Exhibit 10-4

CHECKLIST FOR INTERNAL CONTROL EVALUATION

Questions should result in an affirmative answer. (Negative responses should be explained.)

QUESTION YES NO N/A
A. Organizational Chart
1. Is there a written financial organizational chart
which defines lines of authority and responsibility?		 _____ _____ _____
2. Is the chart annually reviewed and revised as
necessary?		 _____ _____ _____
3. Is the chart readily available to center personnel? _____ _____ _____
B. Personnel
1. Is there a written policy document? _____ _____ _____
2. Has it been updated in the last two years? _____ _____ _____
3. Are accurate job descriptions written for all employees? _____ _____ _____
4. Do position descriptions clearly define duties and
responsibilities for each financial position?		 _____ _____ _____
5. Are employees' duties rotated? _____ _____ _____
6. Are known relatives assigned so as to make collusion
improbable?		 _____ _____ _____
QUESTION YES NO N/A
C. General Accounting
1. Is there a double entry system in use? _____ _____ _____
2. Are daily log sheets being summarized each day? _____ _____ _____
3. Is an updated chart of accounts in use? _____ _____ _____
4. Are the accounts coded? _____ _____ _____
5. Is the accounting routine set out in a written document? _____ _____ _____
6. Is the accounting function completely separated from
procurement (purchasing) and receiving?		 _____ _____ _____
7. Are general journal entries approved by a responsible
employee?		 _____ _____ _____
8. Are journal entries adequately explained and supported
by substantiating data?		 _____ _____ _____
9. Are unallowable costs (i.e.7 costs which sponsoring
government agencies do not allow as charges to their
grants and contracts) clearly identified and segregated
in the accounting records?		 _____ _____ _____
D. Accounts Receivable
1. Are procedures written which detail the frequency of
posting and reconciling?		 _____ _____ _____
2. Does the project have subsidiary ledgers for posting of
accounts receivable by source of reimbursement?		 _____ _____ _____
3. Do accounts reflect the full charge for services before
sliding fee schedule or third party adjustments?		 _____ _____ _____
4. Does the project periodically age and analyze accounts
receivable by source? 		_____ _____ _____
5. Are procedures documented for writing-off bad debts? _____ _____ _____
QUESTION YES NO N/A
E. Fee Determination
1. Does the project have a schedule of charges which
it uses for billing third parties and patients?		 _____ _____ _____
2. Does the schedule cover all services rendered by the site? _____ _____ _____
3. Are fees in line with those of neighboring providers? _____ _____ _____
4. Are informal adjustments made to bills on a case by
case basis, if no formal sliding fee schedule exists? 		_____ _____ _____
F. Billing and Collection
1. If automated:
  a. Is each input form reviewed for completeness
and validity prior to processing?		 _____ _____ _____
  b. Does the project have batch control procedures? _____ _____ _____
2. Are requirements of the various third party
reimbursement sources understood?		 _____ _____ _____
3. Are claims submitted on a scheduled and timely basis? _____ _____ _____
4. Are claim forms properly coded? _____ _____ _____
5. Are written billing procedures in use? _____ _____ _____
6. Are all services billed for? _____ _____ _____
7. Are patients billed the Medicare or other deductible
and coinsurance? 		_____ _____ _____
8. Do the billing procedures detail follow-up for bills to/for:
  a. Individuals?		 _____ _____ _____
  b. Medicare and Medicaid Claims? _____ _____ _____
  c. Disallowances by Third Party Payors? _____ _____ _____
  d. Private Insurance Claims? _____ _____ _____
  e. Medicare-Medicaid Crossovers? _____ _____ _____
9. Are there internal controls to frequently audit the
billing systems? 		_____ _____ _____
10. Are collection attempts documented in the files? _____ _____ _____
QUESTION YES NO N/A
11. Are third party reimbursements reconciled against claims? _____ _____ _____
12. Does the cashier have information on the status of patient
accounts available when discussing payment with the
patients?		 _____ _____ _____
13. Are individuals asked to pay for services at the. Time

of delivery if they are not reimbursable by third party sources?		 _____ _____ _____
14. Are collection efforts continued after an account is
written-off? 		_____ _____ _____
15. Are there specific policies covering credit to individuals? _____ _____ _____
G. Review and Audit
1. Is the system of internal control of delegate agencies
periodically reviewed by an employee of the FFHC?		 _____ _____ _____
2. Does some responsible employee periodically review
insurance coverage?		 _____ _____ _____
3. Has the project received an independent annual audit in
the last 12 months?		 _____ _____ _____
4. Have all weaknesses identified in the last annual audit
been corrected? 		_____ _____ _____
5. Are internal auditors' reports on their examinations
prepared in writing? 		_____ _____ _____
6. Are internal auditors' audit programs, working papers,
and reports reviewed by the independent auditors?		 _____ _____ _____
7. Are internal auditors directly responsible to the Chief

Administrative Officer or Board of Directors (and not to the Chief Financial Officer)?		 _____ _____ _____
QUESTION YES NO N/A
H. Cash Control
1. Are there written cash control policies and
procedures?		 _____ _____ _____
  a. Are they followed? _____ _____ _____
2. Is the cash fund reconciled daily? _____ _____ _____
3. Are all employees who handle cash, securities,
and other valuables bonded?		 _____ _____ _____
4. Are receipts deposited intact and on a daily (same
day) basis? 		_____ _____ _____
5. Are duplicate deposit slips maintained? _____ _____ _____
6. Are supplies and equipment paid for only after
requisition, packing slip, and bills are received? 		_____ _____ _____
7. Are employee travel advances or other types of
business advances accounted for promptly? 		_____ _____ _____
8. Are all grantee borrowings or loans specifically
approved by a principal representative of the board? 		_____ _____ _____
9. Are investments properly recorded and controlled? _____ _____ _____
10. Is the bank statement reconciled monthly? _____ _____ _____
I. Petty Cash Funds (and Emergency Assistance Funds)
1. Is the imprest fund system used? _____ _____ _____
2. Is responsibility for each fund vested in only one
person?		 _____ _____ _____
3. Are custodians of petty cash independent of all other
cash handling and accounting functions?		 _____ _____ _____
4. Is the petty cash check made out to the custodian, not
to cash? 		_____ _____ _____
5. Are frequent surprise counts made by an independent
employee? 		_____ _____ _____
QUESTION YES NO N/A
6. Are signed vouchers obtained and written in ink for all
petty cash disbursements?		 _____ _____ _____
7. Is the maximum amount of any individual disbursement
limited to a reasonable amount?		 _____ _____ _____
8. Are petty cash fund amounts fixed so that reimbursement
is required at reasonable intervals (not over one month)?		 _____ _____ _____
9. Are vouchers and supporting documents examined and
verified by a responsible employee at time of
reimbursement?		 _____ _____ _____
10. Is each fund counted and balanced by an independent
employee at the time of reimbursement?		 _____ _____ _____
11. Are vouchers cancelled or marked so they cannot be
reused?		 _____ _____ _____
12. Is petty cash always kept locked when not in use? _____ _____ _____
J. Cash Disbursements
1. Are voided checks properly mutilated and retained for
subsequent examination?		 _____ _____ _____
2. Is the sequence of check numbers accounted for when
the bank account is reconciled?		 _____ _____ _____
3. Is the signing of checks in advance prohibited? _____ _____ _____
4. Is the practice of drawing checks payable to "cash,"
"petty cash," "bearer," etc. prohibited? 		_____ _____ _____
5. Are authorized signatures limited to persons who are
not responsible for maintaining accounting records
or petty cash funds? 		_____ _____ _____
6. Are bank statements received directly, unopened by
the person who prepares the bank reconciliation?		 _____ _____ _____
QUESTION YES NO N/A
7. Are paid checks examined for date, name, cancellation,
and endorsements at the time the reconciliation is
prepared?		 _____ _____ _____
8. Do supporting data accompany checks when they are
submitted for signature?		 _____ _____ _____
9. Are supporting documents cancelled to prevent
subsequent use?		 _____ _____ _____
10. Are checks mailed out so they cannot be returned to
the persons who prepared or initiated them?		 _____ _____ _____
11. Are blank checks properly controlled? _____ _____ _____
12. Is the issuance of checks on verbal authority prohibited? _____ _____ _____
13. Are invoices or vouchers approved in advance by
responsible department heads?		 _____ _____ _____
14. If a separate payroll bank account is maintained, is it
established on an imprest basis?		 _____ _____ _____
15. Are separate or special-purpose bank accounts
controlled? (Special accounts may be used as needed
but should be under the same control as the regular
accounts.)?		 _____ _____ _____
16. Are duties divided among employees responsible
for the procurement, approval, verification (preaudit),
and disbursement functions of expenditure transactions?		 _____ _____ _____
17. If a mechanical or facsimile signature is used for
disbursements, is the signature plate, die, key, etc.
under adequate control?		 _____ _____ _____
18. Is the bank instructed not to pay checks more than
60 days from date shown on check?		 _____ _____ _____
QUESTION YES NO N/A
K. Cash Receipts
1. Are validated duplicate deposit tickets or slips obtained
for each deposit made?		 _____ _____ _____
2. Are proper controls, division of duties, and other
safeguards applied?		 _____ _____ _____
3. Are all cash receipts immediately recorded in the books? _____ _____ _____
4. Is the mail opened and a record of money so received
prepared by an employee independent of other financial
duties? 		_____ _____ _____
5. Are unused cash receipt books properly controlled and
safeguarded? 		_____ _____ _____
6. Are employees prohibited from having custody of any
unrecorded cash or negotiable documents, other than their
own personal money while on the premises of the grantee?		 _____ _____ _____
L. Payrolls
1. Are clerical operations involved in the preparation of
payroll checks double-checked before checks are
distributed?		 _____ _____ _____
2. Are the functions involved in the preparation of payroll
distributed among a number of employees?		 _____ _____ _____
3. Are the duties of those preparing payrolls rotated? _____ _____ _____
4. Are unclaimed paychecks properly controlled? _____ _____ _____
5. If a separate payroll bank account is maintained, is it
reconciled by an employee independent of all other
payroll preparation functions? 		_____ _____ _____
6. Does the procedure followed in reconciling the payroll
bank account include checking the names on payroll
checks and endorsements against payroll records?		 _____ _____ _____
QUESTION YES NO N/A
7. Are payroll checks distributed by someone other than
persons who prepare payrolls, supervise employees,
approve time reports, or sign paychecks?		 _____ _____ _____
8. Is the bank instructed not to clear payroll checks over
30 days after date issued?		 _____ _____ _____
9. Are occasional surprise distributions of paychecks made
by an independent employee having no financial duties?		 _____ _____ _____
10. Are payroll checks always prepared after receipt of
approved time-and-attendance reports and based on
those reports?		 _____ _____ _____
11. Is the issuing of any payroll checks before approved
time-and-attendance reports have been received
expressly forbidden?		 _____ _____ _____
12. Is each new employee personally interviewed by both
the department in which he/she is to work and by
persons independent of that department?		 _____ _____ _____
13. Are controls over employee termination adequate to
prevent the continuance of pay for an employee no
longer working?		 _____ _____ _____
14. Where over 50 employees are on the payroll, are other
methods or precautions applied to preclude the
possibility of fictitious or nonworking employees
being added to the payroll?		 _____ _____ _____
15. Is an adequate current record maintained of all
personnel and pay rates?		 _____ _____ _____
M. Purchases and Expenditures
1. Is the responsibility for procurement assigned to one
individual or a purchasing department?		 _____ _____ _____
QUESTION YES NO N/A
2. Is the prenumbered sequence of used purchase orders
accounted for?		 _____ _____ _____
3. Does a copy of the receiving report go directly to the
accounting office when goods are received?		 _____ _____ _____
4. Are invoices checked in the accounting office against
purchase orders and receiving reports? 		_____ _____ _____
5. Is there definite evidence of responsibility for verifying
invoices as to prices, extensions, addition, freight charges,
discounts, etc.? 		_____ _____ _____
6. Is account coding double-checked prior to disbursement? _____ _____ _____
7. Are vouchers examined by a responsible individual to
ascertain completeness of attachments and various required
approvals?		 _____ _____ _____
8. Are vendors' invoices delivered directly to the accounting
office?		 _____ _____ _____
9. Are purchases for employees expressly prohibited? _____ _____ _____
10. If a voucher register is maintained, is it balanced monthly
with the general ledger control accounts?		 _____ _____ _____
11. Are controls established over the use of any duplicating and
photocopying equipment, and are quantities of materials
used or copies made accounted for?		 _____ _____ _____
12. Are voided purchase orders mutilated and retained for
future examination?		 _____ _____ _____
13. Are outstanding purchase orders periodically reviewed and
older outstanding orders accounted for?		 _____ _____ _____
14. Are competitive quotations properly obtained when required
in accordance with procurement policy?		 _____ _____ _____
15. Are expenditure transaction files maintained in such a
manner that documents supporting any transaction can be
easily located?		 _____ _____ _____
QUESTION YES NO N/A
16. Is a master list maintained of all persons authorized to sign
or approve purchase orders, receiving reports, invoices
(approval for payment, time and attendance records, etc.)
and are signature samples available for comparison?		 _____ _____ _____
N. Property and Equipment
1. Is the property ledger maintained so that any item of
property can always be located and identified?		 _____ _____ _____
2. Is the property ledger balanced monthly against the
appropriate general ledger accounts?		 _____ _____ _____
3. Is a complete physical inventory of all property and
equipment made at least annually?		 _____ _____ _____
4. Are retirements and disposals properly approved and
recorded in the accounting records? 		_____ _____ _____
5. Is damaged or lost property properly treated in the
accounting records? 		_____ _____ _____
6. Are insurance recoveries properly recorded? _____ _____ _____
O. Donations
1. Are in-kind contributions adequately documented as to:
  a. Date? _____ _____ _____
  b. Type? _____ _____ _____
  c. Name and signature of donor? _____ _____ _____
  d. Signature and acceptance by authorized grantee
official?		 _____ _____ _____
2. Are the donations easily traceable to and from the formal
records?		 _____ _____ _____
QUESTION YES NO N/A
P. Inventory Control
1. Where inventories are of great significance or where a

central warehousing system is used, are perpetual inventory records maintained?		 _____ _____ _____
2. Does the organization's inventory control system for
supplies, equipment, and drugs include:
  a. General ledger control accounts? _____ _____ _____
  b. An inventory card system specifying:
    i. Date of receipt? _____ _____ _____
    ii. Source of funds? _____ _____ _____
    iii. Identification data (e.g., serial numbers, vendor's
name, description)? 		_____ _____ _____
    iv. Name of item(s)? _____ _____ _____
    v. Location? _____ _____ _____
    vi. Cost? _____ _____ _____
3. Is the equipment tagged or otherwise marked to identify
it as organizational property?		 _____ _____ _____
4. Are differences between the physical inventory and the
control account records reconciled and explained? 		_____ _____ _____
5 Are adjustments made to inventory accounts only on
written authority of a designated official? 		_____ _____ _____
Q. Capitalization of Equipment
1. Is there a capitalization policy? _____ _____ _____
2. Are depreciation schedules in use? _____ _____ _____

DIHS/PHS/HRSA/Bureau of Community Health Services, Bureau of Community Health Services' Accounting Manual (Administrative Publication), p. IX-5 -IX-20.