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KHMH Special Audit Report 2012

See Press Release--Press Release July 2012

 


KHMH RESPONSE TO Special Audit Report

KARL HEUSNER MEMORIAL HOSPITAL

June 2012

Prepared by:

Dr. Francis G. Longsworth

Chief Executive Officer

And

Mr. Carlos Perera

Director of Finance

KHMH

June 21, 2012.

 

 

Introduction

At the conclusion of the KHMH Special Audit, the CEO had requested that the KHMH Administration be allowed to document its responses to the issues discussed, either as an integral part of the final report or as an addendum.  The request for inclusion of our responses in the final report was not granted and we were advised by the Auditor General that we could respond once the final report had been delivered.

The following addendum is a systematic treatment of those areas of the report which, in our opinion, require a documented response.   This option is being exercised in order to set the record straight and safeguard the professional integrity of the institution as well as those administrators who have once again been unfairly targeted by the public media and in the public domain.

 

Foreign Purchases

Reference:  Special Audit Report, KHMH (April 2010 - December 2011); pp. 9-19.

  1. 1) The Hospital overpaid a foreign supplier (SKILLED SOLUTION) $17,098 for medical equipment never delivered.

Management Comment: A meeting was held with the Accountant and the Purchasing Manager and explanations on this issue were clearly stated to the auditors.  It was noted to them that both the institution and the supplier were unclear on the issue and were unable to determine whether it was a genuine error or if the employee had attempted to commit a fraudulent act.  However, both parties agreed that a credit has been established and the KHMH is yet to utilize the credit.

The original order was for neurosurgical equipment and the Purchasing Manager has been instructed to review the needs for this service area with Dr. Joel Cervantes, Chief of Neurosurgery, in order to appropriately utilize the credit outstanding.

 

  1. 2) KHMH received “Letter of Credit” seven months after they paid for items totaling $10,300.00 that were never received by the institution.

Management Comment: A meeting was held with the Accountant and the Purchasing Manager and explanations on this issue were clearly stated to the auditors. The $10,300 was detected by the institution due to follow up as opposed to the auditors stating otherwise.  The error on our part was that we did not give a time frame to receive the credit due.   However, it has been confirmed that to date we have utilized the credit.   An internal directive will be sent out informing the finance department that a 30 day cutoff will apply to all prepayments that have been short shipped and vendors will be informed to apply credit immediately.

  1. 3) KHMH made overpayment of $1,720.00 to Oxi-Rent which was later offset by a subsequent Purchase Order to the supplier.

Management Comment: A meeting was held with the Accountant and the Purchasing Manager and explanations on this issue were clearly stated to the auditors.  This is a non-issue as in the end there was no overpayment and all documents accounted for the shipment and payments.

 

  1. 4) The KHMH prepaid Flamingo Export Company (FEC) an amount of $7,675.00 worth of Medical Supplies, which were not received to date.

Management Comment: A meeting was held with the Accountant and the Purchasing Manager and explanations on this issue were clearly stated to the auditors. The accountant made it clear that there is no issue here and no double payment as we hold a credit account with FEC.   FEC applied the credit against what was owed to them for other invoices.   Therefore the net effect is that only one payment was then made to Commerce at the end of the transaction.   The statement of account for FEC was given to the auditors to see the credit from FEC applied to our accounts payable account.

 

  1. 5) American Hospital Supply issued Credit Note to KHMH one year after KHMH was overcharged in respect of items totaling $2,300.00 US.

Management Comment: A meeting was held with the Accountant and the Purchasing Manager and explanations on this issue were clearly stated to the auditors. This is a non-issue as the credit was applied by the company.   We do accept the recommendation that credit notes from our vendors need to be applied in a timely fashion.

There was no double charge on the drill purchased; what occurred was that the wrong drill was ordered but this was detected before delivery and the supplier subsequently delivered the correct drill.  The vendor thereafter billed the institution accordingly, the KHMH ensured after consultation with all the relevant parties that said drill was correct before payment was made.

CONTRACTS

Reference:   Special Audit Report, KHMH (April 2010 - December 2011); pp. 22-40.

  1. 1. The KHMH adhered to the requirements of Contractor General’s Memorandum No-3 of 1999 when they contracted the services of Belize Drywall Company

Management Comment: This matter arose due to the fact that the Director of Operations did not do a proper billing of quantities, therefore values did not coincide with the proposed cost when bids were submitted.   The bids had to be re-opened and concerns were raised when contracts such as Kenrick Jones’ which had placed last ended up being short listed in the second phase.  This was not noted in the findings by the auditor general despite this being properly documented.

Furthermore, management cannot understand the auditors bringing up repair issues and quality of works in the medical ward which was clearly outside the scope of their audit.  The Director of Operations was directed by the CEO to assist with the monitoring of the contract and did not do so, but then at the conclusion of the works went on to document a series of shortcomings, several of which were not even included in the contract schedule.

 

  1. 2. The Director of Operations believed that it would have been more economical to install a new elevator while the Chief Executive Officer indicated that it was better to repair the elevator.

Management Comment: At no time did the Director of Operations present to management that the cost of replacing the elevator would be $100,000.00.  Many discussions included that the cost of replacing would be almost three times that amount.   It was on that basis that the KHMH decided to repair both elevators as opposed to installing a new elevator.   The $163,000 expenditure listed is both for repairs of approximately $80,000 and the balance in regards to maintenance over three years.

 

  1. 3. The KHMH adhered with their internal purchasing policies when they purchased the twelve body morgue unit at a cost of $53,000.00 US from Skilled Solutions.

Management Comment: This was the issue that created this entire so-called scandal and whistle blowing.  In the end the process and procedure as accepted by the auditors clearly reflect transparency and accountability.

 

  1. 4. The KHMH Management did not adhere to the requirements of the Contractor General’s Memorandum No-3 of 1999 when contracting the services of BIC.

Management Comment: We disagree with this statement that we did not abide by the requirements of the Contractor General.   The value of the contract falls below $100,000 and the exchange rate applies to the banks charges and not payments to the service provider. It is very contradictory in this review by the auditor general as they did state:

Since GE is the manufacturer for both equipments, the KHMH was obligated to ensure that a GE certified Agent or his representative conduct preventative maintenance services. As a result, the hospital outsourced the maintenance services for these equipments to a GE agent in Guatemala (Technicare) and eventually switched to BIC

 

We learnt that the KHMH had difficulties with the previous contractor, Technicare (Guatemalan GE Agent) and that GE had changed to BIC as its agent for this region. Hence, the hospital was obligated to engage the services of BIC to provide the maintenance services for these systems.

General Electric only conducts business through its authorized agents.  Therefore the AG posed a rhetorical question, as unfortunately we don’t control the cost of the service offered by BIC.  However, we would review and attempt to renegotiate the contract in the face of any proposed increase at the time of renewal.   Finally, the recommendation by the Auditor General of connectivity is not a recommendation from the AG but what was long before agreed with GE as necessary to ensure timely trouble shooting of the equipment.

 

  1. 5. KHMH only requested one quotation for Evaporator Coils obtained from Technivel Company.

Management Comment: This has always been an issue in regards to the area of the Director of Operations.   It is disappointing that the Auditor General did not point out that the Director of Finance had continued to raise this concern with the DO.   No recommendation from the AG was made to reinforce to the DO that three quotations are mandatory and proper documented explanation by the Director is needed on those occasions where only one quotation is submitted.

 

  1. 6. Walk-in Freezer – Peter Hulse, KHMH did not provide any reason why the contract sum of $23,542.00 for repairing a walk-in freezer was increased to $30,136.00.

Management Comment: The Auditor General did not establish that this was an area that the Director of Finance brought to their attention again.   This re-emphasizes the issue that more than one quotation is required for these projects and that the Director of Operations continues to avoid proper process.   The Director of Operations was unable to justify the legitimacy of the increase and this was documented by the DFS and brought to her attention.   It’s not the KHMH that did not give the auditors a justification; it was the DO that was unable to give the KHMH a reason.   The full responsibility in this area lay with the DO and makes the case for submission of multiple quotations or to place for tender.

 

  1. 7. Items ordered from FEC were received, taken on charge but balances adjusted to zero at end of year with no issues seen.

Management Comment: A meeting was held with the Accountant and the Purchasing Manager and explanations on this issue were clearly stated to the auditors.  The shunts differ with the pressure flow, and this is reflected by different item numbers.  We do not believe, as stated by the auditors, that there is no evidence to show how the items were distributed but that more detailed review was needed.  It is highly likely that if the auditors had checked other item numbers, they would have seen movement in these areas that would justify the evidence.

 

 

 

  1. 8. KHMH purchased items from OxiRent and reversed the entries previously taken on inventory charge in the Quick Books accounting system.

Management Comment: A meeting was held with the Accountant and the Purchasing Manager and explanations on this issue were clearly stated to the auditors.  All humidification chambers are distributed directly and in its entirety to Ms. Bertha Gonzalez , our Respiratory Therapist.  The consideration is that the auditors needed to understand the difference between items being expensed versus being held in stock.   We concluded that the reason for the adjustment is the fact that we had already expensed all 200 units to the respiratory therapist.  The auditors need to ask the right questions before making assumptions, especially in this case.

 

  1. 9. KHMH purchased items from Skilled Solutions that were unable to be traced as taken on Inventory.

Management Comment: A meeting was held with the Accountant and the Purchasing Manager and explanations on this issue were clearly stated to the auditors.   The auditors were very contradictory to these findings despite the fact that a receiving report was presented to the auditors.   Year-end physical inventory counts at institutions serve the purpose of picking up on items not entered in their systems, therefore allowing correction by way of necessary annual adjustments.

We do take the concern that when stores was distributing the items, they should have noted that there were negative balances being presented in the accounting software which should have set off red flags.

 

  1. 10. KHMH purchased 432 Braun brand Infusomat Pump connections from Skilled Solutions which we could not trace as taken on Inventory.

Management Comment: This finding was not brought to our attention during the audit.  As you will note the auditors made no mention that they spoke to anyone.  This should have been done to establish an explanation to this finding.   The DFS has requested for the Internal Auditor to investigate and report immediately on the findings.

 

  1. 11. KHMH paid Skilled Solutions for a number of items but not all items were recorded as delivered to the institution.

Management Comment: A meeting was held with the Accountant and the Purchasing Manager and explanations on this issue were clearly stated to the auditors.  The purchasing manager made it clear that all sterilizer items have been received and issued.   They did accept that the shipment did take a while and still pending is the issuing of and accounting for the items in the accounting software.  The completeness of the shipment had nothing to do with the auditor’s report except for the fact that the shipment was in transit during the almost four months of the audit.

  1. 12. KHMH sourced identical items from Government Central Stores and Skilled Solutions during the same period.

Management Comment: This is a very vague statement by the auditor general, and therefore not a fair one.   Normally the only scenario where this obtains is if the lead time given by Central Stores is too long and items are urgently needed to ensure adequate patient care.   Therefore, proper review was needed to establish if a purchase order was made, if a payment was made and to then discuss with the Purchasing Manager what justification was given for the purchase of items normally supplied by tender from GOB.

KHMH Corporate Credit Card

Reference:   Special Audit Report, KHMH (April 2010 - December 2011); pp. 41-44.

Management Comment: The following findings need to be addressed, as the auditors were properly informed of several areas yet did not properly explain in their findings.  Also it was made clear to the auditors that we submitted the completed statements for fiscal year 10/11 and all other documents on a timely basis.  However we did not have 11/12 fully reconciled as we were still operating within the fiscal year being audited.  The KHMH has never tried or intended to withhold information or documents from the auditors.   We informed the auditor general that the approval of the corporate card application was signed by the Chairman and Secretary to the Board and that document is kept with the Belize Bank as we don’t have a copy on file.  The review of the findings illustrate that the auditors did not properly discuss the transactions with the DFS before questioning the legitimacy of the transactions or taking the assumption that certain charges were absorbed by the institution.

  1. They were informed that the CEO had an allowance of $2,000.00 for entertainment allowance therefore there was no need for submission for receipts.  This monthly usage is monitored by both the DFS and accountant.  Therefore the listing of all his credit card transactions stating no receipt is just sensationalizing the issue.  The auditors listed 90 transactions and 60 of those transactions were within CEO Longsworth’s allowance therefore needing no receipts.  It is a false statement by the auditors that it is unclear which transactions occur in the scope of his allowance.  The statements are clearly noted item by item by the DFS which are actual amounts used by the CEO.

 

  1. The auditors were informed that the fiscal year was not complete and that the credit card account was not yet updated therefore they should have expected incomplete documents.  This again being incomplete would sensationalize the list of no receipts for the balance of the other 30 transactions on the list.

 

  1. The auditors were informed that there were a couple personal transactions only on foreign travels charges that were cleared and properly billed to the Director of Finance by the accounts department reflecting proper accountability and transparency.   Yet the Auditor General presented the charge as an expense to the institution.

 

  1. As we explained to the auditors the corporate card is used for and only for the mentioned purposes as noted by the accountant.  We are in the process of establishing a policy and procedure of the credit card for the KHMH and this will be prepared and presented to the CEO for presentation to the Board of Governors.

 

  1. All transactions are accounted for by noting on the statement who executes the transactions  and The Director of Finance does not make payments without the approval of the CEO. If the auditor is recommending that the payments made to clear the card should be pre-approved in writing by the CEO, the recommendation is taken accordingly.

 

  1. The Director of Operations would refuse to sign off on bills that would come in for the DFS in regards to signed purchase orders for fuel for official local travel.   Due to this fact, the DFS therefore requested of the CEO to utilize the credit card, where the receipts would be properly accounted for and the purpose of the utilization documented.  Due to the change made by the Board on local purchases, the DFS has now commenced submitting receipts for reimbursements and official purchase orders for official local travel are now separated from other fuel bills for CEO approval.

 

  1. In regards to Table 18, the DFS made it clear that several personal items acquired by the DFS while travelling and attending official functions on behalf of the institution were properly accounted for and did not accrue as an expense to the institution.   In regards to the charges for the equipment from Digital Universe, it is for a projector along with necessary accessories for the KHMH.   The Great House charges are all legitimate charges paid for accommodation of  visitors and service personnel to the institution.  The purchase of Best Buy Houston AT&T supplies is for a set of cordless phones currently situated in the DFS’ and secretary’s offices.   The charges of upgrades on travel are approved based on the travel budget allocated to the respective directors.

 

  1. In regards to Table 19, for charges of per diem, the DFS only charges per diem in cases where the office did not provide a check for the per diem due to short notice of travel or for extended official duty business.  There were two instances where the DFS was already travelling in an official capacity and saw it fit to accomplish other business matters for the KHMH that would in turn save on future travel arrangements for the institution.   In the cases where checks were issued to the DFS for travel arrangements, the additional per diem was due to extended days as mentioned:  for example on one occasion, the DFS met and signed necessary documents with vendors and visited new vendors to ensure the legitimacy of the companies.

 

  1. In the cases investigated during the audit with regard to the expedited fees paid for items, the auditors must understand that several of the US distributors order from Europe and Eastern countries that require extended times for manufacture and shipment of goods, and even urgent delivery may range anywhere from one month to three months.     In the specific cases cited where the KHMH required urgent delivery, we requested that the companies charge the corporate card to eliminate the cost of transferring US$2,000.00 and less in most cases and also the time to execute the currency transfer.   This is similar to where we ask vendors with small balances owed to them, as we did with Bio Medical on April 8th 2011, to charge the corporate card for the small outstanding balance.

 

At no time in their review did the auditors state that there was full documentation in these areas with the supporting invoices to show what generated the charges and to prove the legitimacy of these charges.   Additionally, these were one off instances and don’t normally occur without approval from the Director of Finance.

Conclusion

It is the opinion of the KHMH Administration that the Auditor General needed to properly interview the right persons, ask the right questions and most importantly understand the process.  It was clear that in many instances the Audit Team did not understand the process or they would have been able to eliminate most of the findings as mentioned above.   All transactions had a clear explanation ensuring that we have full transparency and accountability.

 

Based on the content of the report, the major area identified for strengthening will be the review of procedures at the stores department for proper documentation of all goods being received internationally and ensuring receipt of those goods.

 

The other areas for strengthening will entail establishing a cut off time frame to vendors in regards to short shipments and the issuing of credit notes to the KHMH on a timely basis.

 

Another area of review will be to document the corporate card procedures which already exist, as explained to the auditors, but which need to be formally documented.

 

Finally, the KHMH needs to ensure that all Directors submit three quotations minimum for all projects and works being requested in order for these to be properly executed by the Finance Department.

 

 

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