Hospital's inventory controls are weak; understated $1.6 million in inventory of noncontrolled drugs

View Bellevue Audit

New York City Comptroller William C. Thompson, Jr. today released an audit finding that Bellevue Hospital Center has significant flaws in its $4.8 million inventory of noncontrolled drugs and medical and surgical supplies in its stockrooms, leaving the items vulnerable to theft and misappropriation.

“ Bellevue Hospital has inadequate controls over its inventory of noncontrolled drugs and medical and surgical supplies,” Thompson said. “Our review of its inventory practices disclosed significant weaknesses in the issuing, recording, maintenance and security for both types of inventories.”

The audit – which covered Fiscal Year 2003 - reviewed inventory controls put in place by the New York City Health and Hospitals Corporation (HHC) and Bellevue over such items as intravenous solutions, diapers, syringes and needles. Noncontrolled drugs are those not regulated by the Drug Enforcement Agency such as ibuprofen, penicillin, albuterol and hydrocortisone.

Auditors found that although Bellevue uses a computerized system to prepare requisitions and purchase orders when ordering noncontrolled drugs and medical and surgical supplies, it does not use the computerized system to account for the inventory issued from the storerooms.

Rather, the hospital relies on manually prepared inventory cards to monitor its supply inventory of noncontrolled drugs and does not keep any records of its supply of medical and surgical supplies.

Bellevue 's Pharmacy Department and Central Supply Stores purchased approximately $23 million worth of drugs and medical and surgical supplies during FY 2003. But, Thompson noted, because of significant flaws, auditors could not determine with reasonable assurance that these items were appropriately issued from inventory to Bellevue 's operating departments.

“We believe Bellevue Hospital 's noncontrolled drugs and medical and surgical supplies are vulnerable to theft and misappropriation and it may never be detected by appropriate hospital management,” Thompson said.

Among the audit's findings:

• The Pharmacy Department does not maintain its inventory records on an adequate or appropriate perpetual inventory system, nor does it maintain a complete list of noncontrolled drugs kept in the stockroom. Additionally, the Pharmacy does not have documentation to support all of the inventory issued from the Pharmacy stockroom in FY 2003.

“As a result, it is unable to ensure that waste and mismanagement of inventory are minimized and that inventory is effectively protected against theft,” Thompson said.

• The Pharmacy Department does not investigate the discrepancies between the stock on hand and the amounts manually recorded on inventory cards in the storeroom.

• The Pharmacy Department does not segregate the responsibilities of its personnel in the Pharmacy stockroom. The stockroom employees who receive and issue noncontrolled drugs also maintain the inventory cards.

Personnel made numerous adjustments to the balances on the inventory cards without conducting proper investigations of discrepancies. A review of a random sample of inventory cards representing 309 of 1,921 noncontrolled drugs found that over a 15-month period, 1,393 adjustments were made on inventory cards for 229 – or 74 percent – of the drugs in the sample without justification.

“Making adjustments to inventory records without proper investigation and adequate justification removes a key control in safeguarding assets,” Thompson said. “With this practice in effect, discrepancies are never accounted for.”

• Noncontrolled drugs are not purchased properly under HHC guidelines. A review of 42 sampled purchased orders found that 19 – or 45 percent – did not include required information. “The Pharmacy Department bypassed the controls put in place to properly account for all drugs purchased,” Thompson said.

• Access to the Pharmacy stockroom was inadequately restricted. Pharmacy personnel not assigned to the stockroom have easy access to the stockroom, and in fact, very often filled their own orders and took noncontrolled drugs from stockroom shelves. Further, there was no record of who authorized the issuance of the noncontrolled drugs or where the noncontrolled drugs were going.

Auditors also noted troublesome security lapses: one two occasions, the Pharmacy stockroom door was kept open by rolls of paper; on three occasions, the stockroom key was left unattended in the stockroom door; and, on two occasions, the Pharmacy stockroom receiving door was left open and unattended – adjacent to Bellevue 's public elevators.

• Based on Bellevue 's records, Bellevue undervalued its inventory of noncontrolled drugs by $1.6 million. Bellevue reported to HHC the total value of its entire inventory of $4,186,827, which Thompson estimates was understated by 39 percent because the hospital did not include the $1.6 million.

Based on the analysis of inventory cards for noncontrolled drugs to determine balances as of June 21, 2003, the date of Bellevue 's inventory count, the auditors determined the value of noncontrolled drugs was $2,578,917, which was $1,638,642 greater than the amount reported on Bellevue 's FY 2003 Inventory Report.

• Central Supply Stores does not maintain perpetual inventory records for its inventory of medical and surgical supplies. Medical and surgical supplies were not always properly safeguarded. Large quantities of supplies were stored in the basement hallways at various distances from the stockroom and near public elevators and receiving docks. As well, many cases were broken open with items apparently missing or taken.

Furthermore, Thompson noted that neither Bellevue 's Pharmacy Department nor Central Supply Stores conducted their year-end physical count properly, and that HHC auditors did not adequately perform the inventory count verification at the Pharmacy Department and Central Supply Stores.

Thompson made 17 recommendations, urging Bellevue to:

• Institute and enforce proper internal controls over its inventory of noncontrolled drugs maintained in the stockroom. The Pharmacy should: maintain its inventory of noncontrolled drugs separate from the related inventory records; assign different personnel to handle the drugs and to update the inventory records; and ensure that only designated personnel have access to the stockroom.

• Ensure that the Pharmacy Department maintains a computerized perpetual inventory system for its inventory of noncontrolled drugs kept in the stockroom. The perpetual inventory records should be kept separate from the physical inventory.

• Ensure that adjustments to inventory records for noncontrolled drugs are documented, reviewed, and approved by appropriate Pharmacy officials.

• Restrict access to the Pharmacy stockroom to authorized stockroom personnel.

• Ensure that all noncontrolled drugs stored in the Pharmacy stockroom are correctly counted, and their total quantity and value correctly reported.
  

• Ensure that Central Supply Stores maintained perpetual inventory records, preferably on a computerized inventory system. Central Supply Stores should ensure that the persons updating the inventory records are different from the persons handling the inventory, and access to the inventory records should be restricted to designated personnel.

• Ensure that Central Supply Stores maintains all medical and surgical supplies in a locked and restricted area so that they are properly safeguarded.

• Ensure that when preparing and conducting the physical inventory count of the medical and surgical supplies, its staff follow the inventory count procedures outlined in the Inventory Procedures Manual.

In its response to the audit, Bellevue agreed with certain findings and disagreed “with the severity of others.” The audit implementation plan showed that of the 17 recommendations, 14 have been implemented and the remaining three will be by June 30.