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Identify the audit risks associated with the installation of the new IT system for patient revenue.

Auditing Theory and Practice – Auditing Assignment Question – Chan and Partners Chartered 

ACCT6006 : Auditing Theory and Practice – Auditing Assignment


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Chan and Partners Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2017-year Chan and Partners gained a new client, Medical Services Holdings Group (MSHG), which owns 100 percent of the following entities:

Shady Oaks Hospital, a private hospital group

Gardens Nursing Home Pty Ltd, a private nursing home

Total Cancer Specialists Limited (TCSL), a private oncology clinic that specialises in the treatment of cancer.Year-end for all MSHG entities is 30 June. 
On 1 April 2017, Gardens Nursing Home Pty Ltd switched from its ‘home grown’ patient revenue system to the MSHG equivalent system. MSHG is confident that its ‘off the shelf’ enterprise system would perform all of the functions that Gardens Nursing Home’s home grown system performed. 
Gardens Nursing Home’s home grown patient revenue system comprised the following. 
1. Billing system — produces the invoice to charge the patient for services provided such as accommodation, medications and medical services. This software includes a complex formula to calculate the patient bill allowing for
government subsidies, pensioner benefits and private medical insurance company benefits plans. 
2. Patient database — a master file containing personal details about the patient as well as the period of stay, services provided and patient’s medical insurance details. 
3. Rates database — a master file that shows 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 switchover process. The objective of its engagement, as the board stated, is to ‘make sure the switch-over worked without any problems’. 
As part of the planning arrangement for the 2017 financial report audit, the audit partner Tania Fellowes asked her team to speak with a number of Gardens Nursing Home staff about the impact of the switching to the MSHG patient revenue system. 
Set out below is an extract of the staff feedback comments:

There were some occasions where we invoiced people that 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 hold 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 medical fund and pensioner subsidy rates.

We then found out that halfway during 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 processed in the last two weeks’.

(A) Identify the audit risks associated with the installation of the new IT system for patient revenue. 
(B) Comment on the audit strategy likely to be adopted for the audit of patient revenue for Gardens Nursing Home.

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