Master thesis Accountancy & Controlling | variant Accountancy The introduction of the DOT-system for Hospitals in the Netherlands: Issues and Uncertainties identified from the Auditors’ perspective

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Master thesis Accountancy & Controlling | variant Accountancy

The introduction of the DOT-system for Hospitals in the Netherlands: Issues and

Uncertainties identified from the Auditors’ perspective

University of Groningen Faculty of Economics and Business

MSc Accountancy & Controlling | variant Accountancy

Jogchum Otten* Supervisor: dr. K. Linke Co-assessor: prof. dr. E.P. Jansen

Abstract

This research examines the remaining issues of the introduction of the DOT-system in the Netherlands. As previous studies focused on the hospital and/or insurance companies’ perspective, this research focusses on the auditors’ perspective. To perform my research, I conducted interviews with auditors from a Big 4 audit firm. The findings indicate that there are still uncertainties for the auditors when conducting the annual audit in health care. This is due to the estimation of the amount of work in progress, the revenue research and the material research.

June, 2017

Word count: 11.694

* Student MSc Accountancy & Controlling | variant Accountancy, student number: 2997541,

e-mail: j.otten.6@student.rug.nl

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From 2005 onward, the health care system in the Netherlands has been changed through the introduction of the diagnosis treatment combination system (DTC, in Dutch: DBC) (hereafter DBC). This introduction has led to a transformation in the financial situation of the hospitals as well as a change in the relationship between hospitals and health insurance companies. Before the introduction of this system, there was no financial risk for the hospitals, because the government covered all cost (NVZ, 2016). However, with regard to these risks, hospitals are no longer situated in a carefree environment. By now, the Dutch citizens are required to have a health care insurance contract with insurance companies (Rijksoverheid, 2016).

The introduction of a DBC-system has several advantages. DBCs increase transparency and efficiency around the world (Busse, et al., 2013); are a helpful tool in discussions about the budgets in the U.S. (Woodbury, et al. 1992) and increase efficiency, by increasing case volumes (Street et al., 2011). Despite these advantages, the introduction of the DBC-system has led to several problems. DBCs has led to problems like upcoding and passing (Jürges & Köberlein, 2015, Silverman & Skinner, 2004 and Luft, 2015). Upcoding refers to “a deliberate and systematic shift in hospital’s reported case mix in order to improve reimbursement” (Simborg, 1981, p. 1602). Passing refers to the phenomenon that patients will be dismissed earlier and sicker. Rotmans (2014) states that health insurers do not have the expertise with regard to the purchasing process and that the hospital financial reporting system is too complex for an adequate purchasing process.

As described above, a DBC-system is very complex. Concerning the Netherlands, the multitude of products burdens the negotiations between insurers and hospitals (NVZ, 2016). Moreover, the system is susceptible to fraud (NVZ, 2016). In 2012, the Dutch government decided to introduce DBC towards transparency (DTT, in Dutch: DOT) (hereafter: DOT). This system is introduced to increase more transparency about the provided care and the accuracy of the revenue of hospitals (Hermans, 2005; Redel & Belleghem, 2011).

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4 However, the transition to the DOT-system has not led to the expected transparency. The main problems are caused by the fact that the recognition of the care products is limited and therefore the choice of the correct DOT-product is difficult for the medical specialists (Oorschot, sd.). Besides this, IT-systems were not ready for the change to the DOT-system (Oorschot, sd). Mainly the University Medical Centers (UMC) and top clinical hospitals suffer from this. These hospitals provide many complex care products, which make it difficult to standardize into a DOT. This means that a lot of expertise is required for the registration of the care products and that these registrations do not always lead to billable care products. This can lead to incorrect declarations and upcoding (Baalen, et al., 2016).

Recent research has been done to investigate these problems. Mathauer & Wittenbecher (2013) state that when a country decides to introduce a DBC-system, it is advisable that the DBCs should be applied to as many care providers as possible. The reason behind this is to generate a more standard prize for DBCs and therefore reduce over declaration or upcoding. Chapman (2014) recommends that managers should take part in coding clinics to identify and address bad coding habits. Managers must invest time in training, developing and coaching their staff. Besides this, coders should participate in such training programs as well. Education can reduce the problem of upcoding and over declaration, because “it can serve as a hedge against developing and proliferating bad habits” (Chapman, 2014, p. 20). The Dutch Professional Organization for Accountants (in Dutch: NBA) has sent a letter to the committee for health, welfare and sport. In this letter, recommendations with regard to unclear governance, too many rules in the health care sector and inefficiency in accountability are stated (NBA, 2015). The NBA recommends to improve the hospital governance concerning duties and responsibilities and to test the feasibility, cost accounting and verifiability with regard to the creation of new rules.

The external auditor is responsible for the evaluation of the available audit information and has to determine the nature of his opinion. However, based on the problems described, the NBA believes that the uncertainties in the systems lead to the conclusion that a disclaimer of opinion or a qualified audit opinion is appropriate (NBA, 2013). In 2014, the auditors of hospitals stated that they could not provide reasonable assurance about whether the financial statements are free from material misstatements (Ark, 2015). Due to

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5 the changes in rules, incorrect registrations, fraud and estimation uncertainty, the NBA issued an Audit Alert on 21 March 2014 (NBA, 2014). This Audit Alert indicated that the changes in the health care systems have led to problems in the auditor’s opinion.

Previous studies and research focused on problems concerning the introduction of the DOT/DRG-system from the hospital and/or insurance companies’ perspective. For as far as I know, this study is the first to identify the remaining major issues from the auditors’ perspective. As stated by the NBA, the new DOT-system led to problems for the statements of the auditor. The main problems for auditing the financial statements seem to have been resolved in 2015. This research focuses on the remaining major issues that an auditor encounters when conducting the annual audit in hospitals and how auditors react to a certain change. This research is important for audit firms who audit the financial statements of hospitals. Auditors can take the issues and uncertainties which will be discussed in this research into account when planning their audit procedures. Besides this, this study is also important for the regulators who make the laws and regulations in health care. Problems and uncertainties in the audit of the financial statement of hospitals can be recognized, discussed and resolved. This will ensure the quality of the audits.

The research question is as follows: “What are the major issues that an auditor encounters when conducting the annual audit of a hospital?” To answer this research question and to structure the topics within the literature section, the following sub-question are drawn up: “What are the consequences of the introduction of the DOT-system for hospitals and auditors?”, “How does an auditor assume an audit in health care?” and “How do auditors deal with changes in the existing processes of a client?”

The remainder of this thesis is as follows. The following chapter discusses the literature and background concerning the introduction of the DOT-system in the Netherlands, the responsibilities of the auditor in health care and the changing environment for the auditor. Chapter three reviews the methodology used in this research, which is followed by the results. Chapter five provides room for discussion and conclusions.

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2. Literature

This section sets out the literature for this research. The three sub-questions from the previous chapter will be answered for as much as possible. Besides this, the literature forms the basis for the interview guide and thereby the interview questions. The remainder of this section is as follows: The introduction of the DOT-system in the Netherlands, conducting an annual audit in health care and the changing environment for the auditor.

2.1 THE INTRODUCTION OF THE DOT-SYSTEM IN THE NETHERLANDS

As mentioned before, the introduction of the DBC-system has changed the financial situation for health care providers and insurances. A DBC can be referred to a ‘product’ that the patient receives and is defined according to specific diagnosis and treatments (Mistichelli, 1984). This product includes all of the steps that are required to treat the condition or disease of a patient, starting with the first consultation up to and including the final check. In the Netherlands, DBCs are divided into two segments: an A-segment and a B-segment. DBCs in the A-segment are still funded through the system of function-oriented budgeting. With this system, the hospitals and health insurers establish a fixed budget for the hospital, which is based on a limited set of parameters (NVZ, 2016). DBCs in the B-segment are based upon negotiations between hospitals and health care insurers. This system is introduced to increase transparency, to create a classification system in health care and to encourage free market negotiations in this sector (NZA, 2017). The DBC system has several advantages. Busse et al. (2013) and Hussey et al. (2009) concluded that DBCs increase transparency and efficiency around the world. DBC-based payment makes hospitals more aware about costs of health care and increases productivity in hospitals. In addition, the DBC increases efficiency by allocating resources in hospitals, by avoiding waste equipment, supplies and energy. Street & Häkkinen (2010) state that it encourages long-term health-promotion strategies, by making doctors and managers more conscious about the cost and quality of health care. However, despite these advantages, the

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DBC-7 system has led to disadvantages. Jürges & Köberlein (2015) found that hospitals have up coded products to gain an additional reimbursement in excess of 100 million Euro, by coding the patients into groups with a higher payment-level. Besides this, providers of care have an incentive to discharge patients earlier and withhold necessary diagnostics and therapies. Ellis & McGuire (1996) found that hospitals and doctors can upcode their products, because they have more information than the patients and health insurance companies. In 2012, the DBC-system is further developed into the DBC towards transparency system (DTT, in Dutch: DOT) (hereafter DOT). With the introduction of the new DOT-system, the B-segment is fully expanded and health insurance companies do not have to pay separately for hospital cost and the fees for medical specialists anymore. This is accommodated into one rate (Rijksoverheid, 2013). This system has reduced the 30.000 DBC-products into 4.400 DOT-products (Hermans, 2005; Redel & Belleghem, 2011). Within this new system, health care companies and insurances are free to negotiate and agree about the price and volume of the products (NVZ, 2016).

However, the transition to the DOT-system has not led to the expected transparency and created new problems compared to the prior situation. One problem is that a free market does not fit in health care and that this new model only leads to higher costs (Heuvel, 2012). He states that a free market in health care is introduced to create a price for a product which covers the real costs and allows profit, rather than it creates the best price for the products. The best price refers to a price which is honest and appropriate for the DOT-product. Hasaart (2011) predicts that hospitals choose or register the operations in such a way in the DOT-system, that it will lead to a more expensive product, in other words, upcoding. In addition, IT systems were not ready for the change to the DOT-system and this has led to incorrect declarations (Baalen et al., 2016). Due to the fact that each hospital has its own care products and therefore its related IT needs, no national standard for IT-systems could be developed. Auditors reported uncertainties and problems in their statements which also resulted from the introduction of the DOT-system. The new funding system led to generic national risks and uncertainties due to the lack of timely established standards, new methods of contracting between insurance companies and hospitals, changes in rules and estimation uncertainty (PWC, 2014). The consequence of this was that auditors could not collect enough and appropriate audit evidence.

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8 Because of this, the NBA announced an Audit Alert on 21 March 2014 (NBA, 2014). This NBA Audit Alert indicated that these problems have led to uncertainty in the opinion of the auditor for the years 2013 and 2014. The main problems stated by the NBA were that the declaration- and registration rules were unclear. Besides this, the amount of transition over 2013 was provisionally established and could still change. The final amount of transition refers to the difference between the revenue earned under the performance-based system and the revenue that would have been earned under the old budgeting system (NZA, 2015). The final amount of transition is an uncertain factor for the auditor. The NBA argued that the declaration- and registration rules were unclear for involved parties. This leads to uncertainty in the revenue of the hospitals and therefore in the opinion of the auditor (NBA, 2014). Last but not least, the NBA describes that internal control is insufficient in hospitals. The quality of the internal control and the extent to which hospitals can set op effective internal control measures determine to what extent sufficient and appropriate audit evidence about the recognition of the revenue of a hospital can be obtained (NBA, 2014). These uncertainties and problems have led to a national recovery plan in the Netherlands (Tweede Kamer der Staten-Generaal, 2014). The core of this plan was that hospitals conducted additional revenue researches. In order to conduct this additional revenue research, a research protocol was collectively developed by the health care providers, insurance companies and physicians. The NZA reviewed this protocol and established uniform standards. Based on these standards, hospitals could conduct a proper additional revenue research. The role of the auditor is to examine the results and to prepare a report with factual findings. Besides this additional revenue research, the final amount of transition shall take place by the NZA, no later than 1 December 2014. To process the results of the additional revenue research and the final amount of transition, the final publication of the financial statements is deferred to 15 December 2014. Auditors and expert groups concluded that health care providers conducted the entire revenue research process properly and therefore they are able to assume that the included declaration mass is free from material misstatement, whether caused by error or fraud (Tweede Kamer der Staten-Generaal, 2014). The declaration mass refers to the revenue which is examined by the hospitals in the additional revenue research. However, The NZA emphasizes that the final amount of transition still reflects an intermediate position on

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9 10 December 2014. This means that the final amount of transition can still change and this is an uncertain factor in the financial statements for the year 2013. Due to the fact that this national plan was retroactive, auditors were able to give unqualified opinions in the year 2013 and 2014 with an explanatory paragraph. This paragraph highlighted the ambiguities in the legislation. Nonetheless, the national recovery plan led to a better environment for the auditors in the upcoming years and they can approve the financial statements for hospitals in 2015. Earlier described risks and uncertainties by the auditor (i.e. the lack of timely established standards, new methods of contracting between insurance companies and hospitals, changes in rules, insufficient internal control systems and estimation uncertainty) raise questions with regard to the extent that the national recovery plan led to a better environment and which problems and uncertainties are still in place.

Uncertainties, as mentioned earlier, have led to several new risks for hospitals. First of all, hospitals are not confident that physicians are honest and use the proper codes. Several studies showed that doctors use upcoding to gain additional reimbursements (Chapman, 2014; Jürges & Köberlein, 2015; Ellis & Mcguire, 1996). Due to the expertise that is required for the registration of the care products, internal and external auditors of the hospital cannot always check these registrations correctly. Next, hospitals are unsure whether certain departments are profitable or not. Due to the lack of timely established rules and standards, hospitals cannot always measure the profitability of a certain department. This can lead to a going-concern problem for hospitals. Also, the hospitals and health care insurers have to make contracts with an agreement about the upper limits of spendings in hospitals. This is an agreement over the maximal amount of revenue that hospitals can charge to health care insurers. This can lead to repayments of hospitals when they exceed this amount or refusal of patients for certain treatments (NZA, 2012). At last, hospitals have to make strategic changes in their processes. Since the introduction of the integrated funding for hospitals and physicians, the distinction between fees for physicians and infrastructure cost for hospitals disappeared. This means that hospitals are completely risk-bearing (Wildt, 2015). Due to the earlier mentioned uncertainties and risks, the risk management has become more important for hospitals. According to ISO 31000, risk management is “the process of identification, assessment and prioritization of risks, followed

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10 by coordinated and economical application of resources to minimize, monitor and control the probability and/or impact of unfortunate events” (ISO 31000, 2015, p. 2). A hospital consists of numerous departments, which makes it complex to manage the risks (Rodak, 2013). This is because every component focuses on the risk of their own department. It is interesting to explore how the risk management is organized in hospitals due to the changes and what the role of the auditor is in this aspect.

2.2 HOW DOES AN AUDITOR ASSUME AN AUDIT IN HEALTH CARE

This paragraph will discuss the responsibilities of the auditor in health care and the consequences of the introduction of the DOT-system on the audit. This paragraph is divided into three paragraphs, namely the audit, the risk management and the recommendation letter.

2.2.1 Audit of the financial statements in hospitals

The auditor is known as the trustee of the society and he should conduct an audit in accordance with the International Standard of Auditing (ISA) (NBA 2016). During the audit, the ISAs require that the auditor exercises professional judgment and skepticism at all time. Besides this, the auditor is required to comply with relevant ethical requirements and has to be independent (ISA 200, 2009). In all audits of hospitals, the auditor should obtain information about the internal controls in hospitals. According to the IAS, the auditor should “obtain a sufficient understanding of internal control to plan the audit and to determine the nature, timing and extent of tests to be performed” (ISA 319, 2010, p. 1). He should perform procedures to understand the design and effectiveness of the internal controls relevant to an audit of the financial statements. Besides this, it is important for an auditor to consider how an organization uses IT and other procedures, which may affect the relevant internal controls for an audit of the financial statements. In the case that hospitals have proper internal control mechanisms, the auditor has to conduct fewer substantive tests for the financial statement assertions.

As well as for other organizations, the main role of the external auditor in hospitals is to identify and assess the risks of material misstatements in the financial statements (NBA, 2016). The external auditor

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11 can conduct medical record audits to ensure that an insurance claim that is made by the hospital, is correct (AAPC, 2015). Moreover, reasons to perform medical audits are to identify inappropriate coding behavior, such as coding errors or upcoding, to stop the use of outdated codes and to protect the hospitals against claims from the insurance companies (Grider, 2015). Auditors can conduct several audit procedures in health care which are described by Grider (2015). These procedures correspond with auditor procedures which are prescribed in the IFAC. The first procedure is random sampling. With random sampling, the auditor takes random billing samples to check the correctness and completeness of that bill. Another procedure is inquiry, where the auditor obtains information from external parties, for example, the insurance companies and employees of the hospital, about the correct use of codes. The last procedure is inspection, where the auditor inspects the complaints by customers of hospitals about the use of incorrect declarations.

As described in the first paragraph, the introduction has led to uncertainties in the revenue of hospitals and therefore in the opinion of the auditor. Declaration rules were unclear, the amount of transition over 2013 was provisionally established and could still change, internal control systems did not work correctly and hospitals use upcoding to gain additional reimbursements. Questions arise to what extent auditors can verify the revenue nowadays cause of these uncertainties, which procedures they conduct and which internal control mechanisms hospitals have in place.

2.2.2 Assessing the risk management in hospitals

The auditor has to assess the risk management of the organization/hospitals (Cath & Leeuwen, 2014; ISA 315, 2009). This means that the auditor shall obtain an understanding of whether the organization has a process for the identification of business risks with regard to the goals of the financial statements, the estimation of the significance of these risks, the assessment of the likelihood of their occurrence and the relevant actions to address those risks (NBA, 2009). To obtain this understanding, the auditor has to conduct risk assessment procedures. These risk assessment procedures are described in ISA 315 which includes three different procedures. First, the auditor can use inquiries of management and other personnel within the entity. Judgement of key personnel within the organization can assist the auditor in understanding the risks. Second, the auditor can use analytical procedures. These analytical procedures can be financial as

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12 non-financial and are conducted to identify unusual transactions, events and aspects of the organization. The last procedure that an auditor can use is observation and inspection. Observation and inspection can support the inquiries by management and other personnel within the organization. The auditor can also gain more information about the entity and its environment by doing this (ISA 315, 2009).

Several studies state that the auditor pays insufficient attention to the risk management of organizations. Gibbins et al. (2001) conclude that auditors make more compromises with their clients in the case when laws and regulations are incomplete or unclear. When standards are incomplete, it is hard for an auditor to impose the alternative treatments for specific clients. Leitch (2003) states that risk analyses done by auditors tend to be much less refined than risk analyses done by people in insurance, medicine and safety organizations. Quantification tends to be guesswork and therefore it is undermined by technical errors. The NBA proved that auditors pay insufficient attention to the risk management of organizations and therefore, the auditors do not succeed in fulfilling the expectations of the client and the society (NBA, 2013). This is caused by several reasons. First, the budgets for an audit are sharp and clients are often not keen on another view from the auditor on the quality of risk management. Besides this, the current audit report provides insufficient space to give an opinion on the risk management of organizations. Last, auditors only focus on risks in the financial reporting, while it can be important to look at the risk management in a broader sense.

As mentioned earlier, uncertainties have led to several new risks for hospitals. In certain cases, hospitals are not confident if physicians use the proper codes, are unsure whether certain departments are profitable and have to access the risk of repayments due to the contracts with an agreement about the maximal amount of revenue. Hospitals do still struggle with the DOT-system and cannot assure their revenue. Besides this, the NBA concluded that auditors pay insufficient attention to risk management of organizations. This raises questions to what extent the hospitals recognize their risks concerning the goals of the financial statements, which actions are taken to mitigate these risks, which procedures are used by the auditor to judge these actions and if the statement of the NBA is true or not.

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2.2.3 Recommendations in the management letter

At the end of the interim phase, the auditor is required to compose a management letter. A management letter is, according to the NBA, an instrument for the auditor to fill in his natural advisory function. The management letter represents the auditor’ concerns and recommendations noted during the audit of the financial statements. These concerns and recommendations can vary, from the company’s internal control and business operations to the automation and policies stated by the company (Reference, 2016). Note that these concerns are not required to be disclosed in the audit of the financial statements. Besides this, the management of a hospital is not obliged to follow recommendations made by the auditor. The NBA published a public management letter for hospitals in 2010 (NBA, 2010). This public management letter contains recommendations concerning the upcoming changes in law and regulation. In this project, the NBA focuses on financial and administrative risks in the health care sector. The NBA gives recommendations with the accent on risk management, culture, accommodation and automatization. The change to a free market requires a change in management culture in hospitals. It is interesting to ask auditors which recommendations they present in their management letter. Besides this, it is interesting to explore the extent to which recommendations are followed up by the management of the hospitals.

Now that the responsibilities of the auditor and the consequences of the introduction of the DOT-system on his duties are discussed, the following paragraph will discuss the consequences of a changing environment on the auditor.

2.3 CHANGING ENVIRONMENT AND THE AUDITOR

Organizational change is important for organizations to survive. However, changes within organizations were not always successful over the last century (Waddel & Sohal, 1998). Several studies have previously examined the impact of change in organizations on the perception of the employees. Covin and Kilmann (1990) and Lewis (2000) identified issues in the staff and behavior of employees in organizations during change. This is due to the lack of management support, the forgery of changes by top

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14 managers, unrealistic expectations and poor communication. In the case that the purpose of a change is not clear, employees are not committed to change either. More issues for employees are new roles and relationships and uncertainty about careers (Ashford, 1988) during organizational change. This is because changes in organizations are highly correlated with stress symptoms in employees.

Several studies identify the same problems for auditors during change. Tsang (2015) stated that auditors complain about every change in their profession, while changes can make processes easier. In the case that auditors do not accept changes, it can be a disadvantage compared to organizations which accept innovation and change. The result of this can be that auditors cannot perform properly. Frijlink (2016) stated that auditors do not want to change, because the intrinsic motivation is missing. Intrinsic motivation is one of the top conditions to change the behavior of people. Dijkhuizen (2015) concluded that the world is changing and is becoming digital, but auditors deny these developments. Technological changes are insufficiently acknowledged by the auditors and they do not accept that the world is changing. The reason behind this is that auditors are preachy and are hiding behind rules and regulations. Creative people are needed for innovation of the profession, however, these people do not fit into the auditors’ culture. Auditors are used to work according to predefined established rules and regulations and thereby they lack creativity.

The continuously changing environment in the health care has led to a shift in which hospitals have a more entrepreneurial view, which has led to changes in processes of hospitals. The hospitals are completely risk-bearing due to the introduction of the integrated funding for hospitals and physicians. This leads to strategic changes in their processes, because the distinction between fees for physicians and infrastructure costs for hospitals disappears (Wildt, 2015). The government wants to promote a free market in health care, where insurance companies and health care providers are free to negotiate about the quantity and price of the products. Due to this and other uncertainties and risks as described earlier, the hospitals have to make several new strategic management decisions, including whether activities should be kept in-house or outsourced (SPJ, 2016). As stated by several researchers and as concluded earlier, auditors struggle with changes. Auditors normally work with predefined established rules and therefore they lack creativity. Auditors do not or do not want to accept changes in the environment (Dijkhuizen, 2015). This raises

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15 questions about the reaction of audit firms due to the changing environment for health care companies and how an audit team responds to changes.

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3. Methodology

This section sets out the methodology for this research. The first paragraph will discuss the research methods, followed by the sample selection. Afterwards, the gathering of the data will be discussed.

3.1 RESEARCH METHOD

This research is aimed to obtain information about the major issues that an auditor encounters when conducting the annual audit of hospitals. Since the public information concerning the introduction of the DOT-system from the perspective of the auditor is minuscule, a qualitative research-method will be used. With the use of this method, multiple different auditors can be interviewed and it is possible to study complex subjects as the introduction of new law and regulation (Shuttleworth, 2012). A qualitative research is concerned about finding out ‘what is/what are’, rather than determine a cause and effect relationship as done by inferential statistical research (AECT, 2001). With regard to the interviews, I will use semi-structured interviews. A semi-semi-structured interview is an interview with a pre-determined set of open questions (Miles & Gilbert, 2005). These pre-determined set of open questions can be found in appendix A. It offers the opportunity to explore particular themes or responses further. This is important in this research, because it may be possible that interviewees raise and discuss issues that were not yet known. After conducting the interviews, I will make transcripts of the interviews. The analysis of the data will take place in several steps. First, the key points per question will be marked and coded. Besides this, I will make summaries of the transcripts of the interviews. This will provide structure in the interview data. Next, I will compare the similarities and differences between the codes. This will result in a categorization of codes per question, which make it possible to analyze. The results will be based upon the essence of the key points per question. However, dissenting opinions of the auditors will also be taken into account in the result section. Third, I will use quotations from the interviews to provide a better understanding of the results.

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17 Furthermore, I will use pseudonyms for the participants. Details of the participants can be found in appendix B.

This method may have validity issues. The internal validity of semi-structured interviews may be endangered by misinterpretations of questions and answers. To safeguard this internal validity problem to some extent, the transcripts of the interviews will be sent to the participants to prevent misinterpretations in their answers. Besides this, it is possible that participants only provide socially desirable answers during the interview. This fenomen is called social desirability bias and refers to “the tendency of research subjects to give socially desirable responses instead of choosing responses that are reflective of their true feelings” (Grimm, 2010). This limitation will be mitigated by asking neutral questions, without leading the participant to a specific answer. Lastly, a limitation of this method is that participants might interpret the concepts in different ways. To prevent these misinterpretations, all concepts (i.e. upcoding) will be explained in advance.

3.2 SAMPLE

According to Warren (2002), twenty to thirty interviews will be needed for an interview-based qualitative research. However, several researchers state that different factors have impact on the sample size. Flick (2011) argues that the research question and the accessibility of potential interviewees do have impact on the sample size. Mason (2012) states that resources and time are vital factors in determining the sample size. It is better to have a smaller number of interviews which are interpretively analyzed, than a larger number which cannot be analyzed in an adequate manner due to several pressures. Due to the limited amount of time to conduct the interviews and analyze them in an adequate manner, the limited amount of auditors conducting an audit in health care and the narrowed scope of the research question, I strive to conduct eight interviews. These in-depth interviews will be held with auditors from a Big 4 firm who audit at least one general hospital, because other medical centers also perform more rare and complicated treatments. This makes it even harder to apply the laws and regulations for a treatment and to fully understand them. Besides this, general hospitals provide generic products, which makes it possible to

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18 compare the changes in laws and regulations with each other. It is relevant that these auditors conduct an audit in hospitals for several years, otherwise they do not have the proper knowledge about the health care system. Besides this, it is preferred that the auditors have experienced the introduction of the DOT-system. In this case, auditors have knowledge about the DBC-system as well as the DOT-system and can provide their experiences with both systems. Auditors will be selected based on their function and gender. This research tries to strive to interview a partner, (senior) manager, assistant manager, supervisor and senior. It is important to interview auditors from several job levels, because they can experience the introduction of the DOT-system in different ways. In this way, observations from several job levels can be compared with each other. It can be meaningful to select as many women as men in the sample, because they can experience situations and problems in different ways. For example, men and women have different problem solving approaches. Conner (2000) states that when women want to solve a problem, they rely on the help of people who are close to them. Men approach problem solving in a different manner, they try to solve the problems with much less communication with others. Men want to demonstrate their competence and their strength of resolve when solving a problem. Because of this, situations can be experienced in different ways.

3.3 DATA GATHERING

Before selecting the sample of auditors, the planning of this Big 4 firm provided a list of eligible auditors who audit general hospitals. A total of nineteen auditors were eligible at this organization to conduct the interview with. Three auditors are seniors with no experience with the DOT-system and for this reason, they have not been approached. As a result, sixteen auditors have been approached. Eight of them stated that they had no to little experience with the DOT-system, because it was their first audit year in the health care sector. One auditor has resigned. Therefore, these nine auditors will not be interviewed. The remaining seven auditors will be interviewed, of which one partner, one senior manager, one manager, two assistant managers, one supervisor and one senior. I will contact the participants through a general mail, which clearly indicate what the participant can expect of the interview, that participating is on a voluntary basis and that they can pick any date before the deadline of 30 April 2017. By doing this, I will achieve the

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19 goal of informed consent in advance of the interview which is important according to Mack et al. (2005). Informed consent means that the participant is informed about the interview and I have his/her permission to conduct the interview.

To conduct the research, I will compose an interview guide. The literature formed the basis for the interview guide and therefore the interview questions. I will tell the interviewee in advance what is expected by the participant, how confidentiality is protected and what the contact information of the interviewer is (Mack et al., 2005). Besides this, the interviewer will be asked for permission to record the interview using a recorder to transcript the interviews in an adequate manner. After achieving informed consent, I will use the questioning technique called ‘funnelling’ (Berry, 1999). This technique refers to asking questions from general to specific and from broad to narrow. I will start the interview with easy, general questions, by asking the participant to introduce themselves. Furthermore, I will discuss the role and responsibilities of myself and the notulist in the beginning of the interview. The role of the notulist is to take field notes during the interview and to make sure that the interviewer asks all the questions or topics which are listed in the interview guide. I will avoid leading questions, these questions suggest a certain answer and may therefore bias the results.

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4. Results

This section discusses the results based on the conducted interviews. First of all, the issues that an auditor encounters when conducting the annual audit of a hospital during the transition to the DOT-system will be discussed. Next, the remaining issues and uncertainties that an auditor encounters when conducting the annual audit will be discussed. This section is divided into three sections, namely: The audit of the financial statements of hospitals, the risk management in hospitals and the management letter. Lastly, the results of the changing environment for the auditor will be discussed. Before discussing the results based on the interviews, a remark should be given. The sample for the interviews was selected based on function and gender, because it could be possible that auditors from different job levels and gender experience the introduction of the DOT-system in different ways. However, no significant differences were found based on these assumptions.

4.1 THE ANNUAL AUDIT DURING THE TRANSITION TO THE DOT-SYSTEM

Based on the interviews, auditors encountered several issues when conducting the annual audit of a hospital during the transition to the DOT-system. This is illustrated in the following statements of auditors:

[“.. In general, the client did not know how to deal with it, which resulted in that we did not know what to do. Together, we had to reinvent the ‘egg of Columbus’. … In particular, the problems were encountered with the registrations of the DOT-product. Rules over what to and what not to declare were unclear.” – Jan (Manager)]

[“.. The administrative processing of the DOT-product went totally wrong during the introduction of the DOT-system, there was chaos around work in progress and a discussion over the amount of transition.” – James (Partner)]

The above indicates that there were massive issues in the DOT-system. These problems were recognized by all auditors who were involved in audits during the transition to the DOT-system. First, the

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21 declaration rules were unclear. Hospitals were not able to register their DOT-products in an adequate manner, because rules over what may and may not be declared were ambiguous. This resulted in a high uncertainty in the revenue of hospitals. Second, there was chaos around work in progress. Since the registration of the DOT-products did not go well, the value of the work in progress could not be determined. This resulted in chaos around the amount of work in progress and therefore an uncertainty in the financial statements of hospitals. Lastly, the amount of transition was unclear. This refers to the difference between the revenue earned under the performance-based system and the revenue that would have been earned under the old budgeting system. This was an uncertain factor for the auditor, because the estimation of this amount could not be established by the hospitals. These problems led to uncertainties and estimates in the revenue which were material and resulted in a disclaimer of opinion or a qualified audit opinion. Auditors were unable to obtain enough and appropriate audit evidence. These problems and uncertainties resulted in several measures. First, hospitals have to conduct additional revenue researches. These researches are performed ex-post on the revenue, which have to establish whether the declarations are registered in an adequate manner. Inadequate registrations must be corrected by means of restoration works. Another measure was the deferral of the pubication of the financial statements. The final duplication of the financial statements, including the statement of the auditor, was deferred to 15 December 2014.

Problems stated in the literature about the main issues that the auditor encountered when conducting the annual audit of a hospital during the transition to the DOT-system corresponds with the statements of the auditors. The NBA indicated in the Audit Alert on 21 March 2014 that the main problems were that the amount of transition over 2013 was provisionally established and could still change and that declaration- and registration rules were unclear. This NBA alert resulted in the deferral of the financial statements and an additional revenue research, as described in the literature section.

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4.2 THE ANNUAL AUDIT OF A HOSPITAL IN THE PRESENT-DAY

Based on the interviews, the situation around the annual audit of a hospital has changed in comparison with 2012. This is indicated in the following statements of auditors:

[“.. Nowadays, the situation is very stable. … The situation is better arranged on the front side: Rules concerning the declarations are brighter, which results in better declarations of hospitals.” – James (partner)]

[“.. It seems that hospitals control the situation and have strengthened their ability to register the DOT-products in comparison to 2012. Besides this, it seems that there has been a decrease in uncertainty in the revenue.” – Paul (Assistant Manager)]

[“.. We can make better estimates over the results of the revenue researches of hospitals. The level of uncertainty in the revenue is decreased to a level that is not material anymore.” – Karen (Senior Manager)]

Auditors are nowadays able to obtain enough and appropriate audit evidence to express their opinion on the fairness of the financial statements of hospitals. Indeed, all auditors at this Big 4 audit firm provided unqualified opinions over the financial statements of their hospitals. This means that the financial statements are free of material misstatements, whether caused by error or fraud. There was consensus that the situation has improved for several reasons. First, auditors and hospitals have more experience with the DOT-system. A new system needs time to progress the new rules and regulations. After time progressed, auditors and hospitals began to grasp the new system. Second, there was a reduction of the duration of the DOT-product from 365 days to 120 days. Because of this, hospitals were better able to give an estimation of the work in progress on a certain date. As a result, the uncertainty in the estimation of the work in progress is reduced to an appropriate level. Third, auditors can make a better estimation of the outcome of the revenue research. This is because hospitals already start with their revenue research in the course of the year instead of at the end of the year. As a result, outcomes of these already launched revenue researches can be included in the estimation of the total outcome of the revenue research. Lastly, the registration rules are more clear.

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23 By more clarity in the declaration rules, hospitals are better able to declare their DOT-products. As a result, the uncertainty in the revenue is reduced to an appropriate level for auditors.

However, auditors state that there are still uncertainties in the revenue of hospitals as indicated in the following statements:

[“.. The revenue researches that are conducted by the hospitals are completed after the audit of the financial statements. This means that we have to make an estimation of the results of the revenue research of the hospital.” – Karen (Senior Manager)]

[“.. The duration of DBC’s is 120 days, this means that some DBC’s continue from one year to the next. This is the work in progress and hospitals have to make an estimation of this amount, which leads to an uncertainty.” – Mark (Supervisor)]

Auditors indicate that there always will be an uncertainty in the financial statements of hospitals due to the estimation of the amount of work in progress, the revenue researches and the material researches. There was consensus that these uncertainties play a role in all financial statements of hospitals. The revenue researches are performed ex-post on the revenue, which have to establish whether the declarations are registered in an adequate manner. Inadequate registrations must be corrected by means of restoration works. The material researches refer to the researches that insurers do on the declarations of the hospitals. Since the outcome of both researches is not yet known at the final publication date, hospitals have to make an estimation of the amount that has to be corrected. As a result, an estimation of the outcome of the material research and the revenue research has to be included in the financial statement of the hospitals. Since the declaration rules are more clear, the outcome of the material researches can be better estimated by the hospitals. Besides that, hospitals already start their revenue researches in the course of the year and they are able to make a better estimation of the work in progress on a certain date. As a result, these estimates in the revenue of hospital do not lead to material misstatements in the financial statements anymore. Besides this, auditors state that the rules change every year (Mark and Karen), but these changes are small and better to understand than the transition to the DOT-system.

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4.2.1 Internal control

Based on the interviews, auditors stated that there are several problems in the internal control of hospitals. This is indicated in the following statements of auditors:

[“.. Hospitals have numerous internal controls in their hospitals, but we do not rely on them. From the efficiency perspective, it is not useful to rely on these internal controls and we perform substantive tests.” – Mark (Supervisor)]

[“.. We do not rely on the internal controls of hospitals. This is due to that the general IT controls are insufficient. … In the case that the general IT controls are insufficient, we cannot rely on any application controls or internal controls. … This means that we have to conduct additional substantive tests.” – Paul (Assistant Manager)]

None of the auditors stated that they can fully rely on the internal control of hospitals. Auditors cannot or do not rely on the internal control in hospitals, because of several reasons. First, the general IT controls are insufficient in most of the hospitals. Logical access controls are missing and there are many super users. Super users are employees who have access to files which do not belong to them. As a result, auditors cannot rely on the internal control of hospitals. Besides that, auditors stated that it is more efficient to use substantive tests. In the case that auditors use substantive tests, they do not have to test the internal control measure, which saves time. However, all auditors do rely on one internal control measure, namely the internal control officer. The internal control officer uses the sampling method to determine the legitimacy of the DOT-registrations. Auditors re-perform this method to test its effectiveness and can rely on this internal control measure.

Previous literature stated that the internal control is insufficient in hospitals. The participants recognized this problem and stated that the general IT controls are insufficient (Paul and James) and some controls cannot be traced (Linda) and therefore, auditors cannot rely on the internal control of hospitals. Another reason is that some auditors do not rely on the internal control, because it is more efficient to use substantive tests (Jan, Mark and Karen).

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4.2.2 Risk management

In essence, the auditors stated that hospitals have more risks concerning the goals in the financial statements than other clients. However, Karen provided an exception to this statement. Karen is involved in the audit of two separate hospitals and state that the hospitals do not have high financial risks, because these hospitals have fixed-price contracts with the insurance companies instead of contracts with an agreement about the upper limits of spendings. According to her, payment amounts do not depend on the activities performed. A hospital would only have risks when their costs exceed the fixed-price contracts, which is not the case in the hospitals in her portfolio. The other auditors stated that hospitals have several risks concerning the goals in the financial statements. This is indicated in the following statements of auditors:

[“.. Hospitals have a high liquidity risk. … This is caused by the contracts with an agreement about the upper limits of spendings in hospitals.” – Paul (Assistant manager)]

[“.. We state that hospitals have high financial risks. … Hospitals make costs and cannot get the reimbursement immediately. … Hospitals monitor the risks in the contractual agreements, because they do not want to provide free care.” – Linda (Senior)]

The risks concerning the goals in the financial statements that the auditors stated are described below. First, there is a risk in the contracts with an agreement about the upper limits of spendings. This is an agreement over the maximal amount of revenue that hospitals can charge to health care insurers. This can lead to repayments of hospitals or refusal of patients for certain treatments when they exceed this amount. In addition, this contract does not ensure revenues for hospitals, as fixed-price contracts do. Payments in the contracts with an agreement about the upper limits of spendings depend on the activities performed. Besides this, hospitals have high liquidity risks. Hospitals pay the costs of the treatments in advance. A DOT-product can have a maturity of 120 days, which means that hospitals have to pre-finance a great deal of money. Only after a DOT-product closes and hospitals register the DOT-product in an adequate manner, they can bill their costs to the insurance companies. In addition, there is a risk in the contractual agreements. This partly corresponds to the risk in the contracts with an agreement about the

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26 upper limits of spendings, but these contractual agreements also include what hospitals may and may not perform according to the insurance companies. Furthermore, hospitals have to make estimates concerning the revenue researches and material researches. This is explained in the previous paragraph. Next to this, hospitals have IT risks. In the case that hospitals have an insufficient declaration system, they cannot invoice their costs to the insurance companies. As a result, hospitals are in danger of not getting (fully) paid for the treatments. Last, hospitals have real estate risks. They have to invest millions of euros in the buildings and equipment, with the risk that these assets decline in value.

The risks described in the literature partly corresponds with the risks that the auditors stated. The literature stated that hospitals are not confident that physicians use proper codes, that they are unsure whether certain departments are profitable or not and have contractual agreements which can lead to risks. With regard to the risk that hospitals are not confident that physicians use proper codes (upcoding), auditors stated the following:

[“.. I do not see the risks of upcoding. This is mitigated by the revenue researches and the samples done by the IC-officer. … I do not think that professionals use upcoding.” – Jan (Manager)]

[“.. With the introduction of the DOT-system is the risk of upcoding mitigated. This is mainly caused by the integral rates for doctors. … With the introduction of the DOT-system, the derivative for a product is set outside the hospital and therefore, hospitals cannot control this.” – James (Partner)]

[“.. The doctors in hospitals which I audit are all on payroll. This means that they do not have any incentive to upcode the DOT-products.” – Mark (Supervisor)]

There was consensus that the risk of upcoding is low and even further mitigated with the introduction of the DOT-system. These statements do not correspond with the statements in the literature. The chance to register a DOT-product in an inadequate manner still exists according to auditors. This is caused by the complex laws and regulations (Karen and Susan) and the fact that systems cannot fully prevent this (Paul). However, these inadequate registrations are not material and less than a half percent of the revenue (Paul and Mark) and therefore, this has no impact on the statement of the auditor over the financial statements.

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27 With regard to the risks that hospitals are unsure whether certain departments are profitable, auditors cannot give a clear answer. This is stated in the following statement:

[“.. I dare not to say if hospitals are unsure whether certain departments are profitable.” – Linda (Senior)]

Concerning these above risks, auditors state that hospitals have the several measures to reduce these risks. First, hospitals make liquidity forecasts. Based on experience and knowledge, a hospital makes an estimation of the expected revenue and expenses. Besides this, hospitals make an attempt to identify the investments in the upcoming year. On this basis, they can make an estimation of the revenue and expenses per month and can make changes where required. Third, hospitals have checks and balances in their software. These checks ensure that the hospitals register their DOT-products in an adequate manner. Fourth, as explained in the previous paragraph, hospitals conduct revenue researches. These revenue researches already start in the course of the year, resulting in a decrease of the chance of incorrect declarations. In addition, hospitals make forecast concerning the contracts with an agreement about the upper limits of spendings. With these forecasts, hospitals try to ensure that they do not exceed these upper limits. This prevents repayments of hospitals when they exceed this amount, because hospitals are sooner able to make new contractual agreements with insurance companies. Besides this, the internal officer conduct samples on the revenue of hospitals. As stated, the internal control officer does this to determine the legitimacy of the DOT-registrations. This lowers the risk of incorrect declarations, since flaws are immediately corrected. Last but not least, hospitals have policy departments. These policy departments monitor the risks of hospitals and discuss if certain measures need to be taken.

Auditors state that it differs per hospitals how well they know their risks in the financial statements. Susan is involved in the audit of three separate hospitals and states that one hospital in her portfolio pays insufficient attention concerning the contracts with an agreement about the upper limits of spendings with insurance companies, which is one of the risks of hospitals. The other two hospitals control for this and have monitoring tools for these contracts. Paul is involved in the audit of two separate hospitals and states that it differs per hospital how well they know their risks concerning the financial statements. Jan and Susan

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28 state that the hospitals in their audit portfolio do know their risk in the financial statements well. Alternatively, Amber, Mark and Karen state that the hospitals in their audit portfolio pays insufficient attention to the risk in the financial statements. This is also described in the following statement:

[“.. It differs per hospital. In my opinion, one hospital is still insufficient in doing this. The other two hospitals have a better grip on this and use a tooling to follow the contractual agreements.” – Susan (Assistant manager)]

The literature stated that auditors pay insufficient attention to the risk management of organizations. Auditors in this Big 4 firm state that hospitals are public interest entities. Therefore, all hospitals in this Big 4 firm are high risk and the firm has measures to pay more attention to the risk management of hospitals. An example of a measure is that there is a second partner, who monitors the activities of the audit team and the main partner (James). However, according to James, it can differ per audit firm on how many attention they pay to the risk management of hospitals.

To judge the actions that hospitals take to mitigate risks, auditors use several procedures. First, auditors re-perform the samples of the internal control officer. As described earlier, this method tests the effectiveness of the samples. Auditors can rely on the internal control officer when the efficacy is assessed. Furthermore, the design and existence of the checks in software is determined through a 3402-statement. In this context, the effectiveness of these checks is out of consideration. As a result, auditors cannot always rely on the checks in the software and have to perform substantive tests. Besides this, auditors use the method of observation and inquiries of management and other personnel to determine that certain measures in hospitals. These procedures correspondents with the literature and are described in ISA 315.

4.2.3 Recommendations in the management letter

Based on the interviews, auditors in this Big 4 firm compose a management letter at the end of the interim phase. Auditors give several recommendations in the management letter. First, auditors give recommendations about the registration of the DOT-products. The registration of DOT-products is not always flawless and auditors try to help the hospitals with recommendations. Besides that, auditors give the recommendation that hospitals should provide better insight in contractual agreements. The contractual

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29 agreements also consist of qualitative features, which can be better mapped according to the auditors. Third, auditors give recommendations concerning the insight of the controls and the IT-controls. As stated earlier, IT-general controls in hospitals are insufficient. Hospitals can implement improvements concerning these IT-controls, allowing them to fully rely on the systems. Fourth, auditors recommend hospitals to monitor their revenue and expenses in an adequate manner. Since hospitals can only determine their revenue afterwards, they should record the revenue and expenses made in a certain period in an adequate manner. As a result, hospitals are able to keep up whether or not they are profitable. Besides that, the contracts with an agreement about the upper limits of spendings with insurance companies can be monitored in this way. Last, auditors give recommendations concerning the development of horizontal oversight. Horizontal oversight means that hospitals and insurance companies jointly assume the responsibility for adequate registration of the DOT-products. Instead of doing post-check revenue and material researches, the parties collaborate to ensure the legitimacy of declarations at the front. This is a more efficient way to secure the registration and declaration of the DOT-products. Since horizontal oversight is still in development, auditors try to ensure that hospitals are ready for the implementation of horizontal oversight.

Auditors state that it differs per hospital if they follow up the recommendations. James and Linda are involved in the audit of a total of four hospitals states that it differs per hospital in how well they follow the recommendations of auditors. This is not further specified by them. Susan is involved in the audit of three hospitals and states that all hospitals in her audit portfolio can increase their effort with regard to the recommendations. Alternatively, Jan, Mark and Karen are involved in the audit of four hospitals and state that hospitals do follow the recommendations of auditors. This is also described by the following statements:

[“.. Hospitals do not always follow up the recommendation. It is highly dependent on the fact that

hospitals appreciate the added value of the recommendations. In the case that it cost a lot of time and money and the benefits are low, hospitals do not follow-up our recommendations.” – Linda (Senior)]

[“.. It differs per hospital if they follow up our recommendations. One hospitals follow-up our recommendation very well, while others get the same recommendations every year.” – James (Partner)]

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4.3 CHANGING ENVIRONMENT AND THE AUDITOR

The introduction of the DOT-system has led to several changes and it is interesting to explore how auditors and audit firms react to such an event. This Big 4 audit firm has an internal policy to help its employees if such a change occurs. The company has several measures to inform their auditors. First, this Big 4 audit firm has a branch group and internal meetings. Auditors inside this branch group pick up the latest developments concerning the laws and regulations in hospitals. These developments are thereafter communicated in internal meetings with the audit teams. Besides this, this Big 4 audit firm offers health care-specific courses and e-learning with working programs. These courses are mainly offered to auditors who recently joined to perform the audit of the financial statements in hospitals. In addition, there is a technical department which provides support to auditors. Last, there is a measure called Koziek. Koziek is the commission for hospital facilities and therefore an external measure. Koziek addresses all the issues concerning the audit of the financial statements in hospitals, which are communicated to the audit firms.

The literature states that auditors struggle with changes. They normally work with predefined established rules and do not want to accept changes in the environment. The auditors in this Big 4 audit firm have experienced the introduction of the DOT-system in several ways. James and Susan stated that the introduction of the DOT-system was interesting, because there changed a lot in the playing field of the hospitals. Jan and Karen stated that it was a stressful and busy period and that the transition to the DOT-system led to unrest and ambiguity. Linda, Mark and Paul indicated that it is part of their job and they have to comply with new rules and regulations. This is also reflected in the following statements:

[“.. Personally, I think the introduction of the DOT-system was interesting.” – Susan (Assistant Manager)]

[“.. In the case that the uncertainty increases, people are more afraid to give an opinion about a certain fact. Major changes in laws and regulations cause unrest and ambiguity.” – Karen (Senior Manager)]

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31 Even though the change to the DOT-system is experienced in various ways by auditors, it does not have impact on the ambiance in the audit team. This is mainly caused by the fact that auditors keep the goal of their job in mind and wants to deliver high-quality services. This is described in the following statements:

[“.. Eventually, our job is to audit the financial statements in an adequate manner. … Colleagues are open to changes in law and regulations, because it is part of our job.” – Susan (Assistant manager)]

[“.. The ambiance in the audit team is always good, pressure or no pressure. … We kept restfully and we wanted to deliver adequate audits.” – Jan (Manager)]

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5. Conclusion & discussion

This section provides the conclusion and discussion of this research. Furthermore, the limitations of this research are discussed and some directions for future research are given.

5.1 CONCLUSION & DISCUSSION

This research has examined the remaining major issues for the auditor when conducting an annual audit in health care. Interviews with auditors, who are involved in audits in hospitals, from a Big 4 audit firm provided further insight into the impact of the DOT-system on auditors. As the literature stated, there were massive issues when conducting the annual audit during the transition to the DOT-system. Declaration rules were imprecise, there was chaos around work in progress and the amount of transition was unclear. These problems led to uncertainties and estimates in the revenue which were material. This resulted in a disclaimer of opinion or a qualified audit opinion in hospitals. After a period of turmoil, the regulators took several measures. Hospitals have to conduct additional revenue researches and the final publication of the financial statements was deferred. Concerning the research question of this study, the overall results of the interviews indicate that there are still issues and uncertainties for the auditor when conducting an annual audit in health care. This is due to the estimation of the amount of work in progress, the revenue researches and the material researches. Auditors and hospitals have to make an estimation over the amount which has to be corrected. These estimations lead to uncertainties in the financial statements, however, these are not material anymore. Furthermore, the laws and regulations change every year. Hereby, auditors must be well informed over the developments in laws and regulations. In my opinion, this is a difference in comparison with annual audits of other clients, such as a trade organization. Nonetheless, the results indicate that the national plan has indeed led to a better and stable environment in comparison with 2012. Auditors are capable of approving the financial statements for hospitals nowadays, without any material misstatements.

Master thesis Accountancy & Controlling | variant Accountancy The introduction of the DOT-system for Hospitals in the Netherlands: Issues and Uncertainties identified from the Auditors’ perspective