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A Supply Chain Audit That Won't Hurt a Bit
Putting your facility in the hot seat can head off problems and save you money.
Terry Cox
Publish Date: September 4, 2008   |  Tags:   Supply Management

The supply chain is a healthcare facility's second largest spending item after labor. If we're not managing supplies properly, or someone is undermining our processes and procedures, we'll want to know sooner rather than later. Plus, like locks on doors, regular audits keep honest people honest. Here are eight tips to help ensure a successful supply chain audit.

1. Ask your colleagues to help you. Supply chain professionals share willingly. Although our institutions might compete for patients and market share, the supply chainers behind the scenes rarely compete with each other. Don't be afraid to reach out to your neighbors across town or colleagues across the country for help. Ask them about what they audit and how they do it. You might be able to get a template that you can customize for your own audit.

Professional associations can be a great help, too. The Association for Healthcare Resource and Materials Management (www.ahrmm.org) has local chapters that meet regularly and a busy online forum where you can ask questions about auditing. The Association of Healthcare Value Analysis Professionals (www.ahvap.org) has a discussion board, as do many group purchasing organizations. By nature, people who subscribe to online forums enjoy discussing their experiences and sharing what they know, so you won't have to worry about a lack of responses to your query.

2. Not all auditors are the same. Auditing firms come in all shapes and sizes. You can hire a Big Four consulting firm that will audit the whole building or a highly specialized mom-and-pop firm that knows your niche. Some firms will charge you a flat fee, while others, such as recovery firms, will charge you a percentage of the money they save you once they've finished the audit. Ask your colleagues who they've used, how much they spent and how the audit went. Whether you hire someone or do your audit in-house, make sure that whoever does it is a disinterested party — otherwise, it defeats the purpose of conducting an audit.

3. Pay special attention to credit cards. Employees can use the procurement cards that you use to pay for supplies to buy anything, including personal clothing, meals and entertainment. Each month go through the credit card statements and investigate charges that look questionable. You might be surprised with what you find. If you're not the one looking at the monthly statement, make sure you have two people look at it in order to avoid two-way fraud. Sometimes, the monitor and the person making the inappropriate charges are working together.

4. Segregate purchasing and receiving duties. Don't give employees complete access to your ordering and inventory systems. Too much access invites abuse. For ordering, each person in the supply chain should have a single job, if possible. The person who requests a product — the end user — shouldn't be the same person who orders it or who receives it when it arrives at the loading dock. A separate person should perform each of these tasks. Ideally, the person who orders the product never sees it. Arranging your purchasing and receiving this way prevents ordered supplies from ending up in someone's car trunk once the goods arrive at your facility.

5. Verify your prices. You spend a lot of time and energy negotiating your prices, so it's important to make sure that you're actually paying the price that you agreed on. To do this, match the invoice against the purchase order. If they're not the same, call up your vendor. Differences may be the result of a mistake, an incorrect price in the catalog or a new contract that the vendor's billing department hasn't yet updated. Whatever the cause, make sure that the problem is fixed quickly so that the error isn't repeated on your next order.

6. Let software do the work. Analytic software can help you get a bird's-eye view of what you're buying, who you're buying it from and how much you're paying. It keeps track of what you purchase on-contract and what you purchase off-contract. We use a program provided by our GPO. The easily generated reports keep us on track and save us a lot of money. However, don't rely on the software alone. In the end, the software is only as effective as the person analyzing the data.

7. Audit your vendors. Get to know with whom you're doing business and who's coming into your building. Check the Office of Inspector General's List of Excluded Individuals/Entities (http://exclusions.oig.hhs.gov/). If your facility participates in Medicare, Medicaid or any other federally funded program, you shouldn't be doing business with excluded businesses or individuals. Nor should you hire anyone on the list. At Texas Children's Hospital, we screen our vendors' representatives using different local, state and federal databases. Many facilities use vendor-credentialing services that do all the necessary background checks on the vendors and their employees.

8. Fix the problems. Finding problems is the fun part. Finding the time to fix the problems is more challenging. An audit is a waste of time if you don't correct anything. Use root-cause analysis to establish why a problem occurred. Ask yourself "why?" something occurred five times, drilling deeper down each time until you find the cause of the problem.

Unfortunately, even after you've made your corrections and tightened any loose links in your chain, you're still not done. You'll need to make plans to do it again. You may want to schedule an audit in advance of budget preparations or inventory reporting, but don't let that dictate when you schedule it.

Good medicine
For many managers, an audit is no cause for celebration. Just hearing the word causes fear and conjures up images of government inspectors going through everything, suspecting wrongdoing. Not me. I worked for 20 years as a medical logistician for the federal government, where audits were very common. Today they don't bother me at all. Believe it or not, I look forward to audits. You and your staff should always be prepared for an audit, announced or unannounced. Remember, it's a good thing.