HCS/380 Week 5: Internal Controls and Accounting Ethics, sample paper

$38,400 in Voided Copays: How One Front Desk Supervisor Took Cash for Fourteen Months and the Internal Controls That Would Have Stopped Her

[Student Name]

University of Phoenix

HCS/380: Health Care Accounting

Week 5 Assignment

[Instructor Name]

[Date]

The practice, employee and figures are a composite written for a model paper.

A composite pediatric practice with four physicians and three nurse practitioners sees about 110 patients a day at two offices. Most families pay copayments at check-in, and about a fifth pay in cash. In March, a parent called to dispute a statement that showed a $30 balance for a visit she had paid in cash; she had a handwritten receipt. The practice manager found that the payment had been entered and then voided in the billing system the same afternoon by the front desk supervisor, a nine-year employee. A review of the prior 14 months found 1,280 voided cash payments by the same user, totaling $38,400. The supervisor had not broken into anything; the practice had given one person every key needed to take cash and erase the record of it. This paper analyzes how the fraud occurred and how to prevent it.

How the Scheme Worked

The supervisor collected cash at the front desk, entered the payment in the practice management system and gave the family a receipt. Later, she voided the payment in the system, which left the visit's copay showing as unpaid on the patient account, and kept the cash. She also prepared the daily deposit, so the deposit matched the system's reduced cash total. To keep families from noticing, she adjusted many of the resulting balances to zero with a small-balance write-off code, which she was authorized to use. Only when a write-off was missed did a family receive a statement.

Why It Happened: The Fraud Triangle

Cressey (1953), who interviewed people imprisoned for embezzlement, found that trusted employees who violate that trust usually share three conditions: a financial problem they feel they cannot share, the knowledge and opportunity to solve it secretly using their position and a way to rationalize the act, such as intending to pay it back. This model, later called the fraud triangle, fits the case. In her interview, the supervisor described medical bills from a family illness (pressure), explained that she knew no one reviewed voids or write-offs (opportunity) and said she had meant to repay the money (rationalization).

The practice could do little about her pressure or her rationalization, but it controlled the opportunity entirely. The Association of Certified Fraud Examiners (ACFE, 2024), in its global study of occupational fraud, found that a lack of internal controls or an override of existing controls contributed to a large share of cases, that the typical scheme ran about a year before detection and that tips were the most common way frauds were found, as happened here.

The Missing Controls

The review identified five weaknesses. First, no segregation of duties: the supervisor collected cash, recorded and voided payments, applied write-offs, prepared the deposit and was the only person who reconciled cash to deposits. Second, voids and write-offs required no approval and were never reviewed. Third, receipts were handwritten, not system-generated and numbered, so there was no independent record of what had been collected. Fourth, no one compared the number of visits with copays expected against copays collected. Fifth, the supervisor had not taken more than two consecutive days off in years, so no one else ever did her work.

Designing Controls for a Small Practice

Internal control in a small practice must be affordable, since it cannot hire a separate person for every duty. Cleverley and Cleverley (2018) note that the goal of internal control is reasonable, not absolute, assurance, and that controls should be matched to risk and cost. The practice adopted six controls.

Segregate the key duties. Front desk staff collect and record payments, but only the practice manager can approve voids and write-offs, and the deposit is prepared by one person and verified by another. The monthly bank reconciliation is done by the practice's outside accountant.

Require approval and review of exceptions. The system now requires a manager's password for any void or write-off, and a weekly exception report lists all voids, write-offs and refunds by user, which the practice owner reviews.

Use system-generated receipts. Every payment produces a numbered receipt from the system, printed or emailed to the family, and signs at check-in ask families to request a receipt.

Reconcile expected with collected. A daily report compares copays expected for completed visits with copays collected and flags gaps for follow-up.

Reduce cash. The practice encourages card and online payments, which leave an electronic trail, and cash is collected in a locked drawer and counted by two people at day's end.

Require vacations and cross-training. Staff who handle money must take at least five consecutive days off each year, during which another trained person does their work.

Obligations After Discovery

The practice had several duties once the fraud was found. It suspended the supervisor's access immediately, preserved the system logs and consulted its attorney. It corrected every affected patient account so that families who had paid were not billed or sent to collections. It reported the theft to police and filed a claim under its employee dishonesty insurance, which covered most of the loss. It also reviewed whether any payer claims had been affected; because the scheme involved patient copays only, insurers had been billed correctly.

The ethical dimension extends beyond the supervisor. Leaders who handle money for a health care organization have a duty of stewardship: patients and payers trust that funds are recorded honestly and used for care. The practice's failure to implement basic controls did not excuse the theft, but it made the theft easy and allowed it to continue.

Measuring Whether the Controls Work

The practice owner reviews the weekly exception report and a monthly summary showing voids and write-offs as a share of payments. The outside accountant performs one surprise cash count each quarter. After six months, voids fell by more than 80%, and the daily expected-versus-collected report found no unexplained gaps.

Conclusion

A trusted supervisor took $38,400 over 14 months because the practice gave her control of every step in handling cash and never reviewed voids or write-offs. The fraud triangle shows that the practice could not control her pressure or rationalization but could have removed the opportunity. Segregating duties, requiring approval and review of exceptions, generating numbered receipts, reconciling expected with collected payments, reducing cash and requiring vacations are affordable controls that protect both the practice and its employees.

References

Association of Certified Fraud Examiners. (2024). Occupational fraud 2024: A report to the nations.

Cleverley, W. O., & Cleverley, J. O. (2018). Essentials of health care finance (8th ed.). Jones & Bartlett Learning.

Cressey, D. R. (1953). Other people's money: A study in the social psychology of embezzlement. Free Press.