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INTERNAL CONTROL

The word control connote policing to many people. This is a


narrow mechanical definition of control. In a broader
organic term the control process could be visualized as
follows :
Plan

Replan

Control

Standard/criterion

Feed Back

Need for Internal Control :


the complexity of hospital organization
obligation to safeguard hospital assets and liabilities
necessity of accurate and reliable financial and statistical
data
Promote operational efficiency
Encourage adherence to institutional policies/defined
standard

Fraud and Waste


-Fraudulent manipulation of one way or the other result in
sizable loss, but sometimes bigger loss is due to wastage
underutlization, operational inefficiency, ineffective control
on purchase and use of supplies.
Economic justification of each major expenditure is
extremely important in any social service institution.

Basic Elements of Control :


-Organization structure that provides an appropriate
segregation of functional responsibilities.
-A system of authorization and record procedures adequate
to provide adequate accounting control on assets, liabilities
revenues, expenses.
-Sound practices to be followed in performance of the
duties and functions of each of the organizational
departments.
- Quality of personnel commenserate with responsibilities.

Assets

Liabilities

-Land & Building

- Accounts payable -Patients &


Accounts Rec.
- Long term loan
-Grants &
- Specific purpose
donations
funds
-Income from
- capital
property

-Major fixed
equipment
-Movable
equipment &
furniture
-Minor
equipment
-Cash
-Investment
-Inventory

Revenues

-Supplies
-Other income

Expenditure
-Salaries
-Supplies
-Repair &
maintenance
-Plant operation
-Utilities
-Research,
training,
development

Land & Building


- Complete listing with values original cost accumulated
depreciation.
- Title deeds
- Income, if any, from property control
-Taxes and other legal obligations
Major Equipments
- Cost of acquisition, source, installation cost
- Guarantee, diagram, list of spares, tools, operation and
maintenance handbook.
- Repair or maintenance contracts
- Aging of asset, approximate life, plan for replacement,
depreciation fund
- Accumulated depreciation

Movable Equipment & Furniture


-Complete list, location, acquisition value, movement,
marking by department, section.
-Annual checking, occasional surprise checks
-Programmed preventive maintenance for A.C., Refrigerator,
similar equipment.
-Department register, occasional checking
-Aging
Minor Equipment
-Listing at the time of start, estimated annual loss, annual
replacement
-Policy regarding annual checking, control by replacement
-Departmental Equipment Register
-System of writing off unserviceable equipment
condemnation committee

Purchasing & Inventory Control : (25% to 40% of total


exp.)
- One of the most neglected area in our Hospital system
often handled by driver or a clerk.
- Central purchasing
- Purchase requisition for one routine items
- description, make, specification
- Purchase order Supplies, File, Req. Dept., A/c Dept.,
copies pre-numbered
- Planned purchase Authorization of purchases
- Competitive bids, Price negotiation
- Value analysis, basis of making decision to be recorded
- Purchase Committee

Receiving :
- Count, weigh, measure quantity, check quality and
condition
- Arrange inspection by department for non-routine items
- Receiving report
- Report damage to insurance company, observe survey
and other inspection facilities
- Report about quality, deviation from specification
Recording Purchase :
- Payable journal, purchase journal
- Alphabetical filing by vendors name
- Checking invoice calculation/rates
- Delineating responsibility for checking and certification
as to quality, quantity, measurement

Inventory :
- Perpetual inventory
- Assignment of responsibility
- Adequate storage facilities to protect against damages
- Limited access
- Supply requisition
- Location of stores
- Maximum minimum control
- Periodic report
- Physical inventory
- Control of expensive items, A B C analysis
- Periodic review of slow moving items, investment in
inventory, inventory carrying cost

CONTROL OF CASH :
Cash Receipts :
- Centralize cash receiving reduce cash handling separate
receiving and paying
- Billing and cash collection to be separated
- Deposit entire cash receipt in tact
- Fidelity bond
- Make vacation mandatory, job rotation
- Physical protection to cashier
- Discourage substitution of cheques for cash

Mail Receipts :
-Entered by someone other than cashier and account
-Not to combine with other / counter cash
Counter Receipts :
- Cash register and problem of allocation

Bank Deposit :
CASH DISBURSEMENT :

Basic Policies :
- All payment by cheque
- Small amount from imprest cash for pretty payments
- Pre-authorization of voucher
- Routinization of payments
- System of double checking of all bills (rate, quality of work,
quantity of supply, account of material supplied by Hospital)

Received in good condition / quantity


Bills from
suppliers
Medicine / Supplies

Quality according to specification


certified by actual user, terms for refund
if materials are not found suitable
Checking rate and calculation
Rate (Acceptance of quotation / bids)

Bills for
Repair &
Maintenence

Certified that work is done to satisfaction.


Masonery work, woodwork, plumbing,
mechanical, Electrical work, checking of
quality.
Account of material supplied by hospital.
Calculation of quantity.

Employees
students leaving
for good

Release certificate from various responsible


persons school, hostel, library, medical
panel, billing, credit union, personnel dept.,
concerned.
Any other dues, deduction, disciplinary
matter from a ministration.

Refund of
advance deposit
medicine

System of checking and certifying by


billing office after preparation of final
bill.
System of checking and certifying by
pharmacy.

INVESTMENT
- Various alternatives for investment, risk, return
- Long term projection of fund requirement
- Varied periodicity of investment so that a part could be encashed
every year, in case of emergency
Continuous review
ACCOUNTS PAYABLE :
-Payment policy

- Receiving certificate inspection of quality


- Sending bills to Accounts Office
- Entering in payable journal
- Payment of monthly bills dates specified
- Checking of payable account
- Preparing schedule at the time of closing books

LONG TERM LOAN


- A policy for keeping aside installments preferably in a separate account.
Exp. Quarterly payment of Rs.15,000/Monthly Rs.5,000/- should be taken out and kept in separate
account.
- Such money should be treated as untouchable
SPECIFIC FUNDS :
- Specific fund cash should never be kept with general cash
- If there is large number of funds a separate ledger should be opened
- If large grants for construction, equipment comes which are likely to be
spend over a period of time, separate bank account with separate set of
vouchers, ledger, cash books, is a must.
- Some Government grant needs separate accounting
- Now with Foreign Contribution Regulation (FERA) Act separate books,
with separate bank account and periodical return has become mandatory.

PATIENT REVENUE & ACCOUNTS RECEIVABLE :

OUTPATIENTS
Defaulcation becomes easier when receipts are
handled by many people.
Chances of addition / subtraction error could be
minimized with mechanical aid electronic cash register
with audit key.
Cash register creates problem for bifurcation,
departmentalizaton of central cash is planned.

Duplicate Charge Slip for credit

Duplicate Cash Memo

Consultation

Laboratory

X-Ray

Pharmacy

Minor O.T., Dressing Injection

Eye, ENT, Dental, Physio

Emergency

Who receives cash in odd hours and system of Deposit to chief


cashier
Some hospitals has system of paying for services like X-ray, Lab,
Pharmacy by inpatients cashiering becomes complicated IP &
OP income needs to be separated, odd time coverage, deposit of
cash to cashier, needs meticulous planning.
INPATIENTS
Routine charges
Room
Food
Medical Care
Intimation about date of admission, type of food, date of
discontinue, date of discharge, charge of room, charge of food is
important.

All charges should be routed through admission office


Colour coded charge slip
Lab

Register to record all tests

--

X-ray
Pharmacy

Charge Slip No.

Duplicate copy of prescription


Separation of main store, Stock
medicine, emergency drug

Operation

- -

Delivery

--

Anaesthesia
Charge slip in Triplicate

-- One to patient bill


- One to accounts office
- One retained in book by the section

Daily income summary could be prepared from the total of


charge slip and cash memo book which could be used as
control account for patient income.
Loop holes like checking of rate, calculation, missing charges,
(receiving charge slip after patient has left), attaching charge
slip to wrong folder, needs continuous internal checking,
reviewing, consultation with different department, etc.
ACCOUNTS RECEIVABLE :
Credit Policy who is eligible for credit ) Individual
) Institution
) Meal
)Type of room
- Authority slip from
Institution

) Braces, Denture,
) Tonic, shoes

- Payment terms 30 days


- When monthly bill will be submitted
- Reviewing credit list, taking out names of those who are not
fulfilling requirement.
- Credit to employees friends and relations
- Undertaking from employees
- Normally Credit Manager handles assessment, free care which
could be a source of potential trouble.
- Free care and credit should not be mixed
- Bad debt should be approved by appropriate authority
- Policy on discounts Priests
- Religious people
- Sister organization
- Schools
- Community Health

Free Care :
- There should be policy who should get free care ?
- Elective / Emergency
- Chronic disease
- Delivery (Normal)
- Who authorizes free care
- Accounting of free care / stamping and signing by patients
- Free care in one place only
GRANTS & DONATIONS :
- Proper record, accounting, return
- All donated commodities are to be valued and accounted
- Conditioned of grants are to be studied carefully, periodical
returns are to be sent in time with detailed work report.

INCOME FROM PROPERTY


- Proper listing of property
- Proper listing of income from property
- Periodic review of contracts/rent/lease
- Assigning responsibility to maintain property account
OTHER INCOME
Recoveries should not be considered as income
- Rent employees
- Food employees
- Electricity water employees
- Telephone
- Use of vehicle
It could be treated as reduction of expenditure rather than income
for all practical purposes.
- Fees from student could be considered as income for particular
education programme.
- Petty income from cycle stand, sale of junk, could be
accumulated as fund employee benefit, contingency etc.

EXPENDITURE
SALARIES

Employment
Authorization

Record of
Employment

Rate of Payment

Increment

Promotion

Attendance
Leave
Procedure
Reporting
Back
Part-time

Compilation of
payroll

Payroll
Disbursement

Electricity
Telephone
Use of Vehicle

Dietary

These needs elaborate policy as to


- how to check
- how to charge / bill
- means of reimbursement
- proper control
- Fixing rate
- Method of billing / Prepayment
- No. of meals prepared Employees
patients
- System of Purchase, Storage,
Issue
of food items

Laundry & Linen

Marking

-System of issue, collection, repair,


replacement
- If employees linen are washed
method of charging
- Control on cleaning materials,
chemicals, detergents, electricity
-Utilization of equipment and facilities
CONTROL OF FORMS :
- Bill Book, Receipt Book, charge slip
When a large number of people handle who use which book Checking serial number - arranging used books in proper order.
Particularly in larges hospital is essential.

There should be proper form committee who authorize


addition and deletion of forms, sizes, contents, etc., enormous
amount is spent on printing and stationery and misuse of
printed forms are substantial.

Utility Bills
and payment
of Tax

Proper system of checking the


consumption
Up-to-date tariff
Separate filling for regular,
chronological check

Log book for vehicle, major


equipment like Boiler, A.C. plant

Maintenance
Bills

Complete record on purchase of


fuel, average mileage,
consumption, etc.
Maintenance card for all fixed and
movable assets except minor
equipment and instruments.
Record of purchase, periodical
maintenance, replacement of spare
parts, guarantee, maintenance
contract
A complete record of all maintenance
contract with list of people to certify
what regular maintenance work is done
as per agreement. Periodical review.