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Audit adjustments increased loss by $3.3 million
Patient accounts not all timely billed or adequately monitored
Contractual allowances not always recorded at time of service
Medical records not all located in a timely manner
Reporting to Comptroller's Offset System not timely
Statistics not always accurate and reliable
Adjustments to accounts payable exceeded $6 million
Inconsistencies and weaknesses noted in security controls over computer networks
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INTRODUCTION
Our 1999 audit of the University of Illinois is presented in three reports. The
financial part consists of two reports which include the various financial statements of
the University and other supplementary information. The State and Federal Compliance
Audit report contains the compliance findings disclosed by our audit tests.
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
PROCEDURES AT HOSPITAL NEED IMPROVEMENT
Our review of procedures and records at the University's Hospital identified
several weaknesses and areas where improvements are needed to enhance operations as
follows:
- The Hospital's processes for the timely and accurate accumulation and reporting of
financial information were not adequate. As a result of the audit, the Hospital recorded
adjustments that increased its loss by $3.3 million to $12.6 million. Adjustments were
necessary due to a substantial number of unrecorded liabilities, incorrect recording of
the liability for anticipated patient refunds, and problems with reconciling the detail of
accounts receivable to the reported balance. These situations appear to be due to the lack
of formal processes, timeliness, supervision, and training in the general and patient
accounting divisions. Additionally, during the audit period, the Hospital contracted with
a third party for a detailed study of Hospital operations. Hospital officials indicated
that the additional workload caused by the study may have contributed to a lack of
attention to existing policies, procedures and processes. (Finding 2, pages 14-15)
- The Hospital had inadequate procedures for billing and monitoring the collection of
patient accounts receivable. Our testing noted: refusal of payment by third-party payers
due to untimely billing and lack of pre-authorization; unbilled inpatient charges due to
medical record data not being available; and the lack of monitoring and follow-up to
ensure collection. Billing and monitoring patient accounts is a complex function that must
be performed timely and accurately. (Finding 3, pages 16-17)
- The Hospital inconsistently calculated contractual allowances. A contractual allowance
is that portion of a patient's account that will not be collected due to a contractual
agreement with a third-party payer to accept less than the Hospital's standard charge. The
effect of a contractual allowance is typically to reduce patient accounts receivable and
revenues in the accounting records at the time the service is delivered. Our testing noted
that for 9 out of 138 transactions tested, the Hospital did not record the contractual
allowance until the time of collection. Untimely recording of contractual allowances
misstates the Hospital's periodic operating statements. In these 9 instances the
contractual allowance adjustment was approximately $750,000. (Finding 13, page 30)
- The Hospital did not have adequate control over all medical records. During our testing,
we were unable to obtain medical records for all patients selected for testing in a timely
manner. Movement of medical records must be carefully controlled so that all records can
be located in a timely manner. Accounts cannot be billed until the medical record is
reviewed for completeness and coded. The records must then be retained to support the
propriety of amounts billed. (Finding 14, pages 31-32)
- The Hospital did not make timely submissions of past due patient accounts to the State
Comptroller's Offset System. As of June 30, 1999, the Hospital submitted all patient
accounts greater than $1,000 and one year past due. The State Collection Act of 1986
requires the submission of all such accounts which are more than 90 days past due. Upon
the reporting of this finding in our prior audit, the University on behalf of the
Hospital, requested relief from the 90 day requirement to allow them to report only those
patient accounts greater than one year past due. In September 1999, the University was
notified by the State Comptroller that an exception was granted to allow submission of all
patient accounts greater than $1,000 and 180 days past due. (Finding 15, page 33)
- Key operating statistics and patient receivable information used by the Hospital to
monitor and analyze operations were estimated for financial analysis since accurate,
actual data was not available. Accurate statistics are necessary to enable management to
make informed decisions. (Finding 16, page 34)
University officials concurred with the findings related to the Hospital operations.
They stated that corrective actions will be implemented during FY 2000 to improve
operations.
ACCOUNTS PAYABLE ERRORS
During our testing of the Urbana Campus' June 30, 1999 accounts payable balance, we
noted three errors that resulted in a net accounts payable understatement of over $6
million. The University did adjust its financial statements. The errors noted were as
follows:
- Understatement of $6.2 million related to the exclusion of a liability for equipment
purchased FOB - Origin which means ownership passed at the time of shipment.
- Understatement of $1.2 million related to the exclusion of an accrual for utility
charges for one operating unit of the University.
- Overstatement of $1.3 million related to the inclusion of a liability for 16 training
aircraft that had been satisfied by wire transfers though the obligation status in the
accounting records had not been properly updated.
Generally accepted accounting principles require that the accounts payable balance
include items for which the University has a liability based on receipt or occurrence.
(Finding 1, pages 12-13)
University officials concurred with our recommendation to amend and emphasize their
procedures for evaluating accounts payable.
COMPUTER NETWORKS LACK CONSISTENT SECURITY STANDARDS
The University's baseline policies and security standards for use of the
University's administrative and academic computer networks were inadequate to promote
consistency among the networks. Responsibility for the academic networks was decentralized
among the specific user departments and colleges; thus, security controls in each network
could be unique. Administrative Information Technology Services managed the networks used
to process information for the administrative areas of business, finance, human resources,
etc. We reviewed 25 administrative local area networks (LANs) and identified several
inconsistencies and security weaknesses.
University-wide baseline policies, procedures and standards regarding the security,
administration, disaster contingency, and use of the LANs should assure the University's
computerized assets are properly safeguarded. (Finding 9, pages 24-25)
University officials concurred and stated they will review and strengthen the
University network security policies by September 1, 2000.
OTHER FINDINGS
The remaining findings were less significant and are being been given attention by
University management. We will review progress toward the implementation of our
recommendations in our next audit. University responses were provided by Dr. Craig S.
Bazzani, Vice President for Business and Finance, and Comptroller.
AUDITORS’ OPINION
The financial audit report contains five sets of financial statements in the Annual
Financial Report; and the revenue bond financial statements of the Auxiliary
Facilities System, the Willard Airport Facility, the Construction
Engineering Research Laboratory, and the Health Services Facilities System.
Our auditors state the June 30, 1999 financial statements are fairly presented in all
material respects.
_____________________________________
WILLIAM G. HOLLAND, Auditor General
WGH:KMA:pp
SPECIAL ASSISTANT AUDITORS
Olive LLP were our special assistant auditors.
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