SHoP Shifa healthcare of Pakistan SHoP is a third-party benefits administrator, providing a liaison between insurance companies and provider groups like physicians, hospitals, etc. SHoP earns revenue by collecting from the insurance companies and then paying the provider groups for services rendered to eligible patients/members. Non-routine procedures, such as surgery or referral to a specialist, must be pre-authorized by SHoP in order for the service to be paid by SHoP. SHoP is considering acquiring an online service to expedite the authorization process. With this system, contracted providers would be allowed access to SHoP's database to initiate and review the status of a particular authorization. Providers would be able to enter data into the system such as diagnosis, requested treatment/procedure, and other data needed to deter-mine the necessity of the procedure. The determination of the suitability or necessity of these non-routine procedures is currently determined by SHoP's case managers, who review and authorize the requested procedures or referrals. Under the proposed system, the provider would enter the data, allowing the case manager to pull up the data and start the authorization process. The new system would allow the entry of data or notes and would assign an authorization number to those procedures that are approved. Once the data is in the system, providers would be given access to check on the status of the authorization at any time. Wali Zafar was the Controller at SHoP. He started the job six months ago and after observing the activities in his area, he determined that the accounts receivables procedures needed to be tightened up. He approached Mariam, the Accounts Receivable clerk, requesting her assistance in documenting the procedures related to new customer approvals, credit limits, and cash receipts. Mariam indicated that there were no formal procedures for approving new customersshe received names and billing addresses from the sales representatives, Sajid, Farrukh, and Musa. When the information was passed on from the sales representatives, Mariam then performed file maintenance to add the new customers to the customer master file without putting a customer file together for review. Mariam then told Wali that the credit limit was set at whatever level the related sales representative told her to give the customer. As for cash receipts, Mariam prepared the deposits and took the deposits to the bank, reconciling the bank statement on a monthly basis. Mariam also entered the cash receipts into the system. Wali was troubled, because according to the sales representatives and Mariam, previous controllers and some of the executive-level management had never felt having formal authorization and review procedures for accounts receivable was important. Wali realized that the combination of a lack of control procedures and a lax control environment could cause SHoP to have problems. He needed to get controls in place quickly, especially since the external auditors were due to arrive in less than three months.

Questions 1. You are the chairman of the committee charged with determining the feasibility/acceptability of the proposed online system, and you will oversee the implementation of this system if it is accepted. What recommendations would you make to SHoP regarding an online authorization system?

Question 2. Identify weaknesses in the current accounts receivable process to include potential fraudulent activity due to the lack of formalized procedures in the accounts receivables process. [10 Marks]