Hospitals’ Computer System Hit in Audit : Poor Operation Cited in Report

A sophisticated computer system designed to closely track the movement of vast quantities of medical supplies at four large Los Angeles County hospitals is being operated so poorly that millions of dollars in goods are not accounted for, a county audit has found.

The county auditor-controller’s office, in a report obtained by The Times, discovered that the computer system’s record of supplies is at times more than 100% off what is actually on hand and does not properly tally vendor invoices.

The critical report also concluded that improper use of the computer system has probably caused at least one hospital to lose millions of dollars in supply discounts over the last several years. In some cases, one county hospital may be paying as much as 60% more than another hospital for the same item, the audit found.

Weaknesses in the system leading to these problems, the report said, included computer security so lax that anyone with access to a terminal can gain access to highly sensitive medical supply records and have the ability to alter them.

“In our opinion, access controls are minimal, and there is considerable potential for data and inventory to be manipulated without sufficient risk of detection,” the report said.

The auditor-controller’s office warned that the accounting problems, if not corrected, could threaten state and federal reimbursements to the county.

County officials, asked about the report, stressed that the findings were “preliminary” in nature and are contained in a “draft report.” Neither auditor-controller nor health services officials would elaborate on the report, but they said a final version could be made public in either March or April.

“It is terribly premature at this point to react to the findings,” said Carl Williams, the Department of Health Services director of hospitals. “The (audit) simply reflects what (the county auditors) have found without any meaningful input from the department.”

Williams added that “we didn’t anticipate that we would get an absolutely clean bill of health . . . we have had some concerns over the operations.”

One health services official who asked not to be identified said the department has had chronic problems with the computer system, primarily with training individuals in its use.

What was not clear from the report was the total amount of money the four hospitals may have lost either through poor accounting practices, lost discount opportunities or through possible theft. The possible losses, if confirmed, would come at a time when the Department of Health Services may have to cut $80 million worth of services in the coming fiscal year because of state budget reductions.

The computer system--which is in operation at County-USC Medical Center, Rancho Los Amigos Hospital, Martin Luther King-Drew Medical Center and Harbor-UCLA Medical Center--was installed after a consultant determined in 1980 that the county needed to keep better track of medical supplies at the four hospitals. About $10.4 million worth of supplies is on the four-hospital computer system at any one time, auditors said.

But “large discrepancies” indicate “that county assets are not being properly controlled by the (computer system) and that its usefulness as a management tool is limited,” auditors concluded.

Among the key findings in the audit report were:

- Lost discounts. Many medical supply vendors offer discounts if bills are paid promptly. Auditors found that although the system is capable of providing prompt payments, volume discounts are lost because the hospitals have not properly identified which vendors offer such discounts. At two unidentified hospitals, lost discounts could be $500,000 a year, the report estimated.

- Cost discrepancies. Auditors found that as much as $4.6 million in sales tax paid on purchases was not included on the cost records. Auditors also discovered that prices paid for the same item in some instances varied by as much as 60% between hospitals.

Also discovered were instances where vendors claiming they were not paid simply resubmitted bills and the hospital paid without checking on previous payments.

- Inventory control. Auditors performing physical accounting of supplies in hospital warehouses found that they varied by an average 115% from what had been recorded in the computer system.

“The problem is pervasive and impacts the reliability of all information being generated (by the system),” the report concluded. “For example, according to . . . reports for the USC Medical Center, 1985-86 purchases amounted to $40 million, costs allocated by the system were $46 million and the inventory grew by $4 million.

“This is a mathematical impossibility,” the report concluded.

- Operational costs. When the system was first recommended in 1980 for County-USC Medical Center, where it was first installed, its annual operational cost to the county was estimated at about $200,000. During the 1985-86 fiscal year, however, the operational cost was nearly $1.1 million.