Disturbed by revelations that the fiscal information at the center of last year’s West Jefferson Medical Center lease deal was miscalculated by tens of millions of dollars, the Jefferson Parish Council plans to hire a nationally recognized forensic auditing firm to investigate the hospital’s accounting statements and practices.
Whichever firm submits the winning bid will scrutinize audits previously prepared by West Jefferson’s local external auditor for “discrepancies, mistakes, material misstatements of financial reports ... and any deviations from acceptable standards,” according to a measure co-sponsored by Councilmen Paul Johnston and Ben Zahn that was unanimously approved by the council Wednesday.
Forensic audits are designed to determine if there are problems with an agency’s books, whether from fraud, theft or other issues.
Johnston — whose district includes the parish-owned hospital — said neither he nor his colleagues were accusing anybody of wrongdoing, but he said a fresh set of eyes on the hospital’s books are needed.
Zahn, though, said, “I believe that upon completion of this forensic audit, the taxpayers will finally see who is responsible for this mess, and the council can review its legal options.”
Zahn didn’t elaborate on those options, but they could range from terminating the contract of West Jefferson’s longtime auditor to calling for an investigation by a law enforcement agency, depending on whatever findings come back.
In a deal that closed Sept. 30, LCMC Health of New Orleans agreed to lease the Marrero hospital for a minimum of 45 years in return for paying the parish $200 million in rental fees, $340 million in capital improvements and at least $31 million in other payments.
However, a consultant informed parish officials last week that as much as $28 million in unanticipated parish expenses associated with the lease had been discovered since the closing.
Those expenses occurred because unaudited financial statements from the hospital overstated its net assets while understating various fiscal obligations, such as insurance and pension liabilities, consultant Joshua Nemzoff said.
Last week was not the first time the overall value to the parish of leasing West Jefferson proved to be less than expected.
At one point, LCMC was supposed to pay the parish $225 million in rental fees. But that figure was cut by $25 million, partially because the hospital’s audit for the 2014 fiscal year showed that West Jefferson had earned $9.5 million less than had been reported in unaudited financial data provided earlier to LCMC.
A follow-up memo this week from Nemzoff contained more bad news: The Postlethwaite & Netterville auditing firm recently admitted that its 2014 audit of the hospital had overstated its net earnings by an additional $9 million. The firm plans to restate or reissue the audit, which was completed in July, Nemzoff wrote.
Postlethwaite & Netterville did not respond to a request for comment Thursday.
The latest revelation means the hospital’s internal financial figures for 2014 were off target by at least a combined $18.5 million, not including the miscalculations pertaining to insurance and pension liabilities.
Officials traced the insurance liability miscalculation to the hospital consultant Sigma. The pension liability miscalculation was connected to the firm Milliman, which was replaced by Aon Hewitt last year.
“You have what I will politely refer to as a problem,” Nemzoff wrote to parish officials Tuesday. “In order to determine how this problem occurred and if you can recover any damages related to this problem, you may wish to consider retaining an out-of-state, nationally recognized forensic accounting firm to look at everything that has happened.”
Another revelation in Nemzoff’s memo this week: Instead of the $13 million the parish believed it owed LCMC after the net assets were overstated, the figure actually was $7 million. The reason is that the hospital gave $6 million to LCMC shortly before the deal closed, without the knowledge of the team of officials in charge of negotiating the lease.
Nemzoff advised the parish throughout its efforts to secure the hospital lease deal, but his prior contract expired when the deal closed. He renewed his relationship with the parish under a new contract approved last month.
Before the lease deal closed, the parish delegated the management of West Jefferson to an executive team headed by CEO Nancy Cassagne as well as a governing board led by Chip Cahill. Cassagne last year steadfastly defended her hospital’s bookkeeping, saying it is routine for unaudited financial numbers to be adjusted after closer review.
Cassagne, Cahill and their colleagues still hold the same roles at West Jefferson, but they now serve under LCMC Health instead of the parish.