Internal Controls in the Healthcare Workplace
Internal Accounting Controls in the Healthcare Workplace
In the healthcare workplace, there are many control measures put into place that must be used in order to protect the welfare of the patients and the workers who care for them. One of the specific healthcare areas in which internal controls are seen is accounting. Assets have to be safeguarded, and fiduciary responsibilities to the Board must be fulfilled (Rezaee, 2002). If the operations carried out by the accounting department in the healthcare facility are both effective and efficient, that department and the rest of the healthcare institution will be much better able to treat patients and process payments for that treatment, along with balancing the budget for the hospital and ensuring that new technology can be acquired as older, outdated technology comes to the end of its useful life. The policies and procedures that are created for an accounting department in a healthcare facility also have to accurately reflect the work processes that are being used in that facility. Without that, there would be little point to the procedures, and the policies would not be useful to the people who needed them the most and who were expected to follow them (Rezaee, 2002).
One of the most significant issues when it comes to healthcare accounting is the filing of insurance claims that are fraudulent (Carruthers & Espeland, 1992). Healthcare companies have gotten into trouble in the past for doing this, and it is a serious breach of both trust and ethics. Because that is the case, the accounting department should have a compliance program that seeks to prevent these kinds of issues from occurring (Rezaee, 2002). It is not always possible to stop these sorts of things from happening, but it is possible to provide a system that makes the fraudulent claims made to insurance companies much more difficult to get away with or to get past the internal controls and the people who are charged with processing the claims. No hospital is immune to accounting problems, of course, but hospitals that do not have any internal controls often find that they are struggling to pay their bills and that there are billing and other monetary problems taking place – many of which do not come to light until they are far advanced in nature. At that time, it is not always possible to correct them.
Internal controls in the accounting department of a healthcare institution are not things that are simply pulled out of the air. There are specific components to them, such as environment, risk, and activities (Elliot & Elliot, 2004). The environment includes issues such as integrity, competence, ethics, the philosophy of management, the operating style of the institution, and the overall culture of the organization. Risk has to be identified, but more must be done. Simply knowing the risks is not enough, as they should also be assessed and (if possible) prevented. If the risks cannot be prevented, they should be mitigated as much as they can be and any further concerns that cannot be adjusted or reduced should be issues for which the healthcare institutions has carefully prepared. When one knows what to do in a crisis, it is much easier to deal with that crisis, even if there was nothing that could be done to prevent the crisis from occurring in the first place (Dey & Lys, 2005; Friedlob & Plewa, 1996). The activities of the healthcare organization play a large part in whether it is successful in reducing or eliminating its risk. If the work is being done according to correct procedures and policies, there is some protecting from disaster and from serious problems that could arise in the future.
By making sure every employee knows what he or she is supposed to be doing, and by monitoring those employees to ensure compliance, there is less of a risk of problems with accounting in healthcare organizations. These internal controls are a valuable part of keeping things moving properly. The goal is to promote a very strong environment of control and a positive attitude when it comes to the management (Rezaee, 2002). Everyone should be able to get along and be respected members of the team, but at the same time there has to be a strong system of checks and balances that should not be ignored. This may mean that procedures and disciplinary actions sometimes appear to be a big heavy-handed, but that is a good thing in the sense of not taking chances with accounting issues. Overall, each and every person who works in accounting in a healthcare setting must be properly trained and properly qualified, and they must all follow the rules, policies, and procedures given to them by the management of the healthcare organization for which they work (Rezaee, 2002). If this is not done, sloppy work can result – which can mean serious financial and even legal trouble for the healthcare institution, especially in cases such as billing or insurance fraud.
How reliable the people in the accounting department are, and how reliable their financial reporting is, can greatly affect the bottom line of the healthcare institution (Rezaee, 2002). These kinds of issues can be important if the healthcare institution is ever audited or there is a claim that must be investigated. The point of internal controls in accounting are so that everything is done correctly, but also so that there is a record of how everything was done and by whom. That is important, since a problem in the accounting department could have multiple or different causes. It could be that a person did something wrong by accident or on purpose, but it could also be that a policy or procedure was simply incorrect (Rezaee, 2002). It may have been followed to the letter by the employees, but if it was incorrect it could have still resulted in serious problems for the institution as a whole. The people must be vetted, but so must the controls themselves. Guessing at them or not keeping them up-to-date can be nearly as bad as avoiding them altogether, and can cause just as much if not more trouble. Once internal control procedures have been established, the lines of communication regarding them must also stay open between managers and between management and employees (Rezaee, 2002).
While fraud is a word no company likes to hear, especially when it may be associated with one of its employees, it is possible that accounting fraud can occur in any healthcare company that does not have good internal controls. That is not to say it is impossible in companies where the internal controls are strong, but it is certainly much more difficult in these companies and is generally enough trouble that it is not attempted. Where controls are lax, however, there is a much higher chance of fraud. There are several ways in which employees can attempt to defraud a company within the healthcare field. Upcoding claims is one of the ways fraud is created (Rezaee, 2002). Filing insurance claims that are false and filing claims where the records have been falsified are also issues (Rezaee, 2002). When a person in the accounting department puts in an insurance claim, a system of checks and balances helps to ensure that the claim was for the right amount and the right patient, as well as for the right diagnosis and treatment. By adjusting the diagnosis or treatment the patient allegedly received, it is possible for the healthcare institution to receive more money for the claim.
While these kinds of changes to the diagnosis and treatment of a patient are certainly unethical and illegal, they can and do still happen. With strong internal controls there is less of a concern that something of that nature will take place. Getting “kickbacks” is another way healthcare accounting fraud occurs, as is mail fraud and writing bad checks (Rezaee, 2002). While those kinds of fraudulent activities can occur in any business, they are sometimes considered to be more egregious in the healthcare field because the idea is to care for and protect the patient. Clearly that is not being done and the patient’s best interests are not being kept in mind when the healthcare institution is busy figuring out how it can cheat the patient and/or his or her insurance company out of more money. Accepting kickbacks from vendors by pushing procedures, equipment, or medication that would otherwise not be needed or advised is also a serious issue that should never be overlooked (Rezaee, 2002). With good internal controls and a strong system in place to monitor employees, the incidence of these types of fraudulent practices can be greatly diminished.
Why do people in healthcare accounting departments commit fraud? There are many reasons, and they could apply to just about any person at any business. Needing money for something is the most common reason, especially when someone has an issue with a marriage or divorce, has substantial debt that he or she has accumulated, or has issues with substance abuse (Rezaee, 2002). Other people simply want to live beyond their means and see committing fraud as the way to receive extra money so they can continue to live a lifestyle they would otherwise not be able to afford. If they are angry at their managers or hate their jobs, there is also the possibility of committing fraud simply to “get back at” the person or persons they feel have slighted them. While none of these are good reasons to commit a fraudulent act, they are some of the most common reasons that have been offered when people who are committing fraud in the workplace have been caught.
Focusing on ethics can help prevent fraud, but it will not stop everyone. Additionally, more than ethics are needed in order to make sure procedures are followed properly. Often, there is no intended fraud or financial mistakes – only carelessness and misunderstandings left unchecked. Swift punishment of unethical actions along with strong information about procedures and policies can help healthcare institutions avoid financial problems. The Sarbanes-Oxley Act of 2002 helped with that by requiring full disclosure of conflicts of interest and setting other benchmarks with which companies must comply (Dey & Lys, 2005). By taking that into account, emphasizing ethics, and making policies and procedures clear, an accounting department in a healthcare institution can have strong and valuable internal controls.
Carruthers, B.G., & Espeland, W.N. (1992). Accounting for rationality: Double-entry bookkeeping and the rhetoric of economic rationality. American Journal of Sociology, 97(1).
Dey, a. & Lys, T.Z. (2005). Trends in earnings management and informativeness of earnings announcements in the Pre- and Post-Sarbanes-Oxley Periods. Evanston, IL: Kellogg School of Management.
Elliot, B. & Elliot, J. (2004). Financial accounting and reporting. London: Prentice Hall.
Friedlob, G.T. & Plewa, F. J (1996). Understanding balance sheets. New York, NY: John Wiley & Sons.
Rezaee, Z. (2002). Financial Statement Fraud: Prevention and Detection. New York, NY: Wiley
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