When a hospital is purchasing new equipment, they will trade in their old equipment at the same time. Financially, it makes sense to trade items when the organization will no longer have use for the outdated equipment, and trading in can often cut some of the cost of new equipment. Your Accounts Payable department should track trade-in items to ensure accuracy.
Oftentimes, items traded in during the purchase of new equipment are not tracked properly by the hospital’s Accounts Payable department. When trade-in items are not documented correctly, vendor mistakes can occur, such as not crediting the item’s value to the organization or not applying the value to the purchase of new items. To avoid leaving money on the table, use the same procedures and documentation as to any other return items when dealing with and tracking trade-in items.
TAG recently worked with a large medical center’s Accounts Payable department, and we reviewed the organization’s returned goods during our audit of the medical center.
In our findings, we discovered that this organization traded in equipment to Steris Corporation during the purchase of new equipment. The organization’s records indicated that Steris agreed to credit the medical center with $5,000 for the trade-in, even though the equipment was originally purchased from a competitor. However, during our Discovery Review with the organization, we uncovered that Steris had not deducted the credit for the trade-in on the organization’s purchase of new equipment.
After TAG identified the error and negotiated with Steris, the vendor credited the medical center with the full $5,000 for the traded equipment. Working with the organization, we were able to review internal processes for returned goods and recommend a method for Accounts Payable to track trade-in items more closely in the future.
If your organization has not been tracking trade-in items, The Audit Group is here to help. TAG has worked with countless hospitals, medical centers, and health systems to provide auditing and consulting services. Contact us to learn more about our Discovery Review process.