Chicago Department of Public Health Central Pharmacy Warehouse Audit Follow-Up

Executive Summary

We are reporting the results of an IGO follow-up assessing whether the deficiencies noted in the February 2009 audit report were effectively remedied. Our follow-up inquiry has revealed they were not.

The purpose of the audit, which covered the 2007 calendar year, was twofold. First, the audit sought to determine whether CDPH’s procedures and internal controls were effective in preventing theft, loss, waste, and the potential for misconduct. Second, the audit looked into whether there were inefficiencies in the warehouse’s operations through which the department managed its pharmaceutical and clinical supply inventory. The pharmacy warehouse annually obtained and stored millions of dollars in goods, which CD PH paid for principally with money from federal grants and the City’s Corporate Fund. Goods stored at the warehouse included vaccines (including hepatitis A and B, measles, mumps, rubella and influenza), drugs (including antibiotics, TB drugs and anesthetics), and clinical supplies. During the audit period, the warehouse received orders for these goods from CDPH health clinics and other health sites associated with the CDPH, and then distributed the goods to these locations.

The 2007 audit determined that CDPH procedures for keeping track of inventory were highly defective. The lack of effective procedures hindered, among other things: i) the determination of efficient reorder points, ii) the ability to minimize waste due to expired goods, iii) the reliability of inventory, and iv) the maintenance of up-to-date documentation. The procedures did not require the warehouse or fiscal administration section to reconcile inventory records. Additionally, warehouse practices failed to segregate incompatible duties which could allow for errors or irregularities to occur and go unnoticed. As a result, the items received and distributed by the warehouse were not properly safeguarded against theft and loss. In fact, a full and complete audit of the warehouse inventory was impossible because adequate records were not available for significant portions of the inventory.

In a February 2,2009 press conference addressing the IGO audit report, Dr. Terry Mason, then Commissioner of CDPH, said that “since December 2008, these problems have been fixed because the warehouse operations have ceased.” However, our follow-up inquiry has revealed Dr. Mason’s statement to be inaccurate. Current CDPH staff have reported that while the warehouse was used in more limited fashion, it not was not closed until December 31, 2010, fully two years later than publicly claimed. Moreover, although the warehouse is now closed, and CDPH implemented just-in-time ordering under which clinics now individually order and store their own inventory, the department has failed to implement 10 of the 11 IGO recommendations the department had agreed to address. Compliance with these recommendations is necessary to ensure proper inventory management and control.

We recognize that there was turnover in CDPH administrative leadership nearly a year after the February 2009 publication of the audit. In the transfer of leadership, the scope of operational deficiencies found by the IGO audit and how to address remedying those deficiencies appears to have been given inadequate attention and oversight by the Administration. We therefore again recommend that CDPH management implement all recommendations as soon as possible. In closing, we note that in response to our follow-up inquiry, current department leadership was fully cooperative and, more importantly, has taken immediate steps to fashion a comprehensive department-wide control system. However, that initiative is still in its formative stages. The IGO therefore will conduct a second follow-up in the coming months.