June 9, 2005

The fiscal year 2003 financial audit of the Guam Memorial Hospital Authority (GMHA) received a qualified opinion for the second year due to the inadequacy of accounting records and difficulties in the reconciliation of various account balances in the financial statements. The audit is one year past due because of the myriad of problems cited by the auditors, J. Scott Magliari & Company. The auditor’s opinion was qualified for the following:

• $15.6 million (M) difference in the accounts receivable general and subsidiary ledgers,
• $94.9M total allowance for bad debts and contractual adjustments general and subsidiary ledgers,
• $2.3M overstatement in the movable equipment control account, and
• $1.8M understatement in the buildings control account.

The auditors have included in their audit opinion that operating losses and negative cash flows raise substantial doubt about GMHA’s ability to continue as a going concern. They also cited significant differences in accounts receivable confirmations as compared to GMHA’s subsidiary ledger summary.

GMHA’s loss before Government of Guam subsidies was $9.9M in FY 2003 compared to $2.3M in FY 2002. After the subsidies, GMHA had a net loss of $8.7M in FY 2003 and a net increase of $23 million in FY 2002. Operating revenues declined $3.3M from $68.3M to $65M, while operating expenses increased $4.9M from $71.5M to $76.4M. The reduction in revenues was primarily due to the inability to reconcile the receivables. The increase in expenses was due to a $4.9 million increase in the allowance for bad debts expense from $4M to $8.9M. GMHA’s number of personnel decreased from 952 to 817 mainly due to layoffs during FY 2003, which resulted in decreased personnel costs of $800K from $44.2M to $43.4M. It should be noted that due to the Civil Service Commission ruling that all those laid-off have since been reinstated.

In FY 2003, GMHA received $1.1M from the Government of Guam, compared to $25.2M in FY 2002. Without continued subsidies from the Government of Guam, the auditors expressed doubt of GMHA’s ability to operate as a going concern. Click here to see graph.

GMHA continues to experience negative cash flows because of the sluggish collection of receivables. While GMHA has a total $125.5M in receivables, the allowance for doubtful receivables was $94.9M. Therefore, GMHA expects to collect only 24 cents of every dollar in receivables, while 76 cents remains doubtful.

The Compliance and Internal Control Reports cited 45 findings, nearly double from the 24 findings in FY 2002. 14 findings were repeats from FY 2002. 22 findings, some of which are indicated with asterisks (*) below, were considered material weaknesses. The findings discussed in the report include:

Cash Receipts. Finding 1 indicated there is no segregation of duties within the cash receipts area. Finding 2 cited 32,278 official receipts issued did not state the mode of payment, of which 14,139 also did not reference the payments made. Finding 4* discussed material collections totaling $12.3M that were posted to the Accounts Receivable Suspense Accounts, but did not have official receipts issued.

Accounts Receivable Suspense Account. Finding 3* noted a total of $3.2M from various payors remained in the Accounts Receivable Suspense Account for over one year due to GMHA’s inability to identify the individual patient accounts to post the respective payments.

Cash Disbursements. In Finding 5*, four cash disbursements totaling $4.4 M only had the Hospital Administrator’s signature and not the Planning and Finance Committee Chairperson. Two signatures are required on all checks. Two checks totaling $3.6 M were made payable to government entities and the other two checks in the amount of $411K and $407K were made payable to separate vendors.

Inventory. In Finding 22*, 12 movable equipments, totaling $2.4M, out of 26 movable equipments tested for existence, could not be located. Of particular interest were the Cat Picker Scanner from Radiology worth $1.1M, the Fetal Monitor from Labor and Delivery worth $202K, and the Viridia Monitor from Intensive Care Unit worth $195K. In Finding 25*, the general ledger control accounts for inventory were not reconciled with the physical count, which resulted in an over-stated difference of $93K.

Loan and Borrowing of Medications. In Finding 44*, there is no periodic monitoring of balances of the loan and borrowing of medication and supply transactions. The total loan and borrowing documents indicate an excess $139K in medication costs loaned to various pharmacies from 1996 to December 2004, compared to what GMHA owes various pharmacies for loaned medications.

Procurement. Six findings (38 through 43*) discussed non-compliance with procurement regulations, including funding requests for three purchase orders (PO) totaling $253K not approved by the Budget Office and one PO for $111K without a requisition order on file; two POs had a Bid Invitation and Award or Request for Proposal that were not signed by the Hospital Administrator; a contract was awarded to a vendor on 1/31/02 even though the issue with a protestor was not resolved until 2/22/02; and the Laboratory Director was paid, even though the original contract could not be found.

Accounting System & Chart of Accounts. In Finding 30, the current chart of accounts has over 5,300 general ledger accounts and the accounting system fails to produce accurate departmental profit and loss statements and accurate financial information.

Leave Balances. In Finding 11*, documentation to support leave donation and substantiation of leave absences were either lost or taken upon investigation of the negative leave balance of 223.95 sick leave hours that was subsequently cured through a leave donation by the Acting Comptroller. In Finding 12*, the recalculated accrued leave hours for four employees did not agree with the leave report by a sum of 111.2 hours. Both of these findings were caused by management override.

Worker’s Compensation. In Finding 37, two employees received $38K in excess of the $100K maximum compensation for on-the-job injuries. The amount may be understated due to inadequacies and unavailability of records.

Compact Impact Grants. In Finding 28, only $380K (or 35%) of the available $1.1 million from the Compact Impact Grant was expended in FY 2003 and PO processing time took anywhere from 103 to 436 days. In Finding 33, $1.4M in Compact Impact Grant does not appear to be efficiently administered.

Retirement Fund Payable. In Finding 34*, total unpaid contributions of $9.7M to the Retirement Fund comprising of payroll periods for FY 2000 through 2003 has no written formal promissory note or payment arrangement.

GPA Payable. In Finding 45*, GMHA owes the Guam Power Authority a total of $1.4M, which includes $326K for defaulting on seven monthly installments plus interest.

The current management acknowledges the deficiencies. However, corrective actions have not been taken on nearly all of the prior years’ recommendations. See the Management’s Discussion and Analysis (MD&A) for further details.