Issue:
The audit committee of a large regional hospital needed immediate assistance, after receiving an anonymous whistleblower complaint. The whistleblower alleged that financial statement revenues had been materially overstated, allowing the provider to report twice its actual net income at year end.
Our team’s actions:
We promptly assembled an engagement team with deep accounting, financial reporting, as well as billing and coding expertise to help the audit committee get to the truth, including:
- Forensic analysis:
- Leveraged advanced data analytics tools to analyze billing records and payment discrepancies.
- Traced financial transactions.
- Targeted interviews and documentation review:
- Conducted extensive interviews with hospital personnel.
- Reviewed thousands of documents, including contracts, emails, and internal management reports.
- Financial reporting and compliance review:
- Analyzed the hospital’s financial reporting practices and compliance with federal healthcare regulations.
- Engaged with the hospital’s audit firm, to understand its testing and conclusions.
Findings:
- We concluded that overpayments had occurred, stemming from a retroactive amendment to the PPO contract between the hospital and the payer. Due to system errors, the payer had overpaid the hospital on outpatient claims by $10 million and underpaid on inpatient claims by $2 million, resulting in a net overpayment of $8 million.
- The hospital had discovered these discrepancies and notified the payer, but continued to book the full payments as revenue, and failing to book a liability.
- The hospital’s CEO did not want to return the overpayment, and was reportedly working on a plan to try to keep the money in exchange for future economic concessions to the payer. However, no agreement had been reached as of the date that the financial statements were issued, or as of the date of our subsequent investigation.
Conclusion:
Noting that rating agencies and other third parties relied on the hospital’s financial statements, we advised the audit committee that there was not support at year-end to book the overpayment as income, and that a restatement was necessary.
In addition, recognizing that management had failed to achieve the actual financial performance expectations laid out at the beginning of the year, the board decided to authorize the sale of the hospital to a much larger system.
The engagement team was led by Vice President and Forensic Services Practice Leader Kristofer Swanson, who is a licensed private investigator, holding a Permanent Employee Registration Card issued by the Illinois Department of Financial and Professional Regulation, as required to furnish certain investigative services. Support was provided by Kim Hartley, Liz Sieber, and Amanda Kight.
CRA’s Forensic Services Practice assists in the prevention, detection, and correction of a broad range of risks and potential misconduct, reaffirming companies’ commitment to integrity and exemplary corporate governance. Other recent assignments have included investigating and assessing allegations of financial statement irregularities, fraud, FCPA, and bribery and corruption non-compliance, export controls and sanctions, anti-money laundering, #MeToo issues, theft of trade secrets, ineffectiveness of SOX controls, and cybercrime.
