Review and
Implementation
Of Practice Internal Controls
Is there a fraudster in your practice?
An embezzler or other workplace fraud
perpetrator will often display certain
telltale red flags. One of the many charts
included in the "2008 Report to the Nation
on Occupational Fraud & Abuse," published
by the Association of Certified Fraud
Examiners, includes the following listing of
these behavioral indicators:
Behavioral Indicators
• Living beyond means (370 cases; 38.6% of 959
total cases in the study)
• Financial difficulties (327; 34.1%)
• Wheeler-dealer attitude (195; 20.3%)
• Control issues, unwillingness to share duties (179;
18.7%)
• Divorce/family problems (164; 17.1%)
• Unusually close association with vendor/customer
(146; 15.2%)
Behavioral Indicators
• Irritability, suspiciousness, or defensiveness (130;
13.6%)
• Addiction problems (128; 13.3%)
• Past legal problems (83 cases; 8.7%)
• Past employment-related problems (76; 7.9%)
• Complaining about inadequate pay (70; 7.3%)
• Refusal to take vacations (65; 6.8%)
Behavioral Indicators
• Excessive pressure from within the
organization (62; 6.5%)
• Instability in life circumstances (47; 4.9%)
• Excessive family/peer pressure for success
(40; 4.2%)
• Complaining about lack of authority (35;
3.6%)
Basic Internal Controls You Must Have
• Division of Job Duties
• Mandatory Vacation Leave
• Employee Bonding
– Issue: Must File Police Report in Order to
Collection on Insurance
Weak Spots
Front Desk
Billing/Collection
Accounts Payable
Management
The Front Desk
Front Desk
• Areas of Concern/How They Do It
– Stealing of Copayments
– Stealing at Time of Checkout
– Petty Cash
• Controls You Need
– Daily Reconciliation
– Review Missing Ticket Report (Accounting for
All Charge Tickets)
– Have a Silent Monitor
Billing/Collection
The Business Office
Billing/Collection
• Areas of Concern/How They Do It
– Stealing Insurance Payments
– Stealing Patient Payments
– Petty Cash
• Controls You Need
– Get a Lockbox
– Segregate Duties
– Reconcile Daily Postings to Daily Deposits
– No Charge Write offs Without Consent
Billing/Collection
• Controls You Need
– Compare F/S to Monthly Receipt Posting
– Can System Block a 100% Write Off?
– Data Mine for 100% Write Offs
– Monitor Contractual Adjustments
– Monitor Bad Debt Write Offs
– Keep Eye on Employee Lifestyle Changes –
Both Ways
Accounts
Payable
Accounts Payable
• Areas of Concern/How They Do It
– Using Fake Vendors
– Writing Checks for Personal Use
– Unauthorized Credit Card Charges
– Paying Fake Overtime with Kickbacks
– Dummy Patient Refunds
– Disbursements with “Explanation” of Business
Use
– Employees Clocking Each Other Out
– “Working” Through Lunch/After Hours
Accounts Payable
Controls You Need
– Do Not Use a Signature Stamp
– Independent Preparation of Bank Rec.
– Independent Review of Bank Statement
– Limiting Check Signing Authority
– Periodic Review of Endorsements
– Compare Cancelled Check Payee to Disbursement
Listing
– Matching Purchase Orders with Invoices
– Ongoing Review of General Ledger
– Monitoring of Practice Overhead
– Review Overtime Reports
Review of Sample
Internal Control
Checklist
An Actual
Embezzlement
Case Study
Practice Overview
• 5 Physician Surgery Practice
• Practice Conducted Monthly Management
Meetings
• Administrator of Over 8 Years Accepts Another
Job Position
• Administrator Handled All Business Aspects;
Physicians Practiced Medicine
• New Administrator Hired
• New Administrator Embezzled Approx. Six
Figures
Lessons Learned
• Take Your Time Interviewing
– Conduct Extensive Background Checks
– If Candidates Are Unacceptable, Wait to Hire!!
• Engage Interim Management
• Physician Quarterly Bonus Pool Dwindled
to Nothing
– Was a Warning Sign
– Administrator’s Explanations Were Not
Challenged nor Investigated
Lessons Learned
• CPA Kept at Arms – Length
– Information Not Flowing to CPA on a Timely
Basis
– Administrator Questioning Why CPA
Performed Certain Duties
– Administrator Tried to Replace CPA With His
CPA
– The Real Lesson Here: Never ASS[U]ME!!
• Never Use a Signature Stamp in the Office
Lessons Learned
• Implement Better Controls Over The Office
Disbursement System
– Independent Review of A/P
– Can Payee in Accounting System be Changed
After a Disbursement is Made?
– Independent Review of Credit Card Statements
• Are Changes Being Made by New
Administrator Making Sense?
The Biggest Lessons Learned
• Don’t Delegate Too Much Authority to
Administrator (Don’t Concentrate Power)
• Physicians Have to Take the Ultimate
Responsibility to Manage the practice – It’s
Their Asset
• Keep a Watchful Eye
Questions
Answers