Then those of you that get part of your daily news on Slabbed are really missing out. First off I want to give Taylor a WordPress platform tip so that the posts and comment time stamps are expressed in local time. From your dashboard go to “settings”, then click “general” on the sub-menu. On your general settings tab change the timezone to “UTC-5” from the drop down menu. You can thank me later.
On Sunday, Taylor posted his take on the Board of Supervisor’s recent Public Relations push with legal consultant Billy Guice on the point for the Sups. The post was good but the comments to Taylor’s post, as is often the case on an interactive website, are out of this world and I think are a must read.
My personal opinion is most everyone on the outside looking in at the Singing River financial disaster without a financial dog in the hunt, especially informed financial observers spot the self-serving duplicity in how both the Supervisors and the SRHS Board of Trustees are trying to frame the management perpetrated accounting fraud which lays at the heart of financial crisis that grips the hospital.
At its most basic, both the Sups and the SHRS Trustees are trying to scapegoat the former auditors and the retirees for the bad business practices and fraudulent financial reporting which occurred under former CEO Chris Anderson’s and CFO Mike Crews’ watch at the helm of SRHS. It is a shame the old time practice of tarring and feathering has gone out of style because I can think of five Supervisors (Stupidvisors in RFP speak) that deserve a good tarring, feathering before being run out of town on a rail. These are strong words but I am an informed financial observer so the bullshit is easy to spot. Let’s start with April Havens over at the
Mississippi Alabama Press:
Jackson County supervisors this morning announced they are suing KPMG, Singing River Health System’s former audit firm whose work led to a disastrous $88 million accounting adjustment.
Supervisors today hired attorney Billy Guice on a contingent fee basis to represent the county in its suit against the audit firm.
KPMG has been the scapegoat of choice for both the SRHS Board when the financial fraud (though it was not reported as such by the
Mississippi Alabama Press) first came to light back in March, 2014 as County Comptroller Josh Eldridge, reportedly a CPA that previously worked for the State Auditor’s office took point for the Sups spinning the management perpetrated financial fraud just days after Chris Anderson abruptly left Singing River Health for Baptist in Jackson:
“It’s a large adjustment,” county Comptroller Josh Eldridge said.
Board attorney Jessica Dupont noted, however, that the county doesn’t know of a current lawsuit.
The health system is county-owned, and the county backs its debt, but county tax dollars do not fund the system’s operations. The county has five mills pledged in case the health system ever defaults on its debt, but Eldridge noted the system is “not even close” to default.
That tune has since changed with regard to the bonds being in default, such condition also present when Eldridge made those initial statements. Now back to Jackson County’s announcement that they were suing KPMG as Guice literally beclowns himself before the financial and auditing community as he lists two grounds for the suit:
Last week, Guice said the audits did not appropriately disclose the state of the pension in the annual audits. That information should have been presented in the audit highlights at the beginning of the document, he said.
Instead, the most important information was buried in the “notes” section at the end of the audit, he said.
Now at this point I’m going to put on my professional hat as a CPA/Auditor but I’m going to express the concepts in the language used by an 8 year old so that maybe some of this sinks in with the Stupidvisors, who I would highly encourage to run by their in-house financial expert Josh Eldridge.
The “front part” of the audit is called “Management Discussion and Analysis“. You see boys and girls, in an audit there are two teams. One team is called management. The boys and girls that belong to Team Management work at the hospital. These people include doctors and nurses that cure your bobos and hurts. It also includes the boys and girls that manage the hospital. The other team is called the “auditors” and that team includes the boys and girls that make sure the Hospital reports its cures of bobos and hurts accurately
for everyone most everyone for just a few people to see.
Now back to grownup talk for the professionals that read this website. Guice is saying it is KPMG’s fault that Management did not report cooking the Allowance for Bad Debts in the Management Discussion and Analysis section of the audit. Here’s a thought, maybe Guice should’ve picked up the phone and called Chris Anderson, Mike Crews, Kevin Holland and Lee Bond to ask the gang why the fraudulent financial reporting was not disclosed earlier by them in the MD&A. I’d like to know the answer to that question myself. Here is the second reason Guice cites and I’m frankly at a loss how he blames the auditors for work they did not do:
Additionally, KPMG performed separate audits specifically on the pension trust account. Those audits were supposed to be performed annually but were not, Guice said, and they were never given to the county for review.
Because KPMG performed the pension audits, the auditors knew of SRHS’ pension position, Guice said, and that information should have been disclosed more prominently in the SRHS audits.
I’d like to know why pension trustees did not have KPMG in to do the Trust audit and that would be who I’d personally call to find out. $350,000 in CONsulting fees later and the public still does not have that answer but it is still a worthwhile question.
Now back to that Scott Taylor Trustee blog post. We’ve covered the duplicitous scapegoating of KPMG by the Jackson County Sups and SRHS several times here on Slabbed so the above should be no surprise to readers of Slabbed though it evidently remains so for Taylor, a trained lawyer.
To set things up Observer, another highly knowledgeable person with financial expertise went straight at the issue of scapegoating KPMG. In response Mr. Taylor suddenly becomes ignorant as to who is responsible for financial statement preparation at a $300 million dollar/year health system:
Though it is a question that should be answered, who is responsible for the $88M mistake will have to be determined by someone much more knowledgeable about accounting practices, principles and procedures than am I. I am not qualified to engage in such a debate. All I can do is press on. So, I press on.
Observer also presses on in a followup comment along with another and the crickets start chirping. But in response to Ken Taylor (no relation), Trustee Scott Taylor again presents an infantilized position:
Ken Taylor — I have been told the answer. I am told by those at SRHS that it is KPMG’s fault. I am told by Observer that it is SRHS’s fault. Who has it right? Why don’t you tell us?
Did you miss the part where I said that SRHS takes the position that it was KPMG’s fault? Did you also miss the part where I said that I would leave the question to be answered by those more qualified than I to offer an opinion on accounting principles, practices and procedures? My opinion would be compromised by my lack of expertise.
So there it is folks, Trustee Scott Taylor is ignorant as to who is responsible at SRHS for preparing the financial statements. This publicly stated inability to take responsibility for the financial statement preparation should also have profound implications for the current SRHS auditors at the politically connected Horne CPA Group and I’ll circle back to that but I want to make a point about Trustee Taylor and his duplicity in that blog post, namely he is not as dumb as he seems when it comes to understanding the world of shit-house accounting that was employed by former CEO Anderson and CFO Crews.
In response to later comments about certain accounting practices employed at SRHS Taylor said this, betraying a working knowledge of accounting principles he had previously claimed that he had no expertise:
Mike and Chris did slow down the accounts payable process which did inflate cash at year end. After their departure this was brought to the attention of the auditors, the BOT and our bond insurers. Was that a questionable accounting practice? I think so. It sure smells bad. That practice has not occurred since Kevin and Lee took over.
Irresponsible accounting practices I think kind of puts it mildly. In March 2014 all that ended. I believe that. If I had any doubts I would not say it. It is extremely difficult to recover from that. We are headed in the right direction, a ways from out of the woods.
So which Scott Taylor is really on the Board of Trustees? The one that claims the allowance for bad debts being misstated by management to the tune $88,000,000 is the fault of the audit firm or the Scott Taylor that knows shit-house accounting when he sees it? I personally think Taylor knows the score but that would not assist with scapegoating the former auditors along with SRHS retirees that currently balk at taking a substantial haircut on their pension payments.
If I were auditing SRHS, these public comments would give me pause for thought as auditor because a client that can not take responsibly for its own financial statements carries profound implications. Next we turn to the United States Clarified Auditing Standards promulgated by the AICPA for guidance, specifically AU-C Section 210 “Terms of Engagement”, paragraph .08:
Other Factors Affecting Audit Engagement Acceptance
.08 If the preconditions for an audit are not present, the auditor should discuss the matter with management. Unless the auditor is required by law or regulation to do so, the auditor should not accept the proposed audit engagement
a. if the auditor has determined that the financial reporting framework to be applied in the preparation of the financial statements is unacceptable or
b. if the agreement referred to in paragraph .06b has not been obtained.
And Paragraph .06 says:
Preconditions for an Audit
.06 In order to establish whether the preconditions for an audit are present, the auditor should
a. determine whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable and (Ref: par. .A2–.A8)
b. obtain the agreement of management that it acknowledges and understands its responsibility (Ref: par. .A9–.A12 and .A17)
i. for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework; (Ref: par. .A13)
ii. for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; and (Ref: par. .A14–.A16)
Given that Trustee Scott Taylor has publicly stated he does not understand these matters, there is no way he can take the required responsibility necessary for an audit under US Auditing Standards.
Worse, Taylor is not alone in these type of public comments. CEO Kevin Holland expressed the same sentiments several months ago referring to the KPMG suit on WLOX. The public displays of ignorance by both Trustees and Upper SRHS management as to who bears responsibility for the proper accounting related to the Bad Debt allowance is stunning, except when one reaches the inescapable conclusion they all know full well the score of:
1. Who was cooking the books.
2. Why those books were being cooked.
I say inescapable because to the extent SRHS acknowledged these responsibilities in writing to both KPMG and Horne several times over the course of years, the backtracking can only mean something bad. For that we must drill down a bit further and circle back to February 2014 and an insanely good post on the new SRHS Watch Blog exploring that time period, “In Their Own Words: The Exit of Chris Anderson“:
In 2013, after KPMG had conducted some preliminary field work for that year’s audit (costing Singing River $50,000), Singing River decided, as a cost-saving measure, to hire Horne LLP (“Horne”) to conduct its fiscal year 2013 audit instead.
Horne’s field work in preparation for its audit of Singing River’s financial statements revealed that KPMG’s prior audits were riddle with flagrant accounting errors that had resulted in a colossal overstatement of Singing River’s accounts receivable by approximately $88 million.
Around the same time, Lee Bond, Former Executive Director of Finance and now Chief Financial Officer of Singing River, was asked to review Singing Rivers bad debt accounts as part of his ongoing analysis of various Singing River programs.
Upon Bond’s review, the bad debt accounts appeared misstated. After further analysis, he came to the conclusion, as did Horne, that KPMG’s annual audits had been egregiously flawed and had resulted in an $88 million overstatement: approximately $27 million from 2012, and approximately $61 million from previous years.
Complaint, Singing River Health System v. KPMG LLP, January 16, 2015
“Chris and I have worked together serving Singing River Health System for the past 16 years,” said Michael J. Heidelberg, President of the Board of Trustees for SRHS.”
During that time period, we have developed a true friendship and a very positive and productive working relationship. Chris has devoted himself to assuring that Singing River Health System was providing the best quality of health care available to the citizens of our community, and, noting the world-class heath care we provide locally, I would say that he has definitely accomplished his goal.
Speaking on behalf of the Board of Trustees of Singing River Health System, we would like to thank Chris for his dedication and service to the citizens of Jackson County and wish him and his family, as well as Baptist Health Systems, the best in the future.”
“While Chris’s departure and the loss of his excellent leadership abilities will be felt, the citizens of Jackson County and the surrounding area can be assured that Singing River Health System will continue to provide the high quality health care they have become accustomed to over these years,” said Heidelberg. “Our system of delivering health care is one that was developed and put in place by the combined efforts of the Board of Trustees, the CEO, the Administration, the Medical Staff, the employees, and the volunteers of Singing River Health System, and we will continue to fulfill our mission.”
“Chris Anderson, CEO of Singing River Health System, leaving to lead Baptist Health System in Jackson” Gareth Clary, GulfLive.com, February 10, 2014
On February 28, 2014 it was announced that Kevin Holland, then COO, would succeed Anderson, effective March 1, 2014. Two days later, Holland and Lee Bond (as Executive Director of Finance) showed up at the Jackson County Board of Supervisors meeting. During a closed doors executive session, Holland and Bond revealed to the supervisors that SRHS would be facing losses. They made themselves available for media questions after the meeting.
At this point one must remember the “2013 audit” refers to the year ended September 30, 2013. Per the SRHS complaint against KPMG, the auditors were changed in 2013 which means Horne likely began this audit in late 2013. We know from the minutes of the February 26, 2014 SRHS Board of Trustees meeting that the $88 million dollar problem with the Bad Debt Allowance had already been quantified by that time. I’m going to guess this issue came up internally at SRHS as part of the audit process sometime between November, 2013 and January, 2014. CEO Anderson announces he is leaving a bit more than two weeks before the February 26, 2014 Board meeting, actually leaving for Jackson Baptist two days after this comes out in that Fenruary 26, 2014 SRHS Board of Trustees meeting. Shortly after in early March, 2014 Holland and Company meet privately with the Jackson County Board of Supervisors and begin pointing fingers at KPMG.
This chain of events reeks of a cover-up. The question is exactly what the Sups and the Board at SRHS covering up? We’ll explore that question from an auditor’s perspective in the next post. Stay tuned.