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1 Continuous Auditing at HCA Chase Whitaker, CPA Audit Director HCA, Inc. Internal Audit & Consulting Services November 22, 2002 Fifth Continuous Assurance.

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Presentation on theme: "1 Continuous Auditing at HCA Chase Whitaker, CPA Audit Director HCA, Inc. Internal Audit & Consulting Services November 22, 2002 Fifth Continuous Assurance."— Presentation transcript:

1 1 Continuous Auditing at HCA Chase Whitaker, CPA Audit Director HCA, Inc. Internal Audit & Consulting Services November 22, 2002 Fifth Continuous Assurance and Auditing Symposium

2 2 Overview  About HCA  Potential Areas for Continuous Auditing  Lessons Learned – Diverging Paths  HCA Automated Tools Developed & Next Steps

3 3 About HCA  180 hospitals  70 surgery centers  23 states, England, & Switzerland  $18B total assets  $18B annual revenue  $2B EBDITA  170,000 employees  140 Internal Auditors

4 4  Identifying key risk indicators related to  achievement of business objectives,  reliability and accuracy of financial information and  compliance with laws, regulations and company policies.  IT system and interfaces.  Designing automated processes, tools and a management reporting system to enable Internal Audit to continuously monitor these key risk indicators. HCA Internal Audit Continuous Auditing Mission Statement Develop a continuous auditing methodology that will help management accomplish the strategic goals and objectives of the company through risk mitigation. This methodology will include:

5 5 Challenges  Significant investment in R&D and QA process  What, when, and how to test  Level of assurance – attestation vs. exception reporting  FTEs needed for preparation and review  IT resources (Organization & Internal Audit)  IT infrastructure  Acceptance by organization management teams (e.g. difference in deliverables, commitment to respond)  Change management

6 6 Other Considerations  Strength of operations management  Audit universe  Understand key organizational risks  Clearly defined audit objectives - Avoid “scope creep”  Design “exception only” reports

7 7 Technology Tools Evolution  Currently used by HCA  Data downloads with Focus  ACL processing  Excel presentation  delivery  Future?  Data tags (e.g. XML)  Application intelligent agents  Embedded audit modules  Application or intranet “real time” reporting

8 8 Potential CA Areas  General ledger vs. subsidiary ledger balances  HR, Payroll, and Benefits  Unnatural or unexpected balances, transactions, statistics &/or relationships  Clinical or other operational trends/indicators  Information technology trends/indicators  Regulatory compliance  Adherence to system master file standards  Cash disbursement transactions/trends  Purchasing/inventory quantities, pricing, activity  Third party relationships

9 9 Silver Bullet Solutions

10 10 Lessons Learned - Diverging Paths  Continuous Audit  Deviations easily defined and explainable  Reports delivered following occurrence  Continuous Risk Assessment/Monitoring  Knowledge gathering and trending  Limited or no CA reports to management  Results may impact audit plan decisions  Time intensive to research initial results  Spurs ideas for new tests

11 11 Automated Tools Developed – Accounts Receivable  Monthly comparison of A/R on subsidiary system to G/L control accounts to identify out-of-balance conditions.  Monthly comparison of patient A/R aging buckets on subsidiary system to G/L allowance for doubtful accounts control account to identify potential under reserves.  Quarterly analysis of Medicare cost report settlement account transactions  Periodic analysis of negative receivables

12 12 Automated Tools Developed – Human Resources/Payroll  Quarterly analysis of invalid Social Security Numbers  Compare all SSNs to permissible Area and Group numbers  Search for ascending/descending SSNs  Search for serial numbers with all zeroes  Look for SSNs used in marketing  Consider SSNs Employee Verification Service (EVS)

13 13 Automated Tools Developed – Human Resources/Payroll  Analysis of unusual vacation/paid-time-off taken & available  Limited or no PTO hours  Terminated employees with remaining PTO balance  PTO banks in excess of corporate limits  Analysis of unusual hourly rates, regular and OT hours, and/or gross earnings  Active employees without YTD earnings  Full time employees averaging less than 32 hours/wk  Incomplete or inconsistent key dates (e.g. DOB > DOH)

14 14 Automated Tools Developed – Patient Account Service Centers  Trending graphs & analysis of:  “Promise to Pay” codes aged greater than 60 days  Average days to bill  Final bill alert exceptions  Insurance greater than 90 days  Daily analysis of selected master file settings  Comparison of credit balances – subsidiary system vs. management reporting system

15 15 Automated Tools Developed – Patient Account Service Centers First month results communicated to management

16 16 Automated Tools Developed – Assets/EBDITA Analyses  Changes to goodwill and related amortization accounts  Review for non-performing assets &/or dormant entities  Analysis of unusual general ledger/financial reporting activity  Review entities with significant asset/EBDITA changes  Review entities having assets but without earnings & vice versa

17 17 Automated Tools Developed – Vendors/Accounts Payable  Bio-Med & Diagnostic Imaging equipment servicing inventory and billing  Duplicate records  Trend charges  Erroneous/illogical data elements  Duplicate payments:  Trend and report problematic vendors, facilities, employees, etc.  $17 million prevented or recovered to date – reduces/ eliminates need for review by 3rd party vendor

18 18 Automated Tools Developed – Other  Daily analysis of changes in consolidation indicators including any consolidating “test” entities  Monthly analysis of daily cash transfers from facilities to corporate treasury function

19 19 Next Steps  Dedicate FTE(s) to audit information generated from our automated tools  Develop an expedient management reporting process  Continue development of new automated tools and audit procedures for areas such as:  Adherence to system master file standards  Employee benefits  Purchasing/Inventory (inventory quantities, warehousing metrics, SKU usage, billing of high-cost supplies, etc.)  Cash disbursements  Laundry/linen expenses

20 20

21 21 Contact Information Chase Whitaker Audit Director HCA, Inc. Internal Audit & Consulting Services (615)


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