Transcript No Slide Title

Association of Washington
Public Hospital Districts
The Role of the Audit Process in
Sustaining Your District’s Credibility
IVAN D. DANSEREAU, CPA
Assistant Director
Washington State Auditor’s Office
253 872 2641 x 107
[email protected]
Session Objectives

Public Expectations
 GAO Independence Standard
 SAO’s Constitutional & Statutory
Authority and Obligations
 Hospitals’ Contractual Rights
 Common Problems
 What’s Ahead
Public Expectations
 Audit
Organizations are
Independent
 Auditors are Objective
The Concepts
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–
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OBJECTIVITY
Independence in Fact
Your Attitude & State of Mind
Conflicts of Interest
INDEPENDENCE
Perceived Objectivity
Perception of Reliant Parties
Why the New GAO
Independence Standard?
David M. Walker
Comptroller General of the United States
“The focus of the changes to the auditor
independence standard is to better serve
the public interest and to maintain a high
degree of integrity, objectivity and
independence for audits of government
entities.”
GAO’s Independence
Standard

Auditors should not perform management
functions or make management decisions

Auditors should not audit their own work or
provide nonaudit services in situations
where the amounts or services involved are
significant/material to the subject matter of
the audit
Supplemental Safeguards

Personnel who perform certain nonaudit services
would be precluded from performing related audit
work

The auditor’s work could not be reduced beyond
the level that would be appropriate if the nonaudit
work was performed by another unrelated party

Certain documentation and quality assurance
requirements must be met
Providing Basic
Accounting Services
An audit organization’s independence to perform
audits is impaired if it:
– maintains or prepares the audited entity’s
basic accounting records,
– maintains or takes responsibility for basic
financial or other records that the audit
organization will audit, or
– posts transactions to the entity’s financial
records or to other records that subsequently
provide data to the entity’s financial records.
Developing Draft Financial
Statements and Notes

Viewed as technical assistance and part of the
audit

Auditor must be careful not to be, in essence,
constructing the records

Must be based on a trial balance:
– provided by management using appropriate
books and records that balance, or
– prepared by auditors when their work to
prepare the trail balance is technical formatting
in nature and uses management’s chart of
accounts.
Developing Draft Financial
Statements and Notes

Must be reviewed and approved by audited entity
management, who must have adequate knowledge to
evaluate and take responsibility for the result

Management representation letter should acknowledge
auditor’s role and management’s review, approval, and
responsibility for the financial statements and notes

Independence would not be impaired if the auditor
does not make management decisions. Must comply
with other safeguards except that which precludes the
same personnel from providing the service and the
audit
Why Does This Standard
Apply to Public Hospitals?
The State Auditor’s Office requires all audits
of governmental entities to be conducted
under the Generally Accepted Government
Auditing Standards (GAGAS)
What Is SAO’s Authority for
Making This Requirement?

Washington State Constitution, Article III
establishes SAO as an independent
component of the executive branch of
government.

RCW 43.09 prescribes the powers and
duties of SAO, which primarily include
examining all the financial affairs of every
local government and its officers and
employees.
How Does This Standard
Impact You?
Hospitals have the legal authority to
contract with CPA firms for audit services
HOWEVER,
Hospitals and CPA firms must adhere
to SAO expectations
SAO Expectations

When contracting audit services with a
CPA firm, you must:
– Comply with GAGAS, including the new
independence standard
– Be cognizant of the public records requirement of
RCW 42.17.260
– Be cognizant that SAO will review work papers to
assess audit quality and avoid duplication of effort
– Be cognizant that SAO may re-issue the independent
auditor’s report
SAO Expectations

SAO’s audit scope consists of:
– Financial statements
– Single Audit
– Legal Compliance
– Accountability

SAO does not issue opinion letters on
CPA firms’ independence
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Common Problems
Hospital District Summary
40
35
30
25
20
15
10
5
0
Common Problems
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Cash Receipting
 Purchasing/ Disbursements
 Contract Monitoring
– Incentive Pay
– Physicians Using Facilities for Private Practice
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Proper Disclosures of Non-Profits (GASB14)
 Areas at Risk for Fraud
No Fixed Responsibility
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Employees are tempted and even put at risk in
work environment where internal controls are
weak or not properly monitored
 When losses occur, managers are unable to fix
responsibility for losses to a particular employee
 Employees are often accused unjustly under
these circumstances
What’s Ahead
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Financial Crisis/ Going Concern
Washington Casualty Company
Notification Letters
Reference Material
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Hospital Audit Guide
Summary of Hospital Audit Results
The new GAO Independence Standard is
available on GAO’s web site at
http://www.gao.gov/govaud/ybk01.htm
An electronic version of GAO’s Q&A can
be accessed at
http://www.gao.gov/govaud/ybk01.htm
THANK YOU