Assignment #5

Requirement: Identify at least six control weaknesses at the Victoria Clinic and the Texas Top Health Group. Three weaknesses relate to the revenue cycle and three relate to the expense cycle. Describe the potential threat and exposure associated with each weakness, and recommend how to best correct them.

Case study:

Victoria Clinic, Inc. is a small health care provider owned by a publicly held corporation, Texas Top Health Group. The clinic employs seven salaried physicians, ten nurses, three support staff, and three clerical workers. The clerical workers perform such tasks as reception, correspondence, cash receipts, billing, and appointment scheduling. All are adequately bonded.

Most patients pay for services rendered by cash or check on the day of their visit. Sometimes, however, the physician who is to perform the respective services approves credit based on an interview. When credit is approved, the physician files a memo with one of the clerks to set up the receivable using data the physician generates.

The servicing physician prepares a charge slip that is given to one of the clerks for pricing and preparation of the patients bill. At the end of the day, one of the clerks uses the bills to prepare a revenue summary and, in cases of credit sales, to update the accounts receivable subsidiary ledger.

The front office clerks receive cash and checks directly from patients and give each patient a prenumbered receipt. The clerks take turns opening the mail. The clerk who opens that days mail immediately stamps all checks for deposit only. Each day, just before lunch, one of the clerks prepares a list of all cash and checks to be deposited in Parktowns bank account. The office is closed from 12 noon until 2:00 p.m. for lunch. During that time, the office manager takes the daily deposit to the bank. During the lunch hour, the clerk who opened the mail that day uses the list of cash receipts and checks to update patient accounts.

The clerks take turns preparing and mailing monthly statements to patients with unpaid balances. One of the clerks writes off uncollectible accounts only after the physician who performed the respective services believes the account will not pay and communicates that belief to the office manager. The office manager then issues a credit memo to write off the account, which the clerk processes.

The office manager supervises the clerks, issues write-off memos, schedules appointments for the doctors, makes bank deposits, reconciles bank statements, and performs general correspondence duties.

Additional services are performed monthly by a local accountant who posts summaries prepared by the clerks to the general ledger, prepares income statements, and files the appropriate payroll forms and tax returns.

Last year the clinic purchased over $100,000 worth of medical equipment with individual orders ranging from $10,000 to $50,000. The budget, which limits the types and dollar amounts of each clinic can buy, is approved at the beginning of the year by the board of directors of Texas Top Health Group. The ordering system of the group functions as follows:

Purchasing: A purchase requisition form is prepared by the clinic office manager and sent to the purchasing department of the group. Upon receiving a purchase requisition, one of the five purchasing agents (buyers) verifies that the requester. The buyer next selects the appropriate supplier by searching the various catalogs on file. The buyer then phones the supplier, requests a price quote, and places a verbal order. A prenumbered purchase order is processed, with the original sent to the supplier and copies to the clinic office manager, receiving, and accounts payable. One copy is also filed in the open-requisition file. When the clinic verbally informs the buyer that the item has been received, the purchase order is transferred from the open to the filled file. Once a month, the buyer reviews the unfilled file to follow up on open orders.

Receiving: The clinic gets a copy of each purchase order. When equipment is received, that copy of the purchase order is stamped with the date and, if applicable, any differences between the quantity ordered and the quantity received are noted in red ink. The clinic physician runs the equipment and then forwards the stamped purchase order to the clinic office manager, who will verbally notify the purchasing department that the goods were received.

Accounts Payable: Upon receipt of a purchase order, the group accounts payable clerk files it in the open purchase order file. When a vendor invoice is received, it is matched with the applicable purchase order, and a payable is created by debiting the requisitioning clinics equipment account. Unpaid invoices are filed by due date. On the due date, a check is prepared and forwarded to the treasurer for signature. The invoice and purchase order are then filed by purchase order number in the paid invoice file.

Treasurer: Checks received daily from the accounts payable department are sorted into two groups: those over and those under $10,000. Checks for less than $10,000 are machine signed. The cashier maintains the check signature machines key and signature plate and monitors its use. Both the cashier and the treasurer sign all checks over $10,000.