Cash Management in IT Management

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Impact Probability Study What is the probability you will be involved in he following event? Fill in 0% to 100% What is the relative impact on your organization? Crisis, High, Medium, Low Probability of Occurring Impact


What do you think the probability and impact is of...

This Year



Year After

This Year

Next Year

Year After

1. Having a new or revised health care financing

system where cash is a part of the funding

2. Competing for business with other

organizations based on price and quality

3. Having or suspecting an incident of cash-theft

4. Needing to establish controls over cash due to

regulatory requirements

5. Having to explain how cash was used or

disbursed including better ways to share

incentive monies

6. Obtaining a computer to help manage finances

7. Needing to improve or establish the reporting

of cash to outside authorities such as a tax


8. Needing to have an external audit of finances

9. Expanding services that are marketed based on

user fees

10. Needing to write policies regarding user fees

so as to qualify for additional humanitarian aid

11. Having an account receivable function in the

facility (issuance of credit)

12. Establishing a service only supported through

user fees

13 Purchasing equipment with user fees

14. Other

Overview of Internal Control for Cash Management

Definition of Internal Control - methods and measures to safeguard assets, seek accuracy and reliability of accounting and administrative controls, and promote operational efficiency. Cash is a key asset.

Characteristics of Reliable Internal Control

a plan to provide for the segregation of certain functional responsibilities

a system of adequate policies and procedures

quality personnel suitable to the task. DO YOU HAVE THE PERSONNEL RESOURCES?

focus on the ideal so participants understand the weaknesses. Always a compromise.

International Objectives of Internal Control

Depends on Culture ... Different cultures reflect/require different levels of control

Audits ...Growing need to assess/understand basic control prior to investment (Examples)

Typical Objectives of Control ... Authorized and documented transactions in accordance with local laws, preventing unauthorized access to assets or misstatements of amounts

Internal Control Tools

Checklists and Flowcharts

Policies & Procedures

Statistical Process Control Techniques (Dorian Shanin)

Internal Control Flow-Chart for Cash Management

Example Flowchart




Records Cash



Collects Cash


Daily Deposits



Pays Bills

Department 1

Performs Services



Manage Receivables

Department 2

Performs Services


Department 3

Performs Services


Exercise: Draw a flow-chart for how your facility is or will probably collect cash from user fees. Make sure you identify:

Who authorizes and determines the user fee amounts?

Who collects the user fee?

Who accounts for the user fees? (who keeps the records?)

Who makes the deposits of the user fees?

Where the deposits are made? (a bank, a safe ?)

Internal Control Questionnaire for Cash Management





Are cash records kept up to date? Are there daily, weekly, monthly reports?


Are accounts balanced and reconciled regularly?


Is the Cashier the same person as the Admissions Clerk?


Is the cashier's records (such as a register tape) reconciled with copies of the receipts?


Can the receipts subsequently be traced to the cash receipts accounting journal?


Does the Admission Department list of Workorder Receipts subsequently match accounting and cashier amounts?


Is cash handed in daily? (either to bank or audit area)


Are employees trained in the cash management?


Do employees switch tasks periodically?


Is the book-keeper required to take annual vacations?


Is there a periodic audit of the process?


Are receipt/workorder forms pre-numbered and controlled?


Is management satisfied that all employees are honest?


Are all voided work-orders accounted for?


Is there an occasional audit of services provided versus cash receipts?


Is the person auditing the process independent?


Is there a separation of functions, including control over hiring key positions?

Creating an Effective Internal Control Structure

Cash and other receivables are "liquid" assets and require more control than non-liquid assets.

Create an organization that promotes an environment of control.

Assess and prioritize the risks of losses with the cost of controls.

Promote communication of internal control among managers as it improves ability to plan, helps to assure money on hand to meet liabilities, unexpected emergencies, and other responsibilities.

Need to periodically audit internal control procedures and policies.

Need to safeguard cash to prevent theft and fraud. Learn from other's mistakes.

1994 Fraud Survey by AICPA c/o KPMG

How was the fraud detected?

3000 firms surveyed

52% were uncovered by Internal Control

51% by Tips

47% by Internal Auditor

42% by Management Internal Control Audits

34% by Customers

28% by Accident

18% had a fraud of $1,000,000 or more

38% had a fraud of $ 100 000 - $999 000

21% had a fraud of $25 000 - $99 000


Typical Control Procedures for Internal Control of Cash-

Internal control is only as good as it's level of consistent application

Definitive and clear cut assignment to designated individuals as to the responsibilities of cash management. This includes the

Establishment of a system of written policies and procedures

The design of adequate documents and records to help insure the proper recording of transactions and events

Segregate the duties of personnel to reduce the opportunity of allowing any one person to be in a position to perpetrate and/or conceal errors or irregularities including the

Establishment of definite and separate routines for managing the inflow of cash and managing the outflow of cash

Separation of the handling of cash from the accounting for cash. Keep those who handle cash away from the records of cash and vise-versa

Establish adequate safeguards over the access to, and use of, assets and records including

The need that all cash should be deposited daily

All files and documents should be safeguarded and pre-numbered when necessary

Independent checks and audits should occur on a periodic basis

Internal Control Procedures- Exercise

Break into three of four groups. Each group should design an internal control system for receiving cash under one or more of the four situations shown below. Note the responsibilities of the individuals under each situation and point out the opportunities for poor control as well as the possibilities for good control.

Situation 1: One person is assigned to the cash responsibility, the cashier. The cashier authorizes the user fee, receives cash and maintains the bookkeeping on the cash. The cashier also deposits any cash into appropriate bank accounts.

Situation 2: Two individuals are provided to manage cash. A cashier and a bookkeeper.

Situation 3: Three individuals are provided to manage cash. An admissions clerk, a cashier, and a bookkeeper.

Situation 4. You have no limit on the number of personnel. Design a fool-proof internal control system that maximizes control of cash and improves planning opportunities.

Internal Control - Typical Errors and Irregularities of Managing Cash

Errors are unintentional and Irregularities are intentional

It is more difficult to prevent irregularities than to prevent errors.

Types of errors and irregularities:

Defalcations (Stealing): An irregularity

Intercepting cash before it is recorded in accounting records.

Taking cash from recorded but un-deposited receipts

Diverting cash from its intended destination (re-routing payments or refunds)

Distortions (Misstatement): An error

Misstating the bookkeeping records without taking assets

Unconcealed (Open): An irregularity or an error

The cash amount is less than the recorded amount

Concealed: An irregularity

The cash amount is intentionally overstated to force agreement with the bookkeeping records (Temporary)

The amounts have never been recorded or have been reduced after being recorded. (Permanent)


Using the following internal control chart, identify where each of the four types of errors or irregularities might occur. Give examples of how this might happen. Comment on what can be done to promote control.




Records Cash


Collects Cash


Daily Deposits



Pays Bills

Department 1

Performs Services



Manage Receivables

Department 2

Performs Services


Department 3

Performs Services


Exercise: Solutions/Comments


Interception and the taking of cash suggests cash be recorded quickly and regularly. Easier to intercept cash when personnel functions are not separated. An interception today can be hid by an interception tomorrow. Thus, it is important to reconcile accounts periodically to avoid a "rolling" interception. Diverting cash is usually controlled by "authorization" procedures.


Can occur anywhere where records are kept. Regular audits, reconciliation's, and reports coupled with good accounting procedures helps this situation.

Temporary Concealment

An issue of timing. Requires reconciliation's to stop. Surprise reconciliation's useful.

Permanent Concealment

Most dangerous. Requires attentive and consistent internal control measures, safeguarding of records, and retroactive audits.

Common Concerns in Health Care Cash Management Regarding User Fees

The Authorization procedures are not consistent. Example: Sometimes user fees are required, and sometimes they are not. Also, who authorizes the fees is often the same person who collects the money or delivers the service

Personnel Shortages. If you cannot afford to have the proper number of people involved, supplement the internal controls with spot audits and reconciliation's. Also, use statistical controls to identify likely areas of poor control.

Cash Management controls are co-mingled with Receivable Management Example: The cashier can authorize payment through credit. See "Authorizations" above..

Others ?

Overview of Internal Control - Receivables

Receivables: a claim of money against an individual or organization. Commonly used for patient accounts of user-fees, a receivable is a credit granted to a patient in lieu of cash payment.

Two (2) Systems of Receivable Control

Card System - Commonly used system. A card is maintained on each patient with a running balance of what they owe. Under the card system, the authorizations for the account receivable are kept as a separate function from the card. As payments are made, an entry is made for each payment on the card. During the month, payments are made and posted, reducing the balance owed. At the end of each month, the cards are reviewed and a balance of all receivables are summed. The benefits of the card system is that it separates the authorization function from the collection and bookkeeping function.

Open-Invoice System -A simpler system. A secured file is kept on each patient's open invoices/authorizations (sometimes by date due or by date incurred). At the end of each month, all invoices due are added. This method requires that the file be maintained in a secure place. Fraudulent access or mis-filing of the file can cause the amount due to be lost.

Receivable Control - Card System Example

Patient Name and/or Number

3-3-95 CHEMOTHERAPY TREATMENT Mr. Lushev 098765 1 435 1 435

5-3-95 payment for chemotherapy-098765 800 635


Receivable Control - Card System Example

Payment Flow:


Collects Cash



Collects Cash Maintains Cards

Obtains Payment ID

Internal Control - Exercise on the Card System

Break into three of four groups. Assume not all user fees are paid in cash. (In other words, assume there is some insurance or other credit mechanism available and you need to keep track of accounts that are receivable).

Discuss the application of an internal control system for managing receivables under the "card" system at your facility. Summarize your conclusions.

Consider the following four "situations". Note the responsibilities of the individuals under each situation and point out the opportunities for poor control as well as the possibilities for good control.

Situation 1: You are the cashier and you maintain the cards & authorizations

Situation 2: You are the uncle of the patient and you work in accounting maintaining the books and the cards.

Situation 3: You are the patient. The cashier issues hand written receipts to the patients. You are skilled at forging documents.

Situation 4. The system is properly installed but you reconcile the cash accounts with the accounting records once per year.

Internal Control - Open Invoice System

The Authorization / Invoice is maintained in a locked file requiring two people to open and have access to it.

Someone takes the Authorization / Invoice and the Receivable is lost forever

Authorizations represent assets

Cash is received and posted at the cashier. Controlled receipts are issued to patient.

Normal cash procedures

Risk of Cashier Fraud if Receipts not managed or reconciliation's of cash logs and Open Invoice file not frequent

Each day, cash receipts are posted to the open invoice file

Allow different people to post file.

Internal Control - Exercise

The Authorization of a Receivable is as important as the collection of cash. Discuss some of the following key questions as they might pertain to your facility including:

Who should authorize a receivable?

To whom and how is the receivable paid? (The Card or Open Invoice System)

Under what terms of payment?(When is it due, how often, interest rates?)

For what amount?(Are there limits? Exceptions to the limits?)

With what collateral, if any?(Legal implications)

Considering what risks? (inflation, no payment)

Key management reports (Aging Report, Past due Report, Late Collections Report, etc.)

Exercise in Cash Management for User Fee Analysis

Management is looking ahead to improve their management of user fees in 1997. As such, it is important to identify today those key data elements that will promote improved decision-making in the future. Review the following subject areas and discuss the relative importance of the issue and the data elements that should be collected today to promote more effective decision-making in the future.

Utilization of Services (including excess capacity)

Marketing for Additional User Fee Business

Cost Management of areas involved in user fees business

Incentives for those responsible for user fee business

Quality Management of services provided on a user fee basis

Budgeting Revenue, statistical, and expense

Exercise in Resource Management Tracking for User Fee Analysis

The worksheet on the following page is a sample document for tracking user fees, resources, activities and more within a department. Similar documents can be used to track cash, patient-flows, and utilization of services. Look over the document and discuss:

Appropriateness for your situation

Modification that would facilitate your use and improve the control of resources within a department.

Comparisons to similar documents currently in use

Manpower required to implement such a document

Other issues