Fraud and Practice Internal Controls

According to Sherri L. Schornstein, assistant U.S. Attorney in the U.S. Attorney's Office for the District of Columbia's Economic Crimes Section, writing in Association Management, the five most frequent fraud schemes are:

• diversion of checks received or checks disbursed
• misappropriation of investments or other assets
• credit card fraud and identity theft
• ghost vendors
• theft of equipment and supplies

Shornstein also offered several tips for preventing fraud:

• Split certain duties that in combination could facilitate fraud
• Never leave blank checks unsecured
• Avoid the use of signature stamps
• Use a lock box for the deposit of receivables
• Eliminate company credit cards
• Always verify references and professional credentials of prospective employees
• Don't rely on the yearly audit as your only safety net
• Require all employees to take annual vacations
• Indicate on equipment (particularly computer and electronic equipment) that it is owned by the company. Consider placing a banner that appears on the computer screen so that when it is turned on it states that it is owned by the company.
• Establish a mechanism for anonymous reporting of suspected fraud and abuse. 
• Make sure you have defined policies and procedures for the transfer of funds and investment decisions 
• Review your insurance coverage

All medical practices should conduct annually some kind of an internal control/embezzlement review. For most practices that have been victims of fraud, they usually have nobody to blame but themselves. The following is a sample internal control work program you can use to see how good your controls are.

Medical Practice Internal Control Work Program

1)      Compare month end collections per medical billing software management report to actual amount deposited per monthly bank reconciliation(s). Review related reconciliations.

2)      Review monthly contractual adjustments posting for reasonableness.

3)      Review monthly practice charges for reasonableness. Investigate decreases in production.

4)      Take sample of charge tickets and determine if any charge tickets (or charge ticket numbers) are missing. Investigate discrepancies.

5)      Ensure that the person who posts payments to patient accounts does not open the mail or prepare the deposit slip.

6)      Take sample of daily deposits and compare to computer Daily Report of Posted Payments. Investigate differences.

7)      Review selected sample of cancelled checks for appropriate vendor endorsement.

8)      Scan list of cash disbursements to identify possible false vendor relationships.

9)      Review adequacy of current accounts payable procedures and related approval for vendor payment system.

10)    Review sample of petty cash reconciliations.

11)    Review access controls to medical billing software system.

12)    Ensure that all patient account statements are prepared and mailed each month.

13)    Ensure that all available vacation time has been taken by related billing, collection, and management personnel.

14)    Ensure that all appropriate personnel are bonded.

15)    Conduct on site visit to review cash and disbursement procedures in place, including related employee interviews.