Question

Genesis Physical Therapy has been providing outpatient physical therapy services for 30 years. The owners, Jesse and Janice, have been slow to implement updated technology for the accounting system because it is costly. However, at the beginning of the current year, they decided to install a new patient revenue system. It is an off-the-shelf product that is marketed to the healthcare industry. The auditor asked one of Genesis’ accounting staff for feedback about the new system. The staff member provided the following comments:

●	“A frequent error has been occurring in which we invoice people who were past patients because they happened to have the same last name as one of our current patients.”
●	We had a power outage a couple of weeks ago, and we had to re-enter all patient services that had been provided for that week because they had not been saved.”
●	When we first starting using the system, we had a significant number of complaints from patients because they were being billed for more than their insurance would allow. We discovered a month later there was an error in the billing calculation formula in the system. We fixed the error and it has been functioning properly.”

Evaluate the audit risks associated with the new patient revenue system.

Answer 1

Evaluate the audit risks associated with the new patient revenue system.

Answer : Staff feedback comments suggest the following issues with the new IT system:

- Risk that patient database contains errors – The new system may not be using a unique identifier for patients, such as a patient number. New patients were occasionally confused with old patients in the system. There should be a method of identifying new patients at the point of admission and assigning a unique identifier to their file at that point to be used for all future transactions and services relating to the patient.

- Risk that billing system contains errors - Power outage resulted in loss of patient invoice data. Backups do not appear to be used to prevent loss of data. Also, software was not calculating billing formulas correctly. Were all patient accounts corrected? What are the controls over who can make changes to the software? Only authorized staff should have access to make changes to the billing formula, and all changes should be authorized by an appropriate level of management.

The issues raised by staff relate to controls over data entry and processing in the new IT system. The problems suggest that control risk is high, especially in relation to revenue and receivables.