AUDITOR GENERAL
S TATE
Sherrill F. Norman, CPA
Auditor General

OF

F LORIDA

Claude Denson Pepper Building, Suite G74
111 West Madison Street
Tallahassee, Florida 32399-1450

Phone: (850) 412-2722
Fax: (850) 488-6975

March 30, 2016

Ms. Darcy J. Davis, CEO
Health Care District of Palm Beach County
2601 10th Avenue North, Suite 100
Palm Springs, Florida 33461
Dear Ms. Davis:
Enclosed is a list of preliminary and tentative audit findings and recommendations that may be
included in a report to be prepared on our operational audit of the Health Care District of Palm
Beach County.
Pursuant to Section 11.45(4)(d), Florida Statutes, you are required to submit within thirty (30) days
after receipt of this list a written statement of explanation concerning all of the findings, including
therein your actual or proposed corrective actions. If within the 30-day period you have questions
or desire further discussion on any of the preliminary and tentative audit findings and
recommendations, please contact this Office.
Your written explanation should be submitted electronically in source format (e.g., Word or
WordPerfect) and include your signature. For quality reproduction purposes, if you are not
submitting your response in source format, please convert your response to PDF and not scan to
PDF. If technical issues make an electronic response not possible, a hard copy (paper) response
will be acceptable.
Please e-mail this Office at flaudgen_audrpt_lg@aud.state.fl.us to indicate receipt of the list of
preliminary and tentative audit findings and recommendations. Absent such receipt, delivery of
the enclosed list is presumed, by law, to be made when it is delivered to your office.
Sincerely,

Sherrill F. Norman
DN/kdk
Enclosure
c: Tim Cerio, General Counsel

www.myflorida.com/audgen

 HEALTH CARE DISTRICT OF
PALM BEACH COUNTY

PRELIMINARY AND TENTATIVE AUDIT FINDINGS
NOT AN AUDIT REPORT

SUMMARY
This operational audit of the Health Care District of Palm Beach County (District) focused on selected
District processes and administrative activities. Our operational audit disclosed the following:
Finding 1: The District needs to establish policies and procedures to ensure that land acquisitions are
made at the best value for the District.
Finding 2: The organizational independence of the District’s audit and compliance functions could be
improved.
Finding 3: District procurement procedures could be enhanced.
Finding 4: To provide for the full recovery of helicopter air ambulance services costs, the District needs
to establish and implement cooperative agreements with other applicable government authorities and
public and private entities for helicopter services provided outside of Palm Beach County.

FINDINGS AND RECOMMENDATIONS
Finding 1:

Land Acquisition

The District owned and operated the Edward J. Healey Rehabilitation and Nursing Center (Center)
located in the City of West Palm Beach on County-owned land, which the District leased from the County
for $1 per year. Based on facility deficiencies cited in an October 2008 feasibility study for the Center,
the Board decided in December 2009 to replace the facility.
To assist with the facility replacement process, the District formed a Construction Oversight Committee
(Construction Committee) to provide recommendations to the Board for site selection and facility
construction. The February 2, 2010, Construction Committee meeting minutes indicated that the District
and County discussed available County-owned land, and the County offered to convey the land on which
the existing Center was located to the District at no cost. However, District staff indicated that the land
had drainage problems and believed other improvements would be required if the District chose to accept
the land. District staff also indicated another hindrance to the land conveyance would be that the District
would have to displace the Center’s residents while rebuilding the current facility. Consequently, in
July 2010, the Board selected a real estate broker to help the District identify various land options to
consider as a site for constructing a new facility. To further help in the site selection process, a project
team composed of the real estate broker, District Chief Medical Officer, and the design professionals and
construction manager selected for the project, was formed.
The real estate broker identified 14 sites for potential purchase and the project team evaluated the sites
and narrowed the options to 3 sites, including a site in which the real estate broker’s spouse and other
Page 1

 HEALTH CARE DISTRICT OF
PALM BEACH COUNTY

PRELIMINARY AND TENTATIVE AUDIT FINDINGS
NOT AN AUDIT REPORT
family members held a 46 percent ownership interest. In an effort to avoid a perceived conflict of interest,
prior to obtaining proposals for the other 2 sites, the real estate broker submitted to the District’s
owner-representative a sale price proposal for the site in which the broker’s family held an interest. The
real estate broker subsequently contacted the owners of the other 2 sites to negotiate and obtain price
proposals, and the project team provided the proposals for the 3 sites to the Construction Committee for
consideration.
The Construction Committee ranked the 3 sites using a property matrix comparing the prices for the sites
and each site’s favorable and unfavorable features, such as location, zoning restrictions, and existing
drainage conditions. The Construction Committee recommended to the Board for purchase the
highest-ranked site proposal, which was for the site partially owned by the real estate broker’s family.
Based on the Construction Committee’s recommendation, the Board purchased the recommended site
for $4 million.
Our review of District records and discussions with District staff about this land purchase and the
acquisition process disclosed that the District had not established policies and procedures that ensure
land acquisitions are made at the best value for the District. Specifically, we found that:


The real estate broker may not have been the best advocate to negotiate the District’s site
acquisition cost given the broker’s family’s partial ownership in one of the sites considered for
purchase and the broker’s knowledge of the sale price proposal for that site and negotiation of
price proposals for the other 2 sites.



The District did not document the preparation of a cost-benefit analysis showing that the decision
to purchase land and construct a new facility would be less costly and more beneficial than
accepting the County land, making necessary improvements, and rebuilding the current facility.
In addition, while the Construction Committee evaluated the 3 sites by comparing the proposed
prices and site features, the District did not document an analysis of anticipated costs related to
necessary site improvements for the 14 sites initially considered for purchase.



The District did not obtain appraisals to demonstrate the fair market value of the 3 sites selected
by the project team. Given the partial ownership interest held by the real estate broker’s family in
the site purchased by the District, and the real estate broker’s involvement in the site selection
and negotiation process, an independent site appraisal was especially important to assure that
the offered price was consistent with the site’s fair market value.

Absent documentation of the independent consideration of respective land sale price proposals,
cost-benefit analyses to evaluate the District’s land acquisition options, and site appraisals, District
records did not evidence that the site purchase was the best option for the District.
Recommendation: The District should establish policies and procedures to ensure that land
acquisitions are made at the best value for the District. Such policies and procedures should
prohibit individuals with ownership interests in any property being considered for acquisition
from participating in the acquisition decision-making process, require documented cost-benefit
analyses to evaluate the District’s land acquisition options, and require independent site
appraisals for consideration before land acquisitions are made.

Page 2

 HEALTH CARE DISTRICT OF
PALM BEACH COUNTY

PRELIMINARY AND TENTATIVE AUDIT FINDINGS
NOT AN AUDIT REPORT
Finding 2:

Audit and Compliance Functions

Internal audit and related monitoring functions can provide assurance that internal controls are
adequately designed and functioning effectively, and can verify compliance with Board-approved policies
and procedures, State and Federal laws, regulations, and other guidelines. The effectiveness of internal
audit and monitoring activities related to an organization’s operations is enhanced when the individual
conducting the auditing or monitoring activities is not supervised by, and does not report to, the
management responsible for the activities under review.
The Director of Internal Audit (DIA) supervises the District’s Internal Audit Department. The Internal Audit
Department conducts audits of District operations including the business, clinical, financial, and
administrative operations of the District, in accordance with International Standards for the Professional
Practice of Internal Auditing (IIA Standards) published by The Institute of Internal Auditors. The
IIA Standards require the DIA to report to a level within the organization that allows the internal audit
activity to fulfill its responsibilities without interference in determining the scope of internal auditing,
performing work, and communicating results. 1
The Chief Compliance Officer (CCO) supervises the District’s Compliance Department. Among other
things, the Compliance Department monitors District compliance with Medicaid and Medicare program
requirements and District procurement and related bidding policies. While the Compliance Department
is not subject to the IIA Standards, it is important for the Compliance Department’s monitoring activities
to be free from management interference so that the Department can provide objective and unbiased
information to the Board.
The Chief Executive Officer (CEO) oversees the DIA’s and the CCO’s daily activities and approves their
time sheets and leave, travel reimbursements, and purchase requests. However, according to the
District’s Performance Evaluation and Management Procedure (Procedure) the Audit and Compliance
Committee (Committee) has responsibility for approving the audit and compliance plans prepared by the
DIA and the CCO, and the Committee has sole discretion regarding the termination of the DIA and the
CCO. The Procedure requires the CEO to prepare, for Committee approval, annual performance
evaluations for the DIA and the CCO and requires that, if the DIA’s or the CCO’s performance falls below
expectations, the CEO follow Committee-approved procedures to administer disciplinary actions against
the DIA or the CCO.
Although the Committee has ultimate responsibility for the retention or termination of the DIA and the
CCO, the CEO’s responsibility to oversee the daily activities and evaluate the performance of the
individuals in these positions could impair the DIA’s and the CCO’s independence. Requiring the DIA

1

IIA Standards, Section 1110.

Page 3

 HEALTH CARE DISTRICT OF
PALM BEACH COUNTY

PRELIMINARY AND TENTATIVE AUDIT FINDINGS
NOT AN AUDIT REPORT
and the CCO to administratively report to the Committee or the Board would better demonstrate that the
individuals in these positions are free from interference when determining the scope of the audit or
compliance monitoring activities, performing the work, and communicating the results.
Recommendation: To enhance the organizational independence of the audit and compliance
functions, the DIA and the CCO should administratively report to, and be evaluated by, the
Committee or the Board.
Finding 3:

Procurement Procedures

State law 2 requires Board members, chief executive officers, and all employees with purchasing authority
greater than $20,000 to file statements of financial interests with the appropriate supervisor of elections.
The Board adopted the Conflict of Interest Policy and Procedure (Policy) to ensure that all organizational
decisions are made solely to promote the best interests of the District and its patients, members, and
residents, without favor or preference based on prohibited personal considerations. The Policy is
applicable to all Board members, committee members, officers, and employees of the District and its
affiliated entities. In addition, the District required these individuals to complete a Conflict of Interest
Form (COI Form) upon hire, for the Human Resources and Compliance Departments’ management
review and approval.
The Policy requires Board and committee members to complete COI Forms annually and provides that
employee or officer COI Forms be reviewed annually during their performance reviews. The applicable
individuals are to update their COI Forms for any activity or personal interest that may lead to a conflict
of interest within 10 days after the individual becomes aware of a potential conflict of interest. In addition
to the Policy, the District’s formal competitive bidding procedures for estimated purchases over $50,000
annually require the respondent to complete a Conflicts Disclosure Form (CD Form) upon submission of
proposal.
Our review of District records and discussions with District staff disclosed that:

2



The seven Board members, two District officers, and the CEO timely filed statements of financial
interests pursuant to State law. However, neither the Policy nor any other District procedures
required that copies of the statements of financial interests or COI Forms be provided to personnel
responsible for procurement decisions. Providing statements of financial interests and COI Forms
for routine review by the personnel responsible for procurement decisions would help identify
potential conflicts of interest that should be considered when entering into procurement
transactions or contractual obligations.



Seven District employees were paid a total of $19,289 through the District’s vendor accounts
payable system during the period October 2013 through March 2015. While most of the payments
we reviewed were for travel reimbursements, payroll check reissues, and similar items not

Section 112.3145, Florida Statutes.

Page 4

 HEALTH CARE DISTRICT OF
PALM BEACH COUNTY

PRELIMINARY AND TENTATIVE AUDIT FINDINGS
NOT AN AUDIT REPORT
indicative of vendor relationships, we noted a $5,000 payment for training curriculum development
that was made to a vendor with an uncompensated officer/director who was also a District
employee. The District employee did not disclose the vendor relationship on her most recent
COI Form. District staff indicated that the employee was not involved in the purchase decision
and, therefore, the $5,000 payment was not prohibited. However, pursuant to State law, 3 no
employee, acting in a private capacity, shall sell any goods or services to the employee’s own
agency.
Recommendation: The District should enhance procurement procedures by requiring
personnel responsible for making procurement decisions to routinely review and consider the
information reported on required statements of financial interests and completed COI Forms. In
addition, the District should seek an advisory opinion from the Florida Commission on Ethics
regarding whether the District violated State law by paying $5,000 to a vendor with an
uncompensated officer/director who is also a District employee.
Finding 4:

Helicopter Air Ambulance Services

The Palm Beach County Health Care Act 4 (Act) authorizes the District to plan, set policy for, and fund
from its revenue sources the establishment and implementation of cooperative agreements with other
government authorities and public and private entities within and outside of the County which promote
the efficiencies of local and regional trauma agencies. The Act requires that any such agreement with
an entity outside the County ensure that the costs associated with any trauma services are the
responsibility of the entity for which the services were rendered. 5
The County’s trauma system, overseen by the District, provides rapid response care for traumatically
injured patients using two helicopter air ambulances that can each transport up to two patients. The
District’s established air ambulance billing structure consists of a flat fee and a per-mile fee that are
updated periodically to reflect the actual cost of operating the helicopter air ambulance service. Prior to
January 1, 2015, the District charged a $12,560 flat fee and a $73.87 per-mile fee for the service. On
January 1, 2015, the District began charging a $16,524 flat fee and a $135 per-mile fee. While the total
fee amounts are billed, charges to insurance companies are typically reduced due to large contract
adjustments noted on explanation of benefit forms and lesser charges that are the patients’ responsibility.
Additionally, if the patient has no insurance and qualifies for District trauma insurance or is otherwise
indigent, the flight fees are waived.
On occasion, the District provides helicopter services to transport patients from in-County providers to
out-of-County providers when necessitated by a patient’s special health care needs. Upon request, the

3

Section 112.313(3), Florida Statutes.
Chapter 2003-326, Laws of Florida.
5 Chapter 2003-326, Section 6 (28), Laws of Florida.
4

Page 5

 HEALTH CARE DISTRICT OF
PALM BEACH COUNTY

PRELIMINARY AND TENTATIVE AUDIT FINDINGS
NOT AN AUDIT REPORT
District also provides out-of-County helicopter services to transport patients from a hospital or an incident
site to an in-County or out-of-County health care facility.
While the District’s practice is to charge the patient and the patient’s insurance carrier for helicopter air
ambulance services, the District has the following two cooperative agreements with out-of-County
entities:
•

An agreement with an out-of-County hospital to provide use of the helicopter when the hospital’s
helicopter is grounded for maintenance. The agreement gives the hospital the sole and exclusive
right to bill patients, third-party providers, or other parties when the hospital uses a District
helicopter and prohibits the District from billing those parties. The agreement does not establish
a fee structure or require the hospital to fully reimburse the District for the services; rather, the
agreement provides that fees are to be established verbally prior to each flight based on estimated
flight time. The District invoices the hospital, which is required to pay within 30 days of the
transport date. During the period October 2013 through March 2015, the District made three
flights under this agreement and billed the hospital $42,000.

•

An agreement with the Glades County Sheriff for inmate transport. The agreement provides that
the Sheriff will pay a base fee plus a per-mile fee for each inmate transported by the District. For
non-inmates, the agreement specifies that the transport shall be “compensated for in accordance
with the District’s normal billing process.” During the period October 2013 through March 2015,
the District did not make any flights under this agreement.

In November 1999, the District mailed draft agreements to five other out-of-County medical facilities.
Four of the entities refused to sign the agreements and one entity unacceptably revised the agreement
and declined to further negotiate the agreement with the District.
During the period October 2013 through March 2015, the District collected a total of $3.77 million for
helicopter services. This amount is predominantly composed of payments from patients and their health
insurance providers. During this same period, the District reduced billings by $8.29 million, mainly due
to required adjustments for reimbursement limits imposed by Medicare, Medicaid, and private health
insurance providers, and wrote-off approximately $310,000 of uncollectible patient billings. Also, during
this period, the helicopter services logged 914 flights for transporting 937 patients. The District provided
39 of these flights at the request of out-of-County entities. The District used rates based on established
flat and per-mile fees to bill $677,350 for the flights for non-County entities. The District only collected
$224,844 of this amount from the patients and their insurance providers, leaving $452,506 that the District
funded with taxes levied on Palm Beach County residents and other revenues.
On December 4, 2014, the District adopted Standard Operating Procedure AMPSOP-039, which prohibits
transports that both begin and end outside the County, except in cases of catastrophes. As of
August 18, 2015, other than its agreement with the hospital, the District had no other agreements with

Page 6

 HEALTH CARE DISTRICT OF
PALM BEACH COUNTY

PRELIMINARY AND TENTATIVE AUDIT FINDINGS
NOT AN AUDIT REPORT
out-of-County entities and the District neither requested nor received any reimbursement from any other
out-of-County entity for which the District rendered helicopter services.
While the Act does not require cooperative agreements between the District and other entities for
helicopter services, the Act clearly contemplates that the District will employ cooperative agreements to
seek reimbursement from out-of-County entities for use of District resources. According to District staff,
the Act contemplates reimbursements only for trauma services and only 7 of the 39 flights provided at
the request of out-of-County entities were trauma-related. District staff also indicated that no cooperative
agreements other than the agreements with the out-of-County hospital and the Glades County Sheriff
had been established as other entities were reluctant to pay for the helicopter services. However, absent
cooperative agreements requiring other entities to be responsible for paying for helicopter services
provided by the District, the District will continue to subsidize the costs of services provided to residents
of other counties using District resources, including tax revenues paid by Palm Beach County residents.
Recommendation: The District should establish cooperative agreements with other government
authorities and public and private entities outside Palm Beach County, as contemplated by the
Act, to ensure that the costs of flights provided for the benefit of those who do not contribute to
the District’s operations are fully recovered.

End of Preliminary and Tentative Audit Findings.

Page 7