Question 1
The healthcare industry is one of the most sensitive and largest industries today. Therefore, the level of professionalism and the due care is more in the health care industry as compared to the other industries. It is true that the fraud prevention or minimizing the risks of frauds can be achieved in the health care organization from top to the bottom of the organization. The professional behavior and the integrity of the top management enhance the ethical behavior of the other employees and the risk of fraud reduces automatically in the health care organization. Moreover, the behavior of the top management develops a culture of any organization. Therefore, the behavior of the management will directs the ethical behavior of the lower staff and it can assist in reducing the deficiencies and the frauds in the health care industry or organization. (Piper, 2013)
One of the key elements of the health care industry is the health care insurance policies. These policies are helpful for the patients in the countries like the United States, where insurance is the key element of the routine life. However, the insurance companies are charging higher rates as compared to the other countries and the companies are not covering the critical health issues. Furthermore, the renewal of health care insurance for the senior citizens is very difficult because the death ratio and the chances of getting sick are higher in older citizens. Therefore, the unethical behavior of the top management of the insurance companies collects money from their clients during their healthy period, but refuses to renew the insurance policy when their client needs it most after their retirements. (Piper, 2013)
Another type of fraud is to charge the patient more than the actual bill. The most common example of this fraud is that the doctor asks the patient to have extra medical tests. These medical tests are performed to collect more money from the patients. It is the usual behavior of the patients that they trust their doctor and accept the subscription of the doctor without any doubt. Therefore, the lower staff follows the senior doctor and takes no actions to stop the unethical behavior of the senior doctor. (Piper, 2013)
Question 2
The accounting information cycle is the most basic and the most important element of the entire accounting information about the business or the organization. There are several processes in the accounting information cycle to maintain the accounting equation concept. The processes of the accounting information cycle distribute the accounting treatment, according to its attribute. The attributes of the accounting treatment can be a debit or a credit. The transactions which have the debit nature are recorded as the assets of the business and the transactions which have the nature of the credit and recorded in the liabilities or the capital of the business. (Putra, 2009)
The first process of the accounting information cycle is to determine the nature of the transaction. The accountant must identify the reason of the accounting transaction, for example, the purchase of the asset by paying cash means that the business will write asset in the asset’s side and write off the cash from the asset’s side of the accounting treatment. In this way the accountants identify the nature of the transactions. Similarly, if the machine is purchased via a bank loan, then the relevant nature of the machine will be asset and the bank loan will be classified as the liability of the business. (Putra, 2009)
The second step in the accounting information cycle is to write or record the transaction in the journals of the business. The journals of the business are simple registers which are maintained by the relevant staff members to keep the record for their use. For example, the purchase of the equipment will be entered by the purchasing staff in their records manually. These records show the purchasing date, cost and the name of the equipment. Moreover, the copy of the record is then sent to another department, such as accounting department and the finance department. (Putra, 2009)
The third step is the accounting information cycle is the recording of journals in the accounting ledgers. The ledgers are the actual accounts of the accounting treatments. For example, the purchasing of the property via cash will increase the property, plant and equipment account in the ledgers. Moreover, the same transaction will decrease the cash account in the ledgers of the business. After the journal entries, the accountants transfer the closing balances of the journal accounts to trial balance to check the accuracy of the accounting equation. (Putra, 2009)
Question 3
The inventory valuation methods for the health care industry depend on the vision of the hospital. If the hospital is a profit making institute, then the inventory valuation will be cost effective and if the hospital is not for profit organization, then they will account the inventory valuation according to the most ethical accounting method. The inventory valuation methods are first in, first out (FIFO), AVCO (average method) and the LIFO (last in last out) method. Therefore, it is the choice of the management of the health care center to adopt the method which is most suitable for their organization. (Ponaugle, 2014)
The FIFO method suggests that the goods purchased first, must be utilized or sold first. The logic behind this technique is that in general, the prices of the medicines increases and the cheaper stock will generate more profits. Moreover, there is a chance of the expiry of the medicines. Therefore, to minimize the chances of the loss, the FIFO method is more suitable for the health care industry. The valuation of the closing stock will be higher as compared to the other techniques if the prices of the medicines are increasing in the markets. Therefore, the FIFO technique will increase the profitability and the tax for the organization. (Ponaugle, 2014)
In case of the LIFO inventory system, the valuation of the stock will be lower if the prices of the medicines are increasing in the market. Similarly, the profit margin will reduce because of the selling of the expensive material instead of cheaper stocks. The reduction in the profit margin will reduce the amount of tax expense. The Average method is used to keep the inventory at the average value to avoid the complexity of the FIFO and the LIFO methods. The closing inventory valuation by average method will keep the profits at the moderate level and the tax expense will be average. However, the valuation of the inventory will not present the true value of the inventory. Another important element in the valuation of the inventory is that the yearend stock can be valued at the market value to provide the best value of the inventory. Moreover, the damaged stock must be written-off from the books because it increases the value of inventory. (Ponaugle, 2014)
Question 4
The key persons who control the account’s billing process of the patients are accountants, cashiers and the doctor who is attending the patient. These three persons are responsible to make sure that the patient is paying the bills of the hospital in either advance or in the installments. The main responsibility of the doctor is to check the status of the patient’s account before discharging the patient. This check will increase the efficiency of the billing process of the hospital. Similarly, if the patient is going through a complex and expensive treatment, then the accounts department of the hospital must ask the patient to deposit the charges of the treatment in advance to reduce the payment problems. Moreover, the cashier or the accountant of the hospital must contact the insurance provider of the patient to certify and confirm the scope of the health insurance policy of the patient to reduce the problems in payments. (Putra, 2012)
The hospital must request the patients to pay in cash for the minor tests and the medicines to increase the cash inflows. Moreover, the hospital staff in the lab must check the payment slips before performing the medical tests. Similarly, the walk-in patients must pay in cash before getting any treatment to reduce the receivable balance. Another tactic is to check the credit history of the patient. If the credit history of the patient is good, then the hospital can rely on the credit history of the patient. On the other hand, if the credit history of the patient is not good, then the hospital must provide treatment after the cash or advance payments from the customer. (Putra, 2012)
References
Piper, C. (2013, January/February). 10 popular health care provider fraud schemes. Retrieved
February 28, 2016, from http://www.acfe.com/article.aspx?id=4294976280
Ponaugle, B. (2014, May 1). FIFO vs LIFO: The Disadvantages and Advantages to Inventory
Valuation. Retrieved February 28, 2016, from https://blog.udemy.com/fifo-vs-lifo/
Putra, L. D. (2009, September). Basic Accounting Cycle in 9 Steps. Retrieved February 28,
2016, from http://accounting-financial-tax.com/2009/09/basic-accounting-cycle-in-9-steps/
Putra, L. D. (2012, May). Better Billing and Invoicing Procedures (Control and Standard
Approaches). Retrieved February 28, 2016, from http://accounting-financial-tax.com/2012/05/better-billing-and-invoicing-procedures-control-and-standard-approaches/
