Transcript Nonprofit Boards

Public Hospital District
Financial Reporting,
Board Responsibility &
Compliance
Doug Albright-Chair, Health Care Practice
Ogden Murphy Wallace
1601 Fifth Avenue-Seattle, WA 98101
206.447.7208
omwlaw.com
Panel and Format
• Ivan Dansereau, State Auditor’s Office
• Don Hansen, Moss Adams, CPAs
• Doug Albright, Ogden Murphy Wallace
- Healthcare Practice Group
• Presentations
• Extended Q & A
Themes
• Good governance/financial
compliance = largely common sense
• Current law provides significant, but
incomplete, comfort & guidance
• Importance of compliance programs
and Board of Commissioners (Board)
education
• The future is uncertain, but hospital
districts should be proactive
Themes (continued)
• Driven by Medicare/Medicaid fraud
and perceived fraud
• “Headline Test”
Panel Member Roles
• Ivan will emphasize the state’s
auditing role and issues he sees
• Don will cover state & federal issues
from a CPA auditor’s viewpoint
• I will emphasize developing Board
financial/compliance oversight duties
The Future is Uncertain
• “The future ain't what it used to
•
•
•
•
•
be.” Yogi Berra
Enron/Sarbanes-Oxley
Increased healthcare regulation
Increased emphasis on obligations of
Boards/executives
Increased economic pressure on
physicians (turf battles, etc.)
Increased financial scrutiny
The Good Governance Motto
• A good governance Board/committee
member is, like a good Scout:
Trustworthy, Loyal, Helpful, Thrifty,
Obedient, Brave and Reverent
• And, add to the list:
Law Abiding, Prudent, Educated,
Inquisitive, Diligent and Involved
• If you were a Scout, what is missing?
Answer to the Test
• Friendly
• Courteous
• Kind
• Cheerful
• Clean
Board Financial Responsibilities
• Based on general Board
responsibilities
• In addition to specific auditing
standards to be discussed by Ivan
and Don, the financial responsibilities
of the Board should be considered in
the context of the general duties of
the Board and developing standards
Core Duty - The Obvious
• A core duty of any Board or
committee member is to serve the
purpose of the organization
• Committee members should also be
focused on the duties and
responsibilities of the committee
• Finance, Audit and Compliance
Committees are key to financial and
legal compliance
The Board’s Responsibilities
• The Board is responsible for:
establishing the District’s policies,
making major decisions,
delegating to the Superintendent, and
providing effective oversight of District
operations
The Right to Rely
• In the private sector, a director is
entitled to rely on information,
opinions, reports, or statements,
financial statements and other
financial data, prepared/presented by:
Officers or employees of the corporation
whom the director believes to be reliable
and competent in the matter presented
The Right to Rely (continued)
Counsel, public accountants, or other
persons as to matters which the director
believes to be within such person's
professional or expert competence
The Right to Rely (continued)
A committee of the Board . . . duly
designated . . . as to matters within its
designated authority, which committee
the director believes to merit confidence;
so long as,. . . the director acts in good
faith, after reasonable inquiry when the
need therefor is indicated
The Good News
• The law recognizes that a public
official should not be liable for
discretionary decisions or failure to
make a discretionary decision within
his/her official capacity (RCW
4.24.470)
The Limits of the Good News
• Scope of “discretion” ill-defined and
likely to change “post-Enron”
• Breach of fiduciary duty
• Intentional misconduct or a knowing
violation of law
• Conflict of interest/personal benefit
(RCW 42.23)
• Open Meetings and other statutory
requirements
Intentional/Knowing Violation
• How determine if a violation is knowing?
Effective regulatory compliance program?
Reliance on management and advisors
Acquiescence to conduct may equate to
knowing violation
Reasonable to expect courts to interpret
“knowing” more broadly, and if a
Commissioner knows of a violation, cannot
claim failure to act was discretionary
Elements of Fiduciary Duties
• The duty to act as a fiduciary in the
best interests of the organization
includes a number of elements that
can be separately delineated:
Duty of Oversight
• Duty to manage the organization
through delegation to managers
• Board/committee members cannot be
expected to manage the day-to-day
activities of an organization, and thus
courts will normally give deference to
decisions of the Board as to what
matters in which it will (or will not)
become involved
Duty of Care/Attention/Inquiry
• Board/committee members should:
Educate themselves with all reasonably
available information before taking action
Act with attentiveness and care
appropriate under the circumstances in
the discharge of their duties
Make reasonable inquiry regarding the
operations and compliance of the
organization
• Remember - hindsight is 20/20
Duty of Loyalty
• Board members should discharge
their duties to benefit the district, not
themselves, disclose conflicts, avoid
activities that may conflict with the
district’s mission and avoid
competition with the district
• RCW 42.23.070 contains the basic
requirements
Duty of Obedience
• Board/committee members should be
faithful to the underlying governmental
purposes and goals of the district
Effective delivery of quality health care
services to the community
That’s Enough
Background
What’s happening now?
Auditor Independence
• Ivan and Don will discuss
• Example of increased attention to
conflicts of interest in the broadest
sense of the concept
Audit Standards
• Don will discuss impact of SarbanesOxley
Internal Auditing
• “an independent, objective assurance
and consulting activity designed to
add value and improve an
organization’s operations”
• “a systematic, disciplined approach to
evaluate and improve effectiveness of
risk management, control, and
governance”
• Microsoft/large health care systems v.
a District hospital
Increased Enforcement
• Hospital criminally liable for not taking
appropriate credentialing action for
medically unnecessary procedures
(i.e. peer review has financial
impacts)
• Hospitals and officials are responsible
for assuring the institution’s
agreements are not “sham”
• Increased suspicion regarding
destruction of documents
Compliance Programs
• In the limelight due to:
Regulatory oversight
Corporate integrity agreements
Federal Sentencing Guidelines
Auditors
Public Accountability
Appropriate checks and balances
U.S. Sentencing Guidelines
• Seek to encourage effective
compliance programs
• Sentencing standards now more
severe due to recent scandals
• Recent Advisory Group Report - Small
organizations should have a
compliance program, but less formal
program is acceptable
Board’s Role-OIG Resource
• April 2003 by Office of the Inspector
General and American Health
Lawyers Association
• The intent is “to be an educational tool
for health care boards and
committees, with a focus on
compliance issues”
• Relates to Board duty of inquiry and
information systems
OIG/AHLA Board Resource
• Based on the Caremark case (not
Washington) which held that a Board
member’s obligation includes a duty
to attempt in good faith to assure that
a corporate information and reporting
system, which the Board concludes is
adequate, exists
Reliance on Management
• The Board has the right to rely on
management’s information provided
that the information can reasonably
be deemed reliable; otherwise, a
director is obligated to ask questions
and obtain answers until any
concerns are satisfactorily addressed
• Duty to inquire arises based on the
unique facts and circumstances
Board Due Diligence
• Sets out a series of questions
intended to help Boards assess the
realities of their corporation’s
compliance program
• The “suggested” questions for Board
members will probably become the
minimum questions
Structural Due Diligence
• “Structural” questions relate to how
the compliance program is organized:
Who runs the compliance program, who
do they report to, and how often and in
what detail?
What are its goals and inherent
limitations and how are those limitations
addressed?
What resources are allocated and are
they adequate?
Operational Questions
• Operational questions relate to the
corporation’s:
Code of Conduct
Policies and procedures and compliance
infrastructure
Measures to prevent, respond to and
report violations
Board Education
• Should be subject of Board education
and action
• Will become a “standard”?
• The bottom line:
CEO should assure the Board
understands the Compliance Program,
and assure procedures are in place to
respond to compliance issues
Status of Compliance Officer is elevated
Board’s Role
• Be informed and ask questions
• Assess and determine that the
Compliance Officer has sufficient
personnel and financial resources to
fully implement Compliance Program,
including organization-wide training
• Require updates on material
regulatory and industry developments
• Make a record - hindsight is 20/20
If Issues Develop?
• A compliance plan is not enough
• The power of the press is awesome
• Get the bad facts out there and
apologize
• Engage your Board and organization
The Future?
• Sarbanes-Oxley concepts expanded
and applied to hospital districts?
• Expanded/reinvigorated interpretation
of “knowing” violation of laws?
• Narrowing of “discretion”?
• Potential new legislation
A Proactive Response
• Focus on the proper purpose
• Continue to avoid Board, employee,
•
•
•
•
and consultant conflicts of interest
Board education
High(er) standards of compliance
Balance roles of management v.
Board v. audit committee
Facilitate communication
Conclusion