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2014 PACAH Annual ConferenceAffinity
Health ServicesSenior Community Management
and Consulting Services
Conducting a Business Office Internal Audit
How to protect your assets, increase your controls and utilize best practices for the operation of your business office and accounting functions
Program Objectives
What are internal controls
Why are they important
How to maintain compliance with policies and procedures
Duties segregated for small/large facilities
Downfall/Risk of Non compliance
Program Objectives
Best Practices with GAAP (Generally Accepted Accounting Principals)
Segregation of Duties
Sample written policies and procedures
DefinitionsInternal Control
Systematic measures (such as reviews, checks and balances, methods and procedures) instituted by an organization to:
1. conduct its business in an orderly and efficient manner
2. safeguard its assets and resources
3. deter and detect errors, fraud, and theft
4. ensure accuracy and completeness of accounting data
5. produce reliable and timely financial and management information
6. ensure adherence to its policies and plan
Why are Internal Controls Important and What am I
protecting?Your professional reputation Your decision making
Your cash flow/expense management
Your facilityYour CountyYour dedicated employeesYour …………………..
This is for real – criminal activity
Former Conecuh County nursing home employee convicted of theft of resident funds
Former nursing home bookkeeper in DeKalb County convicted of stealing funds
Payroll Fraud – A big threat and how to avoid it
This is for real – criminal activity
Payroll Fraud Happens in 27% of
businesses
Occurs nearly twice as often in small organizations (100 or less)
Ghost employees
Checks/direct deposit
Employee Personal Care Home
Approximately half of the payroll checks were direct deposit and others paper checks
Payroll clerk put herself on direct deposit and cut a paper check – administrator and accountant signed checks
How was that caught? – through the financial statement budget variance review process - (internal control)
Differences between just bad business, common
mistakes/lack of training and theft/fraud
Resident Trust doesn’t reconcile
Payroll errors – payroll clerk doesn’t understand overtime calculation
Aging past due not being collected – wrong information, billing errors, lack of collection progress. Incorrect 162 recorded
Miscoded Accounts Payable
Incorrect Cash Balances
Untimely reports
No review process – financials/A/P - aging
Census reconciliation incomplete
How do we train without policies and procedures
Policies and Procedures
Foundation for all business processes
The who, what and how tasks are performed
Brings structure to the organization
Serve as internal controls
Managers have guidelines and do not make unauthorized decisions
Employees need to know how to apply, how to enforce
Training of new employees
Best PracticesHow to avoid bad things from
happening Policies and
Procedures
Do you have them?
Do you follow them?
When was the last time they were
updated?
Do you know where they are?
Bad Things No guidance for new
employees
Costly errors
Theft
Surveys
Audits
Inaccurate reports
Bad management decisions
What Policies should I have?
Accounting Policies Accounts Payable
Accounts Receivable
Adjusting Entries
Bank Reconciliation
Capitalization / Depreciation
Check Requests
Month End Closing
Petty Cash
Purchase Order
Request for Capital
Void Check
Chart of Accounts and management of same
Bad Checks
Cash Receipts
Check signing
What Policies should I have?
Business Office Policies/Procedures Admissions
Bad Debt
Billing Adjustments
Billing Process
Census Reconciliation / Adjustments
Collections
Central Supply
MSP
Monthly Calendar
Personnel Records
Resident Trust Fund
Segregation of Duties
Other:
Financial Statement Review Process / Budget Variance
Internal Audit
Record Retention
Procedure – Segregation of Duties
Most effective procedures are those with the greatest segregation of duties. The more people in the process the less likely of an error or theft will occur
For example the person that writes the checks should not be the person signing the check
The person who orders the products should not approve the invoice
The person with budget responsibility should not code the invoice
The person who receives the checks does not make the deposit
Cash Receipts/Accounts Receivable One Person Office
Procedure
Person Responsible
Administrator
Controller/Clerk
Receive Payments
X
Issue Receipts
X
Prepare Deposit
X
Verify Record of Receipts to Deposit Slip Detail (pre-deposit)
X
Verity $ Total of Receipt to Validated Deposit Total (post-deposit)
X
Take Deposit to Bank
X
Post Payments
X
Ensure Daily Depositing X
Title: SEGREGATION OF DUTIES MODEL FOR CASH RECEIPTSAccounts Receivables: One-Person Business Office
Cash Receipts/Accounts Receivable Three Person Business
Office Procedure
Person Responsible
Admin.
Fiscal Director
Bookkeeper
Clerk
Receive Payments
X
Issue Receipts/Prepare Log
X
Prepare Deposit
X
Verify Record of Receipts to Deposit Slip Detail (pre-deposit detail)
X
Verify $ Total of Receipt to Validated Deposit Total (post-deposit)
X
Take Deposit to Bank
X
Post Payments
X
Ensure Daily Depositing X
Generally Accepted Accounting Principals (GAAP)/Audits GAAP- Accrual basis
Set of principals to establish reporting and disclosures
Relevance helps decision maker understand past, present and future outlook and make informed decision in a timely manner
Reliable is verifiable and objective
Consistent is using the same methods allowing meaningful decisions
CPA audited financials create credibility, detects fraud and is the main source of management performance
During the audit the auditors are responsible to test internal controls
*Counties and single County audits do not necessarily encourage GAAP or internal controls
AUDITS – GAAP and Standard Letter
Standard representation letter is signed by management We acknowledge our responsibility for the design,
implementation and maintenance of internal control relevant to the preparation of the financial statements, notes and supplemental schedules that are free from material misstatement, whether due to fraud or error
We acknowledge our responsibility for the design, implementation and maintenance of internal control to prevent and detect fraud
We are responsible for the estimation methods and assumptions used in measuring assets and liabilities
Typically in Counties these are signed by Courthouse employees that manage the County
Compliance – Internal Audit
Maintaining Compliance
Internal Audit Why? Identify control
problems and aims at correcting lapses before they are discovered during an external audit.
Your policies are your audit. Without policies you don’t have an audit.
Frequent or ongoing audits conducted by a firm’s own accountants to:
1. monitor operating results
2. verify financial records
3. evaluate internal controls
4. assist with increasing efficiency and effectiveness of operations and
5. to detect fraud
NURSING HOME MANAGEMENT
We audit everything
..........................................
.....................except the accounting and business functions – why?
Its not a law, the County is responsible for the audit and internal controls or we lack the resources/knowledge.
Nursing Facilities Internal Controls/Audit - Medications
Controlled Substances - Medication subject to abuse or diversion Stored in double locked
compartment
Accountability record
Keys maintained by nurse and when keys are transferred a physical inventory is conducted
If seals are broken report immediately
WHY – it is required and we deal with drug diversion
Nursing Facilities Internal Controls - Medications Nurse forging physician orders
Fax script to pharmacy
Pick up the medication while she is on duty when delivered
Indicated in the MAR that medication was given (PRN med)
Pharmacy bill was indicating a lot of Oxycodone
WHY? It is regulated, reportable and it is the Best Practice. Many administrators and directors of nursing have had to have people arrested and deal with the nursing board.
Nursing Facilities Internal Controls - Triple Check Audit
Identify errors in billing
Identify missing chart required documentation
Identify documentation to support skilled services
Check appropriate diagnosis
Check basic data fields
WHY –RAC audits, to avoid a ZPIC audit, to get paid, to avoid rejected claims and recouped monies
Conducting internal audits/policy enforcement
Account ReceivableFunny I am making money
but don’t have any? Are there proper policies and
procedures that address:
Are there regular aging reviews? Who conducts the review? Are their credit balances and an explanation of past due accounts
Have resident refunds been processed timely
Are there collection progress reports on all outstanding balances
Are MA 162’s in an organized binder
Are there established timelines for billing
Are pending MA residents paying their private resources
Are MA Co insurances logged onto Medicare Bad Debt log
Are bad debt forms for write offs completed with the proper approvals/controls
Are adjustments monitored on a monthly basis
Follow adjustments through the system to verify validity
Is the aging used as a real time document
Petty Cash
Audits Are there limits on how
much can be paid out of petty cash
Is there a policy specifically stating the use of petty cash
Are receipts signed by both the petty cash custodian and the employee
NO SLUSH FUNDS
Policies
The following items must not be paid out of petty cash: Payroll transactions
Business Travel
Resident Trust Fund
Cashing of personal checks
Barber and Beauty charges
Bank Reconciliations
Are all the accounts on the General Ledger
Is there a preparer and reviewer
Is the vendor name included on the outstanding check list?
If a check appears on the list of outstanding checks for more than one month, what happens and how is it investigated
Accounts Payable/Resident Refunds
Are there two signatures required for all checks
Is there a purchase order policy
Does the signer review the actual invoice along with the check being signed
Are vendor invoices stamped paid
Test a sampling of invoices for the proper coding
Validate the credit balance on the aging
Process the refund through the A/P process with the appropriate signatures
Test timeliness of refunds
Verify that all charges have been received and entered prior to issuing a refund request
Payroll
s
Direct Deposits are the same as your payroll checks. Simply because you do not sign paychecks does not negate the approval process, the preliminary check register should be approved by the Administrator and signed and dated prior to the direct deposit and manual checks being processed. If the administrator is not available there will be a designated approval process in place in their absence.
Do Department managers authorize overtime
Do checks require more that one signature
Does the same person that does payroll enter new employees into the system
Does the same person who does payroll handle the employee files
s
Processing Payroll – Control Activity Form - Auditors
Individuals who prepare payroll checks cannot: Sign payroll
Review and authorize electronic payroll disbursements
Disburse payroll checks
Control unclaimed payroll inquiries
Resolve employee payroll inquiries
Edit the payroll master file
Open mail or copy checks received
Financial Statement Analysis
Balance Sheet Do you compare balance
sheet accounts from month to month
Income Statement Do you compare
financial performance against budget and identify variances
Do you compare year over year numbers to determine reasonable variances
Are financial statements timely therefore relevant
Are financial statements presented in an accrual basis of accounting
Do you evaluate expenses on a cost per patient day basis
Do you have a method to monitor cash
Resident Trust Funds
Are residents/families required to authorize a resident fund account
Does the policy clearly identify what can be paid out of resident funds
Are the funds in excess of $50 in interest bearing account
Are the trust funds account sent out in accordance with the regulation
Are refunds completed timely
Is the Surety Bond adequate
Is the staff trained on the unclaimed property procedures
Are the duties for resident fund segregated appropriately Deposits separate from posting and reconciliation
Summary
Nursing facilities are responsible for policies and procedures of the facility as a whole. These are not limited to care related and HR policies. (Policies and Procedures create your internal audit)
Employees are most successful with clear guidelines.
Facilities are responsible to ensure safekeeping of resident funds.
The nursing home administrator is responsible for the financial performance of the home, the integrity of the business office operations and accounting transactions.
Mistakes happen and without the proper audits, controls and segregation of duties they are difficult to detect.
Fraud happens and without the proper audits, controls and segregation of duties it is difficult to detect.
Questions
Thank you for your time and attention!
Denise McQuown-Hatter, [email protected]
Jeff [email protected]
877-311-0110