Another Challenge for Hospitals Facing COVID-19: Healthy Internal Controls

A recent article published by the HFMA highlights the need for hospitals to have strong internal controls to address supply chain shortages and identify and avoid fraudulent vendors.

In recent weeks, the health care sector has welcomed a variety of new vendors providing critical goods and services in the fight against COVID-19. New vendors include distilleries like Tito’s Vodka (hand sanitizer), clothing retailers like American Apparel and GAP (masks and scrubs), and Dyson, Ford and General Motors (ventilators).

While these vendors are providing critical services and supplies to help providers in this battle, shortages and panic should not lead health care organizations to abandon their internal controls and due diligence processes.

Hospital systems and physicians still need medical grade equipment and supplies to ensure patient and physician safety.

These companies may have the resources and capabilities to retool to meet the urgent need for these products, but procurement and supply chain professionals should ensure their specification requirements are still being met, either internally or through your Group Purchasing Organization (GPO), and that collaboration with users is still occurring prior to purchasing. 

The CDC has implemented more relaxed health and safety guidelines to expand access to supplies and allow hospitals and physicians to use unconventional supplies. These include masks that typically are used in home improvement retail stores, manufacturing facilities, construction sites, paint and body shops, or veterinarian’s offices.

Procurement and supply chain professionals should continue to maintain quality standards and follow emergency procurement procedures to ensure the appropriate approvals are obtained and goods are purchased at fair and negotiated prices.

It is also important to remember that crises often draw fraudulent vendors and those looking to profit at the expense of others.

Procurement and supply chain professionals or GPO’s should continue to monitor purchases for such vendor red flags as:

• Vendor names that are new and unheard of by others within your organization or within your network
• Promises of supplies or equipment that are at a cost significantly lower than other vendors
• Vendors that are forceful and want immediate decisions to obtain supplies or equipment at a certain price and timeframe
• Vendors that cannot provide references
• Vendors that cannot provide specifics on their criteria to meet CDC and your organizations quality requirements

To avoid falling for these fraudulent vendors, procurement practices should include performing the following:

• Validate the location of the vendor and ensure that they have a physical address that can be confirmed through a map search
• Perform reference checks on the vendor
• Evaluate the business owners by doing a DBA search to ensure they do not have any past issues through state and local government business websites or the Better Business Bureau
• Validate that the vendor is not on the banned or debarred lists at the federal or state level

It can be tempting during a crisis to loosen or bypass certain internal controls to meet your organization’s needs, but it is important to ensure that the following key procurement controls are still in place and managed:

• Documented and approved purchase requisitions that follow your organization’s delegation of authority
• Review and validation of emergency purchase requirements, including ensuring that the goods requested meet the organization’s criteria for an emergency
• Validation of current supplies across the organization and any offsite locations to identify actual needs
• Vetting and validation of new vendors, including checking references, verifying the sourcing of their supplies, and validating compliance with CDC guidelines
• Review and validation of vendors in the organization’s vendor master file to ensure there are viable options if the preferred vendor cannot meet current supply needs
• Thorough review, evaluation, and approval of received goods
• Ensuring the tagging of new inventory and tracking of its location and owner

To identify and share surpluses of key inventory, hospitals and physician groups should leverage their own networks, GPO’s, and communities for products and services. These may include college and university labs, private labs, or non-emergency doctor offices. Proactive measures should be taken now to address future shortages. This should also include evaluation and confirmation of supply guarantees in vendor contracts to ensure needs are likely to be met in the future local or national events.

As a leader in internal controls and forensics, Weaver can assist your health care organization in evaluating and providing recommendations in your procurement and supply chain processes. We can also investigate vendors and review contracts to evaluate the appropriateness of supplies or equipment and identify where recovery efforts may be made. For more information, contact us or learn about our Risk Advisory and Forensic and Litigation Services.

Authored by Brandon Tanous, CIA, CFE, CGAP, CRMA. 

© 2020