Audit Report On Inventory Controls Over Noncontrolled Drugs At Coney Island Hospital

Audit Report In Brief

The audit determined whether Coney Island Hospital had adequate internal controls over its pharmacy stockroom inventory of noncontrolled drugs.

As part of the New York City Health and Hospitals Corporation (HHC), Coney Island Hospital purchases, stores, and dispenses noncontrolled drugs.  To maintain inventory records, it is responsible for maintaining its perpetual inventory records for noncontrolled drugs kept in its pharmacy stockroom on the HHC computerized OTPS (Other Than Personal Services) procurement management system.  During Fiscal Year 2007, Coney Island Hospital spent approximately $13 million for controlled and noncontrolled drugs and reported the value of its drug inventory as $883,394 at Fiscal Year-end 2007.

Audit Findings and Conclusions

We determined that Coney Island Hospital had inadequate internal controls over its pharmacy stockroom inventory of noncontrolled drugs in Fiscal Year 2007.  As a result, we questioned the disposition of an estimated $3.75 million of noncontrolled drugs related to inventory “adjustments.”  After discussing these findings and newly implemented Hospital procedures with the Hospital and HHC, we conducted additional testing at the end of Fiscal Year 2008 and determined that during that period, the hospital had improved its inventory controls and generally maintained accurate perpetual inventory records.

However, the audit revealed that during Fiscal Year 2007, Coney Island Hospital did not maintain accurate perpetual inventory records, lacked an independent review of transactions entered into OTPS, and did not take corrective actions or document explanations when inventory discrepancies between actual (stockroom) and perpetual (OTPS) inventory were identified.  In addition, pharmacy staff made unsubstantiated inventory adjustments on several occasions, totaling an estimated $3.75 million, to the noncontrolled drug perpetual inventory in OTPS to align it with physical balances at the hospital and yet still had discrepancies in 50 percent of the items at fiscal year-end.  The hospital later reported to us that it conducted an analysis of the adjustments and determined that $2.90 million was related to inventory issuances that had not been recorded in OTPS.  However, we were not provided sufficient information in order to determine the accuracy of that analysis.  Inaccurate and incomplete inventory records, along with inventory management problems that we identified, are deficiencies that can create an environment in which theft or misappropriation of items is more likely to occur without detection.

Audit Recommendations

To address these issues, we make four recommendations, including that Coney Island Hospital should ensure that:

• Transactions posted in OTPS are independently reviewed in a timely manner to ensure records are complete and accurate.

• All inventory adjustments posted in OTPS are properly authorized and have supporting written explanations and/or supporting documentation on file.

• Storeroom inventory audits are conducted at least monthly in which all discrepancies are investigated and documented in writing.

• Discrepancies that can not be resolved after investigation are brought to the attention of hospital management in writing to ensure that appropriate corrective actions are taken.

Agency Response

In their response, HHC officials generally agreed with all four recommendations.  However, while they agreed with certain findings, they disagreed with the “reported severity of others” in the report.  A careful review of HHC’s disagreements found them to be without merit.