Finding Text
2025-003 Medical Billing Revenue Recognition Internal Controls – Significant Deficiency Criteria – Generally accepted accounting principles (GAAP) and sound internal control practices require entities to maintain accurate and complete financial records and implement effective internal controls over revenue recognition. This includes requiring effective internal controls ensuring that revenue recorded in the accounting system is reconciled to subsidiary systems to ensure completeness and accuracy of financial reporting. Condition – During our audit, we noted that the Organization’s medical billing system, which tracks a significant portion of revenue, operates independently from the accounting system. The two systems are not integrated, and no regular reconciliation is performed between them. Revenue is recorded in the accounting system on a cash basis throughout the year, with monthly adjustments made to record receivable balances based on reports from the billing system. At year-end, the schedule provided from the billing software did not reconcile to the unadjusted trial balance. Significant time and effort by both the audit team and management was required to reconcile the billing schedule to the accounting system, with only an immaterial difference remaining after adjustments. Cause – The Organization has not established formal procedures or assigned responsibility for performing and documenting reconciliations between the billing and accounting systems. Effect – There is an increased risk that revenue may be misstated due to errors or omissions, and that misstatements or irregularities may not be detected and corrected in a timely manner. The lack of timely reconciliation also results in significant inefficiencies during the audit process and increases the risk of material misstatement in the financial statements. Recommendation – We recommend that the Organization develop and implement formal procedures to reconcile the billing system to the accounting system on a monthly basis. The reconciliation should be reviewed and approved by management, and any discrepancies should be investigated and resolved promptly. Auditee's comments and response – Management is in agreement with this finding. Change Inc. is developing formal procedures to include monthly reconciliation between accounting and billing systems. Responsible party for corrective action: Jill Johnson, Executive Director Repeat Finding: No