Goodfellow & Perkins gained a new client, Brookwood PinesHospital (BPH), a private, not-for-profit hospital. The fiscalyear-end for Brookwood Pines is June 30. You are performing theaudit for the 2023 fiscal year-end.

The healthcare industry can be very complicated, especially in thearea of billing for services provided. BPH contracts with privatephysician groups who use the hospital facilities, equipment, andnursing staff to treat patients. The physicians in the privategroup are not employees of the hospital; they are simply using thehospital facilities to treat patients. For example, a group ofurologists have their own practice, separate from the hospital,where they treat patients. If one of the patients needs a surgicalprocedure that must be done at a hospital, then the attendingurologist will approve the paperwork required to admit the patientto BPH. BPH offers inducements to the urologists so they will referpatients to BPH rather than a competing hospital. One of theinducements BPH offers is free office space in the hospital for thedoctors to use when they are treating patients in thehospital.

After the doctor and hospital services are provided to the patient,the patient and/or the patient’s insurance company is billed. Thedoctor will bill for the services he or she provided, and thehospital will bill for the use of hospital facilities and staff.Doctors and hospitals bill using a coding system that isstandardized across the healthcare industry and consists of threemain code sets: ICD, CPT, and HCPCS. Using a coding system is moreefficient and data-friendly compared to writing a narrative aboutthe procedures performed. However, the coding system is verycomplex, with thousands of different codes for medical proceduresand diagnoses. To complicate matters even more, for patients whoare covered by government-sponsored Medicare or Medicaid, doctorsand hospitals must adhere to complicated government regulationssurrounding billings to Medicare and Medicaid.

As healthcare costs continue to rise each year, BPH administratorsstruggle to maintain consistent profitability. They look for waysto keep costs low and also to collect from patients and insurancecompanies as quickly as possible. In addition, BPH must have astrong risk management team to handle unique situations that mayoccur in hospitals such as malpractice lawsuits and periodicinspections by the state department of health and hospitals.Negative publicity for BPH could lead to decreased revenues ifphysicians decide to contract with a competing hospital.

You are completing the planning of the audit of accounts payableand payments system. A prenumbered voucher is used to record allpayables. An IT application control performs the followingprocedures:

•		The vendor details, item numbers, quantities, and prices on thevoucher are matched to information on the supplier’s invoice andthe appropriate receiving report.
•		The vendor details, item numbers, and quantities on the voucherare matched to information on an authorized purchase order.
•		Manual follow-up procedures are performed daily by a datacontrol group. Any exceptions are corrected within 24 hours.

Given the information you have collected above about internalcontrols in the purchases process:

1.Evaluation: Evaluate the quality of internal controlsfor each assertion related to purchase transactions.

2. Analysis: For assertions where internal controls aredetermined to be strong, design appropriate tests of controls totest the assertion. You may assume that IT general controls havepreviously been tested and found effective.

3 Analysis and evaluation: For assertions whereinternal controls are weak, prepare a recommendation to managementidentifying the weakness, the risk of misstatement associated withthe weakness, and a recommended control to correct theweaknesses.