REPORT DIGEST

DEPARTMENT OF CORRECTIONS-CORRECTIONAL INDUSTRIES

FINANCIAL AUDIT
For the Year Ended June 30, 2012

COMPLIANCE EXAMINATION
For the Two Years Ended June 30, 2012


Release Date:   February 28, 2013

Summary of Findings:
Total this audit: 13
Total last audit:  6
Repeated from last audit: 5

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 Full Report are also available on
the worldwide web at www.auditor.illinois.gov

INTRODUCTION

This digest covers the financial audit for the year
ended June 30, 2012 and the compliance examination for
the two years ended June 30, 2012.  Correctional
Industries is a division of the Illinois Department of
Corrections and operates manufacturing and service
industries within the adult correctional centers.

SYNOPSIS

• The Department did not ensure the information utilized
to prepare financial statements and report information
to the Office of the State Comptroller was accurate.
The Auditors issued a qualified opinion on the
Department’s financial statements because: 1)
differences were noted in the customer account balance,
and 2) payment posting errors were noted in the accounts
receivable system.  The information related to accounts
receivable and revenues included in the financial
statements could not be verified.

• The Department did not maintain adequate controls over
accounts receivable.

• The Department failed to pursue collections of past
due amounts owed from farm leases.

• The Department inappropriately paid a Manager $16,875.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INACCURATE FINANCIAL REPORTING

The Department did not ensure the information utilized
to prepare financial statements and report information
to the Office of the State Comptroller was accurate for
the Working Capital Revolving Fund.

During our review, we noted the Department did not
maintain adequate and accurate records related to their
customer accounts receivable.  The Department’s
financial statements reported $10,042,850 in customer
accounts receivable for the Working Capital Revolving
Fund at June 30, 2012.

As part of standard audit procedures, we selected a
sample of 40 customer accounts receivable and requested
the customer to confirm the balance they owed at June
30, 2012.  Of the 16 confirmations returned, the
customer indicated they owed $4,641,117, whereas the
Department records stated they owed $5,082,035, for an
overstatement of $440,918.

Upon discussion with management, it was determined the
Department customer accounts receivable system contained
payment posting errors.  According to Department
management, between 2006 and 2012, payments had been
posted at the customer level, rather than the invoice
level, resulting in open invoices.  In addition,
management indicated there were payments which had been
posted twice.  Management also stated they did not have
all the supporting detail to ensure the posting of
payments to the proper invoice.

The Auditors issued a qualified opinion on the
Department’s financial statements because: 1)
differences were noted in the customer account balances,
and 2) payment posting errors were noted within the
accounts receivable system.  The information related to
accounts receivable and revenues included in the
financial statements could not be verified.   (Finding
12-1, pages 14-15)

We recommended the Department work with their customers
to determine the accurate accounts receivable.  In
addition, the Department should ensure all invoices and
payments are properly posted.

Department officials accepted our recommendation and
stated they will work to ensure that accurate and timely
reconciliations and recordings of all customers’
accounts receivable are maintained at the invoice level.

INADEQUATE CONTROLS OVER ACCOUNTS RECEIVABLE

The Department did not maintain adequate internal
controls over accounts receivable.

During our testing of accounts receivable, we noted:

• The Department did not send out monthly statements to
their customers.
• The Department did not take actions to bill and
collect receivables within the fiscal year in which the
debt was incurred.  According to Department records,
accounts receivable due over one year totaled $1,344,677
at June 30, 2012.
• The Department did not issue catch up billings in the
subsequent fiscal year for accounts with balances from
the prior fiscal year.  According to Department records,
accounts receivable at June 30, 2012 totaled
$10,042,850.
• The Quarterly Summary of Accounts Receivable Reports
filed with the Office of the State Comptroller for
fiscal years 2011 and 2012 were not signed by management
for 7 of the 8 filings.
• The Quarterly Summary of Accounts Receivable Reports
filed with the Office of the State Comptroller for the
period ended June 30, 2011 was amended three times.
(Finding 12-2, pages 16-17)

We recommended the Department maintain adequate controls
over accounts receivable to ensure:
• Monthly statements are sent out,
• Reasonable efforts are put forth related to the
billing and collection of accounts,
• Catch up billings are sent out, and
• Quarterly Summary of Accounts Receivable Reports are
accurate and signed by an appropriate official.

Department officials accepted our recommendation and
stated they would ensure customer statements are sent
out; efforts will be put forth to ensure proper
invoicing and collection of accounts; will work to
ensure catch up billing will be utilized when necessary;
and the Comptroller’s Quarterly Summary of Accounts
Receivable Report is accurate and approved by an
appropriate official.

LACK OF COLLECTION EFFORTS OVER FARM LEASES

The Department failed to pursue collections of past due
amounts owed from farm leases.

The Department entered into 12 leases for 3,619 acres
with annual rent totaling $601,578 for fiscal years 2011
and 2012.  According to Department records, accounts
receivable at June 30, 2012 related to farm leases was
$209,737.

During our review of the farm lease program, we noted:
• The Department of Central Management Services is
responsible for the collection of any delinquent
accounts.  However, the lease agreement states monthly
payments are to be submitted to the Department for
deposit into the Working Capital Revolving Fund.  We
inquired with the Department regarding the
communications to the Department of Central Management
Services related to delinquent accounts; however,
documentation was not provided.
• The Department of Central Management Services sent out
two notices for collection.  Both tenants paid; however,
one tenant did not make payment of interest totaling
$9,305.  Additionally, the Department did not record the
outstanding interest as an accounts receivable on their
financial statements at June 30, 2012.
• The Department did not follow their internal
procedures for accounts receivable, whereby monthly
statements are required to be sent on all delinquent
accounts.  According to the Department, they relied upon
the lease as the tenant’s notification of amounts owed.
• The lease agreements states monthly finance charges of
1.5% (18% annually) are to be assessed.  However,
interest was not assessed on past due accounts, totaling
approximately $89,910.  In addition, the Department did
not record the outstanding interest as an account
receivable on their financial statements at June 30,
2012.
• The farm lease accounts receivable at June 30, 2012
included $209,737 which has been outstanding over one
year, and 90% past due for more than five years.
However, the Department had not reviewed the accounts
for collectability and had not established an allowance
for doubtful accounts.  (Finding 12-3, pages 18-19)

We recommended the Department work with the Department
of Central Management Services regarding the
administration of the farm leases.  In addition, the
Department should ensure all information is accurately
reflected in the financial statements.

Department officials accepted our recommendation and
stated staff would ensure farm lease financial
information is accurately reflected in the financial
statements and would work with the Department of Central
Management Services regarding the administration and
collection of farm leases.

INAPPROPRIATE PAYROLL EXPENDITURES

The Department inappropriately paid a Manager $16,875.

On July 1, 2011, the Department entered into an
Interagency Agreement with the Department of Commerce &
Economic Opportunity related to the assignment of a
Manager to the Department.  According to the Interagency
Agreement, the Department of Commerce & Economic
Opportunity would “continue to pay costs associated with
salary and benefits” of the Manager.  The Department
agreed to compensate the Department of Commerce &
Economic Opportunity for such costs.

However, beginning in August 2011, the Department also
began to pay the Manager.  The Manager was paid by both
the Department and the Department of Commerce & Economic
Opportunity for the months of August, September and
October 2011, totaling an overpayment of $16,875.

In December 2011, the Department entered into an
agreement with the Manager for repayment.  The Manager
left State employment in April 2012.  As of June 30,
2012, the Manager still owed the Department $5,639.

In addition, we noted the Department had not submitted
to the Office of the State Comptroller salary reversals
related to the erroneous overpayments.  As of June 30,
2012 the Department had not submitted any requests for
the salary reversals.  (Finding 12-5, pages 21-22)

We recommended the Department seek full reimbursement
from the Manager for the improper payments.
Additionally, the Department should submit salary
reversals to the Office of the Comptroller within the
time frame outlined in the SAMS Manual.

Department officials accepted our recommendation and
stated they would monitor and ensure salary reversals
are completed for improper payments made to the prior
Manager.  The final reimbursement from the prior Manager
of $5,639 was received thru the Comptroller’s
Involuntary Withholding on August 8, 2012.

OTHER FINDINGS

With regards to the other findings noted in our report,
Department management indicated they are being given
attention.  We will review the progress towards the
implementation of our recommendations during our next
engagement.

AUDITORS’ OPINION

Our auditors issued a qualified opinion on the State of
Illinois, Department of Corrections-Correctional
Industries’ basic financial statements as of June 30,
2012.  These financial statements pertain to the Working
Capital Revolving Fund.  The auditors were unable to
obtain sufficient appropriate audit evidence supporting
accounts receivable stated at $10,042,850 and revenues
of $50,757,000.

A compliance examination of the Department was also
conducted as required by the Illinois State Auditing
Act.  The Accountant’s Report noted the Department did
not comply with certain requirements regarding
applicable laws and regulations, including the State
uniform accounting system, in its financial and fiscal
operations as well as requirements regarding obligating,
expending, receiving and using public funds of the
State.

WILLIAM G. HOLLAND
Auditor General

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AUDITORS ASSIGNED

West & Company, LLC were our special assistant auditors
for this audit.