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Arnett Carbis Tootham ‐ HFMA Accounting & Auditing Update 2018

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Analyzing and improvingoperaTional processes


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Overview

Overview of Internal AuditReview of 2017 Protiviti SurveyHealth Care Internal AuditUse of Data AnalyticsInternal Audit TransformationQuestions

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“Internal auditing is an independent, objective assurance andconsulting activity designed to add value and improve anorganization’s operations. It helps an organization accomplishits objectives by bringing a systematic, disciplined approachto evaluate and improve the effectiveness of risk management,control and governance processes”

‐ The Institute of Internal Auditors

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WhaT's Included in InTernalAudiT

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Keys To an EffecTive InTernalAudiT FuncTion

Organization’s leaders must: Be open to discussing tough issues Seize opportunities to make changes for

improvementInternal auditors must have: Independent reporting line to the highest governing

body Authority to access all areas of the organization Support if and when their views differ from those of

management

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What Internal Audit Brings to the Table

Ensures that the organization is held accountableAdds value by providing assurance, insight, and objectivitySaves substantial amounts of moneyProtects public reputation of organization by identifying: Operating inefficiencies Wasteful spending Employee theft Fraud Cases of noncompliance with laws or regulations

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InTernal AudiT ResponsibiliTiesOffer Insight and AdviceEvaluate RisksAssess ControlsEnsure AccuracyImprove OperationsReview Processes and ProceduresMonitor ComplianceAssure SafeguardsInvestigate FraudCommunicate Results

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InTernal vs ExTernal AudiTors

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Top AudiT Plan PrioriTies

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2017 2016Information System Controls Billing and collections

Billing and collections Accounting/financeAccounting/finance Information security/cybersecurity program

effectiveness

Information security/cybersecurity program effectiveness

Compliance and regulatory monitoring

Charge capture Information System ControlsElectronic health records Ancillary servicesCompliance and regulatory monitoring

Fraud, waste, and abuse

Ancillary services Accounts payableAccounts payable Compliance investigations, corporate integrity

agreements, regulatory audits, inspections, and sanctions

Data/information governance Charge captureHIPAA compliance HIPAA complianceFraud, waste, and abuse Human resources, employee screening, and payrollClinical systems Capital projects and construction

Supply chain Data/information governanceDenial management Business continuity and disaster recovery


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Top AudiT Plan PrioriTies -CAEs

2017 2016Charge capture Billing and collections

Billing and collections Accounting/financeAccounting/finance Ancillary servicesInformation System Controls Charge captureInformation security/cybersecurity program effectiveness

Fraud, waste, and abuse

Data/information governance Information System ControlsElectronic health records Supply chainDenial management Cash applications/postingsClinical systems Clinical systemsCash applications/postings Information security/cybersecurity program

effectiveness

Supply chain Business continuity and disaster recovery

Vendor risk management Data/information governanceAncillary services Third-party contracts and business associate

agreements

Fraud, waste, and abuse Patient accounting systemsPatient access Accounts payable

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HealTh care InTernal AudiT

Overview: Industry continues to see high volume of changes

New risks & complicated regulatory requirements

Reform continues to change the way everyone does business.

Risks must be effectively evaluated, now more than ever.

Important to identify, prioritize, and evaluate risks that impact your organization.

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HealTh care InTernal AudiTRisk Assessment: Must understand the goals, objectives, processes, and

governance structure of your organization. Identify all areas in your system that could be audited

and the presence of risks in those areas. Choose smaller number of risks that are easy to quantify

and relevant for the industry and your health system. Assessment of the inherent risks and internal control

structure is performed; results in a uniform risk rating applied across the health system.

Must move departments into the future, do not continue old methods/trends.

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Use of DaTa AnalyTics

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DaTa AnalyTics InTernal AudiTData Management Issues: Coordinating w/corporate information

technology function Identifying where data resides Capturing needed data elementsOther People/Process Challenges: Heavy audit plan workloads Budgets Lack of expertise

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10 DaTa AnalyTics AcTion ITems

1) Recognize demand is growing2) Expand knowledge 3) Understand budget and resource constraints4) Use champions to lead effort5) Expand data access & implement protocols

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10 DaTa AnalyTics AcTion ITems

6) Identify new data sources (internal & external)

7) Increase use and reach of data‐based continuous auditing & monitoring

8) Develop real‐time snapshots or risks & incorporate results

9) Increase level of input stakeholders10) Implement steps to measure success

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InTernal AudiT TransformaTion

Historically, internal audit departments focused on periodic and past events, and audited by financial statement categories. Example – Accounts Payable Transaction Testing

Select sampleVerify that amount paid matched invoiceVerify that transaction was properly approvedVerify that amount paid was properly expensed

If transaction met all criteria, the test passed. If the transaction failed to meet the criteria, the

transaction failed.Determine if this was an isolated incidentDetermine if this was a systemic problem

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Example – Petty CashDetermine cash locations throughout companyVerify that cash on hand matched general ledgerVerify that vouchers were available for variancesIf so, were they used appropriatelySecure access to cash

If transaction met all criteria, the test passed. If the transaction failed to meet the criteria, the

transaction failed.Determine if this was an isolated incidentDetermine if this was a systemic problem

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Potential Weaknesses and/or Inefficiencies in AP Testing: Large population from which to choose Sample consists of various cost centers Sample consists of various managers with approval

authority Variances may not be a good reflection of reality.

1 variance out of 25 looks like an isolated instance.Unless further testing is from same cost center & same manager, the variance may be passed. This may bury a potential problem underneath the larger sample population and company.

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Potential Weaknesses and/or Inefficiencies in Petty Cash Testing: Is petty cash material to the organization? Sample consists of various cost centers located in

different geographies?How much do we spend in reimbursement for mileage to complete a petty cash audit?Are variances indicative of fraud or error?

Again, these audits are looking at prior transactions!

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InTernal AudiT TransformaTionTo Be Effective:

Internal Audit needs to be looking backwards and forward.Internal Audit needs to focus on risks to the organization and audit those with the greatest risk.Internal Audit needs to look for ways to improve efficiencies and help streamline processes to promote cost savings.Internal Audit needs to align itself with the organization and be meaningful to its customers.

Board of Trustees Executive Management Senior Management Directors, Managers, and Supervisors Front line workers

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Our Journey:

2008 – 2013 – Internal Audit Department was reintroduced. Focus was Financial

CashInventoryFixed AssetsInvestmentsPost Implementation Reviews

Some ComplianceChart ReviewsMedical Necessity for DME (durable medical equipment)Medical Necessity for Ambulance Billing

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Our Journey:

2013 – 2014 – Internal Audit Department transformation was presented and approved by Audit and Compliance Committee. Focus was Financial, Compliance & Operational

Audit by Location/DepartmentAudits were selected based upon auditor risk perceptions & around Epic TrainingAudits included: Critical Access Hospitals Physician Practices Physician Contracts

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Our Journey:

2016 – 2017 – Internal Audit Department transformation continued to evolve. Focus remained Financial, Compliance & Operational

Continued to audit by Location/DepartmentAudits were selected based upon auditor & management risk perceptions.

Audits included:CredentialingHeart and VascularSurgical ServicesEmergency DepartmentTAVR

Physician ContractsLaboratoryUrgent Care Centers

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Our Journey:

2018 – Internal Audit Department adds Post Implementation Reviews of New Service Lines and Continuous Monitoring Projects. Seeks to become more of a consultant prior to implementation. Focus remains Financial, Compliance & Operational

Will continue to audit by Location/Department.Audits selected based upon auditor & management risk perceptions & Management/Director requests.

Audits will include:Cancer CenterLeased Practice ArrangementsNew Cath Lab

Joint VenturesContinuous MonitoringAPC Contracts

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Value Added Observations: Specimen Flow in OR Heart & Vascular and Cath Lab TAVR Documentation Epidural Charges Physician Contract Management Documentation and Billing 340B Drug Pricing

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Jack H. LynnArnett Carbis Toothman LLPManager – Health Care Servicesvoice: 724.658.1565 e‐mail: [email protected]

Adam T. McKenery, MBA, CIAValley Health SystemDirector Internal Auditvoice: 540.536.2014e‐mail: [email protected]

QUESTIONS?

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LUNCH

HERE COMES TO FOOD… DOO DOO DOO DOOAND I SAY, “LET’S EAT LUNCH.”

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