While the Institute for Healthcare Improvement's efforts to promote wider use of medical best practices has led to apparent rapid gains in quality at U.S. hospitals and fast-paced financial growth for the organization, its financial auditing reports indicate there is need for some quality improvement in IHI's business practices.
A report by an independent auditor that was included in IHI's tax forms for its fiscal 2004, ended April 30, 2005, stated that the organization's problems in complying with federal grant requirements could cause problems down the line. "We noted certain matters involving the internal control over compliance and its operation that we consider to be reportable conditions," the report stated. Conditions involving "matters over compliance that, in our judgment, could adversely affect Institute for Healthcare Improvement Inc.'s ability to administer a major federal program in accordance with the applicable requirements of laws, regulations, contract and grants."
In an e-mail, IHI Chief Financial Officer Tom Novak said problems the auditor uncovers will be addressed. "Each year, IHI requests an external review by an audit firm to assess the strength of our processes and procedures," Novak stated. "In all cases, when the firm has offered recommendations, IHI has adopted these and made improvements that have resulted in a clean opinion."
IHI's three most-recent Internal Revenue Service not-for-profit form 990 documents show the organization's revenue has increased 44.4% to $39 million for fiscal 2004, up from $27 million two years earlier.
While the most recent 990 shows revenue from membership fees increased 379.7% to almost $4.5 million in fiscal 2003 from only $938,119 in fiscal 2000, the increase in revenue described as "gifts, grants and contributions" has also increased 254.7% to $18.8 million from $5.3 million over the same period. Through this growth period, IHI's auditor -- Vitale, Caturano & Co. of Boston -- has noted instances where oversight or documentation was lacking.
In an Aug. 7, 2003, report, the auditor noted that IHI entered into a procurement contract exceeding $100,000 without competitive bidding or written authorization from the federal grant-awarding agency to do so. In the same report, the auditor noted also that nine out of the 40 expense items tested were miscoded or incorrectly entered and erroneously charged to a federal grant-funded HHS HIV/AIDS Bureau project.
The auditor said the findings could eventually hinder IHI's ability to administer a federal grant program, though one expert in the governance of not-for-profit organizations called the auditor's concerns "kind of benign stuff." "It doesn't appear that they're doing anything wacky," said Edward Kazemek, chairman and chief executive officer of Accord Limited, a management and healthcare consultancy. While not speaking specifically about IHI, Kazemek noted that executive compensation of all not-for-profits have come under government scrutiny, so vigorous board oversight and compensation policies are required. Novak said IHI's compensation practices have passed government review.
The most recent 990 for fiscal 2004 states that IHI President and Chief Executive Officer Donald Berwick received compensation worth $409,120, and an employee benefit-plan contribution and deferred compensation of $229,496. Berwick's benefits include medical insurance for him and his wife until their deaths. The value of this benefit is estimated at $110,000.