Rating agencies said they're monitoring the finances of a New York hospital that took the unusual step last week of disclosing to bondholders that it misstated past financial results.
The 332-bed Nyack (N.Y.) Hospital said its net assets were overstated by $10.5 million to $12.8 million in its financial report for 1999, and by $10.9 million to $12.5 million for 2000. It said its accounting firm, KPMG, failed to catch the errors. The hospital said it is no longer working with the Big Five accounting firm.
For 1999, the hospital reported a $3.2 million profit on revenue of $124 million. It reported a $33 million loss on revenue of $110 million for 2000.
Chief Financial Officer Stephen Majetich said the hospital will create new financial statements for those years, as soon as it hires a new accounting firm.
According to the hospital, KPMG sent letters to the hospital in January, stating that the two annual financial statements were unreliable and terminating its role as the hospital's auditor.
Majetich said the hospital is considering "all legal remedies" against KPMG. "We believe they (the errors) could have been prevented if KPMG had performed proper audit procedures," he said.
KPMG said in a statement, "KPMG stands behind its work."
Seldom, if ever, do not-for-profit hospitals restate financial results. In recent years, holders of tax-exempt bonds have criticized hospitals for failing to make accurate and timely disclosures of their finances, however. The hospital industry has responded by improving its disclosure practices.
Majetich called the errors "significant to the overall balance sheet."
"We have publicly traded bonds, and we believe that this (disclosure) is the right thing to. People made decisions based on those financial statements," he said.
While it was bad news, Majetich said he thinks the disclosure raised investor confidence in the hospital's current leadership, which took over early last year.
The hospital, which has $28.8 million in outstanding bonds, was downgraded last year to below-investment-grade status. Majetich declined to comment on the hospital's financial results for 2001, which are not due to be released until April. The hospital said it expects to generate a $585,000 operating profit in 2002.
Two rating agencies expressed concerns last week about the hospital's finances. Fitch Ratings said the hospital's "extremely weak liquidity" was a concern. Moody's Investors Service said it suspected that the hospital could fall into technical default on its bonds if it failed to meet a required debt-service coverage ratio. The hospital is due to file a notice of compliance with required financial ratios by April 30.
Majetich, who was hired in early 2001, said he discovered the errors by plowing through the hospital's books. He declined to comment on whether he believes the errors were deliberate.
However, the hospital is in litigation against its former CFO, Eric Broder, who left during fall 2000. Broder sued the hospital in March 2001 and the hospital filed counterclaims in July 2001, according to court records. Nyack Hospital Chief Executive Officer David Freed said the hospital alleged in its counterclaims that Broder lied about the cost of a nursing strike that occurred in 1999 and 2000. However, hospital officials refused to provide other details about the litigation, which was filed in New York State Supreme Court in Rockland County.
Broder and his attorney could not be reached for comment.