The audit committees, internal controls, and financial distress of United States public hospitals

Using OMB Circular A-133 audit reports on internal controls over financial reporting and Federal grants for 180 individual hospitals and 700 clinics operating in the United States, we find relationships among the presence of quality audit committees, internal control quality, and corresponding financial distress. The audit committee characteristics of independence, financial expertise, and increased activity level (meeting frequency) positively correlate with reduced frequencies of control problems and financial distress. Consistent with prior research on audit committees for publicly traded companies, these results suggest ways to improve public hospital financial controls, to reduce misappropriation of assets and the wasteful spending for supplies and services, to change the poorly managed collections, and to reduce the corresponding increases in public debt.