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The Challenge
A for-profit hospital corporation located in Nashville, TN requested assistance with completion of their Section 404 Sarbanes-Oxley (SOX) reporting. A number of established policies and procedures were in place, but, they had not been updated and tested. When the internal audit department conducted audits, they were financial and operational in focus. The new SOX legislation requires companies to thoroughly document and test their systems of internal controls to determine the degree of reliance on the company's financial statements.
CHP Approach
CENTRE Health Partners (CHP) provided a full-time consultant to the client in order to manage their SOX engagement. Specifically, CHP was engaged to complete the following: - Develop the Control Environment Assessment (Tone at the Top Narrative)
- Develop the Control Environment Risk Assessment (Risk Concentration)
- Determine the number of business cycles/accounting cycles to document and test.
- Document all of the business cycles/accounting cycles at both the corporate and facility level.
- Develop Assessment Questions that will be used in an audit tool to determine the degree of compliance with established controls.
- Work with the IT department to develop a proprietary database incorporating assessment questions.
- Develop Test of Control Cycle questions that will be utilized by the Internal Audit Department and reviewed by the External Auditors.
- Serve as an interface between company management, department managers, internal audit department and external auditors.
CHP Solution
The CHP consultant began work in May, 2003 and completed his engagement in June, 2004 at a fraction of the cost proposed by the Big 4 and regional CPA firms. Over the course of 14 months, 22 accounting/business cycles were documented at both the corporate and facility level. The CHP consultant developed a standard format for documenting internal controls in order to maintain consistency, maintained at all levels throughout the process. Consistency was the key to the ultimate success of the project.
The Results
Starting in the second quarter of 2004, the Internal Audit (IA) Department of the client began to conduct SOX audits at various facilities throughout the U.S. Immediately after the SOX audits were completed, the external auditors began to audit one-third of the facilities visited by the IA department. At December 31, 2004, the client received an unqualified opinion from the external auditors indicating that the systems of internal controls were documented and operating efficiently. This unqualified opinion enables outside investors to rely on the financial statements produced by this client.
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