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Measures to take for Loss and Fraud Prevention

Employee Fraud. It does not depend on the size, type, location or industry of the organization, as every organization is prone to this problem. We would like to believe that our employees are honest and trustworthy but still there are many reasons and ways in which your employees may become the part of fraud. A Report presented to the Nation on Occupational Fraud and Abuse (Copyright 2014 by the Association of Certified Fraud Examiners, Inc.) suggested that 5% of the annual revenue losses of the typical organization each year due to employee fraud. Therefore, prevention and detection is important to reduce the loss. Thus, every organization should develop a plan to prevent fraud is prior rather than after being affected from the loss.

There are many forms of fraud but the main three categories are:

  1. Asset Misappropriation – This is least costly and made up 90% of all fraud cases. In this type of fraud, an employee either steals, exploits or misuse organization’s resources. Examples of asset misappropriation include fake reimbursement, stealing of non-cash possessions of the organization or cash before or after recording.
  2. Corruption – Corruption made up less than one-third of the total fraud cases and fell in the middle. Corruption happens when employees use the status or influence provided by the organization for their own benefit and violates the duty to the employer. Examples of Corruption include cases lie bribery, extortion, and conflict of interest.
  3. Financial statement fraud – This fraud type comprises of less than 5% of cases, but can cause median loss to the organization. In these kinds of frauds, employees intentionally misstate or omit the information in the financial reports of the company. This fraud may include fake revenues, hidden charges or liabilities or inflated assets.

Prevention 

The presence of preventative measures, whether the organization is large or small, is vital. ACFE 2014 revealed that the fraudulent activities, which were studied to make the report, lasted an average of 18 months before they got detected. This shows that the loss is greater as the employee of your company are committing fraud for a year and a half. Therefore, there is a need to minimize the fraud occurrences by implementing adequate procedures and controls to prevent fraud.

  1. Know Your Employees – The first step to preventing the fraud is knowing the employees. Fraud perpetrators display the behavioral traits which indicate the intention of committing fraud. Potential fraud risks can be thus minimized by observing the actions and listening to employees issues. Management should build a trustworthy relationship with the employees and have time to know them. An attitude change can give you the clues and can suggest inter-organization issues that should be resolved immediately to prevent loss. For example, an employee may commit fraud to take revenge from the angry or dissatisfied boss. Or a hard working employee who has been serving your company more than a decade and is now, having personal and financial issues, could be an indication of potential fraud risk. It is important to know about your employees and have a good conversation with them.
  2. Make Employees Aware of fraud and its consequences – Employees of the organization should be aware of different types of fraud and its consequences to the organization as awareness is key to avoid big loss.  And gives signal to the ones planning or thinking about to commit fraud. Also, the loyal and trustworthy employees who are the assets in preventing the fraud would have a enough knowledge about signs of frauds. According to the ACFE 2014 report, if there is a tip associated with report of fraud then they are easily detected (over 40%). The reporting system should be anonymous, and employees should be able to report fraudulent activity by keeping their identity safe.
  3. Implementation of Internal Controls – To safeguard the firm’s assets and to ensure the integrity of its accounting records, implementation of internal controls is a must. Internal Controls include Segregation of duties to help reveal any discrepancies in the system. The other internal controls include documentation to help reduce fraud. The Internal controls should be monitored and regularly updated to ensure their effectiveness. An expert is needed to analyze the company’s policies and procedures to recommend the appropriate programs and implementations.
  4. Monitor Vacation Balances –  If an employee has not missed a day of work in years, it could also be a sign that this particular employee has something to hide. It is also advisable to rotate the jobs of employees within the company. This may also reveal if there is any fraudulent activity going on as the second employee will review the operations of the first one.
  5. Hire Experts – Developing of anti-fraud policies can be helpful and these can be developed by hiring of professionals like CFEs (Certified Fraud Examiners) and CPAs (Certified Public Accountants). These experts provide services like internal audit and forensic analysis to extensive and primary consultations.
  6. Live the Corporate Culture – A constructive, positive and encouraging work environment can play a major role in preventing the employee theft and fraud. There should be clear policies and procedures along with a clear organizational structure. An open-door policy should be included to give employees the opportunity of communication and discussion with the top management and to prevent the fraud.
  7. Detection – With prevention strategies, the organization also needs detection methods to detect the frauds, and these procedures should be visible to the employees. The visibility of the preventive internal controls acts as one of the influential deterrents to fraudulent behavior. The fraud detection strategies need to monitor and get updated to ensure their effectiveness continuously. The plans take external information and then linked with internal data, the results are then used to enhance the prevention controls. The fraud detection strategies need to be documented along with the teams responsible for each task.  Employees should be made aware of the implementation of the screening plan; this makes them mindful of the fact that company is watching and will take disciplinary action if the employees are found to be committing fraud.

Conclusion

Every organization is vulnerable to fraud and the employees who are intended to do fraud would not think about the size of the company. These frauds can cause massive financial losses, legal charges and affect reputation of the company.

Having a proper plan and strategy can reduce the losses. Therefore, to implement the preventive measures and to make the employees aware of the company policy can significantly reduce the activities from occurring as the cost of prevention is less as compared to potential fraud to be committed.

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Best Practices in Financial Management for Medical Practices

Introduction

In today’s changing environment, a medical practice’s ability to ensure that revenue is maximized, and financial ‘leakage’ is minimized, is crucial to its economic success.  Maximizing revenue includes ensuring the appropriate level of payments against claims for every patient serviced.  Minimizing financial leakage is best achieved by implementing sufficient financial controls and oversight to ensure reconciled deposits across accounts and discouraging employee misconduct.  While most medical practices assume they have implemented the appropriate level of financial controls, independent analysis typically reveals a surprising level of losses stemming from not having the right checks and balances in place throughout the Service-to-Payment process.

Service –to–Payment Cycle

Figure 1 – Medical Practice Service-to-Payment Cycle – The service to payment cycle is the end-to-end process of servicing patients through to the receipt of payment for services renders from insurance companies.  The optimization of this process results in an overall increase in profitability to medical practices. The process can be optimized through the monitoring of defined control points throughout the cycle.

 

 The Service-to-Payment cycle is simply the end-to-end process of managing the receipt of revenues from services rendered to patients which includes:

Cash Payments Reconciliation – Practices which handle a significant amount of cash payments need to implement controls around the collection, recording, deposit, and reconciliation of funds.  Cash payments offer significant opportunities for funds to be mishandled or for employee malfeasance.   Best practices for handling cash payments include:Documenting each patient served through a sign-in sheet and recording the method of payment for service or co-pay.

  1. Documenting each patient served through a sign-in sheet and recording the method of payment for service or co-pay.
  2. Reconciling all payments collected by patients (Cash, Debit, Credit) against bank statements.
  3. Ensuring that all cash payments are totaled and reconciled daily with deposits at the bank. Cash payments should not be aggregated across multiple days to simplify reconciliation tracking for audit purposes.

Billing Assurance – Practices often miss filing insurance claims against all the patients serviced.  In larger practices, a 1 or 2% rate of missed claims can result in a significant loss of revenue.  These types of mistakes do not typically occur as a result of employee misconduct or malfeasance, but rather a natural error rate as a result of normal billing operations.     Charge differential, defined as the difference between standard pricing and charges for procedures issued below the pricing negotiated with individual insurance companies, also impacts a practice’s profitability.  This differential is typically difficult to monitor on an ongoing basis because it requires managing complex tables which track the billing agreements by current procedural terminology (CPT) code negotiated between the multitudes of insurance companies a practice interacts with.

Claims Assurance – Claims assurance is the management of claims from insurance companies to ensure that:

  1. All claims issued to insurance companies are paid.
  2. All paid claims are paid at the negotiated contract level with each Payer/Insurance company. This level is different for every Payer.

A critical area of claims assurance for medical practices is the analysis of adjustments on claims received from insurance companies.  Adjustments should reflect a standard discount received against a claim from a given insurance company and   should range from 20 to 50% based upon the CPT code.   A thorough analysis will typically reveal adjustments in the range of 75% or above, with a 100% adjustment meaning the insurance company has not paid anything against the claim.  Reasons for these high adjustments are multi-fold ranging from insurance company errors to rejection of claims due to input error from the practice’s billing staff.  While this information is available in the standard billing software utilized by medical practices, the rigorous analysis of the aging report and the ability to mine the data into ‘useful information’ is what proves more difficult for practice personnel.

Figure 2 – Claims Assurance Analysis – In this sample analysis of insurance adjustments, basic information has been analyzed using the practice’s billing software.  The $2.2M in revenue has been categorized into Patient Paid, Insurance Paid, Adjustments and Remaining Balance.  The $1.1M in adjustments have been further detailed into groups of <50%, 50-75%, > 75%, and 100% adjusted.  As can be seen from the table, the >75% and 100% adjustment buckets represent $732,798.

 

Rigorous Periodic Reporting and Analysis – Collectively, across the Service-to-Payment Cycle these shortcomings can add up to significant losses to practice ownership.  How does a practice address the collective pitfalls across the cycle?  Success is achieved through the thorough implementation of financial best practices across practice operations leading to effective management and corrective action.  Best practices include:

  1. Periodic (daily, weekly, monthly) exception reporting across the Service-to-Payment cycle to quickly identify issues and prompt corrective action.
  2. Independent oversight of controls to minimize conflict of interest.
  3. Periodic analysis and tracking of key performance indicators to establish performance baselining and to ensure their long-term results are being achieved.

 

Conclusion

Particularly in today’s fast-changing environment, medical practices and facilities need to challenge themselves to take a fresh look at their operations.  While office management may be reluctant to implement potential improvements, ownership clearly wants to increase operational efficiencies in order to mitigate the possibility of lost revenues.     While these conflicting interests between vested parties often create a reluctance to take a fresh, objective review of the current processes,    an independent analysis of operations can uncover and correct inefficiencies thereby increasing the practice’s profitability off of the existing patient base.

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