Medical practices are in the business of providing the services needed to ensure the health and vitality of patients. Whether it’s preventative testing to ensure medical issues are not present or therapy to remedy an illness, the focus is on maintaining or improving patient health and it’s an industry of giving and kindness. That’s what makes it difficult when it’s discovered that fraud, embezzlement or other illegal activities have been happening in a practice. Unfortunately, many medical practices discover fraud only after thousands of dollars have been lost to a dishonest employee, vendor or supplier. To limit the opportunity for such activities, it’s important to implement a robust internal controls program designed to make it difficult to perpetuate this kind of behavior. While most practices are familiar with claims collections and HIPAA disclosures, fewer are aware of the important internal controls needed to protect their practice. To help clients, prospects and others develop an effective internal controls program, Hanson & Co has provided a summary of key information below.

What are Internal Controls?

Internal controls are policies and procedures designed to prevent and detect errors that may compromise the financial integrity of the practice. There are two types of controls including preventative and detective. Preventative, as the name suggests, is designed to prevent errors or irregularities before they can be committed. Detective controls are designed to uncover an error or issue after it has occurred so that a remedy can be implemented. An effective internal controls program leverages a mix of both types of controls.

Key Internal Controls

Below is a list of the most common internal controls that practices should consider implementing, including:

  • Segregation of Duties – Most practices have one or two accounting professionals that manage multiple financial functions. It’s not uncommon for a single person to control a financial transaction from start to finish. Unfortunately, this arrangement creates the opportunity for fraud to be committed with limited opportunity for detection. Requiring segregation of duties makes it much more difficult for individuals to commit fraud because it requires cooperation from two individuals. Depending on the size of your practice, consider segregating the following duties including opening mailer, preparing invoices, posting payments, bank deposits and bank reconciliations
  • Bank Reconciliation – It’s important to reconcile bank accounts promptly at the end of the month and to have a senior manager or owner regularly monitor the practice’s bank accounts. Staying aware and vigilant with the bank is essential because many commercial customers have a limited timeframe in which to identify an unauthorized ACH or other transaction. For additional protection, be sure to have someone other than the bookkeeper prepares bank reconciliations, review canceled checks and be certain that statements are received directly from the bank. This limits the opportunity for someone to modify bank statements to conceal their activity.
  • Check Signing – It’s essential that check-signing responsibility is left to a senior manager or owner and not just the bookkeeper or junior level accounting staff. Beyond this, when signing checks, it’s important to carefully review payee names and verify they are an approved vendor. Be sure to request that invoices be included with prepared checks and not to simply accept account statements. Finally, it’s a best practice to require two signatures when the amount of the check exceeds a pre-determined limit.
  • Background Checks – Be sure to conduct background checks for every employee that handles the practice’s money or is involved in the accounting/financial process. This preventative measure will ensure that someone with a “less than desirable past” is not given access to sensitive processes or material.

Contact Us

A robust internal control program is the best way to protect your medical practice from the possibility of fraud or other illegal behavior. While there is no guarantee that these behaviors will not occur, they are effective at making it much more difficult for potential fraudsters. If your practice needs assistance implementing an internal controls policy or would like assistance with an audit or tax issue, Hanson & Co can help. For additional information please call us at 303-388-1010 or click here to contact us. We look forward to speaking with you soon.