Audit of Vendors of Hospital Services Receiving Funds

Subject:

N.C.G.S. 108-45.

Requested By: The Honorable Henry L. Bridges State Auditor

Questions: Does the Department of State Auditor have the authority to examine the documentation and files of vendors of hospital services to determine that payments by the Division of Medical Assistance of the Department of Human Resources were in accordance with State and federal statutes, regulations and policy?

 

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2. May the Department of State Auditor, in the course of such an examination, examine files of vendors of hospital services that contain information which is confidential under the provisions of N.C.G.S. 108-45?

    

Conclusion: Yes.

 

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2. Yes, when as here, the examination is directly connected with the administration of programs of public assistance.

    

G.S. 147-58 specifies the duties and authority of the State Auditor. G.S. 147-58(16) states, in pertinent part:

"The Auditor and his authorized agents are authorized to examine all books and accounts of any individual, firm, or corporation only insofar as it relates to transactions with any department, board, officer, commission, institution, or other agency of the State; provided that such examination shall be limited to those things which might relate to irregularities on the part of any State agency."

The above-quoted statute clearly grants general authority to the State Auditor to examine the records of vendors of hospital services to determine if any irregularities are involved in the payments made by the State agency to the vendors.

A further question of the authority of the State Auditor arises when the records to be examined contain information that is deemed confidential by law.

The confidentiality of records of the Department of Human Resources pertaining to persons applying for or receiving public assistance is established by G.S. 108-45(a), which provides: "(a) Except as provided in (b) below (which exception is not pertinent here), it shall be unlawful for any persons to obtain, disclose or use, or to authorize, permit, or acquiesce in the use of any list of names or other information concerning persons applying for or receiving public assistance that may be directly or indirectly derived from the records, files or communications of the Department of Human Resources or the county boards of social services or acquired in the course of performing official duties except for purposes directly connected with the administration of the program of public assistance in accordance with the rules and regulations of the Social Services Commission."

The foregoing statute is in conformity with the requirement of 42 U.S.C.A. § 1396a(a)(7) that State plans for medical assistance involving federal funds must:

"(7) provide safeguards which restrict the use of disclosure of information concerning applicants and recipients to purposes directly connected with the administration of the plan;"

A Memorandum of Understanding Between the Department of State Auditor and the Department of Human Resources, dated December 3, 1979, and signed by the State Auditor and the Secretary of Human Resources, describes the scope and purpose of audits by the Department of State Auditor as:

"Purpose: Audit effort by the Department of State Auditor is restricted to only such records which are related to the State administration of funds for the purpose of financial and operational review as they relate to State Administered Programs."

With regard to confidentiality of records, the Memorandum states:

"Confidentiality of Information: The State Auditor’s exposure to confidential information as provided by State and Federal Statute will be subject to the same State and Federal regulations concerning release of Recipient and Provider information as is the Department of Human Resources."

The scope of audits by the Department of State Auditor, as described in the Memorandum of Understanding, brings such audits within ". . . purposes directly connected with the administration of the programs of public assistance . . ." (G.S. 108-45(a)) and ". . . purposes directly connected with the administration of the plan;" (42 U.S.C.A § 1396a (a)(7)). Further, the Department of State Auditor specifically acknowledges that it is subject to the same confidentiality provisions of State and Federal Statutes and regulations as is the Department of Human Resources.

Under these circumstances, the State Auditor is authorized by G.S. 147-58 (16) to conduct audits described in the Memorandum of Understanding of records of individuals, firms, and corporations relating to transactions with the Department of Human Resources, including vendors of hospital services.

Rufus L. Edmisten Attorney General

Henry T. Rosser Assistant Attorney General