Audit Report on the North Central Bronx Hospital Auxiliary, Inc., of the New York City Health and Hospitals Corporation

EXECUTIVE SUMMARY

The North Central Bronx Hospital (hospital), along with Jacobi Medical Center, is part of the North Bronx Healthcare Network (Network), which is one of the six regional health care networks of the New York City Health and Hospitals Corporation (HHC). The North Central Bronx Auxiliary, Inc. (Auxiliary) is a nonprofit organization that manages funds designated for services and programs that enhance the quality of patient care at North Central Bronx Hospital. Both the Network and the Auxiliary are required to follow the operating procedures established by HHC to ensure that HHC facilities follow appropriate rules, regulations, and procedures for collecting and using auxiliary funds. In addition, the Auxiliary has its own bylaws.

The Auxiliary raises funds through donations, interest earned on Auxiliary accounts, membership dues, and other revenue sources, including contracts with concessionaires. These funds may be used for purchases deemed necessary for patient-related care. The Auxiliary is also required to hold an annual fund-raising event. According to its financial statements for calendar year 2000, the Auxiliary earned $147,682 and expended a total of $124,844: $52,187 for Social Services and $72,657 for General and Administrative expenses.

The objectives of this audit were to determine whether revenues and expenses were accurately and fairly reported, whether the internal control structure over the collection and disbursement of funds was adequate, and whether expenses were in compliance with prescribed procedures, guidelines, and bylaws.

We reviewed the Auxiliary’s books, records, and supporting documents for calendar year 2000. We included calendar year 1999 and the first three quarters of 2001 in our review of the Auxiliary’s federal and state tax payments. We also reviewed the Auxiliary’s bylaws and Board meeting minutes for calendar years 1995 through 2001. In addition, we interviewed the personnel responsible for the Auxiliary’s day-to-day operations as well as members of the Auxiliary Board, and the internal audit division of the North Bronx Healthcare Network.

The purpose of the Auxiliary is to engage in activities and projects that enhance the quality of patient care. We found that most of the Auxiliary’s expenditures were used to fulfill this purpose. For example, the Auxiliary:

• Sponsors an annual health fair at the hospital each year;
• Holds a breastcancer awareness fair each October;
• Sponsors a summer youth program that brings youths into the hospital to provide assistance to the patients; and
• Provides testing kits for diabetics who are unable to pay for such items.

However, the Auxiliary did not always adhere to its bylaws or to HHC operating procedures. There are weaknesses in internal controls relating to oversight and monitoring functions, segregation of duties, accountability, and record-keeping. Specifically:

• The Auxiliary did not make monthly deposits of federal withholding taxes and made late payments of state withholding taxes for 1999, 2000, and the first three quarters of 2001. Furthermore, the Auxiliary was late in filing related federal and state tax forms. Consequently, the Auxiliary had to pay $7,705 in interest and penalties.
• Neither the Auxiliary nor the Network adequately monitored contracts with concessionaires. Two vendors were operating under expired contracts, one vendor was operating without a contract, and one vendor had no contract on file. Moreover, there were no written agreements with the vendors who sell merchandise in the hospital lobbies.
• Of the 270 checks issued during 2000, only seven were signed by two Board members, as required. The remaining 263 checks (97%) bore only the signature-stamp of the Auxiliary President. Furthermore, all three Auxiliary employees had unsupervised access to the signature stamp.
• Questionable payroll practices were employed, whereby employees’ payroll checks were prepared prior to review and approval of employees’ time sheets. In addition, employees wrote their own payroll checks and affixed the signature stamp to their payroll checks.
• The Auxiliary did not adequately supervise its employees, and its accounting and administrative functions were not segregated.
• Errors existed in revenue ledger accounts; we were unable to trace the expense account figures from the general ledger to the financial statements because of inadequate documentation. Moreover, there was no documentation to support the $199,845 of Fixed Assets reported in the financial statements. We were unable to locate these assets.
• The Auxiliary made improper and questionable expenditures (totaling $3,262), and 14 disbursements (totaling $3,027) were not approved by the Board, as required.
• The Auxiliary established a patient telephone program that consisted of purchasing disposable telephones and selling them to patients. However, there are no written procedures for this program and controls over the distribution of the telephones were inadequate.

This audit makes 20 recommendations, some of which are listed below. The Auxiliary Board of Directors and North Bronx Healthcare Network should:

• Ensure that monthly deposits of federal withholding taxes are made in a timely manner.
• Ensure that federal form 941 and state form NYS-45 are filed on time, and that withholding taxes are paid in a timely manner.
• Monitor contracts to ensure that the bidding or renewal process is initiated well before each contract’s expiration date.
• Enter into signed agreements with vendors that sell merchandise in the hospital’s lobby areas.
• Ensure that all checks bear the two required signatures.
• Ensure that all time sheets are approved and signed before payroll checks are prepared.
• Ensure that there is adequate supervision of Auxiliary staff members who perform the office, bookkeeping, and accounting functions.
• Ensure that the functions of processing, recording, and reviewing transactions are divided between two or more individuals or implement other, compensating, controls.
• Ensure that its staff accurately records and documents transactions and properly retains records, receipts, and invoices.
• Cease using funds for non-patient-related expenditures, and ensure that all expenditures meet the criteria set forth in HHC guidelines and the Auxiliary by-laws.
• Ensure that all expenditures are approved by the Board and documented in its minutes.
• Ensure that operating procedures are written and implemented for the telephone program.

The matters covered in this report were discussed with officials from the Auxiliary and North Bronx Healthcare Network during and at the conclusion of this audit. A preliminary draft report was sent to HHC officials February 5, 2002, and discussed at an exit conference held on February 26, 2002. On March 8, 2002, we submitted a draft report to HHC officials with a request for comments. We received a written response from HHC on March 22, 2002. In its response, HHC said that it agreed with and has implemented or will implement all 20 recommendations. In HHC’s response, the President of HHC stated:

"The auditors have provided several useful recommendations and the Auxiliary had subsequently taken steps to implement additional controls that will improve the Auxiliary’s operation."