REPORT DIGEST

SOUTHERN ILLINOIS UNIVERSITY

PHYSICIANS AND SURGEONS, INC.

COMPLIANCE EXAMINATION

For the Two Years Ended:

June 30, 2005

AND

FINANCIAL AUDIT

For the Year Ended:

June 30, 2005

Summary of Findings:

Total this audit 2

Total last audit 3

Repeated from last audit 1

Release Date:

March 23, 2006

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

AUDITOR GENERAL

To obtain a copy of the Report contact:

Office of the Auditor General

Iles Park Plaza

740 E. Ash Street

Springfield, IL 62703

(217) 782-6046 or TTY (888) 261-2887

This Report Digest is also available on

the worldwide web at

http://www.state.il.us/auditor

SYNOPSIS

· The Physicians and Surgeons, Inc. (P&S) did not properly accrue an accounts receivable related to an agreement with the Illinois Department of Healthcare and Family Services.

· P&S continued to maintain a cash account with a bank balance greater than the Federal Deposit Insurance Corporation’s (FDIC) insured amount.

SOUTHERN ILLINOIS UNIVERSITY

PHYSICIANS AND SURGEONS, INC.

COMPLIANCE EXAMINATION AND FINANCIAL AUDIT

For The Year Ended June 30, 2005

FINANCIAL OPERATIONS (All Funds)	FY 2005	FY 2004 (restated)
REVENUES
Operating revenues..............................................	$69,772,792	$59,233,185

EXPENSES
Operating expenses..............................................	61,388,239	54,486,098

Operating income (loss)..................................	$8,384,553	$4,747,087

NONOPERATING REVENUES (EXPENSES)
Interest Expense.........................................................	($7,712)	($12,389)
Investment Income.....................................................	200,601	194,692
Contributions/donations..............................................	(1,559)	(1,663)
Net nonoperating revenues...................................	$191,330	$180,640

Increase (decrease) in net assets.................................	$8,575,883	$4,927,727

NET ASSETS
Net Assets – beginning of year as restated..................	20,011,771	15,084,044

Net Assets – end of year............................................	$28,587,654	$20,011,771

OTHER SIGNIFICANT ACCOUNT BALANCES	AT JUNE 30, 2005	AT JUNE 30, 2004 (restated)
Cash and Deposits with SIU........................................ Net Patient Accounts Receivable................................. Estimated due from Illinois Department of ... Healthcare and Family Services.................................................... Total Assets............................................................. Accounts Payable and Accrued Liabilities.................... Employee Salaries Payable.......................................... Total Liabilities........................................................ Net Assets – Invested in capital assets......................... Net Assets – Unrestricted........................................... Total Net Assets......................................................	$12,964,501 $15,755,765 $5,132,243 $34,445,735 $2,428,916 $2,806,390 $5,858,081 $593,226 $27,994,428 $28,587,654	$8,957,552 $11,434,988 $3,970,791 $25,408,639 $2,143,354 $2,320,052 $5,396,868 $366,432 $19,645,339 $20,011,771
EXECUTIVE DIRECTOR
During the audit: Mr. David J. Tkach Currently: Mr. David J. Tkach

Recording accounts receivable accrual

Net Assets as of July 1, 2004 have been restated for unaccrued accounts receivable

Bank balances exceed the FDIC insured limit

INTRODUCTION

This report presents our financial statement audit for the Physicians and Surgeons, Inc. for the year ended June 30, 2005, and its compliance examination for the two years ended June 30, 2005.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

ACCOUNTS RECEIVABLE REPORTING ERROR

P&S did not properly accrue an accounts receivable related to an agreement with the Illinois Department of Healthcare and Family Services (IDHFS), known as the Department of Public Aid through June 30, 2005.

P&S has entered into an agreement with IDHFS to facilitate the claiming of federal financial participation matching funds. The agreement was signed and allowable costs from FY02 were submitted during FY03. Furthermore, annual cost statements for FY03, FY04 and FY05 were submitted to IDHFS during December of 2003, 2004 and 2005, respectively.

P&S did not accrue any receivables resulting from this agreement during the years ended June 30, 2003, 2004 or 2005. Accrued receivables should have been recorded in the amount of $2,340,302, $1,630,489 and $2,049,819 for these years, respectively. Consequently, the financial statements for June 30, 2004 have been restated, and an adjustment has been posted to the FY05 statements. (Finding 1, pages 13 – 15)

We recommended, and P&S management agreed, to establish procedures to assess and document proper accounting treatment of agreements with third parties, so that revenues and expenses are recorded in the proper financial period. Furthermore, P&S agreed with the restatement and adjustment to the FY04 and FY05 financial statements, respectively, and will continue to make an estimate in future years for this receivable.

CASH CREDIT RISK

P&S continues to consistently maintain a cash account with a bank balance greater than the Federal Deposit Insurance Corporation’s (FDIC) insured amount of $100,000.

At June 30, 2005 and June 30, 2004, the uninsured balances were $2,922,351 and $506,327, respectively.

Prudent business practices require that assets not be subject to uninsured risk. (Finding 2, page 16).

We recommended that P&S structure its bank accounts whereby the bank balance at an individual bank is either less than $100,000 or obtain additional collateral for amounts in excess of the FDIC insurance. P&S agreed, given the recent increase in the uninsured balance, to work with their banking representative to implement a cash management program which will reduce the level of risk.

Agency responses were provided by Mr. Peter Cadwell, Chief Financial Officer for Physicians and Surgeons, Inc.

AUDITORS' OPINION

Our auditors stated the June 30, 2005 financial statements of the Physicians and Surgeons, Inc. are fairly presented in all material respects.

___________________________________

WILLIAM G. HOLLAND, Auditor General

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SPECIAL ASSISTANT AUDITORS

Kerber, Eck & Braeckel LLP were our special assistant auditors for this engagement.