AOA Association of Otolaryngology Administrators Chicago, IL

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AOAAssociation of Otolaryngology
AdministratorsChicago, IL

• Internal Control for the Medical Office
• How to Deter Fraud and Embezzlement
• September 20, 2008
• Doane F. Harrison, CPA/PFS, CHBC

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• I. Extent of the Problem
• II. Deterrence Measures
• III. Outside Accountant Role
• IV. Recovering a Loss

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The Problem

• 3 out of 4 physician offices will have a
  significant loss.
• 1/3 of all employees admit to stealing last year.
• 46 of fraud cases happen in small companies
  median loss 98,000.

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The Problem

• Only 20 recover the original loss 42 recover
  nothing.
• Over 60 of employee fraud is NOT discovered by
  internal controls and/or audits. Primary Source
  Other employees, whistle-blowers

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Sample of Actual CasesSimple to Complex

• Pocket cash, Charge and Receipts not posted.
• Replace cash with miscellaneous checks.
• Pocket cash, adjust off charge.
• Adjust account to create credit balance, change
  name on account, refund check to family member.
• Set up separate bank account, divert deposits.
• Excess salary and overtime.
• Personal charges to clinic credit card.

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To Catch a Thief

• Case Illustration
• Sample Corporate Credit Card Charges
• Talbots 395
• Victoria Secret 116
• Bloomingdales 290
• Neiman Marcus 258
• Ross Simons 1,211

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To Catch a Thief

• Sample Corporate Credit Card Charges
• Bra Smyth of CA 144
• A-B Adventure Parks (Orlando) 152
• Sea World (San Antonio) 190
• Sears 566
• Eddie Bauer 181

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To Catch a Thief

• Sample Corporate Credit Card Charges
• Coach 941
• Sharper Image 136
• Sun Glass Hut 200
• AMC Motion Pictures 20
• Pay Pal Jewelry 1,441

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To Catch a Thief

• Sample Corporate Credit Card Charges
• Amazon.com 288
• Golf Superstore 200
• Baby Doll Gems 555
• Cingular 366
• Expedia.com Airfare 1,968

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To Catch a Thief

• Sample Corporate Credit Card Charges
• Cash Advance 1,500
• Remington Park Casino 202
• OKC Treasurer 2,208
• Total 12 months 102,000.00
• Total ????

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Fraud Triangle

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Profile of a Thief

• Most are first-time offenders.
• Usually work alone long hours
• Compulsive
• Rationalize their actions
• Intelligent
• Long-term, trusted employee
• Access

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Warning Signs of Embezzlement

• 1. Openly resent or aspire to a substantial
  income and upper class lifestyle.
• I deserve it!
• 2. Regularly carry a lot of cash.
• 3. Are casual about observing office procedures.

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Warning Signs of Embezzlement

• 4. Adamantly resist any change in the present
  accounting system.
• 5. Start using new vendors.
• 6. Produce sloppy records and reports, no audit
  trail.

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Warning Signs of Embezzlement

• 7. Lax about the petty cash fund.
• 8. Refuse to take vacations.
• 9. Appear to be workhorses.

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Warning Signs of Embezzlement

• 10. Seem overwrought about family/personal
  problems (divorce, illness, finances).
• 11. Abruptly change their spending patterns.
• 12. Ask for frequent pay advances.

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Warning Signs of Embezzlement

• 14. Increased patient complaints about billing.
• 15. Unexplained write-offs, adjustments and
  refunds.
• 16. Unexplained accounting entries misclassified
  expenses.

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DeterrenceFive Lines of Defense

• 1. Hiring Process
• 2. Internal Control Procedures
• 3. Segregation of Duties
• 4. Insurance
• 5. Outside Accountant Role

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DeterrenceLines of Defense

• KEY
• LET EMPLOYEES KNOW THAT
• SOMEONE IS WATCHING!

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Disclaimer

• NO SYSTEM IS THEFT-PROOF!

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Deterrence1. Hiring Process

• Check References
• Background Checks
• Criminal records
• Federal court records
• Driving records
• Professional licenses
• Employment history
• Credit Check

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Deterrence2. Internal Control Procedures

• Most susceptible areas
• CASH
• RECEIPTS
• PAYROLL
• ACCOUNTS PAYABLE
• SUPPLIES

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Deterrence2. Internal Control Procedures

• Charges
• Receipts and Deposits Lockbox
• Adjustments and Refunds
• Change and Petty Cash Funds
• Accounts Payable
• Check signing authority
• Use of credit cards
• Payroll

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• Charges
• Account for sequentially-numbered charge tickets
• Post all charges daily
• Trace entries from appointment schedule to daily
  summary

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• Receipts and Deposits
• Use a lockbox
• Make deposits daily
• Patient receipts for payments
• Stamp checks, For Deposit Only, ABC Clinic,
  Inc., 12345789
• List checks individually, by name
• Deposit cash payments intact daily
• Separate deposits for miscellaneous income
• Balance daily

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• Adjustments and Refunds
• Account history with refund checks
• Review and approve non-contract write-offs
• Restrict access for posting adjustments
• Accounts Payable and Payroll
• Limit check-signing authority
• Invoices should accompany payable checks
• Restrict use of clinic credit cards
• Monitor staff payroll for correct pay rates and
  overtime
• Secure blank checks

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Deterrence3. Segregation of Duties

• Open mail
• Pre-list mail receipts
• Post office charges
• Post office payments

• Post mail payments
• Post hospital charges
• Prepare bank deposit
• Take deposit to bank

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Deterrence3. Segregation of Duties

• Bank reconciliation
• Prepare accounts payable
• Prepare payroll
• Prepare financial statements

• Prepare patient refund checks
• Approve adjustments to accounts
• Post adjustments to accounts
• Match bank deposit receipt to daily report

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Deterrence4. Insurance

• Employee Fidelity Bond
• 50,000 minimum
• Accounts Receivable

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Deterrence5. Outside Accountant Role

• Financial Statements
• Reconcile bank statements
• Allocation of expenses
• Trends and comparisons with benchmarks
• Internal Control Review
• Sample basis
• Unannounced
• Scope

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Recovering a Loss

• Conduct thorough investigation.
• Confrontation.
• Discipline or terminate?
• File claim under fidelity bond.
• Proof of Loss

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Recovering a Loss

• Seek restitution
• Advice of legal counsel
• Civil or criminal action?
• Criminal prosecution
• 74 plead guilty or no contest
• Source of funds
• Report as income?
• Tax issues

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• QUESTIONS???

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Harrison Associates, PC111 N. Peters Ave.,
500Norman, OK 73069(405) 329-3110(800)
522-3441(405) 329-3158 faxdh_at_harrisonassociatesp
c.com