Question

CASE STUDIES - AHIMA 4.16 - COMPETENCY IV.3

you have just been hired as the revenue cycle manager at a local acute care hospital. one of the first items of business is to review the processes in place for the revenue cycle, and you are surprised to see that no external coding audits have been done for several years. when you ask the coding manager why no external audits have been performed, she explains that the HIM director was told by the director of finance that the cost would not justify the expenditure. You decide to request a meeting with the finance director to present a case defending the need for external audits. Draft a recommendation with your rationale as to the importance of external audits and reasoning for how the expense of external audits can be mitigated.

Answer 1

As a business owner, it’s vital that you conduct frequent internal audits to determine whether or not your business is operating at peak efficiency. You can limit these audits to examinations of your financial health, or you can also order an extensive audit that takes a deep dive into all the risks and challenges facing your business and how you can prepare for those risks in the future

An external audit, on the other hand, is an audit conducted by an independent agency or firm that has no connection to your business. Business owners can order an external audit for the same reason they conduct an internal audit

Aside from the importance of the legal requirements for a statutory audit, the undertaking of the audit itself provides important and valuable insight.

THE ADVANTAGES OF HAVING AN EXTERNAL AUDIT :

• AN EXTERNAL AUDIT IMPROVES INTERNAL SYSTEMS AND CONTROLS

Auditors do not just focus on the numbers but will gain an understanding of the businesses overall systems and controls environment. This will enable them to identify deficiencies in the accounting systems or controls for which recommendations can be made, making your business more efficient and less prone to fraud or error.

• Provides Independent Credibility

The importance of independence in auditing is that it provides credibility that is one of the keys to the success of your small business, especially when you’re in the process of building a strong reputation within your industry. Because external auditors don’t work directly for your company, they’re not going to be swayed by any pressure you may use to obtain a favorable audit. As a result, an external auditor’s approval of your financial statements is much more credible than that of an internal auditor.

• AN EXTERNAL AUDIT GIVES SHAREHOLDERS CONFIDENCE

An independent review of the financial statements can provide transparency to the shareholders that the company is being run within their best interests and can highlight any issues that have occurred which may not have been brought to their attention

• Allows Quality Control of Internal Audit

Some internal auditors also don’t have sufficient accounting experience to properly audit their company’s financial statements. External auditors can look at the same factors as internal auditors and double-check their work. They can ensure that the internal audit was comprehensive, accurate and reflective of your company’s financial status and tax compliance

• Reduce risk and improve your organisational performance by challenging existing assumptions and practices.
• Secure peace of mind from knowing your statutory obligations are met, accounts are true and potential problems have been identified early on.

OTHER BENFITS ARE:

• External audits are completely impartial. The external auditors have no previous relationship with the coders or providers at the organization. Audits can be performed without fear of repercussions in the workplace.
• External audits may provide validation to situations discovered during internal audits. Sometimes recommendations received by multiple sources are better received.
• External auditors are on your side. The goal is to look for potential opportunities to keep you compliant.
• Sometimes an outsider may pick up on something that has previously gone unnoticed. External audits sometimes reveal potential template or system irregularities, which can easily be corrected.
• Trends can easily be identified and the appropriate education can be provided.
• External auditors are focused solely on the audit. Internal auditors may have other job duties and responsibilities that could be a hindrance.

WAYS TO MITIGATE THE EXPENSE

SOX auditing can benefit businesses financially — by way of avoiding steep audit fees — it can also cause businesses to incur even costlier expenses from misreporting, including:

1. Lower operating performance due to non-remediation
2. Market values that fail to reflect a firm’s underlying internal control status

• Generally, auditors will provide you with a requested list of items to prepare before they arrive.
• This list typically includes inquiries about areas of particular risk and transactions from which the auditors will pick a sample.
• Managers can help complete the audit process faster and with fewer questions by preparing responses to the items on the request list prior to or at the beginning of the audit
• Additional time can be saved by communicating with the auditors ahead of time about significant changes in the organization, such as business acquisitions, new debts, new leases, accounting method changes, and new products and customers
• Improve internal controls for accounts receivable and the revenue cycle.
• Perform overall analytical procedures ahead of time
• Prepare explanations and communicate any new or abnormal situations that cause fluctuations from year to year
• To promote a smooth audit of the revenue cycle, address any identified issues or errors
• Prepare reconciliations to shorten the audit process
• Perform overall analytical review procedures ahead of time