CHCC needs to strengthen financial reporting—OPA

A report from the Office of the Public Auditor has detailed major financial challenges that the Commonwealth Healthcare Corp. faces.

The OPA report covered the operations of the CHCC from Oct. 1, 2011, to Sept. 30, 2012, but was only released on Jan. 26, 2015.

According to the report, among the challenges are finances; planning and or development of a strategic plan; and management’s inexperience in dealing with the magnitude of financial shortfalls and problems resulting from a lack of planning.

The lack of transition planning coupled with financial difficulties of the CNMI government created a challenge for CHCC, the report said.

The report cited the lack of articles of incorporation or bylaws for the operation of the board, no application for the designation of CHCC as a provider of healthcare services for Medicare and Medicaid, no financial assessments or plans, no statement of beginning balances for cash, payables and receivables, no financial accounting system, no procurement regulation and personnel policy and no standard operating procedure in the clinical and administrative areas, the OPA said.

An accompanying Auditor’s Report also identified certain deficiencies in internal control over financial reporting in the CHCC that are considered to be material weaknesses.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis, the report said.

A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on time.

The Auditor’s Report, however, said it does “not express an opinion on the effectiveness of CHCC’s internal control over financial reporting.”

The report said the CHCC does not maintain a separate general ledger system and that general ledger for CHCC transactions is maintained by the CNMI Department of Finance but is not reconciled or monitored by DOF or CHCC.

As of Sept. 30, 2012, fixed asset transfers to CHCC have not been recorded by CHCC or DOF as a transfer document has not been prepared, and transfers of receivables, inventory and obligations have not been documented by CHCC and DOF officials.

The report said CHCC was appropriated $5 million from the general fund for fiscal year 2012, but only recorded $4,723,468 of this funding. Journal vouchers posted to the DOF general ledger are not approved by CHCC management and CHCC could not produce the journal vouchers for testing, the report said.

The report also noted irregularities in payroll and personnel expense. Some time cards and personnel expense were not signed as approved by human resources staff, the report said.

For all 75 employees tested, variances existed between the payroll report and the general ledger posting report. The variances could not be explained by management, the report said.

The report further recommended that the CHCC “strengthen controls” over documentation of personnel expenses.

Aside from personnel expenses, the Auditor’s Report also said the CHCC should strengthen its controls over the processing, recording, and monitoring of disbursements.

The report cited that the CHCC needs to comply with procurement regulations, noting that some of the items procured did not undergo competitive bidding. Some of the items were also not signed by the contractor. Some of the professional services also do not have the approved contracts.

The CHCC in response to the Auditor’s Report, said it is still addressing the concerns raised. The CHCC’s responses were included in the report.

Operating loss

The corporation has total assets of $16.64 million and total liabilities of $16.44 million in fiscal year 2012, a report from the Office of the Public Auditor said.

The financial audit report, released Jan. 26, 2015, also said that CHCC’s operating revenues and expenses amounted to $29.65 million and $34.07 million respectively, with an operating loss of $4.42 million in fiscal year 2012.

The OPA report covered the operations of the CHCC from Oct. 1, 2011, to Sept. 30, 2012. The CHCC’s initial funding or seed fund for fiscal year 2012 was $5 million, with a net appropriation of $4.72 million.

In its analysis, the OPA report said to the end of the fiscal year, CHCC had total assets of $16.64 million from its cash, general receivables, net of allowances and doubtful accounts, and inventories of medical and pharmaceutical supplies.

The report said CCHC has no recorded capital assets. Current liabilities arise from obligations to CHCC’s suppliers and vendors for operations, retirement contributions and taxes, the OPA report said.