Auditing – Audit of Hospitals

Maintenance of Accounts of Hospitals

Being non-profit organizations, hospitals prepare Receipt & Payment account, Income & Expenditure account and Balance Sheet; following are various items that fall under income and expenditure in the hospitals.

Main Items of Income

  • Room Rent
  • Medical Care
  • Dentistry Charges
  • Delivery Room Charges
  • Anesthesia Charges
  • Laboratory Charges
  • Grants for Operating Needs of Hospital
  • Grants for Fixed Assets
  • Donations
  • Miscellaneous Income
  • Interest on Investments
  • Fees from Nursing Training School
  • Bed Charges
  • Operating Room Charges
  • X-ray Charges
  • Pharmacy Charges
  • Physiotherapy Charges

Types of Expenses/ Payments

  • Electricity & Water Charges
  • Pharmacy Charges
  • Salaries and Wages
  • Pharmacy Expenses
  • Building Repair & Maintenance
  • Laundry Charges
  • Rent for Nursing Hostel Accommodation (In case of rented premises)
  • Telephone Expenses
  • Laboratory Expenses
  • Surgery Expenses
  • Operation Tools and Equipment Expenses
  • Depreciation

Preliminary Audit of Hospitals

An Auditor should follow the below mentioned procedure while conducting Audit of a hospital −

  • He should obtain a list of books, documents, register and other records as maintained by the Hospitals.
  • He should examine the audit report of last year and should note down qualifications, if any.
  • He should examine the system of receiving grants and donations, whether received through cheque or otherwise.
  • According to the overall objectives of audit, he should examine the scope of responsibilities.
  • He should note down the important clause of Trust Deed or Charter, which may affect the audit and accounts of hospitals.
  • He should examine the Minutes of Meetings of the Board of Directors/Trustees or the Managing Committee. He should note down the important decisions concerning the financial transactions relating to fixed assets, investment and financial powers as required by him during his audit.
  • He should examine the internal control system regarding purchase of fixed assets, medicines, stores, consumables, clothing and provisions, etc.
  • He should examine the internal control system for recording of purchases, issue and storage of all items and physical verification of them.
  • He should obtain the rate structure for fees, medicine and other services, power to do concession or waiver of fees. There should be adequate system for charges and waiver.
  • He should calculate and examine the input-output ratios.

Audit of Expenses of Hospitals

Vouching of expenses in hospitals is almost the same as in other organizations; however, the following points need to be considered by an Auditor are given below −

  • An Auditor should adopt the usual way to vouch purchases and other expenses of the hospitals.
  • Clear distinction should be made between capital and revenue expenses.
  • Salary of staff should be vouched according to general auditing principles.

Audit of Assets and Liabilities of Hospitals

The Auditor should consider the following points and carefully examine the assets and liabilities of the Hospitals −

  • 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.
  • Liabilities should be verified in the usual manner.
  • An Auditor should physically verify the investments like shares, debentures, bonds and security certificates. He should also verify them with the investment register.
  • Stock and stores of medicines, clothing, consumables, etc. should be physically verified at the end of the year.

Audit of Income of Hospitals

An Auditor should consider the following points and carefully examine the income/receipts of the hospitals −

  • An Auditor should check the bill book, bill register and copy of bills.
  • 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.
  • Concession and waiver on account of fees and other charges should be verified.
  • Bills should be verified with cash receipt book, counterfoil of receipts and cash book.
  • Verification of arrears of bills should be done.
  • Unrecoverable arrears should be written off with the approval and consent of proper authority.
  • Rental income should be properly verified. He should properly vouch property register, arrear of rent, advance rent and provisions for the same.
  • Interest and dividend income should be verified with investment register, cash book and share warrants, etc.
  • Documents and correspondence relating to donations and grants should be verified; the list of donors, grant sanction letter should be obtained to verify the same.
  • Unutilized grant should be verified at the end of the year. In case of non-fulfillment of conditions, grant will be taken back by the authority.
  • Distinction between revenue and capital donation should be checked and verified. In case donation is for some specific purpose, the Auditor should assure that the money is used for the same purpose only.