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INTRODUCTION
This digest covers our compliance examination and financial
audit of the Physicians and Surgeons, Inc. for the period ended June 30,
2007.
FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS
FRAUD PREVENTION AND DETECTION PROGRAM
Physicians & Surgeons, Inc. (P&S)
does not have a fraud risk assessment program in place. According to P&S
management, the P&S has established internal controls in order to prevent
and detect fraud as well as errors that may occur; however, these controls
and associated risks are not monitored on an on-going basis within a
structured fraud prevention and detection program.
P&S
relies on current internal controls that have been put in place to prevent
and detect fraud. Additionally, P&S management has relied on the external
audits for identification of control weaknesses.
Accounting industry trends have increased organizations’
awareness of the prevalence of fraud.
Many organizations rely in part on their auditors to uncover any
internal fraud, but audits, even those of the highest quality, are not a
substitute for management establishing good internal control.
P&S is responsible for the development of internal
controls and the monitoring of their operating effectiveness. Additionally,
it is management’s responsibility to prevent and detect fraud. (Finding No. 1, Page 25 (financial
report))
We recommended that management establish
a continuous written fraud prevention, deterrence and detection program, and
that the Board of Directors evaluate management's identification of fraud
risks and its implementation of anti-fraud measures.
P&S officials agreed with our
recommendation.
CASH
CREDIT RISK
P&S
consistently maintains a cash account with a balance greater than the Federal
Deposit Insurance Corporation (FDIC) insured amount of $100,000. At June 30, 2007 and 2006, the uninsured
balances were $1,038,207 and $2,779,314, respectively.
Prudent
business practices require that assets not be subject to uninsured risk. Even though cash disbursements exceed
$100,000 in a given time period, a variety of money management methods exit
to ensure bank balances are fully insured.
(Finding No. 2, Page 8 (compliance report)). This finding was
first reported in 2003.
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 officials believe that sufficient
steps have been taken to address this repeat finding; however, management
will continue to monitor and manage its cash balances on an ongoing basis and
will modify its procedures as deemed necessary. (For the previous Department response, see
Digest footnote #1.)
AUDITORS’ OPINION
Our auditors stated the June 30, 2007
financial statements of the Physicians and Surgeons, Inc. are fairly
presented in all material respects.
____________________________________
WILLIAM G. HOLLAND, Auditor General
WGH:KAL :pp
SPECIAL ASSISTANT AUDITORS
Crowe Chizek & Co., LLC
were our special assistant auditors for this audit.
DIGEST FOOTNOTE
#1 CASH CREDIT RISK -
Previous Department Response
2005: We had previously responded to the FY03
compliance Finding and Recommendation dealing with this topic that we
considered the level of risk to be minimal given the size, reputation and
good standing of the bank being used.
We agree with this year’s Finding in light of the recent increase in
the available cash balance on deposit.
The recent increase in the available cash balance is due to a change
in the distribution of revenues for Academic Development accounts, for the
benefit of the School of Medicine, whereby these funds are now being retained
by the corporation as opposed to distributing these funds to the School of
Medicine and/or the SIU Foundation.
We agree with the current Recommendation and will work with our
banking representatives to implement a cash management program which will
reduce the level of risk.
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