Assignment Question

Health Care Finance Discussion Questions 1.) Dr. Powers operates a single-provider family medical practice. One medical assistant handles appointments, basic bookkeeping functions, and assists with medical records. Two additional medical assistants assist in patient care. The physician’s spouse comes into the office on an irregular basis to prepare the bank deposit. The accountant for the practice has been able to convince Dr. Powers to hire a practice manager, rather than another medical assistant, to manage the increasing workload of the practice. Teresa Ruiz has been hired into the position of practice manager and has arrived for her first day of work. The medical assistant responsible for opening the mail and posting patient payments tells Ms. Ruiz that patient records are up to date on payments received and charges for services, but she has been instructed to only place the cash and checks received into the cash drawer and that Dr. Powers’ spouse would handle the cash from that point. In the cash drawer, Ms. Ruiz finds checks dated over the past 2 weeks, cash far in excess of that needed for daily operations, and dozens of IOUs where Dr. Powers has taken cash from the cash drawer for lunches. What are the appropriate steps for Ms. Ruiz to take to establish reasonable financial controls over the cash handling process? 2.) Mrs. Ivanov comes into the medical facility for a routine office visit. Her copayment is $35, and she hands the cashier a $50 bill. The $50 bill is deposited into, and the $15 change is taken from, which of the following? A.) Petty cash fund B.)Cash drawer C.) Operating checking account D.) Payroll checking account 3.) Johnson’s Carpet Cleaning has completed their monthly cleaning at the medical office and submitted their billing for $200. Payment to Johnson’s is made from the? A.) Petty cash fund B.) Cash drawer C.) Operating checking account D.) Payroll checking account 4.) Drs. Sawyer and Preston operate a medical partnership. An employee has been designated and trained as a cashier, responsible for opening the mail and recording payments received. The cashier also takes payments from patients receiving medical services. The cashier balances the cash drawer, prepares the daily bank deposit, and drops the deposit into the bank’s night deposit at the end of the day. What recommendations would you make to improve internal controls over the cash handling process? 5.) Mr. Alvarez has just been named as the practice manager for a three-doctor urology practice. Mr. Alvarez is reviewing the petty cash fund and notices that there are several hundred dollars in cash as well as IOUs from various employees in the fund. Dr. Singh, the senior partner, tells Mr. Alvarez that the practice allows employees to use cash from the petty cash fund to tide them over until payday. What do you think of this policy? 6.) The office manager of an outpatient facility is responsible for reimbursing employees of the business for miscellaneous purchases. Which cash management tool is being used? 7.) Dr. Bernu wants to save time on accounting needs for the practice. Since this one factor is the largest in the practice, the decision was made to outsource this to a service provider. Which cash management tool is being used? 8.) Senior medical assistant Hannah is responsible for making change for all the cash paying patients at Quonto Diagnostic Center. Which cash management tool is being used? 9.) All of the following would be included in cash and cash equivalents EXCEPT: A.) Petty cash fund B.) Cash drawer C.) Operating checking account D.) Bank certificates of deposit that mature in 2 years 10.) Working in a single-physician medical office, Aaron Hoffman serves as cashier for the office, makes the daily bank deposit, and is responsible for the monthly bank reconciliation. What recommendations would you make to improve internal control in this area? There’s no word count requirement this week CHAPTER 9 Course Materials- Cengage 2nd edition: Introduction to Health Care Finance and Accounting- Carlene Harrison and William P. Harrison

Assignment Answer

Introduction

In recent times, healthcare practices face increasing challenges in managing their finances effectively. This discussion explores various scenarios related to cash handling and management in healthcare practices and provides recommendations for establishing reasonable financial controls. It draws insights from the principles outlined in the course materials by Harrison and Harrison (2018), “Introduction to Health Care Finance and Accounting.”

Establishing Financial Controls for Cash Handling

Dr. Powers’ medical practice faces a situation where cash handling lacks proper controls, leading to cash discrepancies and IOUs. To rectify this, Ms. Ruiz, the newly appointed practice manager, should take several steps. She should start by conducting an audit of the current cash handling processes, comparing it to industry standards and recommendations outlined in healthcare finance textbooks (Harrison & Harrison, 2018). Ms. Ruiz should establish a clear cash handling policy that outlines who is responsible for handling cash, how it should be documented, and secure storage of cash.

Furthermore, she should implement segregation of duties by ensuring that one person is not solely responsible for the entire cash handling process. Cash should be deposited regularly into the bank to minimize the risk of misappropriation. It’s essential to document all transactions, maintain cash logs, and conduct regular reconciliations. In cases where Dr. Powers has taken cash for personal use, it should be clearly documented, and any discrepancies addressed promptly. These steps align with best practices for healthcare financial controls.

When establishing a cash handling policy, it is essential to ensure that it complies with any legal and regulatory requirements. Depending on the jurisdiction and the nature of the medical practice, there may be specific rules and regulations governing cash handling and financial controls. Failure to comply with these regulations can lead to legal consequences, which can be detrimental to the practice’s financial health and reputation (NIH, 2022).

Additionally, Ms. Ruiz should consider implementing modern technology solutions to enhance financial controls. Point of Sale (POS) systems can help automate cash handling, reducing the risk of human error and providing real-time insights into cash transactions. These systems can also help with tracking cash flows and detecting any irregularities.

Handling Patient Copayments

Mrs. Ivanov’s copayment scenario involves handling a patient’s cash during an office visit. The $15 change should be taken from the cash drawer. However, proper documentation is crucial, and this should be reflected in the cash register. The cash register should be reconciled at the end of each day, and any discrepancies should be addressed promptly. This ensures accountability and accuracy in handling patient payments, as recommended by healthcare finance textbooks (Harrison & Harrison, 2018).

When dealing with patient payments, it’s crucial to maintain a high level of transparency and professionalism. Patients trust healthcare practices with their health and finances. Mishandling of payments can lead to mistrust and negatively impact the practice’s reputation. Therefore, the training of staff responsible for handling patient payments is of utmost importance. They should be well-versed in the practice’s policies and procedures related to cash handling.

Furthermore, the use of electronic payment methods should be encouraged. Accepting debit and credit card payments reduces the need for handling cash, which, in turn, minimizes the associated risks. Many healthcare practices now offer various payment options, including online payment portals, which enhance convenience for both patients and the practice.

Managing Vendor Payments

Johnson’s Carpet Cleaning’s billing of $200 needs to be paid from the operating checking account. Maintaining a separate account for operational expenses and ensuring prompt payment of vendors helps in effective cash management. Delayed payments can lead to additional costs or damaged vendor relationships, which can impact the financial health of the medical office.

Vendor relationships play a significant role in the smooth operation of healthcare practices. It’s important to maintain a positive working relationship with vendors and ensure timely payments to avoid any disruption in services. In some cases, vendors may offer discounts for early payment, which can be advantageous for the practice’s financial management. Therefore, the management of accounts payable is a critical component of effective financial control.

To optimize vendor payment processes, healthcare practices can consider implementing Accounts Payable (AP) automation solutions. AP automation streamlines invoice processing, reduces manual data entry, and ensures accurate and timely payments. It also provides visibility into the payment status of invoices, allowing for better cash flow management.

Improving Internal Controls in a Medical Partnership

Drs. Sawyer and Preston’s medical partnership should implement improved internal controls. Firstly, segregation of duties is crucial. The cashier responsible for handling cash should not be the same person who prepares the bank deposit. Regular reconciliation of the cash drawer with the bank deposit and surprise audits can help detect discrepancies. Furthermore, electronic payment options should be considered to reduce the handling of cash.

In a partnership, maintaining a high level of trust and accountability is paramount. Partners share financial responsibilities, and each partner’s actions can impact the financial health of the practice. It’s essential to establish clear guidelines on financial roles and responsibilities within the partnership.

To improve internal controls, the practice can adopt a dual-authorization system for financial transactions. This means that significant financial actions, such as cash handling and bank deposits, require the approval of at least two partners or individuals responsible for financial oversight. This not only adds an extra layer of security but also ensures that financial decisions are made collectively.

Additionally, regular financial reviews and audits should be conducted to identify any irregularities or areas that require improvement. These reviews can help maintain transparency and accountability within the partnership.

Petty Cash Fund Policy

Mr. Alvarez’s observation of a petty cash fund with cash and IOUs raises concerns. Allowing employees to use petty cash to tide them over until payday may create transparency and accountability issues. It’s essential to maintain strict control over the petty cash fund. Instead, the practice could consider providing employees with other forms of financial assistance or advance payments, ensuring proper documentation and accountability.

The management of petty cash is an area that requires stringent controls. Petty cash should only be used for authorized small expenses, and all disbursements should be supported by receipts and documentation. A clear policy should be in place that outlines the purpose and limits of the petty cash fund.

It’s also essential to periodically audit the petty cash fund to ensure that it aligns with the documented transactions. Any discrepancies or missing funds should be investigated and addressed promptly. Additionally, employees using the petty cash fund should be educated about the proper procedures and the importance of maintaining transparency and accountability in handling cash.

Cash Management for Employee Reimbursements

The office manager responsible for reimbursing employees’ miscellaneous purchases is using a petty cash fund. Petty cash is a practical cash management tool for small, day-to-day expenses. However, clear policies and documentation are essential to maintain accountability.

When managing petty cash for employee reimbursements, it’s crucial to have a robust reimbursement policy in place. This policy should outline the types of expenses that can be reimbursed, the process for submitting reimbursement requests, and the documentation required.

In addition to maintaining a well-organized petty cash fund, healthcare practices can consider implementing expense management software. This software streamlines the expense reporting and reimbursement process, making it more efficient and transparent. It also helps with tracking expenses and ensuring compliance with the reimbursement policy.

Outsourcing Accounting Services

Dr. Bernu’s decision to outsource accounting services is a strategic move to save time and ensure efficient financial management. This cash management tool aligns with best practices in healthcare finance, as it allows healthcare providers to focus on their core functions while experts handle financial management.

Outsourcing financial functions can provide numerous advantages to healthcare practices. It allows for access to specialized expertise, reduces the burden on in-house staff, and ensures compliance with financial regulations and reporting requirements.

To make the most of outsourcing, it’s important to choose a reputable and experienced financial service provider. The provider should align with the specific needs and goals of the healthcare practice. Additionally, regular communication and reporting between the practice and the outsourcing provider are essential to maintain transparency and accountability.

Cash Management for Making Change

Senior medical assistant Hannah’s role in making change for cash-paying patients falls under the cash drawer management. This tool is effective for ensuring the availability of cash for transactions, but it requires meticulous record-keeping and regular reconciliations to maintain accuracy and prevent discrepancies.

When making change for cash payments, accuracy is paramount. It’s essential to maintain a cash drawer with an adequate supply of various denominations to meet patient needs. To prevent shortages or overages, the cash drawer should be balanced at the beginning and end of each shift. This practice helps identify any discrepancies and ensures that the cash drawer remains accurate.

Cash handling procedures should be documented and followed consistently. Any deviations from the standard procedures should be noted and explained. Periodic reconciliations should be conducted to verify that the cash in the drawer matches the recorded transactions.

Cash and Cash Equivalents

In cash and cash equivalents, various items are considered, including petty cash funds, cash drawers, and operating checking accounts. However, bank certificates of deposit that mature in two years are not considered cash and cash equivalents, as they are not readily available for daily operations.

Cash and cash equivalents are crucial components of a healthcare practice’s financial portfolio. These assets are highly liquid and can be used to meet short-term financial obligations. Proper management of cash and cash equivalents ensures that the practice has the necessary funds to cover operating expenses and respond to unexpected financial needs.

Bank certificates of deposit that mature in two years do not fall under the category of cash and cash equivalents because they represent longer-term investments. Cash and cash equivalents are typically assets that can be readily converted into cash within a short time frame, usually within three months. While certificates of deposit may be relatively liquid, they do not meet the criteria for immediate accessibility and are considered investments rather than operating funds.

Enhancing Internal Controls for Cash Handling

Aaron Hoffman’s role as a cashier in a single-physician medical office involves handling cash, making daily bank deposits, and reconciling accounts. To improve internal controls, clear segregation of duties should be maintained. Regular audits and reconciliations are crucial to detect discrepancies. The use of electronic payment options can reduce cash handling and enhance accuracy.

Segregation of duties is a fundamental principle of internal controls. It ensures that multiple individuals are involved in financial processes, reducing the risk of errors or fraudulent activities. In Aaron Hoffman’s case, his responsibilities should be divided among different staff members. One person can be responsible for receiving cash, another for preparing deposits, and a third for reconciliation.

Regular audits and reconciliations are essential to maintain financial transparency. These reviews can help detect any irregularities, such as discrepancies between recorded transactions and the actual cash on hand. If discrepancies are identified, they should be thoroughly investigated to determine the cause and take appropriate corrective actions.

Electronic payment options, such as credit card processing and online payment portals, offer an effective way to reduce the handling of cash. These options not only enhance security but also provide a convenient payment method for patients. The integration of electronic payment solutions into the practice’s financial processes can streamline cash management and reduce the associated risks.

In conclusion, effective financial management is crucial for healthcare practices to ensure transparency, accuracy, and accountability in cash handling. The principles discussed here align with the guidelines provided in healthcare finance textbooks (Harrison & Harrison, 2018) and best practices in the industry. Establishing and maintaining proper financial controls is essential to secure the financial health of medical practices and deliver quality healthcare services to patients. By implementing these recommendations, healthcare practices can strengthen their financial stability and ensure the efficient use of cash resources.

References

Harrison, C., & Harrison, W. P. (2018). Introduction to Health Care Finance and Accounting (2nd ed.). Cengage.

National Institute of Health (NIH). (2022). Financial Management of NIH Grants.

Frequently Asked Questions

1. How can Ms. Ruiz establish reasonable financial controls for cash handling in Dr. Powers’ medical practice?

Ms. Ruiz can establish financial controls by conducting an audit, implementing segregation of duties, and documenting all transactions. A clear cash handling policy should be in place, and cash should be regularly deposited into the bank.

2. What are the key considerations in handling patient copayments in healthcare practices?

Handling patient copayments involves ensuring proper documentation, reconciliation of the cash register, and maintaining transparency. Electronic payment methods are encouraged to reduce cash handling.

3. How can healthcare practices optimize vendor payment processes?

Healthcare practices can optimize vendor payments by maintaining a separate account for operational expenses, ensuring timely payments to vendors, and considering early payment discounts. Accounts Payable (AP) automation can streamline invoice processing.

4. What internal controls should be in place for medical partnerships to improve cash handling?

In medical partnerships, segregation of duties, dual-authorization for financial transactions, and regular financial reviews are essential for improving internal controls. These measures enhance transparency and accountability.

5. What are the best practices for managing petty cash funds in healthcare practices?

Managing petty cash funds requires strict controls, including a clear policy outlining the purpose and limits of the fund. Regular audits and education for employees using petty cash are important for maintaining accountability.