In: Accounting
You have been appointed as audit team leader to audit
Badr Hospital, a private hospital, that owns
several branches across Oman, for the end of year. The hospital has
been operating for the last seven
years and has just been your audit firm’s client this year. The
hospital has been doing well in the last
four years, earning sufficient amount of income to establish four
branches already in the big cities in
Oman. Just last year, the hospital established its internal audit
department. Previous auditor disclosed
that recently the hospital has been having problems in its data
base and patient records due to the
increase in number of patients and consistent resignations of
employees assigned on recording
complaining of small salary packages. Your team’s initial
assessment discovered that total assets of
the hospital as of December 31, 2019 amounted to OMR 400 million,
total revenue OMR 50 million
and for the first time in seven years, they had a net loss
amounting to OMR 5 million. Long term
debt amounted to OMR 400 million, which was constantly paid late in
the last two years. In an
attempt to solve their data base problem, last year also, the
company has computerized its patient
recording system by outsourcing the software from a company abroad.
The management is very
apprehensive to get the hospital back on its feet and expects your
team to report on weaknesses in
design and implementation of internal controls on top of the usual
audit of financial statements.
Required: Discuss matters that you would consider in developing the
audit strategy for Badr
Hospital.
The audit strategy which I would be considering for Badr hospital would be :-
1. Proper maintenance of books of accounts - Automation of preparation of books of accounts would lead to less human error and will be more accurate. There should be a maker and checker policy. So that the staff who posts the entries is different from the person who finally reviews it.
2. Examining of grants and donations - Examine the system of receiving grants and donations, whether received through check or otherwise and whether they have been utilized for the purpose they were given. Not utilized grant should be verified at the end of the year.
3. Internal control on purchases - There should be a proper check on the items like medicines, fixed assets, stores, clothing etc. so that no one misuses hospital's property.
4. Physical Verification - There should be a proper physical verification of inventory and assets in place. Stock and stores of medicines, clothing, consumables, etc. should be physically verified at the end of the year.
5. Capital/ Revenue - The expenses should be segregated whether they are capital or revenue in nature. Distinction between revenue and capital donation should be checked and verified. I
6. Waiver of income - Concession and waiver on account of fees and other charges should be verified.
7. Verification of bills - Bills should be verified with cash receipt book, counterfoil of receipts and cash book. It should be verified that bills are prepared properly according to visit charges of doctors, medicine, stay charges, room rent, etc. Bills should be verified with the fees/charges structure. Verification of arrears of bills should be done.
8. Fixed Assets - Title documents and other records relating to land and building should be carefully examined by the Auditor. Resolution of Trustees/Managing committee should be verified for sale and purchase of fixed assets.Depreciation should be charged on the basis of the policies of the Managing Committee.