MCNDH expenses exceeded revenues in FY 2015 audit

MCNDH expenses exceeded revenues in FY 2015 audit
(Honey Caranzo/Reporter) The Muscogee (Creek) Nation Executive Branch released the fiscal year 2015 audit report.

Jessica McBride/Media Coordinator

Floyd, Roe see audit findings as opportunity

OKMULGEE, Okla. — According to audit reports provided by the Muscogee (Creek) Nation Executive Branch, MCN Department of Health expenses exceeded revenues by $22.6 million in fiscal year 2015.

View the FY 2015 audit documents.

The report is dated June 29, and covers the period between Oct. 1, 2014 and Sept. 30, 2015.

The audit attributes MCNDH operations as causing a decrease of $22.5 million in the Nation’s business-type activities net position.

‘Business-type activities reported a decrease in net position of $22.5 million. This decrease is attributable to the Department of Health’s operating expenses exceeding its operating revenues by $77.7 million, while federal grants and contracts and transfers from other funds combined to only offset $55.1 million of that operating loss,’ the audit states.

According to the audit, proprietary fund statements account for business-type activities such as health operations and costs charged internally between the Nation’s departments.

The audit states, ‘The statement of net position presents information on all the assets, liabilities and net position (the difference between the assets and liabilities) of the Department. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position is improving or deteriorating.’

The FY 2014 audit stated that business type activities reported a decrease in net position of $8.7 million and attributed this to MCNDH’s operating expenses exceeding its revenues by $16.5 million.

The audit stated that the purchase of MCNDH facilities contributed to the expenses.

View FY 2014 audit documents.

MCN Principal Chief James Floyd said the facilities also played a roll in the expenses for FY 2015.

“We did acquire these assets that did not make money and we did not make sufficient adjustments so that we didn’t continue to lose money,” Floyd said.

Floyd and Controller Linda Roe referenced one of the financial statements found in the FY 2015 audit.

The statement shows health department expenses to be $118.5 million. It shows the charges for services to be $40.8 million and operating funds from the Indian Health Service and other grants to be $49.6 million.

The result was negative net revenue of $28 million for MCNDH.

The statement can be found on pages 11-12 of the FY 2015 MCN basic financial statements and independent auditor’s report.

“So what this report is telling us is that $28 million was just somehow not projected or there’s not discipline in the system to keep you within your budget… so they do layout in here, one of the documents that we really need a strategic plan.

“We need to have discipline in the system and we need to have the strict policies and procedures that we operate from and those are basic things. They point those out, and they point those out as factors that kind of hindered the tribe in operating that health care system,” Floyd said.

Floyd said that in February 2016 when the approximately $65 million deficit was announced, it included the amount from the FY 2014 audit and projections from FY 2015 and FY 2016.

He said the audit is a requirement by the federal government because the Nation receives federal funds.

“I was pleased to see the 2015 report be more defined and less general than it was in 2014,” Floyd said.

REDW is the accounting firm that provided the reports for FY 2015 and FY 2014.

“The findings in my opinion from 2015 reiterated what I think as a citizen I kind of expected was occurring, particularly in health, that we were very much in debt and that had not followed good planning in acquiring assets, expanding programs, hiring staff and the audit seems to relate to that as well as picking up the troubled spots that I sensed in looking at collections of revenue from insurances and Medicaid, Medicare,” Floyd said.

He said each year’s audit would tell a different story to recognize things that the tribe has done for that year.

Audit findings

MCN Controller Linda Roe said the audit gives the Nation and the accounting department a chance to make corrections and shift things in the right direction.

“I guess I look at it from the opportunity perspective. This gives me a starting place… so this is a road map if you will where we’re going to try to take this and especially with Health, it’s such an important part of the tribe,” she said.

The FY 2015 audit states that significant and material deficiencies were found in the financial statements’ internal controls as well as significant deficiencies in internal control of federal awards.

Three of the 13 findings were also reported as issues in the FY 2014 audit.

Repeat findings included not having an up-to-date accounting policy manual, significant auditing entries after accounting records were closed and no physical inventory of the Nation’s capital assets.

“Repeat findings are troubling. However, with everything that has been going on with all of the activities, we have to keep in mind, and the limited resources that we have as far as personnel and there was a lot of change as well.

“I think there were good intentions, I think there were excellent starts made, it just didn’t come to fruition. And my goal is before this next audit to have that of course in place,” Roe said.

Roe said she hopes to have all of the findings addressed, but because the audit was received late in the year, she may not have all items corrected for the FY 2016 audit. She said all of the found issues would be in order by 2017.

Six of the 13 findings specifically address MCNDH, and state that Health accounting employees need proper training to understand the daily processes in their positions, as well as expense reduction.

“The accounting group had a health care auditor with experience, and so that helped us because again, we wanted to discover in as much detail as possible what was going on, what their conclusions were and how we might improve upon that in the future,” Floyd said.

The Nation’s responses to each of the findings can be found in the audit.

Correcting the deficit

Floyd said the health deficit does not necessarily affect other operations within the Nation.

“However, when there’s trouble, financial difficulties in that department, you really have two options, either begin to cut back on what you’re operating or seek additional revenue or both.

“And in this case it appears in 2015, the tribe and the health director went to the Council and obtained additional money and we really don’t see much evidence in cutting back. In fact it shows that they increased the size of the health department and so you really compounded your problem,” he said.

Roe commented on moving forward to correct the MCNDH losses found in the audits.

“These kind of losses, you can’t sustain them… we are responsible for that loss and that’s why the difficult decisions have to be made,” she said.

The executive branch announced Sept. 30 that 123 MCNDH employee positions were cut and 55 employees were transferred to other positions within the Nation.

View previous coverage of health department layoffs.

“If we had not done anything, then we would face I think one of two things, the National Council either appropriating a huge amount of money to cover the losses way beyond even the $65 million because it would have been over $100 million… the second would be is you begin to cut things back.

“If we had not done anything and we were sitting here today with nothing being done, you would even face the possibility of having to close some facilities permanently,” Floyd said.

The Executive Branch released the fiscal year 2016 fourth quarter report Oct. 28, which stated that MCNDH reduced personnel costs by $12.2 million.

The report also stated programs such as the Caregiver Program and Tobacco Prevention Program were transferred to other departments within the Nation, and audiology, podiatry, orthodontics, dialysis, home health and inpatient rehabilitation were phased out and would be provided through purchased care.

The report states overtime costs were reduced by 36 percent, and cash collection increased from $6.78 million in the first quarter of 2015, $10.1 million in the first quarter of 2016, and $13.6 million in the fourth quarter of 2016.

View 2016 fourth quarter report.

Floyd said like with any business, health care looks to make a profit.

“As a former administrator, you end your year in negative balance it’s like a football coach who lost every game of the season, you basically pack your office and get ready to get fired… with health care, there’s another year ahead of you and they want to keep the hospital open and if you didn’t make the profit to keep it open, they’re going to find somebody who can come in and do that,” Floyd said.

Roe said the current economic climate is tough for the health care industry.

“I think you have to keep that in mind as well even though we would always of course love to have more resources, it’s not always possible with the economic factors,” she said.

Future plans

The past two financial audits for MCN were completed in June of the following fiscal year.

Roe said her goal is to have the auditors review financials in January so that the audit report would be issued by April.

“We can see that we need to reconcile our accounts or whatever, but we don’t have any time to implement that before the next fiscal year and the audit comes,” she said. “So, in this way we can have the audit, we can have what they find as findings and we can work on those and get all of those taken care of prior to the next year.”

Floyd said receiving the audit sooner in the year would set the standard for the coming years.

He said he does not see a need for a forensic audit at this time.

“I think the accounting firm that we used portrayed 2015 very well. It is an interactive process so we were able to work with them and let them know some of our concerns,” Floyd said. “I was interviewed personally about some things I would question, some things that were a priority to me and that gives them directions of where they need to spend more time and health care was pretty much at the top of the list.”

Floyd said citizens should understand that annual audits are not a punishment, but a routine review.

“The value that we should be getting out of the audit are instructions or results as we have in this one that guides us to make decisions in the future throughout management,” he said.

View previous health financials and audit coverage:

Oct. 10 update regarding health meeting, removal petition

Council Speaker Tiger responds to health layoffs

Health department conducts employee layoffs

Council approves new loan for reported health deficit, construction

Health officials discuss assessment findings, improvements

Midpoint celebration held for community hospital

Fractured Finances: MCN considers options to restructure health department

Fractured Finances: Health Governing Board discusses lack of financial transparency

Fractured Finances: Audit shows decrease of health department net position

Fractured Finances: MCNDH budget increases 46 percent since 2013

Fractured Finances: $65 million loan approved to resuscitate health department

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