As coded clinical data are used in a variety of areas (e.g. health services funding, epidemiology, health sciences research), coding errors have the potential to produce far-reaching consequences. In this study the causes and consequences of miscoding were reviewed. In particular, the impact of miscoding due to inadequate medical documentation on hospital funding was examined. Appropriate reimbursement of hospital revenue in the casemix-based (output-based) funding system in the state of Victoria, Australia relies upon accurate, comprehensive, and timely clinical coding. In order to assess the reliability of these data in a Melbourne tertiary hospital, this study aimed to: (a) measure discrepancies in clinical code assignment; (b) identify resultant Diagnosis Related Group (DRG) changes; (c) identify revenue shifts associated with the DRG changes; (d) identify the underlying causes of coding error and DRG change; and (e) recommend strategies to address the aforementioned. An internal audit was conducted on 752 surgical inpatient discharges from the hospital within a six-month period. In a blind audit, each episode was re-coded. Comparisons were made between the original codes and the auditor-assigned codes, and coding errors were grouped and statistically analysed by categories. Changes in DRGs and weighted inlier-equivalent separations (WIES) were compared and analysed, and underlying factors were identified. Approximately 16% of the 752 cases audited reflected a DRG change, equating to a significant revenue increase of nearly AU$575,300. Fifty-six percent of DRG change cases were due to documentation issues. Incorrect selection or coding of the principal diagnosis accounted for a further 13% of the DRG changes, and missing additional diagnosis codes for 29%. The most significant of the factors underlying coding error and DRG change was poor quality of documentation. It was concluded that the auditing process plays a critical role in the identification of causes of coding inaccuracy and, thence, in the improvement of coding accuracy in routine disease and procedure classification and in securing proper financial reimbursement.