Erie County Comptroller Mark C. Poloncarz today issued his office's audit of the Sale, Purchase and Operation Agreement ("SPOA") by and between Erie County ("County") and Erie County Medical Center Corporation ("ECMCC"). The SPOA and subsequent legal actions (resulting in two (2) consent decrees) govern the County's sale of the hospital to the then created public benefit corporation in 2004 and the mutual obligations of both parties including ongoing subsidies, reporting, and other financial issues.

The audit examined for the period January 1, 2005 to June 30, 2007 (1) whether ECMCC and the County met their respective obligations under the SPOA; (2) hospital advertising expenditures; (3) the cost to the County of the sale of ECMCC; and (4) internal controls in the hospital's accounts payable function.

"This audit report is the result of nearly four months of detailed work by my Division of Audit and Control. It reveals significant issues relating to ECMCC's failure to follow internal controls, legal requirements of the SPOA, or even its own by-laws," said Poloncarz.

The Comptroller's audit revealed:

• The sale of the hospital is expected to cost the County and county taxpayers at least $503 million for the period 2004-2033 under current agreements.


• Due to temporary state restrictions, nearly all of $26.3 million of capital subsidies provided to ECMCC by the County have not been spent or released. These proceeds are accruing interest to the benefit of ECMCC.


• ECMCC senior management and its legal counsel deliberately engaged in efforts to conceal a payment to a vendor for the purchase of advertising intended to influence the findings of the New York State Commission on the Future of Healthcare in the 21st Century ("Berger Commission").


• ECMCC's President and Chief Executive Officer stated that the goal of senior management in attempting to conceal the payment for advertising was to avoid a possible public disclosure of the expenditure through the New York State Freedom of Information Act.


• ECMCC's internal controls are weak in several areas and County auditors could not rely on said controls. This included our finding that senior management overrode internal controls and failed to document actions as required by ECMCC's by-laws.


• Among the weaknesses associated with internal controls were actions by the ECMCC Board of Directors and/or its Executive Committee, including the questionable advertising payment and the approval of a special executive compensation package for senior management for which there is no evidence of full board approval. In addition, questions exist regarding the proper recording of complete board meetings minutes, leading to questions about the propriety of certain hospital actions and activities.

ECMCC has consistently violated reporting requirements to the County as contained in the SPOA, as well as at one point terminating its customary practice
• of providing monthly board and committee meeting minutes and financial data and reports to the County and County Legislature. The County has been compelled by the State to make more than $14.6 million in unbudgeted payments to ECMCC under a Medicaid intergovernmental transfer mandate with additional future payments likely in future years.

Poloncarz stated: "While the hospital appears to be moving forward financially, as is evident from its operating surplus in 2006, the significant and repeated, almost systemic, violations of internal controls raise serious questions about the manner in which the hospital is operating."

Comptroller Poloncarz expressed great concern regarding ECMCC senior management's failure to provide and sign a non-qualified representation letter certifying the accuracy and veracity of the information provided to the County auditors. Poloncarz said, "It is a standard practice for the audited entity to sign a representation letter at the end of a County audit. The failure of ECMCC's senior management to provide an unqualified letter to our auditors is a serious matter and brings into question the reliability of the data they provided to our auditors."

A copy of the audit report, including various appendices, can be found at the following web site: http://www.erie.gov/comptroller/county_audits.asp