Continuous Auditing at HCA

1
Continuous Auditing at HCA
Fifth Continuous Assurance and Auditing Symposium

• Chase Whitaker, CPA
• Audit Director
• HCA, Inc. Internal Audit
• Consulting Services
• November 22, 2002

2
Overview

• About HCA
• Potential Areas for Continuous Auditing
• Lessons Learned Diverging Paths
• HCA Automated Tools Developed Next Steps

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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

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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

• 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.

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Challenges

• Significant investment in RD 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

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Other Considerations

• Strength of operations management
• Audit universe
• Understand key organizational risks
• Clearly defined audit objectives - Avoid scope
  creep
• Design exception only reports

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Technology Tools Evolution

• Currently used by HCA
• Data downloads with Focus
• ACL processing
• Excel presentation
• E-mail delivery

• Future?
• Data tags (e.g. XML)
• Application intelligent agents
• Embedded audit modules
• Application or intranet real time reporting

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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

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Silver Bullet Solutions
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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

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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
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
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 gt
  DOH)

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

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Automated Tools Developed Patient Account
Service Centers
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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

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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

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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

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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

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Contact Information

• Chase Whitaker
• Audit Director
• HCA, Inc. Internal Audit Consulting Services
• [phone]
• Chase.Whitaker_at_HCAHealthcare.com