A freestanding, not-for-profit hospital planned to undertake some major construction projects. These projects included extensive renovations, addition of a new building, and expansion of its research institute. Seeking a clear picture of the risks associated with these expensive and complex projects, the hospital turned to Baker Tilly.
We reviewed and assessed the quality of key construction policies and procedures governing the financial operation systems, and procedures to identify, plan, assess, record, control, and report costs. To perform that analysis, we also reviewed the master plan, construction contracts, project reconciliations, and closeout processes. We then reviewed the design of internal controls and information flows in high-risk areas, including contractor and sub-contractor procurement and oversight, financial reporting, accounting, project management, closeout process, change order management, and information systems. Baker Tilly identified issues related to contract review, contractor management, accounting, and contract compliance, specifically noncompliance related to Local Small Disadvantaged Business Entities (LSDBE). We also identified process weaknesses such as the management of materials and change orders approvals.
The opportunity to recover costs was limited because of the type of contracts that the hospital had used. However, during the review we identified several areas of risk in the client oversight and verification procedures which put them at risk for financial loss and reputational damage. We also recommended improvements to policies, procedures, practices, and internal controls, including suggestions for structuring future contracts to better protect the interests of the institution.