Healthcare execs, do you know what’s in your books?

By Pamela J. Gallagher

For some hospitals, the close of the fiscal year comes with a sense of dread—it’s time to run the gauntlet of another audit.

Though audit requirements vary based on whether a hospital is public or private, for-profit or nonprofit, audits are an inescapable reality for every hospital. The audit process can feel like an irritation, yet another project to add to an already full plate, but audits also bring an opportunity to develop stronger accountability and transparency within the organization.

Preparing for an audit can be daunting, but it doesn’t have to spell disaster for your organization.  There are steps healthcare executives can take today to allow a smooth audit process down the road.

Always be prepared.

The best way for your hospital to prepare for an audit is to always be audit-ready.  Of course, this is easier said than done, especially if financial credibility and accountability haven’t been made a priority across all levels of the organization. It’s only when you haven’t been keeping up with your finances that an audit is a potential issue for your organization. 

Consider audit preparation to be a year-long, ongoing process. Verification and reconciliation should be standard practices performed with discipline.  Having accurate, reliable documentation at-the-ready will save you time and money and create fewer distractions for hospital staff when the auditors come knocking.

Know your numbers.

It is essential for hospital leadership to know the numbers in your books. It is surprising how many execs and staff only have enough financial information to give a rough estimate when asked for hard numbers. Having up-to-date, reliable numbers is essential for effective management.

Beyond knowing what is in your books, you need to understand how you arrived at these numbers. Trust your hospital staff to accurately track expenses, patient intake numbers, etc., but it is your responsibility to verify the information. Keep the lines of communication open. It is not out of bounds to ask, “Can you prove it to me? How reliable are your numbers?” These questions protect the financial integrity of your organization.

Create a culture of measurability.

In order to stay audit-ready and easily access reliable financial info, it is essential for hospitals to develop sustainable systems to track numbers accurately. Systems work like a recipe, allowing anyone to follow the steps and yield the same results.  Without these systems in place, you cannot trust your numbers.

For example, I once advised a hospital where one of the units counted a single patient that required more staff attention as two patients. This department had no idea the ways that this wreaked havoc on the hospital’s financial documents.  Implementing sustainable processes prevent these types of situations.

Every floor and every department of the hospital needs to know where their numbers come from and how those numbers fit into the larger financial picture. Healthcare execs should create a culture where measurability, credibility, and accuracy are valued.

Helpful resources:

Nonprofit Audit Guide, National Council of Nonprofits

10 Steps to a Successful Audit, American Institute of CPAs

Preparing for your Annual Audit, Nonprofit Accounting Basics