‘Multiple deficiencies uncovered in 9 areas at CHC’

The independent auditor contracted by the Office of the Public Auditor uncovered multiple deficiencies in nine specific areas of operation at the Commonwealth Healthcare Corp.
Speaking before members of the CHCC board on Wednesday last week, a representative of Deloitte & Touche revealed that in the fiscal year 2012 audit, its auditors uncovered issues in the areas of general ledger system, payroll, purchases and disbursements, procurement, revenues and receipts, liabilities, withholding taxes, Medicare payments, and inventory.

In the draft audit report made available to Saipan Tribune that was discussed during the meeting, it was learned that CHCC does not maintain a separate general ledger system, resulting in the lack of reliable financial information and the inability to timely detect errors and inaccuracies.

It was found out that as of Sept. 30, 2012, fixed asset transfers to CHCC were not recorded by CHCC or the Department of Finance and transfers of receivables, inventory, and obligations had not been documented by both CHCC and Finance.

“CHCC was appropriated $5 million from the general fund for fiscal year 2012 but was only able to account for $3,756,311 of this funding. Journal vouchers posted to the DOF general ledger are not approved by CHCC management and CHCC could not provide complete journal vouchers. Inventory and billing systems are not linked to the DOF general ledger,” states a portion of the draft audit, adding that CHCC does not monitor receivables for collectability.

Of 75 payroll expense items tested totaling $98,219, of a population of $15,869,511, tests of NOPAs for 29 employees noted inconsistencies in business unit charged. Timecards for all 75 employees were not signed by the employee. NOPAs for 41 employees were not also signed at a reasonable time from the effective date. Tests of employee leave forms also had deficiencies. For all 75 employees tested, large variances existed between the payroll report and the general ledger posting report. The reason for the large variances could not be explained by the management. Further, complete payroll registers covering the entire fiscal year were not available.

There are also direct deposit of payroll through the use of the automated clearing house for 26 employees that could not be traced to the bank statement.

For purchases/disbursements, of the 53 non-payroll items tested totaling $10,602,922 of a total population of $17,233,366, three items relate to purchases incurred in a prior fiscal year and one item relates to a travel advance; 23 items including contracts, purchase orders, invoices and journal entries were not also provided. The cause of the above condition is the lack of monitoring and approval of cash disbursements and the lack of proper and systematic filing of relevant documents. These result in a misstatement of expenses.

For procurement, of 53 non-payroll items tested totaling $10,602,922 of a total population of $17,233,366, one item was purchased through sole source procurement but efforts to obtain quotes from qualified sources were not evident; for three items, the contract had expired yet the contractor continued to provide services without a new approved contract or change order.

Competitive bidding did not occur after a contract had expired for one item and justification to not bid out services was not evident. Three professional services contracts tested had no approved contracts, and one indicated that proper procurement regulations were not performed as there was no record on file of any agreement. These resulted in noncompliance with procurement rules.

For revenue/receipts, of 44 cash receipts tested aggregating $15,060,477 of a total population of $20,342,349, deposits related to five journal entries could not be traced to the bank statement. For three journal entries, the supporting receipts were not provided for examination, only memorandums requesting payment were provided. One deposit did not have any supporting documentation. This condition resulted in unsupported revenue transactions, the potential for cash misappropriation, unreported collections and unrecorded revenues.

For liabilities, the auditor noted $29,498 in liabilities that pertain to the prior year but were recorded as a liability in the current year. Supporting invoices and/or documents were not also provided for some 12 vouchers. There were also four vouchers that do not have proper approval prior to actual payment.

Still on liabilities, the audit noted accrued taxes of $254,372 that were unsupported. A negative retirement liability of $21,233 could not also be explained. Also uncovered were the lack of supporting documents for accrued vacation and sick leave. All these conditions result in the misstatement of liabilities and expenses.

For withholding taxes, CHCC did not report or remit Chapter 2 and Chapter 7 withholding taxes payments withheld from employee salaries and the related employer share. As of Sept. 30, 2012, the total withholdings for Chapter 2 and Chapter 7 amounted to $1,136,778 and $239,579, respectively. Although payments were subsequently remitted, related interest and penalties have not been determined.

For Medicare payments, CHCC did not report or remit Medicare payments withheld from employee salaries and the related employer share as of Sept. 30, 2012, which totaled $313,333. The auditor recommended that this issue be addressed with the Internal Revenue Service as soon as possible and require all payroll allotments to be made in a timely manner.

For inventory, CHCC does not reconcile inventory to a general ledger control total and does not have a perpetual inventory system in place, which cause weaknesses in CCHC’s financial management system. In effect, this condition results in a lack of control over inventories and increases potential for fraud.

During Wednesday’s deliberation, it was disclosed that “responses” for the audit findings have been mostly accepted and agreed upon by the corporation management, which vowed to rectify each and every deficiency uncovered.

OPA compilation

Meantime, board trustees were informed that what they discussed during last week’s meeting was not a copy of the Deloitte & Touche’s draft audit report but a compilation of reports done by the OPA.

Though both reports—OPA compilation and Deloitte’s draft audit—indicated multiple deficiencies in the corporation’s finances, board members were disappointed that they were made to believe that what had been provided and discussed for about eight hours last week was the auditor’s actual audit report in draft form.

“I read this thing [OPA compilation] last meeting and I didn’t hear anybody [from management] disputing this report as an audit report. So what’s going on today?” asked trustee Roy Rios, who expressed his dismay anew on the inability of the management to identify the difference between the two documents.