Comment on the audit strategy likely to be adopted for the audit of patient revenue for Gardens Nursing Home.

Fellowes and Associates Chartered Professional Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. In April 2023, Fellowes and Associates gained a new client, Health Care Holdings Group (HCHG), which owns 100 percent of the following entities:
• Shady Oaks Centre, a private treatment facility • Gardens Nursing Home Ltd., a private nursing home • Total Laser Care Limited, a private clinic that specializes in laser treatment of skin defects The year end for all HCHG entities is June 30.
On April 1, 2023, Gardens Nursing Home switched from its “homegrown” patient revenue system to HCHG’s equivalent system. HCHG is confident that its “off-the-shelf” enterprise system would perform all of the functions that Gardens Nursing Home’s homegrown system performed.
Gardens Nursing Home’s homegrown patient revenue system comprised the following: 1. Billing system—a system that produced the invoice to charge the patient for services provided, such as accommodation, medications, and medical services. This software included a complex formula to calculate the patient bill allowing for government subsidies, pensioner benefits, and private medical insurance company benefit plans. 2. Patient database—a master file that contained personal details about the patient as well as the period of stay, services provided, and the patient’s medical insurance details. 3. Rates database—a master file that showed all accommodation billing rates, rebate discounts, and government assistance benefits.

At the request of the board, the group’s internal audit unit was involved throughout the entire conversion process. The objective of its engagement, as the board stated, was to “make sure that the conversion worked without any problems.”

As part of the planning arrangement for the 2023 financial statement audit, the audit partner, Tania Fellowes, asked her team to speak with a number of Gardens Nursing Home staff about the impact of the switch to the HCHG patient revenue system. Below is an extract of the staff’s comments:

• “There were some occasions where we invoiced people who were past patients. This seems to have happened when they shared the same surname as a current patient.”

• “We seem to have some patient fee invoices where, for no reason, we have billed patients at a lower room rate than what we have on the rates database.”

• “Lately we’ve had an unusually high number of complaints from recently discharged patients that the fee invoice we sent them does not line up with the agreed-upon medical fund and government subsidy rates. We then found out that halfway through last month someone from the IT team made a software change to fix a bug in the billing calculation formula.”

• “There was some sort of power surge last Friday, and we had to re-enter every patient invoice that we had processed in the last two weeks.”