DEPARTMENT OF CORRECTIONS
FINANCIAL AND COMPLIANCE AUDIT
Summary of Findings:
WILLIAM G. HOLLAND
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DEPARTMENT OF CORRECTIONS - GENERAL OFFICE
FINANCIAL AND COMPLIANCE AUDIT
For The Two Years Ended June 30, 1998
|SELECTED ACTIVITY MEASURES||
|During Audit Period: Mr. Odie Washington
Currently: Mr. Donald Snyder
Internal control weaknesses at community correctional centers
Maintenance fees were either not being charged or were calculated incorrectly
Use of current funds to pay future claims
Catch-up billings were used to pay for prior year costs
Need to develop an automated payroll timekeeping system
Controls over disciplinary tickets need to be strengthened
This report presents our financial and compliance audit of the Department of Corrections' General Office, and our audit of the entire Department under the Single Audit Act of 1996. The Department administers 32 correctional facilities - 25 adult centers, 7 youth centers and 11 community correctional centers. Our auditors at the 32 correctional facilities assisted the General Office auditors in the preparation of the Department-wide financial statements and federal single audit.
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
CONTROL WEAKNESSES AT COMMUNITY CENTERS
In addition to 32 correctional centers, the Department operates a work release program for approximately 1,300 inmates who are housed in 11 community correctional centers.
During our audit fieldwork at the community centers, we noted many internal control weaknesses, and observed that several of the centers lacked procedures to maintain accounting records. Internal control weaknesses noted included:
We recommended the Department improve internal controls over bank accounts, accounting records, and resident files at community correctional centers.
Department officials accepted our recommendation and stated they have established a central business office for the Community Services Division. The CSD business administrator will implement monitoring and follow-up procedures to ensure better performance and greater accountability by field accounting personnel.
INADEQUATE PROCEDURES TO COLLECT RESIDENT MAINTENANCE FEES
The Department did not have adequate procedures at the community correctional centers to ensure that all maintenance fees, which are generally 20% of the resident's net paycheck, were collected from the residents.
The centers have policies to discipline residents if maintenance fees are not submitted at all or on a timely basis. However, the proper, timely monitoring of the collection of these fees, in order to be able to enforce these disciplinary actions, is not adequate. (Finding 98-10, page 30)
We recommended the Department implement procedures to ensure the accurate collection of maintenance fees from all residents who are required to pay maintenance, and the Department concurred.
QUESTIONS ARISE IN PAYMENT OF WORKERS' COMPENSATION CLAIMS
Without specific statutory authority to do so, the Department purchased annuities to pay future workers' compensation claims, circumventing State fiscal year appropriation constraints. The Department is responsible for the administration and payment of all workers' compensation claims relating to Department employees. The Department receives an annual appropriation to pay outstanding claims. These claims have historically been paid when currently due in accordance with the workers' compensation settlement. Many settlements contain provisions for fixed payments to be made over a future period of time, sometimes for the claimant's life.
Beginning in fiscal year 1996, the Department began purchasing annuities from current year appropriations through lump sum payments to insurance companies to fund some of these future year claims. These lump sum payments totaled $1,310,771, $2,024,891 and $290,456 in fiscal years 1996, 1997 and 1998, respectively. The Department obtained annuity quotes from insurance companies by individual claimant, then selected individual claimants and annuity payments to expend its remaining appropriations. These annuities appear to constitute "investments", most of which have nominal interest rates of between 4% and 5.5%.
Department officials indicated that these lump sum payments would reduce future obligations of the Department. We feel this process allowed the Department to utilize all of its current appropriations through the arbitrary prepayment of future liabilities. (Finding 98-4, pages 19 - 20)
We recommended the Department comply with fiscal year constraints and pay current year obligations from current year appropriations. If proper appropriation authorization to continue this practice is obtained, the Department should also review its lack of specific statutory authority to invest appropriated Treasury funds before continuing to purchase annuities.
Department officials stated their belief that the Department had the authority to pay the claims. The Department received a substantial appropriation increase in 1996 so a backlog could be addressed. In fiscal year 1996, annuities were purchased from highly rated insurance companies to fund surviving spouse benefits. In fiscal year 1997, five and ten year annuities were purchased to fund the total and permanent disability payments for adjudicated claims.
IMPROPER FISCAL YEAR EXPENDITURES
The Department improperly paid fiscal year 1997 costs totaling $661,590 from fiscal year 1998 appropriations.
We noted vouchers payable to the Department of Central Management Services (DCMS) for computer services and automotive costs totaling $661,590 chargeable to fiscal year 1997 were paid from fiscal year 1998 appropriations. The invoices for services were submitted to the Department during fiscal year 1997 allowing adequate time to process the payment against fiscal year 1997 funds. The invoices were also initially approved by Department personnel during fiscal year 1997, but due to insufficient remaining funds, were paid in fiscal year 1998.
As a result, the Department exceeded their fiscal year 1997 appropriation authority and improperly charged costs to the subsequent fiscal year.
The Department charged these expenditures to the subsequent fiscal year by classifying them as "catch-up" billings. Department officials stated the Agency was faced with urgent needs to pay for certain prison reform initiatives and felt that the then new "catch-up billing" provision of the State Finance Act was a viable and appropriate approach to meeting its obligations. They further stated the costs cited above were paid from fiscal year 1998 appropriations upon the receipt of a designated catch-up billing from DCMS.
The State Finance Act allows for "catch-up" billings, but we feel the Department is misinterpreting this statute. We interpret the statute as a means for DCMS to collect past due billings, not as a means to allow the Department to fund new initiatives and defer current year obligations to future fiscal years. The Department should fund new initiatives through supplemental appropriations from the General Assembly, not through "catch-up" billings. (Finding 98-5, page 21)
We recommended the Department monitor expenditures to ensure they stay within current year budgetary constraints. The Department agreed that monitoring expenditures is an important fiscal function, but the Department believed that it acted properly within the provisions of the State Finance Act.
OUTDATED MANUAL PAYROLL SYSTEM
The Department-wide payroll timekeeping system is not automated. Each of the 32 large correctional centers employs several hundred employees, and the related timekeeping system is maintained manually. Facility 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, is also forwarded to the timekeepers. No automation is involved except for the processing of payroll warrants. Officials indicate that there are insufficient funds available to develop a Department-wide system to replace the outdated manual system used for over 14,000 employees.
Prudent business practices suggest that controls available through automated timekeeping systems can provide greater efficiency and reduce the potential for costly errors or employee abuse. (Finding 98-17, page 40)
We recommended the Department continue to pursue an automated timekeeping system.
The Department accepted our recommendation and stated it will continue to pursue an automated timekeeping system as resources become available subsequent to completion of Year 2000 EDP projects.
NEED TO IMPROVE CONTROLS OVER DISCIPLINARY TICKETS
The Department did not have adequate internal controls over disciplinary tickets written for infractions committed by inmates while in the 25 adult correctional facilities. When an inmate commits a disciplinary infraction at an adult facility, a correctional officer may issue a disciplinary ticket to the inmate. The ticket describes the infraction and is sent to the shift supervisor. The shift supervisor rates the infraction major or minor and forwards it to the facility's Adjustment Committee. The ticket is supposed to be docketed and tracked in the system through the issuance of a disciplinary action.
We noted that there were no internal controls over the disciplinary tickets to ensure an accounting of all tickets. The tickets are not standardized among facilities and are not prenumbered. There are also no Department-wide policies or procedures for accounting for these tickets. Without proper controls such as prenumbered tickets, these tickets could be lost or stolen before reaching the Adjustment Committee. (Finding 98-20, page 44)
We recommended the Department develop standardized written procedures to track and account for all disciplinary tickets written by correctional officers. Such procedures should include prenumbering of these tickets.
The Department did not accept our recommendation and stated it does not believe that modifying the existing procedures would necessarily solve the underlying concerns about lost or destroyed tickets.
The remaining findings are less significant and are being given attention by the Department. We will review the Department's progress toward the implementation of our recommendations in our next audit.
Mr. Mark Krell, Chief Auditor of the Department of Corrections, provided the agency's responses.
Our auditors stated the Department's financial statements as of June 30, 1998 were fairly presented except for the effects of such adjustments, if any, as might have been determined to be necessary had they been able to examine evidence regarding Year 2000 disclosures.
SPECIAL ASSISTANT AUDITORS
Sikich Gardner & Co, LLP were our special assistant auditors on the audit of the General Office and coordinated the performance of various procedures at the correctional facilities administered by the Department.