Financial Controls—consider them a security system for your medical practice. With the correct internal controls in place, your practice can better protect its assets and minimize the risk of loss from errors, lawsuits, and fraud. “Medical Practice Financial Controls…or Lack Thereof” was the topic of a recent National Association of Certified Valuators and Analysts (NACVA) Consultants Training Institute (CTI) webinar presented by PYA Principal Lori Foley and Senior Manager Tynan Olechny.

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November 12, 2013
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3. The Presentation will include periodic online Polling
Questions/Codes to assess continuous participation and to
determine the program’s effectiveness.
You MUST respond to all polling questions (live) or keep
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credit.
If you view the webinar with a Smartphone or Tablet you will
NOT be able to answer polling questions that are required
for obtaining CPE credit.
If you are viewing this presentation as a recorded webinar it
will not qualify for NASBA QAS CPE credit. You can
however, obtain CPE credit per the instructions included
with your recorded webinar purchase.
November 12, 2013
© 2013 National Association of Certified Valuators and Analysts
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4. Medical Practice
Financial Controls
(or Lack Thereof)

5. This Practice is
Protected
by
“Financial Controls”
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6. What Are Internal Controls?
Methods and procedures used to:
• Prevent, detect errors
• Encourage adherence to policies
• Safeguard against misappropriation
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7. Internal Controls Protect
Practice Assets
Reduce the risk of loss from:
• Errors
• Lawsuits
• Fraud
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8. Internal Controls Protect From:
Mistyped
Misfiled
Risk of
Errors
Too Busy
Miscount
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Lost
Forgot
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9. Internal Controls Protect From:
Suppliers
Patients
Government
Partners
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Risk of
Lawsuits
Managed Care
Companies
Employees
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10. Risk of Fraud
1
$5.3 trillion annually
2
Median loss of $140,000
3
Small companies most vulnerable
4
Physician practices often targeted
Source: Association of Certified Fraud Examiners.
November 12, 2013
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11. Fraud Risks
• Desperate people do desperate things
• Regulatory requirements
• Competition
• Rapid changes
• Need for capital
• Complex transactions or structure
• Absentee owners
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12. The Practice is Often at Fault…
• No (weak) internal control policies, procedures
• Trust
• Conflict avoidance
• No time, energy, resources
• Complex business environment
• Failure to prosecute
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13. Who Commits Fraud?
3%
18%
42%
Employee
Manager
Owner
Other
38%
Source: Association of Certified Fraud Examiners.
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14. How Fraud Occurs
• Poor internal
controls
• Management
override
• 3rd party collusion
• Other – 2%
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15. Fraud Techniques
Theft of cash or inventory
‒ Taking co-pays or petty cash
‒ Taking equipment or supplies
Theft of blank checks or credit
- Using company checks or credit
cards for personal items
False employee or vendor
- Creation of a false
employee or vendor for
monthly payment
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16. How Frauds Are Discovered
•
•
•
•
Internal controls work
Falling out among thieves
Disgruntled associate
Observant patient,
supplier
• Accident
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17. Red Flags
•
•
•
•
Personal financial pressure
Vices
Extravagant lifestyle
Real or imagined grievances against
the company or management
• Increased personal stress
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18. More Red Flags
•
•
•
•
•
Management pressure
Short vacations, unexplained hours
Overly neat, territorial
General lack of ethics
Unusually close vendor relationships
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19. The Triangle of Fraud
Need
Rationalization
Opportunity
―I was just trying to save the company.‖
―If I only could have gotten the bank loan, everything would have been fine.‖
Source: Sage Investigations, LLC.
November 12, 2013
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20. Situational Fraud
Always: 5% to 10%
Situational
Fraud
Never: 5% to 10%
Situation Arises: 80% to 90%
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21. Myths Surrounding Fraud
Fraud is most often
committed by
people who have
done it before.
Long-term
employees will not
commit fraud.
Employers
(physicians) are
good judges of
character and
understand their
employees.
Myths
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22. More Myths
CPAs can be relied
upon to discover
fraud.
Checks made out
to banks or
companies cannot
be converted to
personal use by
third parties.
Losses due to
fraud are covered
by insurance.
Myths
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23. Factors of Effective Compliance
• Internal control policies, procedures
• High-level person responsible for monitoring
• Do not give authority to persons you know or should
have known had propensity
• Communicate the policies and procedures
• Reasonable steps to achieve compliance
• Respond appropriately
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24. Internal Control Procedures
Segregation of
duties
Checks and
balances
Involvement
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25. Internal Control System Should Be...
Organized
Documented
Communicated
Cost effective
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26. 10 Key Questions

27. Question 1
1. Does the practice know
the typical
daily, weekly, and monthly
volume of the
practice, and do they
promptly investigate any
material deviations?
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28. Question 2
2. Are charge slips, cash receipt
slips, and checks prenumbered, controlled, and
accounted for, including voids? Are
blank documents stored safely and
is access limited?
Sally ―loses‖ her friend’s charge ticket.
No charge = No write off = No money
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29. Question 3
3. Are cash-related duties
appropriately segregated
among staff members?
Recordkeeping vs. custody vs. approval
•
•
•
•
Who opens the mail?
Who posts payments?
Who does the bank reconciliation?
Who reviews the payroll journal?
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30. Question 4
4. Are accounting records, including
charge posting,
payroll reports, and bank
reconciliations, kept up-to-date
and balanced daily and monthly?
• Monthly day sheet reconciliation
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31. Question 5
5. Does the practice restrict check
signature authority to physician
owners only, insist on personal
signature instead of a signature
stamp, and inspect back-up
invoices before signing checks?
• All parts of the check are complete;
original invoice approved and
canceled; packing slip attached;
expenditure is reasonable.
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32. Question 6
6. Are all checks stamped with
the practice’s ―For Deposit
Only‖ endorsement stamp
immediately upon receipt?
Are un-deposited checks
stored in a safe place
pending deposit?
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33. Question 7
7. Are all employees required
to take annual vacations?
Is there a back-up person
for all positions?
• Big bus theory
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34. Question 8
8. Are all contractual
adjustments, patient refunds, and
non-contractual write-offs approved
or monitored by an authorized
supervisor?
• Ignorance? Innocent mistake?
Deliberate?
Sally’s friend incurs $3,500 in patient
responsible services. Sally’s choices:
• Put friend through normal collection
procedures.
• Write friend’s balance down to zero.
November 12, 2013
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35. Question 9
9. Does the practice check the
references of new hires carefully
and screen candidates and
current employees regularly for
exclusion from or sanctions by
Medicare and other federal
programs? Does the practice
obtain a background check/credit
report?
• www.exclusions.oig.hhs.gov
• www.sam.gov
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36. Question 10
10. Does the practice use the ―sentinel‖
effect? Occasionally sample
postings, review the general
ledger, inspect reconciliations, check
the cash drawer, and ask questions?
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37. Conclusion
Embezzlement opportunities are
plentiful and practices ripe for the
picking!
November 12, 2013
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38. Thank You!
Lori A. Foley, CMA, PHR, CMM
lfoley@pyagatesmoore.com
Tynan P. Olechny, MBA/MPH, CVA
tolechny@pyagatesmoore.com
PYA GatesMoore
3424 Peachtree Rd N.E., Suite 700
Atlanta, GA 30326
(404) 266-9876
www.pyagatesmoore.com
November 12, 2013
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