outstanding balances
 Identifying and applying adjustments, write-offs and charity
 Proper authorization of adjustments, write-offs and charity write-offs
 Internal controls are in place throughout the process
 Proper segregation of duties exists, i.e., posting of payments, adjustments, refunds
6. Evaluate billers’ understanding of billing requirements, i.e., to ensure compliance and complete and
accurate bills so that denials and underpayments are minimized
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Billing and Collections Audit
7. Contracts, contract matrix – Does Business Office have current contracts? Evaluate staff
understanding of contract terms, i.e., to ensure compliance and identify underpayments by insurance
companies on a timely basis. Test sample of 10 accounts to contract matrix for accuracy.
8. Collection Agency Report; review compliance with P&P, what is process for monitoring collection
agency performance?
III. Final
1. Reporting – Draft
 Prepare preliminary draft of the audit report using the standard format.
2. Reporting – Issuing draft
Issue preliminary report to management for their comments, and for their determination of action-item
implementation timing and who will be responsible for the implementation.
3. Clearly set the deadline for management’s response.
4. Validate the accuracy of the report. (Note: There should always be open communication between
audit team and auditee so there are no surprises at the end.
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