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, Presidentdmh@affinityhealthservices.net

Jeff Aikenjaiken@affinityhealthservices.net

877-311-0110