Healthcare organizations face more than patient care challenges — financial fraud and operational risks are significant threats. Occupational fraud costs organizations an average of $1.7 million per case, according to the Association of Certified Fraud Examiners, with nearly 9 in 10 cases involving asset misappropriation — the misuse or theft of resources. In healthcare, where every dollar supports vital operations like staffing and patient care, these losses hit especially hard.
Billing schemes, such as the unauthorized creation of fictitious invoices, are one of the leading types of fraud in healthcare, with a median loss of $100,000 per case. Without strong internal controls in healthcare, situations like these can go unnoticed for months or even years, causing substantial financial harm and eroding trust with patients and regulators.
By implementing measures like segregating duties, conducting regular audits, and monitoring transactions, organizations can protect their resources, uphold compliance, and focus on delivering quality patient care. In this blog, we’ll explore actionable strategies to reduce fraud risks and build a stronger operational foundation.
What are internal controls in healthcare?
Internal controls in healthcare are policies, procedures, and systems designed to safeguard resources, ensure compliance with regulations, and maintain accurate financial reporting. These controls act as a framework to help organizations identify risks, prevent errors, and deter fraud, ultimately supporting the delivery of quality care.
At their core, internal controls address three critical areas:
- Operational controls: Focus on efficiency and the protection of assets, such as implementing segregation of duties to prevent unauthorized access to financial records.
- Reporting controls: Secure the accuracy of financial and operational data, which is essential for maintaining trust with regulators, stakeholders, and patients.
- Compliance controls: Ensure adherence to healthcare laws, such as HIPAA, and other regulatory requirements. For example, requiring dual authorization for high-value transactions reduces the risk of billing fraud or misappropriation.
Regular audits and reconciliation of accounts help uncover discrepancies before they grow into larger issues. Strong internal controls in healthcare also extend to monitoring access to sensitive patient data, ensuring compliance with privacy regulations, and mitigating reputational risk.
These systems are not one-size-fits-all — strong internal controls form the backbone of financial integrity and operational resilience. Different healthcare organizations should tailor controls to their size, scope, and specific vulnerabilities.
Also read: Best Practices When Reviewing Internal Controls
Establishing Internal Controls in Healthcare Organizations
Implementing internal controls in healthcare organizations is key to reducing risks and maintaining compliance in a high-stakes environment. Fraud and operational inefficiencies can drain resources and jeopardize patient care, making strong internal controls an operational necessity. Doing so ensures that they’re designed to protect financial assets, maintain regulatory compliance, and promote accountability across all departments.
By prioritizing these measures, healthcare organizations can reduce vulnerabilities, protect their resources, and focus on delivering high-quality care. Below, are five practical steps to establish internal controls and strengthen financial and operational defenses.
1. Segregate duties to reduce fraud risks
Dividing responsibilities among different staff members prevents any single person from having control over all aspects of a transaction. For instance, separating billing from payment processing ensures that no one employee can both create invoices and approve payments. As the 2024 ACFE Report reports, nearly 89% of fraud cases involve asset misappropriation, making this a foundational step in reducing risk.
Internal controls in healthcare can also include assigning dual approval for high-value purchases or sensitive tasks. For example, purchase order approvals should require sign-off from both a department head and a finance officer. Regular reviews of employee roles further reinforce the control by ensuring tasks remain appropriately divided. By implementing clear oversight and accountability measures, healthcare organizations can minimize fraud opportunities while maintaining operational efficiency.
Read more: Compliance Made Simple: Streamlining Healthcare Regulatory Compliance
2. Conduct routine audits and reconciliations
Regular audits and reconciliations help detect discrepancies early and reinforce trust in financial reporting. Audits may involve reviewing transaction histories, validating purchase orders, and cross-checking account statements against supporting documentation. Establishing internal controls in healthcare is particularly important for addressing high-risk activities such as billing, payroll, and inventory management.
Reconciliation processes, such as monthly bank reconciliations, can uncover irregularities like unauthorized transfers or mismatched amounts. According to the ACFE, fraudulent schemes typically last 12 months before detection, emphasizing the importance of frequent oversight. Conducting audits with both internal teams and external third parties provides an added layer of scrutiny. Clear documentation during these reviews supports transparency and accountability for regulators and stakeholders.
3. Implement access controls for data and financial systems
Limiting access to sensitive information and financial systems helps protect organizations from internal and external breaches. Internal controls in healthcare often include access controls such as role-based permissions, requiring employees to use unique login credentials, and regularly reviewing who has access to specific systems. In healthcare, this applies to patient data systems governed by HIPAA, as well as financial records susceptible to fraud.
Introducing multi-factor authentication (MFA) adds another layer of security, reducing the risk of unauthorized access. Regularly monitoring system logs for unusual activity can also help flag potential threats early. Beyond technology, healthcare organizations must train staff on proper data handling procedures to reinforce the importance of compliance and confidentiality.
Also read: Top 12 Financial Institutions Risks
4. Establish a fraud reporting hotline
Encouraging staff, vendors, and patients to report suspicious activity through a secure hotline is one of the most effective ways to uncover fraud. As 43% of fraud cases are reportedly detected via tips — with over half coming from employees — a dedicated hotline, accessible through phone, email, or online platforms, ensures anonymity and promotes reporting without fear of retaliation.
Organizations should regularly communicate the availability of the hotline and outline clear procedures for handling reports. Integrating fraud awareness training alongside the hotline further empowers employees to identify and report red flags. Healthcare organizations can also leverage data from hotline reports to address recurring vulnerabilities and refine their internal controls in healthcare settings.
5. Provide fraud awareness training for staff
Fraud awareness training equips employees with the knowledge to recognize and respond to potential fraud. Approximately 84% of fraudsters display at least one red flag before being caught. Internal controls in healthcare include identifying behavioral red flags, such as employees living beyond their means or exhibiting atypical familiarities with customers or vendors.
Training programs should address industry-specific risks, such as billing fraud or inventory theft, and reinforce the importance of reporting suspicious activity. Interactive workshops, case studies, and regular updates ensure employees stay informed about evolving threats. A well-informed workforce not only helps prevent fraud but fosters a culture of accountability and vigilance.
Learn more: Understanding Financial and Systemic Fraud: 5 Key Trends and Technology-Driven Solutions
Streamline healthcare internal controls with Resolver
Establishing and maintaining effective internal controls in healthcare is essential for reducing risk, ensuring compliance, and protecting resources. Resolver’s Internal Controls Management Software streamlines these efforts by offering powerful tools tailored for complex regulatory environments. With features such as a unified controls library and real-time assurance, our platform helps healthcare organizations track performance, identify issues, and stay audit-ready.
By promoting efficiency, Resolver centralizes processes and automates workflows, making it easier to manage controls while improving accountability. Our actionable dashboards allow healthcare teams to monitor risks, assign corrective actions, and simplify audits with clear, consolidated data.
Request a demo today to see how Resolver’s Internal Controls Management Software can help your healthcare organization strengthen oversight, reduce vulnerabilities, and focus on delivering high-quality patient care.
