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INTRODUCTION
Our report
covers the financial audit of the Correctional Industries (ICI) for the
fiscal year ended June 30, 2004 and a compliance examination for the two
years ended June 30, 2004. ICI is a
component of the adult division of the Illinois Department of Corrections. ICI operates manufacturing, service and
agricultural industries within the adult correctional centers.
FINDINGS,
CONCLUSIONS AND RECOMMENDATIONS
NEED TO IMPROVE CUT-OFF
PROCEDURES FOR PURCHASES AND EXPENSES
Payments for
expenses and purchases of goods not received as of June 30, 2004 totaling
$851,120 were charged in fiscal year 2004.
The agency uses the purchase method for inventories, and therefore
these purchases were not included in the inventories as of June 30, 2004 and
were recorded as outright costs in fiscal year 2004.
Generally
Accepted Accounting Principles requires that costs and expenses be recorded
in the books at the time liabilities are incurred. A liability is incurred when goods or services are received. The financial information submitted by the
agency included overstated amounts for cost of goods sold totaling $851,120
and accounts payable by the same amount.
In addition,
pre-numbered forms for receiving goods were not used in some shops. Good internal control requires that
pre-numbered forms be used as a tool to ensure completeness and recognition
of expenses and liabilities in the proper accounting period. (Finding 1,
pages 14-15)
We recommended
that ICI observe proper cut-off procedures for purchases and expenses. ICI should also consider using accountable
forms that are sequentially numbered as used for receiving purchases to help
ensure complete and correct recognition of expenses and liabilities in the
accounting period.
ICI officials
accepted our recommendation and stated that corrective action has been
implemented.
IMPROVEMENT NEEDED IN
DOCUMENTATION OF COST/BENEFIT OR COST/EFFECTIVENESS ANALYSIS
The Department (ICI) did not maintain a
formal documentation of cost-benefit or cost effectiveness analysis of
existing programs to evaluate whether they are achieving their intended
objectives in a fiscally prudent manner.
ICI has not documented on-going reviews of programs that continue to
show operating losses.
Review of the
various industry operations in fiscal year 2003 and 2004 found that at least
10 industry sites/cost centers have shown continued operating losses for the
last five years or since the start of their operations. ICI management indicated that some of
these industries only account for a phase of the production costs and the
profits are reflected in the cost center where the finished goods are
sold. ICI did not maintain any
documentation of reviews or cost-benefit/cost-effectiveness analysis to
justify the continuation of these programs or the identification of
programs/processes needing improvements.
Good business
practice requires facility management to use cost-benefit or
cost-effectiveness analysis to set program priorities and to select program
strategies or procedures.
ICI officials
stated that ICI does not exist for the sole purpose of making a profit for
the State of Illinois. ICI’s main
mission is to provide inmates employed in its programs with the skills and
work ethic necessary to be successful upon their release from prison. ICI may still continue programs that are
incurring losses or not earning revenues as long as these programs assist ICI
in reducing inmate recidivism.
In order for
ICI to be accountable for its activities, each program needs to be evaluated
for its financial viability in order to monitor the burden of the program on
the State’s finances. (Finding 2, pages 16-17) This finding was
first reported in 2000.
We recommended
that ICI management formally document the reviews, cost-benefit or
cost-effectiveness analysis for its existing programs. These should be done on a regular basis to
provide management with tools to monitor performance in relation to
anticipated results.
ICI
officials accepted our recommendation and stated that ICI had completed
informal cost-benefit analysis on a regular basis, but formal documentation
will be compiled and made available for review by auditors. In the cost benefit analysis process, the
benefit of the industry operation in accordance with the ICI statutory
mandate to promote habits of work and responsibility to committed persons
will also be assessed. (For previous ICI response, see Digest Footnote #1)
MANAGEMENT INFORMATION SYSTEM
ICI
has been unsuccessful in its plan to install an automated management
information system. The ICI has
incurred excessive costs for computer hardware, software and consulting
services for the project that is neither complete nor effectively utilized.
The
purpose of the system was to connect ICI central office with its 20 remote
operations at the various correctional facilities. The initial projected costs from FY98 for the equipment and
installation totaled $770,000. In
prior audits, we reported that ICI was only using three of the ten software
modules purchased. In FY04, we found
that ICI is still only using the three modules.
In
FY02, ICI management stated that they planned to initiate a new Request for
Proposal for software implementation and project management during FY03, and
their goal was to have contracts in place in FY04. These plans did not materialize in FY03 or FY04.
ICI
continues to use its original software-consulting firm to provide technical
support for the system modules still being used. During FY03 and FY04, ICI paid the firm $25,093 and $38,830,
respectively.
We
recommend ICI management critically re-examine the need for the Management
Information System project. If the
project should continue, management should assess its current stage, complete
the project, and implement the project in a timely, cost-efficient manner or
seek other alternatives. (Finding 3,
pages 18 through 20) This finding
was first reported in 2000.
ICI
management stated the recommendation has been implemented. ICI is currently
in process of fully implementing the system (Macola). Pilot installation of the final portions
and testing has been completed. User
training and final implementation is to be completed in March 2005. Additional modules and system revisions
will be completed over the next few months with users being added and
training as systems come on line. (For previous ICI response, see Digest
Footnote #2)
TEMPORARY ASSIGNMENTS
The
ICI continues to place union employees on temporary assignment for periods
beyond time limits specified by the union agreements. The lengthy assignments violate union
agreements and circumvent required steps in the hiring process.
During the
audit period, we noted that there were 14 employees on temporary
assignments. All of these employees
were union members. Three of the 14
(21%) employees were working in temporarily assigned positions beyond the time limits specified in the
union agreements.
Union
agreements with the State set specific time limits of either 60 days
(temporary change in workload or other reasonable work related circumstance)
or 45 days (while employer posts and fills job vacancy) for temporary
assignments within a twelve-month period.
If assignments extend beyond the set timeframe, any extensions must be
mutually agreed-upon. No evidence of
mutual agreement was found.
We recommended the ICI re-evaluate the
propriety of its continued use of temporary assignments for long-term
employment positions. For assignments
to union positions, we recommended ICI comply with the union agreement
requirement for mutual agreement of the assignments and to document this
agreement in writing (Finding 4, pages 21-22). This finding was first
reported in 1998.
The
ICI management accepted our recommendation and stated that ICI will work to
limit temporary assignments in accordance with labor contracts. Any supplemental agreements will be
documented in writing. (For previous ICI response, see Digest Footnote #3)
Responses
were provided by Ms. Mary Ann Bohlen, Accounting Manager for the Department.
AUDITORS' OPINION
Our auditors stated that the financial statements for the
Correctional Industries as of June 30, 2004 and for the year then ended are
fairly presented in all material respects.
_____________________________________
WILLIAM G. HOLLAND, Auditor General
WGH:CML:pp
SPECIAL ASSISTANT AUDITORS
Our special assistant auditors
for this engagement were E.C. Ortiz & Co., LLP.
DIGEST
FOOTNOTES
#1 IMPROVEMENT NEEDED IN DOCUMENTATION OF COST/BENEFIT OR
COST/EFFECTIVENESS ANALYSIS – Previous ICI Response
2002:
Accepted.
ICI
will conduct a Cost/Benefit analysis, as needed on major program
initiatives. Additionally, ICI will
incorporate the need for cost/benefit analysis into its strategic plan, and
once new programs are implemented, ICI will monitor their fiscal performance
on an ongoing basis. It is noted that
ICI does not exist for the sole purpose of making a profit for the State of
Illinois although it has been profitable in each of its last 6 years. Its main mission is to provide inmates
employed in its programs with the skills and work ethic necessary to be
successful upon their release from prison.
As such, ICI recognizes that some of its programs may not be
financially profitable, but still may be implemented due to the fact that
they assist ICI in reducing inmate recidivism. Historically, Illinois Correctional Industries programs have
been successful at this, as the recidivism rate for inmates who participated
in Industry programs has been lower than for the total inmate population.
#2 MANAGEMENT INFORMATION SYSTEM – Previous ICI
Response
2002: Accepted.
Due to budgetary and personnel constraints, the
Management Information System project is currently on hold. ICI will reexamine the need for the
Management Information System project and will decide whether it should proceed.
#3 TEMPORARY
ASSIGNMENTS
2002: Accepted.
Illinois Correctional Industries on an ongoing basis
will review the need for long-term temporary assignments. ICI will ensure it abides by the
bargaining unit contracts. In all of
the cases listed where the temporary assignment time limits were exceeded,
there was no other staff eligible within the industries unit at that
facility.
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