INTERNAL AUDIT CHECKLIST
Audit Question (Type in the
audit questions from the
textbook.)
Management Audit (p. 137)
1 Does the firm use
strategic-management
concepts?
2 Are company objectives
and goals measurable and
well communicated?
3 Do managers at all
hierarchical levels plan
effectively?
Your Answer – (Background and
Discussion. Quantify where
possible.)
Basis/Support. (Quantify where possible.)
Yes BUT with POOR application

XYZ is annually conducting strategic
planning on per department together
with medical executive committee and
management committee since 2008.
The hospital is paying 3 doctors to do
the facilitation of strategic planning.
It’s quite ironic because strategic
planning was never done with
comprehensive data as basis for
proposed strategies and activities.
Hence, the outcomes of sessions are
merely wish lists, recommendations
based from “gut feel” and full of
motherhood statements, and baseless
strategies.

The business plan was never shown and
cascaded or discussed to the middle
managers and front liners who are the
implementers of strategies until today.
The only people who know the plans
are the top management. The new CEO
is trying to communicate to the
employees on where will be the
hospital headed on for the next 5 years.
NO
Since the outcome of strategic planning
and business plans were not shown and
cascaded to the middle managers, goals
were not communicated at all except
that middle managers are mandated to
achieve revenue targets and volume
growth. Usually, middle managers are
not aware why certain activities were
taken by the top management and how
they came up with such strategies.
YES
Even if the outcome of strategic
planning and business plan are not
cascaded to the middle managers,
instead revenue and volume targets are
the mere things given. The middle
managers create their own plan and
create activities in order to achieve the
given targets. What happens is that
each clinical department is functioning



Annual gross revenue growth rate of 10% from
2007 to 2012.
Achieve 2.3 Billion gross revenue at the end of
2012 fiscal year
Reduction of Expenses Brought by Medical Care
Variances (legal) by 50%
Increases volume of cardiac surgery by 7%
Increase the number of interventional cardiologists
and thoracic surgeons practicing in XYZ by 5.
The average growth is less than 4% and how come the
hospital will be able to produce an annual gross revenue
growth rate of 10% without creating high or value and high
intensive services?
There was no person or unit that reviews, revisits, and
monitors the strategic plan and business plan and XYZ just
kept on doing the annual strategic planning without using it
as a guide in adjusting activities that will result to
realization of goals.
The middle managers are left to do their own operational
plan that they think will yield to achievement of targets
(revenue and volume) mandated by top management. They
submit balanced scorecard with key performance indicators
and key result areas stated in measurable manner.
The managers are making report that shows if their
respective units were able to achieve the monthly revenue
and volume targets, reasons why they were achieved or why
not achieved and the recommended action plan to take to
create buffer that will reduce or remove the deficits the
4 Do managers delegate
authority well?
and pursuing different activities from
other units which cause fragmented
delivery of services.
YES
5 Is the organization’s
structure appropriate?
YES
6 Are job descriptions and
job specifications clear?
YES
7 Is employee morale high?
YES
8 Are employees turnover
and absenteeism low?
NO for attrition rate
9 Are organizational reward
and control mechanisms
effective?
Marketing Audit (p. 141)
1 Are the markets
segmented effectively?
2 Is the organization
positioned well among
competitors?
YES for absenteeism
NO
NO
YES
following months. They are submitting year-end report
stating the achievements and challenges they faced during
the entire fiscal year and their recommendations.
The middle managers are delegating responsibilities to team
leaders primarily to expose them to management activities.
The managers and team leaders were trained on proper
delegation of responsibilities and since there’s a clear line of
authority and job description, the employees know twhat is
expected from them.
The structure is somewhat reduced by 2 layers and there’s
clear line of authority. This facilitates faster communication
between the immediate superior and direct reports. Doctors
are not also included in the operations and they were merely
tasked to handle the medical care and hands off on the
operations of the units.
The employees were given copy of their duties and
responsibilities in complete details both the technical and
behavioral components.
Job description of all employees was reviewed by Watson
Wyatt in 2008 ensuring that each position has appropriate
duties and responsibilities.
The morale of the employees are still high even the middle
managers despite of their experience with the previous
management team. The high morale is anchored on the
hopes that the new CEO and his management team will be
doing the right thing and communicating well with the
employees. Attrition rate on the allied health professionals
will still be high because of lucrative career opportunities
and better pay abroad.
The attrition rate for allied health professionals will still be
high and this will be true for all hospitals because of
continuous offering of lucrative job offers abroad with
highly attractive salary and compensation and career
opportunities.
Absenteeism never became a problem of XYZ.
There’s absence of reward system wherein whether the
specific units were achieving or delivering mandated target
revenues and volume received nothing even intangible
rewards from the top management. Thus there’s no
difference if the respective middle managers delivered the
expected results or not.
XYZ lacks market research and there was single report ever
showed by marketing team on what markets that XYZ is
currently pursuing or emerging market that it will pursue.
Most of the service offerings made since 2008 were merely
duplication of services of KLM, ABC, and DEF. Some of
the services duplicated were not designed for patients from
NCR area IV and III and CALABARZON resulting
underutilized services such as sleep laboratory.
XYZ is a premiere hospital strategically positioned together
with KLM, ABC, and DEF in terms service capabilities,
infrastructures and medical technology. Although, XYZ is
lagging behind the 3 competitors with DEF being the
market leader in NCR market followed by ABC and KLMGlobal. At present, ABC already established 2 satellite
clinics in Cavite and Batangas while DEF aggressively
pursuing establishment of partnership with smaller hospitals
across the country. Thus, both ABC and DEF are increasing
their market reach.
3 Has the firm’s market
share been increasing?
4 Are present channels of
distribution reliable and
cost-effective?
5 Does the firm have an
effective sales organization?
NO, XYZ’s market share in NCR
markets is steadily declining
Not Applicable
Hospital Industry does not have distribution channels
because the products of hospital are its services that are
created instantaneously within the point-of-sale
Yes but more improvements can be
done
The sales function is embedded with the responsibilities of
Marketing Team wherein they perform various promotional
activities, sponsoring of events, performing community
work, and acquisition of corporate accounts in order to drive
sales of medical care services of XYZ.
The marketing team never performed market research
activity that can be critical towards identification of needs
of existing market being served and the emerging market
needs that will lead to alignment of resources to create
appropriate services and position well XYZ in the market.
The Quality Management Department are monitoring the
patient satisfaction survey and capture immediately
complaints of the together with Customer Relations
Management unit to immediately address and resolve
patient complaints or at least immediately attend to
complaints within 12 hours by the time the complaint was
raised. They analyzed incident reports and creates action
plans to minimize recurrence of same incidents. The
employees are continuously given training programs both
for clinical and behavioral aspects such as customer service
and work attitude and values enhancement.
6 Does the firm conduct
market research?
NO
7 Are product quality and
customer services good?
YES
8 Are the firm’s products
and services priced
appropriately?
YES, XYZ’s prices are competitive
with the prices of KLM, ABC, and
DEF
9 Does the firm have an
effective promotion,
advertising, and publicity
strategy?
YES, XYZ have effective advertising
and publicity strategy as it performs
almost the same strategies being
executed by, ABC, and DEF except
that it does not have advertisement in
television.
10 Are the marketing
planning and budgeting
effective?
NO
11 Do the firm‘s marketing
managers have adequate
experience and training on
marketing?
YES
The marketing team does not perform market research or
even basic survey among the doctors to identify needs and
feedback of doctors especially those that are bringing in
patients to the hospital. The marketing team are heavily
relying on creating promotional and publicity activities
which is based on “hit-and-miss” strategy. This is secondary
to lack data that they can use to create plan and strategize
their approach and not just merely utilizing financial
resources of company on promotional activities.
Just like any department in XYZ, marketing department is
submitting its own budget but since there’s an absence of
data analytics, the budget submitted will be used primarily
for promotional activities.
The Marketing Director has been doing marketing career for
almost 15 years and was previously connected with KLM
and ABC doing the same duties and responsibilities.
The Marketing Manager is previously connected with
advertising agency responsible for conceptualization of print
advertisements and organizing events.
Finance/ Accounting Audit
(p. 146)
1 Where is the firm
financially strong and weak
as indicated by the financial
ratio analyses?
Strong: Profitability ratio
XYZ have the highest gross profit
margin even if it has the lowest revenue
compared to KLM, ABC, and DEF.
Weak: Leverage Ratio
XYZ’s main source of funding
operations and expansion programs is
through loans, hence the hospital have
high debt level which made XYZ have
high exposure to financial risk.
2 Can the firm raise needed
short term capital?
YES
3 Can the firm raise needed
long-term capital through
debt and/or equity?
YES
4 Does the firm have
sufficient working capital?
YES, XYZ has Php 820.2 Million at
the end of 2011 which is enough to
cover its working capital
requirements.
5 Are capital budgeting
policies reasonable?
YES
XYZ is financially strong in liquidity ratios anchored on
very high current ratio and Days Cash at Hand. This means
that XYZ is highly liquid and can raise short term capital to
finance operations using liquid funds. XYZ has large cash
and cash equivalents at the end of 2011 at Php 820.2
million.
XYZ is highly liquid assuring the creditors that it has the
capacity to settle current obligations and this increases the
capacity of the hospital to get loans to finance expansion
programs. XYZ has high debt capitalization percentage,
debt to equity ratio, long-term debt to equity ratio which
means funds that were used financed operations came from
debt and the hospital is utilizing well the loans that it
acquired and has fair rate in utilizing its resources to
generate revenue (asset turnover)
Capital and Operational Budgeting policies and process is
reasonable and ensures that most of the financial resources
will be utilized to fund acquisition of equipment and
building of infrastructures that will generate greater returns
6 Are the firm’s financial
managers experienced and
well trained in finance?
YES
for the hospital. There’s an initial screening and 2
deliberations of submitted CAPEX and OPEX before
middle managers will be defending the budget they
submitted from the top management officers.
The Chief Financial Officer is previously connected with
large hospital in Davao doing same duties and
responsibilities. She is an accountant by profession and has
worked with different industries (manufacturing and food)
before moving to hospital industry.
The Financial Comptroller is a financial analyst at
manufacturing company in Laguna before transferring to
XYZ in 2006 for the same post. She was promoted in 2008
to financial comptroller. She is an accountant by profession.
The Accounting Manager is an accountant and was working
previously with other industry before moving to XYZ in
2002.
Production/Operations Audit
(p. 149)
1 Are supplies of finished
goods reliable and
reasonable?
YES
2 Are office, warehouse
facilities and equipment in
good condition?
YES
3 Are inventory-control
policies and procedures
effective?
YES
4 Are quality control
policies and procedures
effective?
YES
XYZ maintains adequate supply of medicines and other
supplies good for an average of 60 days. This is to ensure
that operations of the hospital will continue just in case
there will be problems from the suppliers or in time of
natural disaster that will impede delivery of supplies such as
flood.
XYZ maintains well the status of its building, facilities, and
equipment. The hospital is spending significant amount for
preventive maintenance of its facilities and equipment so as
to minimize downtime and ensure that services will always
be available to the health consumers/patients. In 2005, the
hospital was given the “The Most Modern Hospital” in the
Philippines. Allied Health professionals were given proper
training on proper use equipment in their respective
disciplines to minimize damage and prolong useful life of
equipment and other facilities.
XYZ’s Hospital Information System has a module for
monitoring of supplies to effectively control supplies
inventory and ordering. The system also shows slow
moving supplies and supplies nearing obsolescence
especially the medicines and chemical reagents which
prompt the management to map actions either to increase
utilization of said supplies or return the supplies to suppliers
if there’s an existing provision in the contract of suppliers.
Average inventory turnover of XYZ is 6 which is better
compared to the performance of KLM-Global.
The Quality Management was created primarily to ensure
that the hospital will be operating with high level quality
standards to ensure patient safety. It reviews policies and
procedures of each department and ensures that all units are
complying with the global standards in terms of delivering
medical care services. The department created the on-line
reporting of service defects/variances to immediately
capture and immediately resolve.
5 Are facilities, resources
strategically located?
NO
6 Does the firm have
technological competencies?
YES
Research and Development
(p. 150)
1 Does the firm have R&D
facilities? Are they
adequate?
XYZ’s have not fully adopted the clustering of clinical units
designed to have close proximity to each other in order to
provide “one stop shop” delivery of services. Just like
traditional service model, XYZ has fragmented delivery of
services in such a way diagnostic and treatment services are
totally separated and located in different locations making
uncomfortable to the patients to move from one place to
another.
XYZ have advanced medical technology and sophisticated
hospital information system. It is capable of performing
complicated cardiac and orthopedic surgeries and other
advanced diagnostic services. Its operations is supported by
hospital information system which speeds up back-end
operations of the hospital and somehow improves access to
patient files of service providers (doctors and allied health
professionals) to be able to render effective and efficient
medical care services through electronic medical records.
2 If outside R&D firms are
used, are they cost-effective?
3 Are the organization’s
R&D personnel well
qualified?
4 Are the R&D resources
allocated effectively?
5 Are management
information and computer
systems adequate?
Not Applicable
XYZ does not have research and development facilities
since it’s not medical university hospital and non-training
hospital, it does not perform medical researches nor
develops original products and services.
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Not Applicable
6 Is communication
between R&D and other
organizational units
effective?
7 Are present products
technologically competitive?
Not Applicable
Computer Information
Systems (p. 152)
NO
YES
YES
XYZ is one of the few hospitals in the Philippines that have
advanced hospital information system and integrates
computer system in the operations of the hospital.
Extraction of financial reports and other back-end
operations are faster because of the presence of hospital
information system (XXX). This is the same hospital
information system currently being utilized by Johns
Hopkins Hospital, Bumrungrad Hospital, Singapore
National University, and other international hospitals.
Not Applicable
XYZ’s diagnostic and treatment services are mainly
supported by advanced technology that increases patient
safety and delivery of effective and efficient medical care
services. The medical equipments were supplied by General
Electric Company (GE), Philips, Siemens, and other
manufacturers supplying same unit with other premiere
hospitals and most of the hospitals around the globe.
1 Do all the managers in
the firm use information
system to make decisions?
YES
2 Is there a chief
information officer position
inside the firm?
YES
3 Are data in the
information system updated
regularly?
YES
4 Do managers from all
functional areas of the firm
contribute input to the
information system?
5 Are there effective
passwords for entry into the
firm’s information system?
YES
6 Are strategists of the firm
familiar with information
systems of rival firms?
7 Is the information system
user-friendly?
YES
8 Do all users of the
information system
understand the competitive
advantages that information
can provide firms?
9 Are computer training
workshops provided for
users of the information
system?
10 Is the firms information
system continually being
improved in content and
user-friendliness?
YES
YES
YES
YES
YES
All managers utilize the information available in the
hospital information system and sharepoint to be able to
make adjustments in delivery of medical care services. The
doctors are mainly benefiting from this since they have
access to latest diagnostic test results resulting to adjustment
of medical care given to the patients.
The Non-Clinical Operations Director acts as the Chief
Information Officer of XYZ. He’s responsible for ensuring
that all information systems are up and running and
necessary information are constantly flowing to the entire
facilities.
The diagnostic results and patient records are immediately
scanned and uploaded to the hospital information system
and this allows the doctors to make right medical
management. Financial data are also updated which allows
middle managers to see the financial performance of their
units and create actions that will sustain gain or actions that
will recover the losses.
Clinical managers and finance managers are contributing to
the information system. Patient records are updated every
time they availed any medical care services. Financial
records are always updated by finance group.
All employees were issued domain account and password to
be able to access the hospital information system (XXX).
This ensures security of the system including confidentiality
of patient records and other trade secrets of the hospital.
Since it’s only few hospitals invested in hospital
information systems, the management team knows what the
existing information system of other premiere hospitals is.
XXX Hospital Information System is user friendly. This is
the very reasons why other internationally renowned
hospitals like Johns Hopkins, Bumrungrad Hospital, and
Singapore National University Hospital, and many others
are using this system.
Users of the hospital information system know the
advantage of the information system particularly seeing the
complete medical records of patients that will allow them to
make more effective medical care services.
Before the newly recruited employee is deployed to their
respective work area, they are trained on how to use the
hospital information system and sharepoint functions which
equip them appropriately on how to use the system
appropriately and how it can help to simplify their work.
Microsoft is updating the XXX hospital information system
through delivery of service packs so that the modules will
be enhanced and increase its functionality and usefulness.