Fraud & Internal Controls

Fraud & Internal Controls Jonathan G. Kassouf, CPA L. Paul Kassouf & Co., P.C.

Should you be concerned?
33% of all employees have stolen money or merchandise at least once
The average company loses 6% of its annual revenue to fraud, committed by its own employees
Theft occurs in 95% of companies

According to the Association of Certified Fraud Examiners, 3 out of 4 physicians will suffer a significant loss due to theft during their careers

On average, embezzlement takes 18 months to discover
Average loss is estimated at $80,000
Recent reports estimate losses as high as $500 billion annually among all businesses – half the projected cost of national health care reform!

Key Points
Physician practices are easy targets
Knowledge of financial workings can greatly reduce embezzlement
If someone wants to embezzle, they will

Key Points
True danger is that embezzlement is indicative of larger weaknesses
Patient data integrity
Payer information
Historical records
Your goal? To make it difficult to embezzle

Is your practice at risk?
Donald Cressey
Indiana University student in the 1940s seeking his Ph.D. in criminology
Dissertation on embezzlers
Interviewed 200 incarcerated inmates at prisons in the Midwest
Referred to embezzlers as “trust violators”

Cressey’s final hypothesis
“ Trusted persons become trust violators when they conceive of themselves as having a financial problem which is non-shareable, are aware this problem can be secretly resolved by violation of the position of financial trust, and are able to apply to their own conduct in that situation verbalizations which enable them to adjust their conceptions of themselves as trusted persons with their conceptions of themselves as users of the entrusted funds or property.”

Hypothesis has become better known as the “fraud triangle”
Motivation + Opportunity + Rationalization = Fraud

Types of offenders
Active
Driven by motivation or greed
Passive
Tempted by system weaknesses

Why do people embezzle?
Greed
Support personal problems
Jealous of physician’s earning capacity
Angry at boss or co-workers
Feel unappreciated
For the challenge

Warning Signs
Billing department
Cash flow
Changes in A/R statistics
Patient complaints about statements

Warning Signs
Bookkeeper
Cash flow
Unexplained overhead increases
Incurring late charges/penalties
Missing sequence of checks
IRS notices
Untimely data
Unusual behavior

Which transactions are vulnerable?
Cash receipts
Cash disbursements
Accounting adjustments
Insurance filings
All of the above

Embezzlement from Cash Receipts Cycle
Employee pockets cash received from patient (skimming)
Higher deductibles and copays
Employee does not record patient visit or payment
Employee uses payment from Patient B to credit account of Patient A (lapping)
Complicated, time-consuming, and
lengthy

How can you limit embezzlement opportunities?
Use internal controls:
One employee collects receipts
Another employee makes the deposit
Another employee posts payments and adjustments

How can you limit embezzlement opportunities?
Review and compare daily activity reports to bank deposits and vice versa
Use EFTs whenever possible

Methods of Detection
Review appointment calendar
Follow every patient on that day …

Balancing
Three-legged stoo l
Each of these items must be in line with one another in order for balancing to work and serve its purpose!

Balancing is a monthly, rolling process!
Don’t neglect credit card reconciliation
Monthly Cash & A/R Reconciliation Cash deposited XXX.XX Less: A/R payments posted (XXX.XX) Difference XXX.XX A/R posted last month, deposited this month - A/R posted this month, deposited next month + A/R posted this month, deposited last month + A/R posted next month, deposited this month - Subtotal XXX.XX Non A/R income / bank adjustments - Net difference ZERO!

Dr. Smith,
Each month we compare accounts receivable reports, QuickBooks and the bank statement. We would like for payments posted to your billing system, QuickBooks and the bank to be in balance. The balances have been very close up through May. However, the balances have not been close for the past two months. The discrepancy may just be a timing difference between the collections being posted, deposited in the bank and recorded in QuickBooks. As your volume of business increases, it becomes more important and also more complicated to balance these items.
Would you like us or your staff to investigate the differences?

Tie superbills to posting analysis
Investigate patient complaints about incorrect statements, using a separate person for billing inquiries
Make sure there are no duplicate patient accounts

Control hardcopy and electronic charge tickets and cash payments, so breaks in sequence can be monitored – follow through on monitoring
Review electronically generated missing and voided charge ticket report – check-ins must match check-outs

Embezzlement from Cash Disbursements Cycle
Invoices from fake company
Paychecks to phantom employee
Paychecks to existing employee
Employee increases gross pay and withholdings, keeping net pay the same

Items purchased for personal use are coded as payments for supplies
“ Kickbacks” from suppliers
Over-ordering supplies and accepting/cashing refund check after forging payee’s name
ATM deposits

Know your vendors
Ask about new vendors and/or contact them
Sign checks only with proper documentation of shipping, service tickets, and invoices
Review monthly bank statement(s) and cancelled checks, paying attention to endorsements

“ Borrowing” money or non-receipted expenses from petty cash or change funds
Non-specific or undocumented employee reimbursements
Multiple bank accounts for practice

Patient and insurance refunds
Verify patient and review chart notes
Sign checks only with proper documentation of patient account and insurance payments
Credit card usage and misuse by employees

Other Methods
More complex methods of embezzlement require access and knowledge
Office pilferage
Postage, copies, time cards, long-distance calls, medical supplies, medications

Embezzlement through Accounting Adjustments
Using computer adjustments to bury embezzlement
Bad debt expense account used to hide stolen amounts (debits)

Embezzlement through Accounting Adjustments

How to Detect Embezzlement
Request list of patients in collection
Compare names on list to your bad debt or write-off list
Review all accounts on hold
Investigate any discrepancies

How to Detect Embezzlement
Standard policies for all non-contractual adjustments and subsequent testing
Use computer security to limit employees authorized to use specific adjustment codes

Identity Theft
The fastest growing crime in the U.S.
How secure are your computers and patient records? HIPAA
Can your employees easily remove patient records from your office?

Identity Theft
Do employees have remote access?
Run report history and see what has been extracted

Protect Your Credit

What else can you do?
Practitioner/employer should set a good example
Use of petty cash, for example
Establish policy of enforced accountability
Use a complete practice management software system
Helps document records, evidence,
and losses

Investigate claim activity for patients who haven’t been seen recently or who are unfamiliar
Consider lockbox
Use passwords and log-ins to control who can make account adjustments

Require each employee to log on individually when working with records or data
Utilize EFT whenever available
Segregation of duties
No single employee should handle any transaction from beginning to end

Fidelity Bond
$100,000 minimum or one month’s collections
Add legal and accounting rider
Serves as deterrent to financial crime because bonding companies prosecute perpetrators

Employee background checks
Incorporate on application
Watch
Employment screening service
References

Office of Inspector General
List of Excluded Individuals/Entities (LEIE)
No federal payment will be made by any Federal health care program for any items or services furnished, ordered, or prescribed by an excluded individual or entity
No program payment will be made for anything that an excluded person furnishes, orders, or prescribes

Eliminate all signature stamps
If not, contact stamp vendor to obtain inventory of ordered stamps
Require staff to take vacations
Cross-train staff so multiple employees know how to balance books
Rotate job responsibilities periodically

Watch for suspicious behavior/lifestyle
Give employees a way to report fraud
QuickBooks
Turn on Audit Trail function
Have certified public accountants set up record keeping and test for reliability and accuracy
Practice assessments

This PowerPoint was presented as part of the SuccessEHS 2011 Customer Conference.
www.successehs.com

Fraud & Internal Controls

by SuccessEHS

Accessibility

Categories

Upload Details

Usage Rights

Statistics

Fraud & Internal Controls Presentation Transcript