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Financial Audit of Hawaii Youth Center - 2007

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Financial Audit of the Hawaiÿi
Youth Correctional Facility

A Report to the
Governor
and the
Legislature of
the State of
Hawai‘i

Report No. 07-01
January 2007

THE AUDITOR
STATE OF HAWAI‘I

The Auditor

State of Hawai‘i

OVERVIEW
Financial Audit of the Hawaiÿi Youth Correctional Facility
Report No. 07-01, January 2007

Summary

The Legislature initiated a financial and operational audit of the Hawaiÿi Youth
Correctional Facility through Act 1, Session Laws of Hawaiÿi 2006. The operational
audit of the facility was previously conducted and issued during May 2006 as
Report No. 06-03, Management Audit of the Hawaiÿi Youth Correctional Facility.
This financial audit was conducted by the Office of the Auditor and the certified
public accounting firm of Grant Thornton LLP. We assessed selected fiscal issues
of the Office of Youth Services and the Hawaiÿi Youth Correctional Facility,
including, but not limited to, a review of sick leave, overtime, ward trust accounts,
and procurement issues. The Office of Youth Services is responsible for leading
the State’s services to at-risk youths. The youth correctional facility is a branch of
the Office of Youth Services.
Our audit found that the facility incurs significant overtime costs and sick leave
usage among its youth corrections officers (YCOs). For example, for the 20
YCOs’ payroll histories that we reviewed, an average of 35 percent of their gross
compensation was earned through overtime during FY2004-05. In fact, one YCO
earned $44,845 in overtime compensation as compared to $36,494 in base pay. We
also reviewed the sick leave patterns for these YCOs, noting they took an average
of 164 hours of sick leave and 234 hours of compensatory time off in lieu of sick
leave during FY2004-05. However, we found that high vacancy levels among the
facility’s YCOs and the inherently stressful nature of the work were the primary
drivers of overtime costs and sick leave usage.
We also found that internal controls over the collection of salary overpayments
could be improved; controls over processing, disbursing, and reporting of wards’
trust accounts should be strengthened; and improved compliance with procurement
laws and rules is needed.

Recommendations
and Response

We recommended that the facility develop and implement a formal system of
monitoring overtime and sick leave usage among all employees concurrently to
identify any patterns of abuse. The facility should also work with the Office of
Youth Services to fill vacant youth corrections officers positions as soon as
possible. We also made a number of recommendations to the Hawaiÿi Youth
Correctional Facility and the Office of Youth Services regarding monitoring salary
overpayments, handling of wards’ trust accounts, and complying with procurement
laws and rules.



Report No. 07-01

January 2007

The Office of Youth Services agreed with our findings and expressed appreciation
for the professionalism and courtesy afforded by our staff and Grant Thornton
LLP. The office provided details of corrective actions being taken or already
implemented since the conclusion of our audit fieldwork.

Marion M. Higa
State Auditor
State of Hawai‘i

Office of the Auditor
465 South King Street, Room 500
Honolulu, Hawai‘i 96813
(808) 587-0800
FAX (808) 587-0830

Financial Audit of the Hawaiÿi
Youth Correctional Facility

A Report to the
Governor
and the
Legislature of
the State of
Hawai‘i

Conducted by
The Auditor
State of Hawai‘i
and
Grant Thornton LLP

Submitted by

THE AUDITOR
STATE OF HAWAI‘I

Report No. 07-01
January 2007

Foreword

This is a report of the financial audit of the Hawaiÿi Youth Correctional
Facility, for the fiscal year July 1, 2004 to June 30, 2005. The audit was
conducted in response to Act 1, Session Laws of Hawaiÿi 2006, which
requested the State Auditor to conduct a financial and operational audit
of the facility. The operational audit of the facility was previously
conducted and issued during May 2006 as Report No. 06-03,
Management Audit of the Hawaiÿi Youth Correctional Facility. This
financial audit was conducted by the Office of the Auditor and the
certified public accounting firm of Grant Thornton LLP.
We wish to express our appreciation for the cooperation and assistance
extended by the officials and staff of the Department of Human Services,
the Office of Youth Services, and the Hawaiÿi Youth Correctional
Facility.

Marion M. Higa
State Auditor

Table of Contents

Chapter 1

Introduction
Background .................................................................... 1
Objectives ...................................................................... 7
Scope and Methodology ................................................ 7

Chapter 2

HYCF Has Staffing and Internal Control
Deficiencies
Summary of Findings .................................................... 9
High Vacancies Drive Significant Overtime Costs
and Sick Leave Usage ................................................ 9
Internal Controls Over the Collection of Salary
Overpayments Could Be Improved ......................... 12
Controls Over Processing, Disbursing, and Reporting
of Wards' Trust Acounts Should Be
Strengthened ............................................................. 13
Improved Compliance with Procurement Laws and
Rules Is Needed ........................................................ 15

Response of the Affected Agency .............................................. 17

List of Exhibits
Exhibit 1.1
Exhibit 1.2
Exhibit 1.3

Office of Youth Services Organization Chart .............. 3
Hawaiÿi Youth Correctional Facility Organization
Chart ............................................................................ 5
HMS 503 - Youth Residential Programs Budgets
for FY2004-05 and FY2005-06 ................................. 6

v

Chapter 1: Introduction

Chapter 1
Introduction
The Hawaiÿi Youth Correctional Facility, the State’s only institution for
incarcerated juvenile offenders, has been the focus of intense scrutiny
over the past several years. This scrutiny has risen from extensive
research done by the American Civil Liberties Union of Hawaiÿi (ACLU)
and the U.S. Department of Justice (DOJ) and has resulted in lawsuits
filed against the State of Hawaiÿi. In its August 2003 report, the ACLU
found a pattern of egregious conduct and conditions that violate
minimum, constitutional standards. This was followed by the ACLU’s
filing of a class action lawsuit in 2005. The DOJ's August 2005 report
cited the absence of policies and procedures as the cause of the “state of
chaos” at the facility. The DOJ also filed suit, but entered into a
memorandum of agreement that requires the State to remedy conditions
at the facility in three years’ time. In addition, in November 2005, the
Hawaiÿi State Legislature held informational briefings that surfaced
further concerns about the management of the facility.
Significant attention on the Hawaiÿi Youth Correctional Facility
(HYCF) spurred the Legislature to request that the State Auditor
conduct an audit pursuant to Act 1, Session Laws of Hawaiÿi (SLH)
2006. Our office thereby conducted an audit that assessed the
adequacy of the facility’s management and organization and in May
2006 issued the Management Audit of the Hawaiÿi Youth Correctional
Facility, Report No. 06-03. Additionally, we procured the services of
a certified public accounting firm to review selected financial issues of
the facility; however, the consultant was not available to conduct its
audit work simultaneously with our audit of management issues. The
purpose of this report is to present the consultant’s findings related to
the facility’s fiscal matters. Specifically, the consultant reviewed the
policies and procedures, records, and internal controls in place at the
Office of Youth Services and the facility related to sick leave,
overtime, ward trust accounts, and procurement. The Office of Youth
Services (OYS) has the charge of coordinating a broad range of
services and programs for youth-at-risk, including the oversight of the
facility.

Background

In Hawaiÿi, the practice of youth incarceration dates back to the period of
the Hawaiian monarchy. In 1864, on the island of Oÿahu, King
Kamehameha V created the Keoneÿula Reformatory School for boys and
girls in Kapälama, the first juvenile facility of its kind in the islands. In
1903, 75 of the boys were relocated to farmland in Waialeÿe on the North

1

Chapter 1: Introduction

Shore. Then, in succeeding decades, various types of facilities and
locales were used to house, train, and educate the youths. Finally, in
1961, the boys’ and girls’ operations were combined to form the Hawaiÿi
Youth Correctional Facility now based in Kailua. The facility would later
experience its own series of moves as it went from one agency’s
headship to another. In 1987, the Legislature created a juvenile justice
interdisciplinary committee to study and determine the appropriate
placement of the youth corrections program. The committee report, made
in January 1989, recommended that a youth services agency be created
and attached to the Department of Human Services for administrative
purposes. This recommendation resulted in the enactment of Act 375,
SLH 1989, which created a new office responsible for the management
and operations of the facility and its juvenile parole functions.

Organization of the
Office of Youth
Services

The stipulations of Act 375 called for the Office of Youth Services to
assume the leadership role in responding to the needs of youth-at-risk by
developing and insuring a comprehensive continuum of statewide
planning and coordination, maintaining oversight of activities and
services for children and families, and providing responsibility and
accountability for these services. Additionally, the act noted the
importance of a single entity that would serve as a hub that is able to
coordinate a wide range of services and programs in the effort to prevent
delinquency and reduce the incidence of recidivism.
Headed by an executive director, the office comprises three sections:
the Administrative Services Office, the Program Development Office,
and the Hawaiÿi Youth Correctional Facility Branch. The
Administrative Services Office is responsible for fiscal, procurement,
personnel, and technical services for the organization. The Program
Development Office administers, implements, evaluates, and monitors
a broad spectrum of youth services. The Hawaiÿi Youth Correctional
Facility Branch coordinates youth corrections and rehabilitation
services, which is described in the following section. Exhibit 1.1
shows the Office of Youth Services organization chart.

Organization of the
Hawaiÿi Youth
Correctional Facility

2

One of the facility’s main goals is to rehabilitate incarcerated youth and
to assist them in the successful transitioning into the community at the
time of their release. The facility offers a variety of counseling,
treatment, and educational services for the youths who are referred to as
wards or commitments. All staff members participate in the effort to
provide guidance and opportunities leading towards positive change in
the behavior of the youth. The Department of Education also provides
educational programs for the wards, including special education.

Account Clerk III

Clerk-Typists II

Source: Office of Youth Services

Accountant IV

Program Specialist
(YGRS*)

Clerical

Social Service
Professional

Child & Youth
Specialist IV

Project Coordinator
(YGRS*)

Program Specialist
(Juvenile Justice)

Corrections
Manager II

Hawaii Youth
Correctional
Facility Branch

*Youth Gang Response System

Corrections
Program Specialist
II

Child & Youth
Specialists IV & V

Child & Youth
Program
Development
Officer

Administrative
Technical Services
Officer

Clerical Supervisor
II

Program
Development
Office

Executive Director

Administrative
Services Office

Exhibit 1.1
Office of Youth Services Organization Chart

Secretary III

Project Director

Chapter 1: Introduction

3

Chapter 1: Introduction

The facility includes three secure units: the Secure Custody Facility,
which houses high-risk boys; Hoÿokipa Makai, the unit designated for
short-term, low-risk boys; and the Observation and Assessment
building, which provides housing for the girls. During FY2004-05, the
facility admitted 108 new wards who had never been incarcerated
before and did not arrive due to a parole suspension; these
commitments were 80 percent male and 20 percent female. Among the
new wards, 45 percent were short-term commitments (where their
incarceration periods last less than 365 days) and 64 percent were
minority commitments (with incarcerations lasting until the age of 18,
19, or 20 is reached). Fifty-nine wards were committed by the Family
Court’s First Judicial Circuit, 45 from the Second, Third, and Fifth
Circuits of the Family Court, and unknown sources. During FY200405, the average daily population of facility wards numbered 60.
A corrections manager, more commonly referred to as the administrator,
heads the facility. A secretary and a corrections program specialist
report directly to the administrator, as do section heads for health care
services, business services, corrections and social services, and facility
maintenance-related services sections. Several key positions at the
facility are temporarily filled. Exhibit 1.2 illustrates the organization of
the Hawaiÿi Youth Correctional Facility.

4

Program
appropriations of the
Hawaiÿi Youth
Correctional Facility

The budget for the Office of Youth Services comprises three programs:
HMS 501—Youth Services Administration; HMS 502—Youth Services
Programs; and HMS 503 Youth Residential Programs. The Office of
Youth Services allocates moneys to the Hawaiÿi Youth Correctional
Facility from the approved HMS 503 budget. HMS 503 provides “a
continuum of residential programs and services ranging from secure
custody to non-secure community-based residential programs.” Exhibit
1.3 summarizes the HMS 503-–Youth Residential Programs budgets for
the past two years, as approved by the Legislature in Acts 41, SLH 2004,
and 178, SLH 2005.

Prior audits

In 1986, our Management Audit of the Hawaiÿi Youth Correctional
Facility, Report No. 86-15, assisted the Legislature in assessing the
facility’s role and performance. We found that Hawaiÿi’s youth
corrections policies and practices lacked clarity and consistency and
failed to provide an adequate framework for effective program
management. More specifically, we found that Hawaiÿi’s legislation
created ambiguity in the roles and responsibilities of the three
departments directly involved in providing services at the Hawaiÿi Youth
Correctional Facility. These included the then Departments of Social
Services and Housing, Education, and Health. These departments lacked

Livestock Herders

Building
Maintenace
Workers II

Social Workers

Corrections
Recreation
Specialists

Youth Correction
Supervisors

Youth Correction
Officers

Groundskeeper II

Automotive
Mechanic II

Farm Manager I

Institutional
Facilities
Superintendent I **

Construct & Maint
Supervisor

Social Worker V

Corrections
Supervisor I*

Corrections Manager II

Custody Unit

Stores Clerk II

Clerk
Stenographers II

Clerk Typists II

Account Clerk IV

Business Services
Supervisor II

Source: Office of Youth Services

Dental Assistant III

Registered
Professional Nurse
IIl

Reigsered
Professional Nurse
III

Registered
Professional Nurse
V**

Health Care
Services Section

Exhibit 1.2
Hawaiÿi Youth Correctional Facility
Organization Chart

NOTES

Corrections
Program Specialist
I***

* On Special Assignment
** On Leave
*** Temporary-Position Being Held

Cooks III

Institution Food
Services Manager

Secretary III

Chapter 1: Introduction

5

Chapter 1: Introduction

Exhibit 1.3
HMS 503 – Youth Residential Programs Budgets for
FY2004-05 and FY2005-06
Positions
General Fund Positions
Transfer Fund Positions
Total Positions

FY2004-05
88.50
.50

88.50
.50

89.00

89.00

FY2004-05

Funds
General Fund
Federal Funds
Transfer Funds
CIP Fund
Total Funds

FY2005-06

FY2005-06

$5,472,979
1,463,704
15,940
0

$6,278,187
1,463,704
16,540
100,000

$6,952,623

$7,858,431

Source: Department of Human Services

concerted planning and programming, and they mainly warehoused
wards temporarily committed to their care.
Our audit also revealed that the Hawaiÿi Youth Correctional Facility fell
short in preparing its wards for return to the community. The facility was
largely deficient in the areas of basic and vocational education,
reintegration, and family involvement. The facility also lacked a health
education program and an infirmary. We concluded that a confusing and
uncertain central mission plagued the facility’s internal management.
In May 2006, our Management Audit of the Hawaiÿi Youth Correctional
Facility, Report No. 06-03, assessed the adequacy of the facility’s
management and organization. We found that the Office of Youth
Services has not provided the Hawaiÿi Youth Correctional Facility with
adequate guidance and support to carry out its mission. The Office of
Youth Services has not effectively implemented its strategic plan and has
not established a clear mission for the Hawaiÿi Youth Correctional
Facility.
We further found that the Hawaiÿi Youth Correctional Facility needs to
use productive management tools relating to human resource
management and quality assurance programs. The facility has left many
critical positions vacant or temporarily filled, conducted job performance
evaluations only sporadically, and has no formal or systematic training
program.

6

Chapter 1: Introduction

Objectives

1. Assess selected fiscal issues of the Office of Youth Services and
Hawaiÿi Youth Correctional Facility, including, but not limited to, a
review of sick leave, overtime, ward trust accounts, and procurement
issues.
2. Make recommendations as appropriate.

Scope and
Methodology

Our review focused on FY2004-05 to the present, but it included
previous fiscal years as necessary. We procured the services of a
certified public accounting firm (Grant Thornton LLP) to review
selected financial issues of the Hawaiÿi Youth Correctional Facility.
Specifically, the consultant reviewed the policies and procedures,
records, and internal controls in place at the Office of Youth Services and
the Hawaiÿi Youth Correctional Facility related to sick leave, overtime,
and procurement. In addition, the consultant interviewed personnel
involved in the management and oversight of the Hawaiÿi Youth
Correctional Facility and other relevant agencies.
Our work was performed from February 2006 to June 2006, and
conducted according to generally accepted government auditing
standards.

7

Chapter 1: Introduction

This page intentionally left blank.

8

Chapter 2: HYCF Has Staffing and Internal Control Deficiencies

Chapter 2
HYCF Has Staffing and Internal Control
Deficiencies
Management ensures that organizational goals and objectives are met and
resources are safeguarded with the aid of internal controls. This chapter
presents our findings and recommendations on the financial accounting
and internal control practices and procedures of the Hawaiÿi Youth
Correctional Facility.

Summary of
Findings

1. High vacancies drive significant overtime costs and sick leave usage.
2. Internal controls over the collection of salary overpayments could be
improved.
3. Controls over processing, disbursing, and reporting of wards’ trust
accounts should be strengthened.
4. Improved compliance with procurement laws and rules is needed.

High Vacancies
Drive Significant
Overtime Costs
and Sick Leave
Usage

The Hawaiÿi Youth Correctional Facility’s youth corrections officers
(YCOs) have incurred a significant amount of overtime and sick leave
during the fiscal year ended June 30, 2005. According to an analysis
prepared by the facility and submitted to the Legislature, the facility paid
out $818,231 in overtime to its 54 YCOs during FY2005. This
represents 52 percent of total base compensation for YCOs. These
individuals also accounted for 5,995 sick leave hours taken. The
stressful nature of the YCO position coupled with high vacancies
contributes to considerable overtime and sick leave costs for the facility.
However, because overtime and sick leave can be closely associated with
one another, the facility should be more proactive in monitoring both for
potential abuse.

Overtime is a
significant but inherent
cost of the facility

In the facility overtime analysis, we judgmentally selected a sample of 20
YCOs and reviewed their payroll histories for FY2005. These YCOs
incurred total overtime pay of $406,425, which represents 35 percent of
their total gross compensation ($1,149,668) and 57 percent of their total
base compensation ($713,652). In fact, three out of the 20 YCOs tested
earned more in overtime than in base pay. One YCO earned $44,845 in
overtime compensation as compared to $36,494 in base pay.

9

Chapter 2: HYCF Has Staffing and Internal Control Deficiencies

Youth corrections officers fulfill a critical function at the facility by
maintaining care, custody, and control of juvenile wards. The position
works in a setting requiring 24 hours-a-day coverage. Overtime at the
facility is incurred when a YCO calls in sick and the youth corrections
supervisor on duty must find a replacement. Youth corrections officers
who are not scheduled to work on that respective day are offered the
opportunity for overtime through a system that benefits officers with the
most seniority. All overtime is approved by either the corrections
supervisor I or the youth facility administrator on Form D-55 “State of
Hawaiÿi Individual Timesheet.”
We were informed by facility personnel that one cause of the significant
amount of overtime is the high YCO vacancy level at the facility. Based
on the facility’s payroll records, we found that as of June 30, 2005, 18
out of 70 available positions were either vacant or filled by temporary
employees; there were 11 vacancies and seven positions that were filled
by 89-day emergency hires. Overtime is also driven by the amount of
sick leave taken by YCOs. Due to the critical nature of the function, if
an YCO unexpectedly calls in sick, a replacement will have to be asked
to work overtime to cover.
Difficulty in filling and maintaining adequate staffing levels for YCOs,
coupled with the stressful nature of the work, contribute to the significant
amounts of overtime incurred by the facility’s YCOs. This condition
could lend itself to higher levels of employee stress and turnover. The
high level of overtime could also lead to sick leave abuse, which is
defined as taking sick leave when not actually sick.

Youth corrections
officers incur a
significant amount of
sick leave

In order to assess YCO sick leave usage we considered the same 20
YCOs selected for overtime analysis; however, we noted only 17 of these
YCOs had been employed at the facility for the entire year and limited
our review to these individuals. For these 17 YCOs, we reviewed the
payroll registers noting that they took a total of 2,787 hours of sick leave,
which amounts to an average of 164 hours per officer. Generally, state
employees earn 168 hours, or 21 days, of sick leave per year. However,
we found that 12 of the 17 YCOs tested took 168 hours or more of sick
leave during FY2005. In addition, these 12 YCOs also took an aggregate
of 2,809 hours of compensatory time off in lieu of sick leave which
averages out to 234 hours per officer. One YCO took 168 hours of sick
leave and 481 hours of compensatory time off in lieu of sick leave, for an
aggregate of 649 hours.
Youth corrections officers are required to call the youth corrections
supervisor on duty for their section and inform them that they will be on
sick leave for that respective day. The YCOs are required to complete
Form G-1 “State of Hawaiÿi – Application for Leave of Absence” within

10

Chapter 2: HYCF Has Staffing and Internal Control Deficiencies

five days after they return to work. After each pay period, a clerk
stenographer at the facility updates YCO leave records based on an
attendance report, which is a summary of daily attendance records by pay
period. If the clerk stenographer finds that a YCO has exhausted all sick
leave hours, she informs the YCO via memorandum that there is
insufficient sick leave and what type of leave may be elected in lieu of
sick leave, including available compensatory time and vacation. If the
officer’s Form G-1 has already been approved, the clerk stenographer
whites out the authorized signatures and sends the Form G-1 back to the
YCO for revision and approval.
Youth corrections officers are responsible for contacting their section
supervisors when taking sick leave. The supervisors do not have the
YCOs’ leave records available when taking the call to determine if the
YCO has adequate sick leave.

The facility should
monitor overtime and
sick leave concurrently

Although the facility’s procedures for approval of overtime and sick
leave appear adequate, the facility does not have a system for
simultaneously monitoring both for potential abuse. Facility
management does not periodically compare overtime and sick leave
records to determine patterns which signal misuse. Such a review is
important due to the close relationship between the two factors and the
resulting expenses. Not only do significant overtime and sick leave lead
to higher levels of stress and employee turnover, they directly drive each
other. Facility personnel have indicated that they sometimes take sick
leave because they “need a break” from all the overtime. The facility
must take the initiative in controlling these significant costs and stressful
situations.

Recommendation

We recommend that the facility develop and implement a formal system
of monitoring overtime and sick leave usage among all employees. This
system should designate a management level employee to review
timesheets in conjunction with leave records on a monthly basis for
situations indicative of overtime and sick leave abuse. The system
should define these situations, which could include periods of extensive
overtime followed by sick leave. Once employees have displayed any of
these patterns they should be placed in a program of more thorough
review. This would also allow the facility to identify and alleviate
excessively stressful situations for its employees.
We further recommend that the facility work with the Office of Youth
Services to fill YCO vacancies as soon as possible. We also recommend
that a management level employee be designated to assess whether
overtime is in fact necessary in situations when a YCO calls in sick.

11

Chapter 2: HYCF Has Staffing and Internal Control Deficiencies

Lastly, we recommend that the facility determine whether YCOs’ leave
records can be made available to section supervisors during their shifts to
determine if adequate sick leave is available to an officer who calls in
sick.

Internal Controls
Over the
Collection of
Salary
Overpayments
Could Be
Improved

The Hawaiÿi Youth Correctional Facility does not employ monitoring
controls in the collection of salary overpayments. Salary overpayments
arise when employees are paid for days they are absent from work but
have no sick leave, compensatory time, or vacation leave to account for
the time off. A clerk stenographer maintains employee leave records,
and additionally processes documents sent to the payroll section which
adjust employees’ current or subsequent payroll for any leave without
pay. The clerk stenographer maintains a file of all documents sent to
payroll; however, there is no process to ensure that collections were
processed correctly and timely by the payroll section. Further, payroll
adjustment records are maintained in the payroll section.
A proper system of internal controls should include monitoring functions
such as maintaining detailed records of salary overpayments incurred and
collected, reviewing the collections processed by the payroll section, and
reviewing the “State of Hawaiÿi Payroll Assignment Register” for facility
employees with overpayment balances from prior years. Although no
significant discrepancies were found during our testing, the current
process does not ensure that amounts collected for salary overpayments
are proper or collected in timely fashion.
During our testwork we noted the following data related to salary
overpayments:

12

•

During FY2005, five youth corrections officers incurred
overpayments resulting from sick leave in 18 pay periods
aggregating $7,588. We reviewed nine repayments and noted
that they were processed in the subsequent pay periods. As of
July 20, 2005, all overpayments were repaid.

•

At the beginning of FY2005, nine employees had overpayment
balances totaling $16,631, which were being repaid through
payroll withholdings pursuant to agreements with the
Department of Human Services. At the end of the fiscal year,
two youth corrections officers had overpayment balances totaling
$3,608.

•

We found one instance where $148 was over-collected from a
youth corrections officer.

Chapter 2: HYCF Has Staffing and Internal Control Deficiencies

Recommendation
We recommend that the facility implement monitoring controls over the
collection of salary overpayments, including maintaining detailed records
of salary overpayments incurred and collected. We also recommend that
a management level employee be designated to perform the following:

Controls Over
Processing,
Disbursing, and
Reporting of
Wards’ Trust
Accounts Should
Be Strengthened

Processing and
recording duties for
wards’ trust account
transactions are not
properly segregated

•

Review the detailed records of salary overpayments incurred and
collected to monitor the extent and status of the overpayments.

•

Review the collections processed by the payroll section to ensure
accuracy and timeliness.

•

Review the “State of Hawaiÿi Payroll Assignment Register” for
facility employees with overpayment balances from prior years
to monitor the extent of the balances and to ensure they are
collected timely.

During our review of facility procedures over wards’ trust accounts, we
noted a lack of segregation of duties over the processing and
recordkeeping of transactions in the wards’ trust accounts and a
weakness in the controls over disbursements from the wards’ trust
accounts. We also noted noncompliance with the facility policy in
providing wards with monthly statements of their transactions. Although
the balances in the wards' trust accounts are immaterial to the facility (24
trust accounts totaling $656 as of June 30, 2005), they can be very
significant to the respective wards.

There is a lack of segregation of duties over the processing and
recordkeeping of transactions in the wards’ trust accounts. The facility
account clerk records wards’ trust account transactions in the accounting
system, reconciles the bank statement, and prepares and distributes
checks for disbursements from the accounts. The account clerk also has
access to the safe in which documents and cash are stored until they are
deposited. In addition, a review of the bank reconciliation by a person
not otherwise involved in the processing of wards’ funds is not
performed.
Segregation of duties is one of the most important principles of internal
accounting control. No one person should be responsible for the
recording and processing of a transaction. In addition, an independent
review of the bank reconciliation is one of the basic tenets of internal
control over cash. The potential effect is that the lack of segregation of
duties does not provide an adequate safeguard over the wards’ funds.

13

Chapter 2: HYCF Has Staffing and Internal Control Deficiencies

The cause of the problem is a lack of consideration or understanding of
the basic principles of internal control at the facility.

No review of
supporting documents
when signing for
wards’ checks

Withdrawals from trust accounts are initiated by the ward’s authorized
requisitioner who is required to complete Form YCF #87 “HYCF
Request Withdrawal of Funds from Ward’s Trust Fund.” After approval
by the facility section administrator, the form is submitted to the account
clerk who prepares the check after first determining that the ward has
sufficient funds. We were informed that check signers are not provided
Form YCF #87 and other supporting documents when signing the check,
except upon request. One of the basic tenets of internal control over cash
disbursements is that check signers review and initial the supporting
documents to show proof of their review when signing checks.
Because check signers are not consistently reviewing the supporting
documents when signing checks, there is increased risk of unauthorized
withdrawals being made from the wards’ trust accounts.

Wards may not be
given an opportunity to
review their account
statements

We discovered that wards are not regularly presented with a monthly
statement of the transactions relating to their accounts. While the
account clerk prepares a monthly statement of the activity of each ward’s
account, a copy of the statement is not provided to the ward except upon
request. Hawaiÿi Youth Correctional Facility Policy #1.02.53 “Trust
Account,”Section 4.4 “Procedures,” indicates that “the Account Clerk
shall maintain individual ledger accounts for each committed person and
shall issue a monthly statement showing deposit amounts, withdrawal
amounts, dates of transactions, and trust account balances to each
committed person via their respective Social Workers.”
The monthly trust account statements are given to each ward’s social
worker; however, no monitoring controls over the distribution of
statements to the wards are in place, including oversight by a
management level employee to ensure the wards receive their monthly
statements from their social workers. Without such receipt, wards are
unaware of the activity in their account and thus could not dispute
potential errors.

Recommendations

We recommend that:
•

14

A review over the internal controls over wards’ funds be
conducted to address the lack of segregation of duties.
Consideration should be given to utilizing personnel from the
Office of Youth Services to assist in the review of monthly bank
reconciliations. In addition, the review should be documented
with the reviewer’s initials.

Chapter 2: HYCF Has Staffing and Internal Control Deficiencies

Improved
Compliance with
Procurement Laws
and Rules Is
Needed

•

Check signers be presented with all supporting documents when
signing checks, with the necessary review documented by the
reviewer’s initials.

•

Wards should be provided with a copy of a monthly statement of
their account in accordance with Hawaiÿi Youth Correctional
Facility Policy #1.02.53, Section 4.4. Also, this process should
be documented by obtaining wards’ initials or signatures. Lastly,
monitoring controls over the distribution of monthly trust
account statements to wards should be implemented, including
designating a management level employee to oversee the
distribution of monthly trust account statements to wards by their
social workers.

We reviewed all Office of Youth Services contracts entered into during
FY2005 that were $100,000 or greater for compliance with Chapters
103D, “Hawaiÿi Public Procurement Code,” and 103F, “Purchases of
Health and Human Services,” Hawaiÿi Revised Statutes (HRS). Among
24 health and human services contracts examined, we noted that a “Log
of Proposals Received” was not prepared in a timely manner for each of
the reviewed contracts. Chapter 103F-402, HRS, and Section 3-143-615,
Hawaiÿi Administrative Rules (HAR), require that a register of proposals
be prepared and available for public inspection after contract proposal
submission. The register shall include the name of all applicants and
other identifying information, and shall be made available for public
inspection within ten working days (or a reasonable time) after the
submittal deadline. The “Log of Proposals Received” for these contracts
was finally made available for public inspection as late as three to ten
months after the deadline for contract submittal.
Office of Youth Services’ personnel explained the discrepancies were
due to employee error. However, state procurement laws and rules
clearly mandate how and when to prepare a register of contract proposals
as well as the public’s right to inspect these contract files. Fortunately
for OYS, there were no such public requests for inspection of the
contracts we reviewed.
We additionally found that 19 of the 28 contracts reviewed lacked
evidence of certain required approvals. Two individuals, the
administrative technical services officer and program development
officer, are required to sign the “Individual Agreement Log” that
accompanies each contract to indicate their joint approval; however, in
the 19 contracts reviewed, this log was not signed by the program
development officer.

15

Chapter 2: HYCF Has Staffing and Internal Control Deficiencies

Recommendations

16

We recommend that the Office of Youth Services review all relevant
sections of the Hawaiÿi Public Procurement Code relating to contracts to
ensure compliance and to make certain that the “Individual Agreement
Log” is properly approved.

Response of the Affected Agency

Comments on
Agency Response

We transmitted a draft of this report to the Department of Human
Services on December 28, 2006. A copy of the transmittal letter to the
department is included as Attachment 1. The response of the Office of
Youth Services is included as Attachment 2.
The Office of Youth Services agreed with our findings and expressed
appreciation for the professionalism and courtesy afforded by our staff
and Grant Thornton LLP. The office provided details of corrective
actions being taken or already implemented since the conclusion of our
audit fieldwork.

17

 

 

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