REPORT DIGEST

 

ILLINOIS DEPARTMENT OF CORRECTIONS - CORRECTIONAL INDUSTRIES

 

FINANCIAL AUDIT

For the Year Ended:

June 30, 2007

 

 

 

 

Release Date:

May 20, 2008

 

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

AUDITOR GENERAL

 

 

 

To obtain a copy of the Report contact:

Office of the Auditor General

Iles Park Plaza

740 E. Ash Street

Springfield, IL 62703

(217) 782-6046 or TTY (888) 261-2887

 

This Report Digest and the Full Report are also available on

the worldwide web at

www.auditor.illinois.gov

 

 

 

INTRODUCTION

 

††††† This digest covers our financial audit of the Illinois Department of Corrections (IDOC) - Correctional Industries (ICI) for the year ended June 30, 2007.

 

 

 

 

 

SYNOPSIS

 

 

®      This report contains one audit finding.It pertains to a significant deficiency in internal control over financial reporting.Because of the significance of the exceptions noted, we classified the matter as a material weakness.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

{Financial information is summarized on the next page.}

 

 


ILLINOIS DEPARTMENT OF CORRECTIONS

CORRECTIONAL INDUSTRIES

FINANCIAL AUDIT

For the Year Ended June 30, 2007
 

 

FINANCIAL OPERATIONS (Amounts in Thousands)

FY 2007

FY 2006

 

OPERATING REVENUES........................................................

     $38,433

††††† $37,507

 

OPERATING EXPENSES..........................................................

       38,699

38,001

 

††††††††††† Operating Income / (Loss).................................................

     $†† (266)

††   $†† (494)

 

NONOPERATING EXPENSES

 

 

††† Loss on Disposal of Fixed Assets................................................

            (34)

††††††††††† (24)

 

Transfers to Other Funds...............................................

          (580)

††††††† (3,905)

 

††††††††††† Net Income /(Loss).............................................................

      $†† (880)

††† $ (4,423)

 

††† Net Assets, Beginning of Year (as restated for FY 2007)........................

        17,297

†††††††† 22,989

 

††† Net Assets, End of Year...............................................................

      $16,417

†††††† $18,566

 

SELECTED ACCOUNTS, AS OF JUNE 30, (Amounts in Thousands)

2007

2006

 

Cash...........................................................................................

$†††† 925

$1,277

 

Accounts Receivable..................................................................

$†††† 324

$†† 351

 

Due From Other Funds...............................................................

$4,344

$5,505

 

Inventories..................................................................................

$10,595

$8,977

 

Property, Equipment and Livestock, Net of Depreciation...............

$4,580

$6,897

 

HIGHEST TEN INCOME PRODUCING INDUSTRIES (Unaudited)

FY 2007

FY 2006

 

Dixon Optical............................................................................

Illinois River Bakery...............................................................

Vandalia Farm Meat Processing................................................

Menard Farm Meat Processing................................................

Stateville Soap.........................................................................

Danville Boxes......................................................................

Menard Farm Waste Removal...............................................

Menard Knit.........................................................................

Vandalia Farm Milk Processing.............................................

Centralia Mattress..................................................................

$2,907,047

345,354

339,806

81,698

74,199

73,990

62,813

29,042

25,574

23,823

$3,006,219

1,005,371

426,289

78,997

117,105

147,982

67,056

180,701

406,994

(16,651)

 

HIGHEST TEN (LOSS) PRODUCING INDUSTRIES (Unaudited)

FY 2007

FY 2006

 

Jacksonville Modular Furniture Installation..............................

Shawnee Metal Furniture.........................................................

Lincoln Asbestos Abatement..................................................

Sheridan Garment Cutting..........................................................

Decatur Furniture....................................................................

Western Illinois Food Processing.............................................

Dwight Garment.................................................................

Decatur Sewing...................................................................

Hill Meat Processing..............................................................

Logan Refinishing...............................................................

$(445,665)

(380,378)

(341,490)

(220,332)

(178,428)

(171,359)

(168,017)

(116,198)

(109,020)

(107,725)

$(462,343)†††

(147,042)

(342,228)

(382,670)

82,711

147,385

174,330

77,377

406,922

113,246

 

 

 

DEPARTMENT OF CORRECTIONS - CORRECTIONAL INDUSTRIES EXECUTIVES

During Engagement Period:†† Roger Walker, Director, Department of Corrections; James R. Underwood, Chief Executive Officer, Correctional Industries

Currently:Roger Walker, Director, Department of Corrections; James R. Underwood, Chief Executive Officer, Correctional Industries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Net assets were restated by $1,269,000

 

 

 

 

 

 

 

 

 

Reconciliations were not performed resulting in a $232,000 unexplained difference

 

 

 

 

 

Audit adjustments recommended totaled $8,900,000

 

 

 

 

 

 

Differences between ICI accounting records and data reported to the State Comptroller

 

 

$511,000 error in employee compensated absences

 

 

 

 

 

 

 

Exceptions considered to be a material weakness in IDOC and ICIís internal controls

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTRODUCTION

 

ICI is a division of the IDOC and operates 36 manufacturing, service and agricultural industries within IDOC correctional centers.

 

FINDING, CONCLUSION, AND

RECOMMENDATION

 

††††† IDOC and ICI are required to prepare annual financial statements of ICIís financial activity to comply with reporting requirement set forth by the Office of the Comptroller (Comptroller).It is the responsibility of ICI and IDOC to maintain their accounting records and prepare their financial statements in accordance with generally accepted accounting principles (GAAP), and the accounting records and financial statements be materially free of errors and omissions.During our financial audit of ICI we noted the following exceptions:

 

        IDOC determined ICIís capitalization policy and dollar thresholds for depreciating State property were not consistent with IDOCís.As a result, a change in estimated useful lives was made across all ICI capital assets.In addition, our testing noted errors in the spreadsheet used to compute depreciation expense.The culmination of the above exceptions resulted in a restatement of the ICI fiscal year 2007 beginning net assets. The beginning net assets were reduced by $1,269,000.

 

        There were no reconciliations performed between the cash balances per ICI accounting records and the cash balance per the Comptrollerís records during fiscal year 2007.As of June 30, 2007 the balance per ICI accounting records was $1,155,000, the balance per the Comptrollerís records was approximately $923,000.IDOC and ICI cannot reconcile the difference of $232,000.

 

        IDOC made a decision to stop using the accrual basis general ledger accounting system used by ICI in previous years.Our audit of the ICI financial statement balances revealed significant errors within account balances, which required extensive adjustments.We recommended 15 audit adjustments totaling $8,900,000.The majority of the adjustments were to correct account balances for non-recording, overstatements, understatements or errors made during the year.

 

        Thirteen differences were identified between the amounts per the ICI accounting records and the amounts reported by ICI to the Comptroller as part of ICIís required GAAP reporting.

 

        Testing of ICIís compensated absence schedule revealed it contained amounts for accrued sick leave that should not have been accrued.It was determined the accrued compensated absences balance was overstated as of June 30, 2007 by approximately $511,000.

 

ICI management indicated the exceptions were due to staff shortages and changes that occurred as a result of ICI accounting function being transferred to IDOC.

 

Because of the significance of the exceptions noted, we consider these to be a significant deficiency in ICIís and IDOCís internal control and a material weakness.A material weakness is a significant deficiency or a combination of significant deficiencies that result in more than a remote likelihood that material noncompliance will not be prevented or detected by ICIís and IDOCís internal control.

 

We recommended IDOC devote sufficient resources to its financial accounting function such that the ICI financial information is properly recorded and accounted for to permit the preparation of reliable financial information and GAAP reporting.(Finding 07-1, pages 22-25)

 

†††† IDOC management concurred with our finding and recommendation and stated the staff involved in the reporting and other accounting functions will receive training in order to present accurate and complete financial information in the future.

 

††††† AUDITORSí OPINION

 

††††† Our auditors stated the June 30, 2007 financial statements of the Illinois Department of Corrections - Correctional Industries are fairly presented.

 

 

 

____________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:RPU:pp

 

SPECIAL ASSISTANT AUDITORS

 

†††† Our special assistant auditors for this engagement were E.C. Ortiz & Co., LLP.