REPORT DIGEST

 

ILLINOIS

DEPARTMENT OF CORRECTIONS

 

DEPARTMENT-WIDE FINANCIAL AUDIT

For the Year Ended:

June 30, 2008

 

GENERAL OFFICE

COMPLIANCE EXAMINATION

For the Two Years Ended:

June 30, 2008

 

Summary of Findings:

Total this report††††††††††† ††††††††47

Total last report†††††††††††         21

Repeated findings†††††††††††††††† 19

 

Release Date:

August 6, 2009

 

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

SYNOPSIS

 

®       The Department of Corrections (Department) year end financial reporting contained numerous inaccuracies and incomplete data.

®       The Department did not provide all the requested documentation to the auditors in a timely manner and generally demonstrated a lack of cooperation during the audit.

®       The Department improperly calculated its liabilities at June 30, 2008, which led to errors in financial reporting.

®       The Department failed to pay $13,120,311 to the Department of Central Management Services (DCMS) as of June 30, 2008.

®       The Department indebted the State for approximately $10.6 million by procuring services and products for amounts that exceeded the funds appropriated without authorization.

®       The Department did not accurately record all capital asset information in their financial records.The precise inaccuracy could not be determined, but auditors estimated capital assets could be understated by as much as $30 million as a result of improperly recorded transfers from the Capital Development Board.

®       During testing, numerous exceptions were identified related to the administration, accounting and financial reporting of the Departmentís locally held (bank accounts) funds.

®       The Department failed to adequately establish controls over its inventory.Numerous exceptions were noted regarding the inventory balances at Correctional Centers.

®       The Department failed to satisfy the legislative intent of its appropriation authority for the hiring of front line staff during fiscal years 2007 and 2008.

®       The Department paid the personnel costs of an employee working for the Governorís Office of Management and Budget.

®       The Department is adding a charge to the purchase price of the goods to be resold in the commissaries in excess of what is statutorily allowed.

®       The Department is not complying with the requirements of the Illinois Procurement Code with regard to purchases of items for resale in the Departmentís commissaries at Correctional Centers.

®       The Department did not maintain proper records at the Adult Transition Centers.††

®       The Department does not have an automated payroll timekeeping system.

 

{Expenditures and Activity Measures are summarized on the next page.}


 

††††††††††††††††††††††††††††† DEPARTMENT OF CORRECTIONS - GENERAL OFFICE

†††††††††††††††††††††††††††† FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

†††††††††††††††††††††††††††††††††††††††††††††† For The Two Years Ended June 30, 2008

 

 

EXPENDITURE STATISTICS

FY 2008

FY 2007

 

Total Expenditures (All treasury held funds, excluding funds appropriated to Correctional Centers)††††††††††††††††††††††††††††††††††††††††

$224,693,645

$227,700,367

 

†††† OPERATIONS TOTAL††††††††††††††††††††††††††††††††††††††††††††††††††††

†††††††† % of Total Expenditures................................................

$213,902,537

95.2%

$213,977,103

94.0%

 

†††††††† Personal Services............................................................

††††††††††† % of Operations Expenditures.......................................

††††††††††† Average No. of Employees...........................................

††††††††††† Average Employee Salary............................................

$78,352,760

36.6%

1,199

$†††††††† 65,348

$74,860,631

35.0%

1,233

$†††††††† 60,714

 

†††††††† Other Payroll Costs (FICA, Retirement)...........................

††††††††††† % of Operations Expenditures.......................................

$18,638,884

8.7%

$14,061,286

6.6%

 

†††††††† Contractual Services.......................................................

††††††††††† % of Operations Expenditures.......................................

$44,197,249

20.7%

$34,100,662

15.9%

 

†††††††† Lump Sum Appropriations...............................................

††††††††††† % of Operations Expenditures.......................................

†††††††† Repairs and Maintenance................................................

†††††††††† % of Operations Expenditures........................................

†††††††† Electronic Data Processing..............................................

†††††††††† % of Operations Expenditures........................................

†††††††† Telecommunications........................................................

†††††††††† % of Operations Expenditures........................................

†††††††† Commodities...................................................................

†††††††††† % of Operations Expenditures........................................

Operation of Automobile Expenditures...............................

†††††††††† % of Operations Expenditures........................................

$55,165,242

25.8%

$†††††† 830,896

0.4%

$††† 3,987,700

1.9%

$††† 8,220,048

3.8%

$†††††† 679,481

0.3%

$††† 3,125,040

1.5%

$70,833,242

33.1%

$†††††† 849,568

0.4%

$††† 5,346,062

2.5%

$††† 9,181,177

4.3%

$†††††† 716,765

0.3%

$††† 3,279,443

1.5%

 

†††††††† All Other Operations Items..............................................

††††††††††† % of Operations Expenditures......................................

$†† ††††705,237

0.3%

$†††††† 748,267

0.4%

 

†††† GRANTS AND PROGRAMS.............................................

†††††††† % of Total Expenditures.................................................

$10,791,108

4.8%

$13,723,264

6.0%

 

SELECTED ACTIVITY MEASURES (unaudited)

FY 2008

FY 2007

 

ADULT CENTERS

†††††††† Average Daily Population................................................

†††††††† Rated Capacity...............................................................

†††††††† Population in Excess of Capacity......................................

†††††††† Average Annual Costs.....................................................

 

43,990

32,983

11,007

$23,147

 

44,117

32,983

11,134

$21,194

 

ADULT TRANSITION CENTERS

†††††††† Average Population.........................................................

†††††††† Rated Capacity...............................................................

†††††††† Population (Under) in Excess of Capacity.........................

†††††††† Average Annual Costs..................................................... ††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††

† ANALYSIS OF EMPLOYEE OVERTIME (Whole Department)

Overtime Hours Paid.......................................................

Value of Overtime Hours Paid.........................................

Compensatory Hours Used..............................................

 

1,274

1,280

(6)

$29,659

 

 

890,412

$37,075,059

538,220

 

1,318

1,280

38

$22,133

 

 

485,511

$19,220,201

443,722

 

Value of Compensatory Hours Used................................

$15,364,621

$11,882,158

 

 

AGENCY DIRECTOR

 

During Audit Period: Roger E. Walker Jr. (until June 7, 2009)

†††† Currently:Michael P. Randle (beginning June 8, 2009)

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 


Nine findings included in the report were considered material weaknesses in internal control

 

 

 

 

 

 

 

 

 

 

 

 


Financial reporting information contained inaccuracies and incomplete data

 

 

 

 

 

 

 

 

 


Financial reporting forms submitted 1Ĺ months late

 


Detailed workpapers not provided to auditors until five months after first requested

 

 

 


Liability balances were over and under stated in the reported financial information

 

 

 

 


Capital assets were not properly recorded

 

 

 

 

 

Auditors qualified their opinion on the Departmentís June 30, 2008 financial statements

 

 


Department noted lack of resources and competing priorities for errors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lack of cooperation during engagement

 

 


78 requests for audit documentation were received 31-120 days after due date

 

 

 


Failure to adequately respond to auditor requests

 

 

 

 

 

 

 

 

 

 

 

Information provided to auditors 5 months after due date

 

 

 

 

 


Department noted timing constraints and competing priorities caused the problems in providing auditors with information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Department originally understated liabilities by $23 million at June 30, 2008

 

 

 


Accounts payable and encumbrance reporting errors

 

 

 


Unpaid balance due to DCMS

 

 

 

 


Amounts expended in excess of appropriation not recorded

 

 

 

 

 


Department noted errors were due to oversight

 

 

 

 

 

 

 

 

 

 

 


Over $13 million owed to DCMS revolving funds was left unpaid at the end of fiscal year 2008

 

 

 

 

 


Part of the outstanding liability is attributable to amounts left unpaid from previous years

 

 

 

 


Department indicated they did not have sufficient funds to pay DCMS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Department expended $10.6 million more than appropriated without authorization

 

 

 

 

 

 

Department reduced contract obligation documents for medical services to free up funds for other obligations

 

 

 

 

 

 

 

Department failed to pay electrical and / or gas service for 19 Correctional Centers

 

 

 

 

Department instructed vendors their appropriation had lapsed

 

 

 


Department indicated they did not have sufficient funds to pay for the required services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Capital asset information not accurately recorded in financial records

 

 

 


Capital assets could be understated by as much as $30 million

 

 

 


Property System does not allow for testing depreciation of individual assets

 

 

 

 

Sufficient support could not be provided to substantiate amounts reported to Comptroller

 

 


Department attributed exceptions to weaknesses in the system and miscommunication

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank reconciliations for consolidated Residentís Benefit Fund bank account not provided

 

 

 


Department & DJJ activity commingled in general ledger

 

 

 

 

 


Department & DJJ commingle Benefit Fund money in one consolidated bank account

 

 

 

 


Receipts could not be traced to source documents

 

 

 


Departmentís General Office employee Benefit Fund June 30 bank reconciliations not provided

 

 


Department indicated exceptions were related to timing and creation of the Department of Juvenile Justice

 

 

 

 

 

 

 

 

 

 

 

 

 


Auditors at 5 Correctional Centers qualified their opinions regarding errors with inventory

 

 

 

 

 


Errors in Correctional Centers inventories

 

 

$1.6 million error in compiling inventory balances for financial reporting

 

 

 

Center personnel attributed errors to lack of training on new automated inventory system

 

 

 

 

 


Department auditors qualified opinion on June 30, 2008 financial statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The Department failed to hire front line staff based on funds appropriated for that purpose

 

 

 

 

 


Department paid Center payrolls from fiscal year 2007 appropriation for hiring new front line staff

 

 

 

 

 

Correctional Centers reported 324 and 455 front line staff left employment with the Department during fiscal years 2007 and 2008

 

 

 

 

 

 

 

Management noted additional personal services costs were incurred due to the mandatory overtime and inadequate staffing levels

 

 

 

 

 


126 Correctional Center employees identified during fiscal year 2008 whose earnings exceeded $100,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Department continued to pay personnelservices costs for employee working at GOMB

 

 

 

 

 

 

 


Departmentís explanation for paying employee salary was inconsistent with employeeís responsibility at GOMB

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$2,259,760 and $2,339,244 were collected respectively for fiscal year 2007 and 2008 from inmates by adding an additional charge to goods sold from the inmate commissary

 

 

 

 

 

 

Goods sold in the inmate commissary included an additional charge not allowed by State law

 

 

 

 


Unified Code of Corrections only allows goods to be marked up 25-35%

 

 

 

 


Department management noted based on their interpretation they are allowed to add the additional charge

 

 

 

 

 

 


Department indicated a legal interpretation had been requested, but was unable to provide documentation of the request

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of goods for resale in commissaries not made in accordance with the Illinois Procurement Code

 


Competitive sealed bidding not performed

 


Terms and conditions not documented in formal contracts

 


Notices not published in the Illinois Procurement Bulletin

 


Administrative Directive does not include all Illinois Procurement Code requirements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Problems were identified in numerous areas at the Adult Transition Centers

 

 

 

 

 

 

 

 

Similar weaknesses have been reported in the last 8 audits.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Need to fully automate payroll timekeeping system

 

 

 

 

 


Timekeeping data for correctional center employees is manually tabulated and then entered into the payroll system

 

 

 


Department attributes problem to lack of funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Independent auditorsí opinion on financial statements included three qualifications

 

 

 

 

 

 

 

 

 

 

 

 

 


The Department did not comply in all material respects with State compliance determinations

 

 

 

INTRODUCTION

 

††††††††††† This report presents our financial statement audit of the whole Department for the year ended June 30, 2008 and compliance attestation examination of the Departmentís General Office operations for the two years ended June 30, 2008.During the two years ended June 30, 2008 the Department administered 28 adult correctional centers, 8 adult transition centers and Correctional Industries.

 

The auditors identified 9 findings involving internal control over financial reporting that they considered to be material weaknesses.A material weakness is a significant deficiency in the internal control that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the Departmentís internal control.The material weaknesses are described in the Schedule of Findings on pages 19 to 43 of the report.Following is a summary of some of the findings included in the report.

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

WEAKNESSES IN PREPARATION OF YEAR END FINANCIAL REPORTS AND STATEMENTS

 

The Departmentís year-end financial reporting contained numerous inaccuracies and incomplete data.These problems, if not detected and corrected, could materially misstate the Departmentís financial statements and negatively impact the statewide financial statements prepared by the Illinois Office of the Comptroller (Comptroller).

 

During the audit of the June 30, 2008 Department financial statements, auditors noted both untimely preparation and insufficient review of Generally Accepted Accounting Principles (GAAP) reporting packages submitted to the Comptroller.The auditors recommended extensive adjustments and corrections.Several of the problems noted were as follows:

 

        GAAP reporting packages were due to the Comptroller on September 12, 2008, but were not submitted until October 27, 2008, approximately 1Ĺ months late.

 

        After numerous requests, the Department did not provide the auditors with detailed workpapers to support GAAP reporting packages and financial statements until February 19, 2009, almost five months after the date the documentation was first requested.

 

        Accounts payable were overstated and encumbrances were understated by $557,000.Amounts owed to State revolving funds totaling $13,120,000 at June 30, 2008 were not included as liabilities.Expenditures in excess of Department appropriations totaling $10,443,000 were not recorded as liabilities at June 30, 2008.

 

        Transfers from the Capital Development Board were improperly recorded.The Departmentís Automated Property Control System did not allow for testing of depreciation by asset.The Department could not provide sufficient support for the additions, deletions, and net transfers of capital assets as originally reported to the Comptroller.††††

 

Accurate and timely preparation of the Departmentís financial information for GAAP reporting purposes is important due to the complexity of the Department and the impact adjustments have on the statewide financial statements.Due to the significance of the weaknesses identified, the auditors were unable to express an unqualified opinion in the Independent Auditorís Report of the Departmentís June 30, 2008 financial statements.

 

Department management stated the errors noted were due to a lack of resources and competing priorities for personnel.

 

We recommended the Department implement procedures to ensure GAAP Reporting Packages are prepared in a timely, accurate and complete manner, and that all supporting documentation is maintained in a contemporaneous manner. (Finding 1, pages 19-21)

†††††††††††††††††††††††††††††††††††††††††††††††††††††

Department officials responded that they have partially implemented our recommendation and have devoted resources within the limitations of the current technology and budget constraints to complete the GAAP reporting as required.


 

REQUESTED DOCUMENTATION TO PERFORM AUDIT TESTING NOT PROVIDED TIMELY OR AT ALL

 

The Department did not provide all the requested documentation to the auditors in a timely manner and generally demonstrated a lack of cooperation during the engagement.

 

As a result of the Departmentís audit request protocol a number of requested documents to perform the audit testing were not provided timely.Documents related to 208 requests were provided after the due date they were requested to be provided.Further, 78 of the requests were received 31 to over 120 days late, with 15 being over 120 days late.

 

In addition to providing requested audit documentation late, the Department did not adequately respond to all auditor requests.Specifically they failed to provide the auditors with all the requested documents.As a result, for those requests where documents were partially provided auditors could not complete the associated testing and considered the missing items to be exceptions.

 

There were also 17 requests for audit documentation that the Department failed to complete and had to be considered exceptions during our testing.Many of these are included as part of other findings in the report.

 

Finally, the Department did not provide the auditors with detailed workpapers to support the fiscal year 2008 GAAP reporting packages submitted to the Comptrollerís Office until February 19, 2009, approximately 5 months late.Providing auditors with requested supporting documentation almost five months late significantly delays the audit and negatively impacts the preparation and audit of the statewide financial statements.

 

Department management stated they were unable to provide the requested information timely because of timing constraints and competing priorities.This finding is repeated from the previous report, in which the Department stated it would comply timely and accurately with all requests and be vigilant in the follow up to determine the auditorís questions and needs are met.(Finding 2, pages 22-24)

 

We recommended the Department reevaluate and restructure its process of providing an audit liaison function to the auditors to ensure requested engagement documentation is provided in a timely manner as required by the Illinois State Auditing Act.

 

Department officials accepted our recommendation and responded they are in the process of reviewing their operations and will plan a restructuring of the audit liaison function in accordance with State statutes.

 

Improper calculation and reporting of liabilities at year end

 

The Department did not utilize a comprehensive, consistent methodology to analyze and calculate its liabilities at year end, resulting in numerous errors in the Departmentís financial data as reported on their year end financial statements.As a result, the Department originally understated its liabilities by a net of approximately $23 million at June 30, 2008.Auditors recommended, and the Department made, adjustments to correct the June 30, 2008 financial statements. The following exceptions were noted:

 

         The Department deemed all of its lapse period spending to be accounts payable, rather than consider whether or not the items or services purchased were received prior to June 30.As a result of this process, the Department overstated accounts payable and understated encumbrances by $557,000 at June 30, 2008.††

        The Department did not include the amounts owed to the State revolving funds at June 30, 2007 or 2008 in its amounts due to other funds at year end.This resulted in an understatement of liabilities totaling $13,120,000 at June 30, 2008 and a $10,844,000 restatement of beginning net assets as of July 1, 2007.

        The Department incurred expenditures in fiscal year 2008 in excess of its appropriations at June 30, 2008.The vendors who were owed money were instructed to submit their requests for payment to the Court of Claims.The Department did not include these liabilities in its accounts payable at June 30, 2008.As a result, accounts payable were understated $10,443,000.

 

Department management indicated the lack of reporting was due to oversight.(Finding 3, pages 25-26)

 

We recommended the Department establish a comprehensive, consistent methodology for determining liabilities and accumulating the information necessary for accurate financial reporting.

 

Department officials responded that they have implemented our recommendation and have developed a consistent methodology for financial reporting.

 

DepartmentDID not Pay Revolving Fund Billings

 

The Department failed to pay $13,120,311to DCMS at June 30, 2008.Auditors also noted the Department did not record this revolving fund liability for financial reporting purposes.†† Of the liability owed to DCMS at June 30, 2008, $2,373,534 represents amounts still owed for services provided in fiscal years 2006 and 2007.

 

The previous audit cited the Department for transferring funds out of the line items used to pay the revolving fund billings to pay other bills. The auditors noted the Department did not transfer funds out of the revolving fund line items during the audit period.Rather, the Department has built up such a large liability from previous years that the appropriations received during the audit period did not provide enough funding to pay the current charges or those owed from previous years.

 

Department management indicated there was not sufficient funds to pay the invoices due DCMS.Per the DCMS Administrative Rules, ďUser agencies shall not leave Internal Service Fund bills unpaid in order to circumvent fiscal year budgetary controlsĒ.(Finding 4, pages27- 28)

 

We recommended the Department work with the Governorís Office of Management and Budget to determine a method by which to become current with its balance due to DCMS and initiate reductions in other line items to ensure sufficient funds exist to pay for the services provided by DCMS.

 

Department officials indicated the recommendation has been implemented and that during fiscal year 2009 the balances due DCMS have been paid and that they have remained current with open invoices for operation of automotive and telecommunication expenditures.

 

DEPARTMENT INDEBTED THE STATE WITHOUT AUTHORIZATION

 

The Department indebted the State for approximately $10.6 million by procuring services and products for amounts that exceeded the funds appropriated without authorization.The $10.6 million indebtedness is owed to two entities, $6.3 million to a medical services company and $4.3 million to a supplier of electric and gas utilities.The Department also failed to promptly approve the vendor/supplier bills.

 

The Department filed contract obligation documents (CODís) with the Office of the Comptroller to obligate $91.5 million to pay for medical services during fiscal year 2008.Near the end of fiscal year 2008 the Department filed amended CODís with the Office of the Comptroller to decrease the amount obligated for the medical services contract by approximately $5.2 million, freeing up that amount of appropriation to spend on other obligations.The Department was in possession of the June invoices from the vendor before the CODís were amended to reduce the appropriation obligations, thereby knowing they were not going to be able to pay the vendor the final amounts owed of approximately $6.3 million at 25 Correctional Centers.

 

In addition, the Department did not pay for electrical and gas service for 19 Correctional Centers near the end of fiscal year 2008.Invoices for the electrical and gas service for the last
month(s) of fiscal year 2008 were received either prior to the end of the fiscal year or during the lapse period.Invoices totaling $4.3 million were not paid.

 

The Department instructed both vendors after the lapse period had expired that they were unable to pay the charges as their appropriations have lapsed and referred the vendors to file a claim with the Court of Claims.

 

The State Finance Act states no department shall contract any indebtedness on behalf of the State, nor assume to bind the State in an amount in excess of the money appropriated, unless expressly authorized by law.Department management stated there were not sufficient funds to pay the invoices due for these required services. (Finding 5, pages29- 31)

 

We recommended the Department only enter into contracts for which they have available appropriation and consult with the Governorís Office of Management and Budget when situations arise where it appears amounts appropriated will not be sufficient to meet the Departmentís obligations.

 

Department officials accepted our recommendation and noted they had requested to transfer funds to pay for the services but their request was not granted, and had to make difficult decisions regarding expenditures.††

 

WEAKNESSES IN FINANCIAL ACCOUNTING AND REPORTING OF CAPITAL ASSETS

 

The Department did not accurately record all capital asset information in their financial records.As a result, the Department presented inaccurate information on the Capital Asset Summary (SCO-538) submitted to the Comptroller and in their financial statements for fiscal year 2008.Auditors noted the following errors and weaknesses:

 

        The Department improperly recorded transfers from the Capital Development Board.The precise inaccuracy could not be determined, but auditors estimated the Departmentís capital assets could be understated by as much as $30 million.This resulted in a qualification of the Independent Auditorsí Report on the Departmentís financial statements for the year ended June 30, 2008.

        The Departmentís Automated Property Control System (APCS) does not allow for testing of depreciation by asset.Through analytical review and other audit procedures auditors determined the ending accumulated depreciation was misstated by $5,768,000.Auditors recommended, and the Department made, adjustments to correct the misstatement in the June 30, 2008 financial statements.

        The Department could not provide sufficient support for the additions, deletions, and net transfers as originally reported on the SCO-538.In addition, the Department could not provide support for deletions of $6,632,000 and net transfers of ($17,868,000) for the year in the depreciation section of the SCO-538.

 

Department management attributed these exceptions and weaknesses to the inherent limitations of the Departmentís APCS and miscommunication between facilities and the General Office. (Finding 6, pages 32-34)

 

We made a number of specific recommendations to the Department to improve accounting procedures and controls over capital assets.††

 

Department officials responded they have partially implemented our recommendation within the limits of the property control system and procedures are in place to ensure timely and accurate reporting to the best of the ability of the Agency within the existing property control system.

 

INADEQUATE ADMINISTRATION AND ACCOUNTING OF LOCALLY HELD FUNDS

 

During our testing we identified numerous exceptions related to the administration, accounting and financial reporting of the Departmentís locally held (bank accounts) funds.The following weaknesses were noted during the testing for the two years ended June 30, 2008:

 

!          The Department failed to provide the June 30, 2008 bank reconciliation of the consolidated bank account for the residents portion of the Residentís and Employeeís Benefit Fund (Benefit Fund), andas such, the auditors were unable to test the cash balance.

 

!          The Department maintains the adult facility resident portion and the juvenile facility resident portion, which belongs to the Department of Juvenile Justice (DJJ), of the Benefit Fund within one consolidated general ledger.The Department could not provide a detailed general ledger specific to the Departmentís portion of the Residentís Benefit Fund activity.

 

!          The Department maintains the adult facility resident portion and the juvenile facility resident portion, which belongs to the DJJ, of the Benefit Fund in one umbrella bank account at a local financial institution.The Department and the DJJ are two separate and distinct agencies whose funds should not be commingled, especially without adequate accounting records and adequate supporting documentation.

 

!          Auditors were unable to perform testing on receipts in the residentís portion of the Benefit Fund.Receipts could not be traced to source documentation, as the source documents are not maintained by the General Office.In addition, receipts could not be traced into the bank statements because the Department did not provide the requested bank statements.

 

!          The Department did not provide the June 30, 2007 and 2008 bank reconciliations or statements for the General Officeís employee portion of the Benefit Fund.

 

Inadequate control over maintaining financial records prevents the Department from preparing and submitting required financial information and results in inaccurate, incomplete and untimely preparation of financial statements. Department management stated the exceptions were directly related to the timing and creation of the Department of Juvenile Justice and that the funds were not split at that time.(Finding 8, pages 38 - 41)

 

We recommended the Department take actions to improve its administration of its locally held funds.

 

Department officials responded the recommendation was implemented and the funds of the two Departments were split.In addition it was noted Centers are now given copies of bank statements on a monthly basis as well as access to the accounting system.

 

INADEQUATE CONTROLS OVER INVENTORY

 

During testing of Department inventory balances at June 30, 2008, numerous errors were noted at Correctional Centers.The errors were so pervasive the auditors at five Centers (Stateville, Big Muddy, Dixon, Graham and Jacksonville) had to qualify their opinions for inventory balances.Inventory balances at these five Centers totaled $5.2 million of $22.1 million (24%) total inventory reported by the Department at June 30, 2008.The errors at the Centers included, but were not limited to:

 

        Physical inventory counts did not agree to accounting records;

        Inventory purchases were not recorded in the proper fiscal year; and

        Inventory counts were not reconciled to The Inventory Management System (TIMS).

 

Auditors also noted the General Office made errors totaling $1.6 million compiling inventory balances from the Centers for financial statement reporting.

 

Center personnel attributed the weaknesses noted in the Departmentís inventory controls to the lack of training provided to employees on the use of the Departmentís new automated inventory system, During the testing by auditors at 14 of the Departmentís Correctional Centers, the auditors noted personnel at 10 (71%) did not consider the training provided on TIMS sufficient to provide them with the knowledge needed to properly utilize the application.

 

Due to the significance of the weaknesses identified at the Centers and the overall lack of inventory controls, the Department auditors were unable to express an opinion in the Independent Auditorsí Report on the inventory balance of Departmentís financial statements at June 30, 2008.(Finding 9, pages 42 - 43)

 

We recommended the Department improve its centralized oversight function related to inventory and ensure the Center personnel are adequately trained on the use of TIMS.Additionally, the Department should ensure that the inventory balances reported to the Comptrollerís Office during the GAAP reporting process are reconciled adequately with those maintained at the Centers.

 

Department officials responded the recommendation was implemented and during fiscal year 2009 mandatory training was given on TIMS, and facilities were instructed to maintain timely and accurate information for use in financial reporting.

 

Failure to Expend PERSONAL SERVICE APPROPRIATIONS IN COMPLIANCE WITH LEGISLATIVE INTENT

 

The Department failed to satisfy the legislative intent of its appropriation authority during fiscal year 2007 by utilizing part of the funds authorized for the hiring of 231 front line staff for the purposes of paying personal services expenditures for its existing staff.In addition, the Department did not expend any of the $12 million appropriated by the legislature during fiscal year 2008 to hire 500 additional front line staff.

 

During April and May of 2007 the Department paid Taylorville Correctional Centerís entire payroll 3 times, Robinson Correctional Centerís payroll 2 times, Logan Correctional Centerís payroll 2 times and Jacksonville Correctional Centerís payroll 2 times from the appropriation to hire front line staff.In addition, testing performed at the Departmentís 28 Correctional Centers noted only 154 new front line staff were added during fiscal year 2007.

 

Expending the fiscal year 2007 appropriation designated for new front line staff for costs of existing staff violated legislative intent and resulted in the Department having to utilize existing staff to cover the needs of staffing the Correctional Centers.The lack of utilizing the amount appropriated by the legislature in fiscal year 2008 for new front line staffadded to the short staffing at the Correctional Centers.†† Required and volunteer overtime was used to cover staffing shortages.Based on the information provided, the Correctional Centers reported 324 and 455 front line staff left employment with the Department during fiscal years 2007 and 2008.††††

 

Department management stated using the frontline staff appropriation to cover personal services costs incurred in fiscal year 2007 was necessary because the Departmentís personal services appropriations were not sufficient and the Department could not transfer funds between the personal services lines of its various divisions.The additional personal services costs were incurred due to the mandatory overtime and inadequate staffing levels.Department management also noted they were not allowed, at the direction of the Office of the Governor, to hire any front line staff during fiscal year 2008.

 

The auditors identified 126 employees working in frontline positions at various Correctional Centers during fiscal year 2008 where their year to date gross compensation exceeded $100,000.The employeeís normal salary rate per their position classification without overtime and compensatory time would be in the range of $40,000-75,000 annually. (Finding 11, pages46 - 48)

 

We recommended the Department make payments in accordance with its appropriation authority.Furthermore, the Department should take steps necessary to meet the intent of the General Assembly when utilizing its appropriation authority.† ††

 

Department officials accepted our recommendation and indicated they will work within the limitations and guidelines of appropriation language as passed by the legislature.

 

inappropriate payment of another agencyís PERSONNEL cost

 

During the audit period, an employee who had previously worked for the Department transferred to a position within Governorís Office of Management and Budget (GOMB).The Department continued to pay for the employeeís personnel costs on its payroll vouchers.Department personnel explained this individual was working on behalf of the Department as the Deputy Director Project Manager for the Public Safety Shared Services Center (PSSSC).

 

The Departmentís explanation was inconsistent with the fact the employee was at the same time listed on the GOMB organization chart as the Deputy Director of Financial Reporting and was responsible for the oversight of other GOMB employees.While the employee in question might have had some type of indirect involvement with the PSSSC, that does not appear to be the employeeís primary responsibility.Another individual was listed on the GOMB organization chart as the GOMB Project Manager over PSSSC and the Department and GOMB entered into an interagency agreement concerning that employeeís responsibilities.

 

The payment of personnel costs of another agency results in noncompliance with State statute.This is particularly egregious considering the employee would be accruing retirement benefits under the alternative formula when the position as being performed would not qualify for that benefit.(Finding 12, page 49)

 

We recommended the Department pay the personnel costs of only its employees, not those of other agencies.

 

Department officials responded they had implemented our recommendation and the employee noted in the finding had transferred to another State agency.

 

 

Inmate Commissary Goods MARKED UP MORE THAN ALLOWED BY STATUTE

 

In testing the inmate commissary operations it was identified the Department was adding a charge to the purchase price of the goods to be resold in the commissaries prior to adding the statutorily allowed percentage mark-up to arrive at the sales price to charge inmates.The Department phased in the application of the charge, effective November 1, 2005 the charge was set at
3%, and was raised January 1, 2006 to 7%.
The Department collected $2,259,760 and $2,339,244 respectively for fiscal year 2007 and 2008, from the charge.

 

Upon testing the Departmentís collection of the 3%-7% additional charge it was determined the Department was computing the amount to collect using sales revenue as opposed to cost of goods sold on which the 3%-7% charge is originally computed.Using the sales revenue instead of the cost of goods sold the Department collected more money as a result of the statutorily allowed mark-up of 25%-35% being added to the additional charge.Ultimately, the 3%-7% charge equates to a markup on the cost of goods sold of 9%.

 

The Unified Code of Corrections sets forth ďthe selling prices for all goods shall be sufficient to cover the costs of the goods and an additional charge of up to 35% for tobacco products and up to 25% for non-tobacco products.Ē Based on the above statute the maximum amount to charge inmates for items sold in the inmate commissary would be the purchase price of the item plus any transportation costs the total of which would then be marked up to a maximum of 25%-35%.

 

Department management stated the charge was to help cover the costs of State employees who work in the inmate commissary, inmate labor for the commissary and utilities to operate the commissary.Department management also noted that they felt the definition of cost of goods in the Departmentís enabling legislation allowed them to apply the additional charge to the items.††

 

In the prior report we had recommended the Department seek a formal written Attorney General opinion on this matter.During the April 1, 2008 Legislative Audit Commission hearing on the Departmentís June 30, 2006 audit, it was stated by Department staff and the Director that they were waiting on the Attorney Generalís opinion before making any changes because the Department has to cover its commissary costs.During the current engagement we requested a copy of the letter sent to the Attorney General requesting an opinion on the matter, the Department failed to provide any documentation that a formal opinion had ever been requested of the Attorney General on the matter.Department staff indicated during the prior administration, permission was not granted to seek an opinion from the Attorney General. (Finding 13, pages 50 - 52)

 

We recommended the Department comply with the statute and only mark-up the goods for resale in the inmate commissary the allowable amounts.We also recommended the Department seek a formal written opinion from the Attorney General regarding whether the charge is statutorily allowed.

 

Department officials accepted our recommendation and responded they will once again try to get permission to seek an opinion from the Attorney General.

 

NONCOMPLIANCE WITH THE ILLINOIS PROCUREMENT CODE

 

The Department is not complying with the requirements of the Illinois Procurement Code (Code) with regard to purchases of items for resale in the Departmentís commissaries at Correctional Centers.

 

The commissaries commodity purchases are made through non-appropriated locally held funds.As a result of testing performed during the compliance examination the auditors noted the following items:

 

  • Purchases were not made by competitive sealed bidding or competitive sealed proposals as required by the Code.The Correctional Centers use catalogs from various vendors or contact multiple vendors via telephone to obtain prices to select products for resale in the commissaries.

 

  • Terms and conditions for the purchases of goods from vendors for the commissaries were not documented in the form of a contract as required by the Code.Upon selection of a vendor an Order For Delivery (OFD) is prepared to document the purchase.

 

  • None of the required procurement notices were published in the Illinois Procurement Bulletin as required by the Code.

 

  • The Departmentís Administrative Directive, which provides guidance to employees on commissary purchase does not include all the requirements as set forth in the Code.

 

Department management indicated they have requested guidance and direction from DCMS on the commissary purchasing.By not following the requirements of the Code the Department has limited the pool of available vendors to only a few selected vendors.In addition, the Department may be paying more for commodities for their commissaries than they should.(Finding 15, pages 55 - 56)This finding was first reported in 2004.†††

 

We recommended the Department comply with the requirements of the Illinois Procurement Code in making commissary purchases.

 

Department officials accepted our recommendation and indicated they will ask DCMS for direction on the commissary purchasing.(For the previous Department response, see Digest footnote #1.)

 

Adult Transition Center records not properly maintained

 

The Department did not properly maintain records at the Adult Transition Centers (ATCs).Testing at the eight ATCs for the two years ended June 30, 2008, produced numerous exceptions.Some of the exceptions noted were in the following areas:

 

        Year end cash balances were misstated at two ATCs.

        Deficiencies were identified in the processing of Residentsí Trust Fund disbursements at five ATCs.

        Errors were noted in the calculation of residentís maintenance fees at two ATCs.

        Documents related to resident loan files were not properly supported at two ATCs.

        Inadequate controls of property and equipment records were identified at five ATCs.

        Resident master files at two ATCs did not contain complete and adequate documentation.

 

We reported similar weaknesses at the ATCs in the previous eight audits.†† Department personnel stated the on-going issues are the result of human errors, also noting that turnover in personnel occurred at several of the ATCs during the audit period.(Finding 18, pages 62 - 65)This finding was first reported in 1994.†††

 

We made a number of specific recommendations to the Department to improve accounting procedures and controls at the ATCs.††

 

Department officials accepted our recommendation and responded they will continue to work to ensure accurate and proper records are maintained.(For the previous Department response, see Digest footnote #2.)

 

PAYROLL TIMEKEEPING SYSTEM NOT AUTOMATED

 

††††††††††† The Department-wide payroll timekeeping system is not fully automated.During the current engagement period the Departmentís human resources responsibilities were consolidated with a number of other State agencies as part of the Public Safety Shared Services Center (PSSSC).The PSSSC was scheduled to create / implement an automated timekeeping system, but it was not created.

As noted in the previous audits each correctional center still maintained a manual timekeeping system for several hundred employees.Correctional center employees sign in and out and the sign-in sheets are sent to the timekeeping clerk.Other information, including notification of absence and call-in reports, are also forwarded to the timekeepers.No automation is involved except for the processing of payroll warrants.

 

Department officials indicated the automated payroll system project was delayed due to various issues that arose during the creation of the PSSSC.They stated a project began in August 2008, but ceased in January 2009 due to lack of funding.

 

††††† Prudent business practices suggest that controls available through an automated timekeeping system can provide greater efficiency and reduce the potential for costly errors or employee abuse.(Finding 20, page 68)This finding has been repeated since 1998.††

††††† We recommended the Department implement an automated timekeeping system.

 

††††† Department officials accepted our recommendation and noted at this time they do not have the resources to purchase a new timekeeping system.(For the previous Department response, see Digest footnote #3.)††

 

OTHER FINDINGS

 

††††† The remaining findings are reportedly being given attention by the Department.We will review the Departmentís progress toward the implementation of our recommendations in our next engagement.

 

AUDITORSí OPINIONS

 

††††† The auditors expressed a qualified opinion on the Departmentís financial statements for the year ended June 30, 2008.The auditorís qualified their opinion on the financial statements for the following:

 

        Because of the inadequacy of the accounting records, the auditors were unable to form an opinion regarding the amounts at which inventory balances are recorded in the financial statements;

        Because of the inadequacy of the accounting records, the auditors were unable to audit the financial activity of the DOC Residentsí and Employeesí Benefit Fund, and;

        The Department has excluded from capital assets being depreciated certain property transferred from another State agency. The amount of which this departure would affect the financial statements is not reasonably determinable.

 

The Independent Accountants Report on State Compliance on Internal Control Over Compliance and on Supplementary Information for State Compliance Purposes noted the Department did not comply in all material respects with the requirements regarding:

 

        The obligation, expenditure, receipt and use of public funds in accordance with any limitations, restrictions, conditions or mandatory directions imposed by law upon such obligation, expenditure, receipt or use;

        Applicable laws and regulations, including the State uniform accounting system, in its financial and fiscal operations, and;

        Requirements regarding money or negotiable securities or similar assets handled by the Department on behalf of the State or held in trust by the Department regarding properly and legally administering, accounting and accurate recordkeeping thereto in accordance with law.

 

 

 

 

_____________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:RPU:pp

 

 

SPECIAL ASSISTANT AUDITORS

 

††††† Sikich LLP were our special assistant auditors for this engagement.

 

 

DIGEST FOOTNOTES

 

#1 NONCOMPLIANCE WITH THE ILLINOIS PROCUREMENT CODE Ė Previous Department Response

 

2006:†† Recommendation accepted: The Department will continue to work with DCMS to define competitive purchasing processes for the commissary operations that are consistent with the Stateís procurement policy while meeting the security and safety needs of the Department.

 

#2 Adult Transition Centers Records Not Properly Maintained - Previous Department Response

 

2006:†† Recommendation accepted: The Department has made significant improvements in the maintenance in the records of the transitional centers during the past years.Increased utilization of the automated accounting systems will address several of the exceptions noted.All Centers have been reminded of the importance of timely and accurate record maintenance and there will be zero toleration of failures to comply.

 

#3 PAYROLL TIMEKEEPING SYSTEM NOT AUTOMATED ĖPrevious Department Response

 

2006:†† Recommendation accepted:As Part of the Shared Services Program statewide effort to improve processes, the Department is scheduled to be one of the pilot agencies for the implementation of an automated timekeeping solution.