Accounting Specialists
to the Medical Profession


CPAs4MDs Guide to Practice Management and Internal Control


Segregation of Duties


Internal Controls

Tracking Accounts Receivable

Eliminating Accounts Receivable

Monitoring Insurance Payments


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ding Segregation of Duties

Segregation of duties means separating the recordkeeping function from the operational responsibility of that activity and from those who exercise physical control over the records.

Separation of recordkeeping and control of assets is aimed at the prevention of fraud. Unfortunately, employees can embezzle assets for which they are responsible because they can conceal their actions simply by manipulating the supporting records - i.e. by fraudulently endorsing checks and posting adjustments to the patients' computer account or ledger card.

The obvious drawback is that most medical practices lack the large number of employees required to realistically segregate these functions. (See the Organizational Chart.) Here are several examples of how practices violate the concept of segregation of duties:

ding Receipt and endorsement of daily checks are made by the accounts receivables clerk or practice administrator, who then posts them into the accounts receiveables system.

ding Checks are written by the accounts payable clerk, who then brings them to the physician for signature without proper supporting documentation.

ding The payroll clerk distributes payroll checks.

ding Vendors are chosen and reviewed by the same individual.

ding Follow-up of accounts receivables and third-party insurance payments outstanding are pursued by the same individual, who is authorized to write off these accounts receivables.

If clear-cut segregation exists, and office personnel uinderstand their functions, their performance will be optimized. They can fulfill their responsibilities without hesitation because they know where they fit in. The physician, in turn, can measure the effectiveness of each employee within a well-defined sphere of performance.

Once duties have been segregated and lines of authority developed, there is another problem: ongoing communication. Individuals tend to forget certain procedures as time passes. Also practices change and staff turns over. As a result, the procedures and policies originally established unofficially become modified or neglected.

We can protect against this by informing employees what their job functions are and how to implement them. How? Through job-description manuals. Rarely found in medical practices, job-description manuals allow the physician to focus on the exact duties performed by each employee,


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