Embezzlement is not a laughing matter but the financial accountability failures in the following story about this Tennessee Hospital are so crazy, the story does make me want to laugh. The failures are just so simple and yet.... Do take a look for understanding why checks and balances and annual audits are just part of what should be financial management basics. Also, consider why or how this hospital board still gets to keep their seats.
Blount County officials grill hospital over nonprofit embezzlement
Several Blount County officials are wondering how a Blount Memorial Hospital employee was allowed to embezzle over $186,000 from the hospital’s nonprofit organization during a nine-year period, why no charges were pursued and why they were left completely in the dark.
During a Blount County Audit Committee meeting Thursday evening — one that lasted more than an hour — committee members grilled the hospital’s auditor and hospital CEO Don Heinemann for more information on exactly what went wrong.
One of the biggest questions entailed who was actually told about the theft. The hospital had to report the theft to the Tennessee Comptroller of the Treasury and Blount County District Attorney General Mike Flynn.
Committee member Ron French asked Blount County Mayor Ed Mitchell if he was made aware.
“I was not,” Mitchell said.
Mitchell also penned a letter to the hospital and its board members, dated Nov. 13, expressing his concern over how the hospital’s leadership handled the matter. In that letter, Mitchell made it clear the county government “has no role whatsoever” in the day-to-day activities at the hospital.
“It is vitally important that all matters related to government have complete and full transparency,” Mitchell said in the letter. “The hospital did not meet this standard in this embezzlement.”
Mitchell also went on to comment about his office being kept in the dark.
“The failure of the hospital leadership to give us the common courtesy of notifying us that this was taking place is absolutely unacceptable,” Mitchell wrote. “It has now called into question the confidence and trust that Blount County government has worked very had to cultivate. This also is unacceptable. This situation has tested our faith and confidence in the leadership of the hospital.”
Heinemann, who was also at the meeting, said he regretted not informing Mitchell.
“I was shocked by what we found,” Heinemann said. “I wish I could Monday-morning quarterback myself. I should have contacted the mayor and I didn’t.”
Software Problem
Those on the committee also wanted to know exactly how former Blount Memorial Foundation Executive Director Jane Andrews pilfered the nonprofit she headed of $186,655.57.
Heinemann said the foundation was using an accounting software called “QuickBooks,” and Andrews was able to exploit that software. Andrews would use the software to write a check to herself, print it, then go back into QuickBooks and amend the check to make it appear the check was written to an entity the foundation did business with.
“She found a loophole to be able to go back in and edit who the check was sent to,” Heinemann said.
Committee Chair Susanne Davis said that’s a well-known problem with QuickBooks. It’s why organizations using the software typically have another person reviewing check copies.
“It’s standard,” Davis said. “When you have QuickBooks, you have this problem.”
Davis also asked if Andrews was the only person who was required to sign a check.
“I believe so,” Heinemann said.
“So, in my mind, controls were not in place” to prevent theft, Davis said, adding that two signatures should be required. “(Otherwise) one person can steal. And that’s exactly what happened here, and I believe it could have been prevented.”
The conversation also turned to why it took so long for the theft to be discovered.
No Annual Audit?
Mike Parton, a managing partner at the Knoxville-based Coulter & Justus, P.C., which performs the hospital’s audits, was asked why the foundation wasn’t audited every year.
Parton said the foundation, as a 501(c)(3) nonprofit, had a separate audit “for a number of years.” He said due to the size of the foundation, i.e., its annual expenditures, state law doesn’t require a yearly audit. A decision on implementing yearly audits rests with the hospital board, he said.
Committee member Lee Gowan also wanted further clarification on how the theft was actually discovered.
“Who found the theft,” Gowan asked. “Did you all find it and report it to the (hospital) board?”
Parton said his firm had requested a number of documents Andrews likely knew would reveal the unauthorized disbursements she was making.
“(Andrews) went to her supervisor and disclosed the situation,” Parton said. “We had not received that documentation back, but we had asked for documentation that we believe would have indicated what was occurring.”
“So was this documentation not asked for in the prior years,” Gowan asked.
“Not that we’re aware of,” Parton said.
French, who also serves on the Blount County Commission, found that incredulous.
“Why, after 10 plus years, did you decide to ask these questions that led this person to believe that she was going to be caught,” French asked. “And what events happened that made you ask those questions and not ask them in the previous nine or 10 years. I’m not an auditor, I’m not a CPA (certified public accountant). I’m just a plain old Ron. And, to me, that doesn’t make sense.”
Parton said it was “a very good question,” and the hospital board simply wanted to expand the foundation’s audit.
Davis said she had experience serving on other boards overseeing nonprofits. She said even though annual audits might not be mandated by state law, they should be done “out of due diligence to our very small community” and “to bring integrity to the table.”
Davis also thought it odd the theft began the same year the last full foundation audit was completed.
“Was the person who stole aware there would no longer be an audit,” Davis said. “Or is it just ironic, a coincidence, they’ve been stealing every year since then.”
“I can’t speak to what that employee knew or when, in 2007,” Parton said. “I don’t know.”
Committee members also wanted to know if additional money could have been stolen prior to 2007. Parton said his firm “went as far (back) as records were available and as far as the information indicated,” and it appeared the theft did begin in 2007.
“It started off very small and very limited and it grew over time,” Parton said of the theft. “So I don’t believe the risk of anything before 2007, based on all the evidence that we have, I think it’s a very small risk” any funds were stolen prior to that year.
Commission Recommendations
Before adjourning, the committee decided to make several recommendations to the Blount County Commission. They first recommend the Blount Memorial Foundation undergo an annual audit, one performed by a separate accounting firm.
After learning the hospital’s board of directors also oversees the foundation, the committee also recommended the foundation have a totally separate board. They’re also recommending the hospital take proposals from other accounting firms for next year’s audit, and the audit committee be given a say on which firm is chosen.