KPMG finds gaps in accounting controls; board approves amended FY2026 budget after May restatement

The Hospital Authority board voted to approve an amended fiscal year 2026 budget on a motion from the board and a second; the motion passed. The vote followed a presentation from KPMG that identified weaknesses in accounting processes and a restatement of the hospital's May financial statements after a material discrepancy was found.

KPMG partners Hillary Simic and Chris Dixon gave the board a summary of a month-long diagnostic engagement, saying the firm had identified “symptoms” across invoice intake and recording, leased-equipment accounting, payroll controls and inventory management that reduced the reliability of monthly financial reports. “The process for intaking and recording invoices is problematic. There are multiple ways and multiple people performing this,” Dixon said, adding that the result was difficulty in understanding monthly expenses and forecasting. Simic outlined a sprint-based remediation plan of quick wins and 30/60/90 day improvements.

The KPMG presentation included examples the consultants called concerning to the board: a sizeable equipment lease that had been entered, commenced and not recorded on the books for more than a year and instances in payroll administration where terminated employees received payments. Dixon estimated the total of such payroll overpayments “in the $100,000 range” for items discussed in his review, and said the missing lease entries caused underreported assets, liabilities and lease expense for the current fiscal year.

Board members were told KPMG had cataloged roughly 80 recommended improvements and would triage them by impact. Simic said KPMG would deliver an implementation roadmap in August and continue to work with the finance team through the fiscal year-end audit.

The budget discussion and vote came after Chief Financial Officer Doctor Blackledge reviewed the revised FY2026 submission to Metro. The preliminary submission had proposed a city supplement of $66,000,000; the revised figure dropped that supplement to $60,700,000. Patient revenue projections increased by $5,100,000 (about 2%), which lifted net revenue by $1,100,000 (2%). At the same time, total revenue decreased about $4,000,000 and total expenses decreased by roughly $2,000,000 versus the preliminary plan; that produced a roughly $2,000,000 reduction in the projected operating margin compared with the original budget.

The board was also told the May financials had been restated after management identified a material error during the monthly management review. Doctor Blackledge described a missing $9,000,000 amount that triggered the restatement. The board heard that the restatement and the KPMG engagement were reasons the authority had hired Ray Burchetto as controller; Burchetto said his work will focus on alignment, discipline and implementing standard operating procedures.

Controller Ray Burchetto told the board that current-month revenues in May were 18.7% under budget — about $5.3 million — and year-to-date revenues were 11.8% under budget, about $36.4 million. He said several categories of expense were over budget year to date, including salaries and benefits and physician services. The finance presentation and KPMG’s findings were cited by board members as justification for the amended budget and for continuing the external engagement.

The board directed management to continue the KPMG remediation plan and to report back as the firm implements quick wins and the 30/60/90 day items. The board approved the amended FY2026 budget as presented.

Ending: Board members said they considered the KPMG engagement and the restated financials necessary to restore reliable monthly reporting and to improve forecasting ahead of the new fiscal year.