Managing resident personal funds

In October 2013, USA Today published several horrifying stories on theft from nursing home residents, focusing on theft of and errors in resident personal fund accounts. 

These stories highlighted that some long-term care (LTC) operators are not implementing critical controls, specifically controls required on all personal fund accounts,1 and the basic financial internal controls needed in all businesses.

One of the stories references 1,500 survey citations on resident personal accounts, with 100 of them being large thefts. How does this happen? We know everyone is busy with little time for checking and double checking. And, assumptions about performance are made too easily.


Nursing home residents supported by Medicaid are entitled to maintain a small personal funds accounts, to be used for personal preference items. Many facilities also manage personal funds for Medicare and privately funded residents.

The monthly amount and the allowable maximum depends on state regulations. The fiduciary standards are found in federal and state regulations and in state theft laws.2

Residents are not required to entrust personal funds to the facility, but many do. Residents often have no one willing or able to maintain the funds. Most do not have a formal guardian, many have no formal general power of attorney, and many cannot depend on family either to maintain the funds or to do the shopping. Many residents do not have the cognitive ability to maintain or monitor their personal funds. These factors create inherent financial vulnerabilities.

The operational details for compliance can be found in the state regulations. If a facility has been cited previously on this issue, strict compliance becomes even more important.


A Medicaid resident has the right to a small personal allowance each month, usually from his/her Social Security income, to use for personal purposes. The resident may entrust the funds to the facility, but is not required to do so. The facility is required to accept and serve as fiduciary for those residents. The allowable amount is set by the state.

A resident who is self-financing may also choose to have the facility serve as fiduciary. This requires an enhanced set of policies and should be approached with caution.

The resident has wide latitude in selecting personal purchases. Just about anything is allowable if the resident can afford the product or service and it does not violate physician orders.

The facility cannot use the personal funds to purchase supplies or services that must be provided by the facility. State regulations specify which items must be provided by the facility and that cannot be purchased with personal funds.


The facility reimbursement is to cover a wide range of necessities (but not luxuries) for the resident, specified in state regulations. A typical list of necessities covered by the facility would include nursing services, meals and standard snacks, activities, cleaning, personal hygiene items, medical supplies, utility costs (excluding optional cable TV), therapy or podiatry services, standard telephone access and others.

When in doubt, it is safer for the facility to cover some or all of the costs of the products. The facility is required to provide personal hygiene items, but many residents have personal preferences. A written shopping list from the resident should be kept with the receipt. There is no requirement for the resident to use the money wisely, just legally and without endangering themselves.

Gifts to staff members should be discouraged, but some residents insist on giving small gifts (and refusing could be hurtful). Large gifts cannot be allowed.

The facility is not required to cover money shortages until the next month, but some facilities will allow small negative balances and settle with next the month’s deposit. Facilities should be cautious about this practice.


Residents should have access to their resident funds and records during normal business hours, Monday through Friday, excepting holidays. A “reasonable accommodation” standard will be acceptable.

Many facilities make group shopping trips on a regular basis, often by someone in the activities or social services departments, making a list for each resident and doing all of the shopping (weekly, bi-weekly, monthly).

A facility’s own gift shop or store should sell items at or very near cost, to eliminate any appearance of a profit motive, unless the profits are going to the residents' council or some fundraiser approved by the residents' council.

If the facility allows special services such as enhanced cable TV, landline phones, etc., the facility should supervise any on-site work by the vendor. Service calls may be more problematic, especially on weekends.


What to do with residents who are not able to make spending decisions? Due to the “excess funds” problem of accumulating more than $1,500—a problem that can impact any Medicaid resident—the money must be spent.

If possible, a spouse, close next of kin, power of attorney or guardian should collaborate with social services staff on how to reduce the personal funds account in a proper or at least reasonable manner.

If there is no available advocate or representative for the resident, the burden will likely fall on social services. Consult state regulations and possibly the long-term care ombudsmen for guidance. The more transparent the process, the safer for all parties.


Accumulations above $1,500 in a resident personal account may get the resident removed from Medicaid rolls until the money is spent down. This is a headache for the facility, the resident, the family and the government. Check state regulations for notice requirements, as it may be necessary to notify human services agencies when a certain amount is accumulated (for example, $1,300).

Some residents may feel the need to save the money for funeral expenses or to have the dignity of leaving a small “inheritance” to family members. This may require tactful intervention by social services and the family. Facilities should be familiar with state regulations on the status of funeral pre-need accounts, set up before or during admissions.


At the moment of death, a new legal entity comes into being—a  probate “estate.” The rules promulgated by the state human services and the state probate law determine the distribution of assets, including resident personal funds.

In many cases the estate assets of Medicaid residents are minimal, so de minimus probate procedures may apply, and the personal fund accounts may be the only monetary asset. Documentation of proper disposition is still important.

In some cases a relative or funeral director will request immediate transfer of the funds, but the facility cannot violate the law for anyone's benefit or convenience. Sometimes multiple relatives will request the funds, and following procedure becomes even more important. Keep extra copies of the regulations handy for those who need convincing. Once the proper directions are received, the funds and a final report should be forwarded as soon as possible.

In the event of discharge to home or a transfer to another facility, the final report and a check should be prepared as soon as possible. If there is doubt about to whom the check should be sent, follow state procedure and involve the ombudsmen if necessary.


Surety bonding on all financial staff is a sound idea, and many states require surety bonding on resident personal funds. The best practice is to have all staff and financial activities covered by bonding even if it is not a requirement.

The facility is required to indemnify the accounts with insurance and/or with facility funds, insurance minimizes the risk to facility finances and operations.


The primary and most important standard of internal controls is segregation of duties—no

one handles a transaction set start to finish by themselves. All dealings with resident personal funds should involve at least two people at all times. The work does not have to be evenly split; one person may have primary responsibility and another one or two will have mandated review duties.

Internal Control Practices

  • Separation of duties: No one person handles all accounting functions
  • Separation of documentation: The person handling the cash and writing the checks does not reconcile the bank statement
  • Policies and procedures: Policies are clearly written, available and enforced
  • Exception reporting: Any problems with resident funds are documented (similar to an unusual incident report) and reviewed
  • Monitoring and self-survey: The administration monitors and performs internal audit functions on resident funds regularly
  • Knowledge base: Administration and financial staff will be familiar with all relevant state facility and probate regulations
  • Remedial performance: Any negative survey findings will lead to an immediate correction, increased internal audit and increased vigilance

At least monthly, a person not directly involved in resident personal should review the individual accounts and review the banking transactions. Given the lean staffing of LTC front offices, this may fall to the administrator.

The bank statement should not be received or reviewed by the person who is directly involved with the fund accounting—very important for all facility bank accounts. Multi-facility organizations can use corporate staff or rotating facility staff to review and monitor accounts. If there is no one else available, have the statements sent first (or electronically copied) to your CPA firm or home office. The very existence of review activity is the best deterrence to theft; knowing someone is “looking over the shoulder” gives pause.3

Given the high volume of small transactions, errors are inevitable, as are lost sales receipts. Regular review and backup copies help, and using an account debit card leaves a trail for tracing transactions.

Common sense policies and proper internal controls can protect the relationship of trust between residents and LTC facilities.

Tom Ealey has long-term care experience as a CPA (Ohio), management consultant, seminar leader, and regulatory compliance expert. He is a professor of business administration at  Alma College in Alma Michigan. He can be reached at

Marcy Corbat holds a Masters of Health Services from the University of Michigan School of Public Health and is an Administrative Fellow with CHE Trinity Health – St. Mary Mercy in Livonia Michigan. She can be reached at

Disclaimer: This article is not an attempt to provide legal, accounting or consulting advice. Such advice should be obtained from licensed and qualified professionals.


1.  All administrative and financial personnel should be well versed in BOTH federal and state regulations. State regulations vary, and some are stricter than federal regulations.

2.  In preparation for this article we reviewed federal regulations and regulations from a sample of twelve states as well as consumer advice and legal commentary.

3.  The authors have posted sample policies and forms at Type “healthcarethinktank” into the Issuu search bar and then open the Long-term Care document stack.



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