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AUDIT: Mgmt of hospital revenue needs improvement

An independent audit of the LBJ Medical Center fiscal year 2011 financial statement provided findings and recommendations for corrective actions on billing, receipting, accounting system, and labor and wage compliance — all areas that have been the focus of Fono hearings into the medical center's financial crisis and the governor's comment that the hospital needs to manage its finances better. 

The audit was conducted by Wipfli, LLP, of Spokane, Wash., and covered a wide range of issues, which Samoa News will report on later in the week.

It is in the section, "Financial Statement Findings" that the audit points to management of hospital revenues, including labor and wage compliance that require significant improvement. Lack of skilled oversight is cited as one the main reasons for management deficiencies.


According to the report, the hospital’s billing policies and processes required significant improvement, adding that a  review of the billing controls and interviews with staff revealed, among other things, a lack of review of daily revenue input for completeness and accuracy logs; lack of daily revenue and charge logs (batch) that can be filed away and referenced for future use.

Additionally, lack of experience and knowledge of patient accounting system by billing supervisor was pointed out, along with co-insurance amount not being billed to secondary payers.

Auditors say that although the hospital does have written policies and procedures, they are either not being followed or not sufficient to address the significant issues noted above.

“Without a close review of daily charge input and consistent use of batches, significant amounts of charges can be missed and not recorded in the accounting system,” the report points out. “A billing supervisor without experience and knowledge of a patient accounting system can result in delayed billings and follow up and potentially missed billings.”

Moreover,  co-insurance not being billed to secondary payers can result in substantially missed collections.

Auditors recommend that the hospital implement specific policies and procedures to address the above noted items and continually enforce the performance of those procedures.

Last August, the report says, LBJ implemented a “Corrective Action Plan”, in which a complete restructure of the billing and collection departments was implemented— complete with segregation of duties and the hiring of qualified managers along with a new chief financial officer.

A great deal of the lack of control and non-performance of these two departments was due to having a person in charge not familiar with hospital billing or accounts receivable collection and no skilled oversight, it says.


According to the auditors, hospitals collection policies and processes require significant improvement, adding that a review of the receipting controls and interviews with staff revealed the lack of other general internal controls in collections including lack of daily collection log; lack of daily review of posting; lack of write-off approval for resident self-pay balances or secondary payor balances; and lack of month-end reconciliation of accounts receivable balances to daily activity reports.

Additionally, outstanding patient accounts receivable balances are not being pursued or followed up upon adequately.

While LBJ has written policies and procedures, they are either not being followed or not sufficient to address the significant issues noted above, the report says, and notes that without proper segregation of duties, use of daily collection logs, daily review of posting, approval of write-offs, and month-end reconciliation, and follow up or pursuit of accounts receivable, collections could be improperly posted to patient accounts and/or funds could be misappropriated and/or legitimate accounts receivable balances will not be collected.

All of these could result in a significant reduction in cash flow the report says.

The hospital was recommended to  implement specific policies and procedures to address the noted items and continually enforce the performance of those procedures. In its Corrective Action Plan, LBJ last August created a cash department and a qualified manager was hired to provide segregation of duties and separation of cashiers from collectors.

“Cashiers have restricted software access to only generate the payment receipt but do not have access to apply adjustments to  customer’s accounts,” the report says. “Collection personnel can apply adjustments but do not have access to receive cash or to produce a cash receipt.”

Additionally, daily cash sheets were updated to comply with new policies and procedures, cash controls that limit access, require daily deposits to the bank, separation of bank reconciliation from persons making deposits, daily push of credit card transactions to the bank, and credit card transactions being included with bank reconciliations.

“In addition, accounts receivable payments received through the mail and/or by electronic funds transfer are received by separate personnel for the deposit/bank reconciliation from the personnel who apply the payments to the receivable,” it says.


Auditors say the hospital accounting system requires significant improvement, and continual work with the hospital’s accounting staff revealed among other things, general lack of reconciliation of key general ledger accounts at audit fieldwork and throughout the year.

Also found by the audit was a general lack of knowledge of fundamental accounting internal controls; lack of experience and knowledge related to healthcare-specific accounting; and three different accounting systems that require extensive manual review, supervision, and support to integrate with the general ledger.

The auditors say there are several causes for the above including but not limited to: a lack of experienced accounting staff, a lack of comprehensive policies and procedures, a lack of supervision by key accounting personnel and a lack of an integrated electronic accounting system.

The auditors say that without periodic and year-end general ledger account reconciliation, knowledge of fundamental accounting internal controls, experienced and knowledgeable accounting staff, and an integrated  accounting system, material misstatements to the accounting records could occur without being noticed and/or inappropriate accounting transactions could be concealed on the financial records.

They also recommended the hospital implement specific policies and procedures to address these issues and continually enforce the performance of those procedures.

“The different software accounting systems will only be resolved with sufficient cash flow to afford an integrated system,” according to the LBJ’s corrective action plan. “Until that opportunity affords itself, internal controls, training, and accountability will need to be very stringent to compensate.

Internal controls have been implemented to address the greatest risk areas of cash receipts, collection, and billing.

Currently, monthly review of closings is completed by the chief financial officer including documentation and training for any finance or accounting lapse(s) as they are identified, the auditors say and note that healthcare finance and accounting education for accounting staff is currently financially limited to the CFO.


The report noted that LBJ had underpaid some 481 employees who were due $625,115 in back wages covering the period of Oct. 1, 2009 to Sept. 30, 2011. This case came to light following an investigation by the U.S. Department of Labor, Wage and House Division.

The cause of this problem, said the auditors, was that a “limited number of hospital department managers independently stepped beyond their authority to decide they could limit a non-exempt person’s hours paid to forty, no matter how long the person worked.”

Additionally, a limited number of hospital department managers used approval of paid hours as punitive rather than address an employee’s performance.

Auditors recommended that LBJ comply with all federal labor rules and regulations. For its corrective action plan, the auditors said that LBJ conducted training for all employees  in large groups by the CFO immediately following the Wage and Hour on-site audit.

“Follow-up sessions were done by departments, for departments where the majority of the violations occurred,” it says. “Documentation of training, new policy and procedures, and confirmation of payments made to date have been submitted to Wage and Hour and approved.”

It also says that LBJ agreed to three payments scheduled in March, May, and July of 2012 to complete and satisfy all hospital obligations.