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Md Doc Audit Re Housing Federal Prisoners - 2006

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Audit Report

Department of Public Safety and Correctional Services
Baltimore Region

November 2006

OFFICE OF LEGISLATIVE AUDITS
DEPARTMENT OF LEGISLATIVE SERVICES
MARYLAND GENERAL ASSEMBLY

•

This report and any related follow-up correspondence are available to the public through the
Office of Legislative Audits at 301 West Preston Street, Room 1202, Baltimore, Maryland
21201. The Office may be contacted by telephone at 410-946-5900, 301-970-5900, or 1-877486-9964.

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Electronic copies of our audit reports can be viewed or downloaded from our website at
http://www.ola.state.md.us.

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Alternate formats may be requested through the Maryland Relay Service at 1-800-735-2258.

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The Department of Legislative Services – Office of the Executive Director, 90 State Circle,
Annapolis, Maryland 21401 can also assist you in obtaining copies of our reports and related
correspondence. The Department may be contacted by telephone at 410 946-5400 or 301970-5400.

November 27, 2006

Senator Nathaniel J. McFadden, Co-Chair, Joint Audit Committee
Delegate Charles E. Barkley, Co-Chair, Joint Audit Committee
Members of Joint Audit Committee
Annapolis, Maryland
Ladies and Gentlemen:
We have audited the Baltimore Region of the Department of Public Safety and
Correctional Services for the period beginning March 20, 2002 and ending
January 31, 2006.
Our audit disclosed that, since June 1999, the Region had not renegotiated the
daily rate established to obtain reimbursement for the costs of housing federal
inmates which resulted in unrecovered State costs estimated at $3.5 million for
the period covering fiscal years 2003 to 2006.
Our audit also disclosed that the Region had not established or enforced adequate
controls to ensure proper accountability over inmate fund accounts. Procedures to
control the related collections, disbursements, and reconciliations were virtually
nonexistent.
In addition, the Region had not established sufficient internal controls to help
ensure that only authorized purchases and disbursements were made, that only
authorized payroll entries were processed, and that accountability for materials,
supplies, and equipment was established.
Respectfully submitted,

Bruce A. Myers, CPA
Legislative Auditor

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Table of Contents
Executive Summary

5

Background Information

7

Agency Responsibilities
Current Status of Findings From Preceding Audit Report

Findings and Recommendations

9

Federal Inmate Housing
Finding 1 – The Daily Rate for Holding Federal Prisoners Was Not
Renegotiated, Resulting in Uncovered Costs of an Estimated $3.5
Million

*

*
*

*

7
7

Inmate Accounts
Finding 2 – The Region Did Not Reconcile the Aggregate of Inmate
Account Balances With the Corresponding Records of the Comptroller
Finding 3 – The Region Had Not Established Adequate Procedures to
Account for Inmate Working Funds nor Had It Taken Adequate
Measures to Ensure the Propriety of Inmate Funds Checks Presented
for Payment
Finding 4 – Adequate Procedures Were Not Established to Investigate
and Resolve Inmate Accounts With Negative Balances
Finding 5 – Collections Received on Behalf of Inmates Were Not
Adequately Controlled

9

10
11

12
13

Disbursements
Finding 6 – Proper Internal Controls Were Not Established Over Certain
Disbursement Transations

15

Payroll
Finding 7 – Proper Internal Controls Were Not Established Over the
Region’s Payroll

16

Corporate Purchasing Cards
Finding 8 – The Region Did Not Promptly Cancel Corporate Purchasing
Card Accounts for Terminated Employees and Did Not Retain Vendor
Documentation for Certain Purchases
* Denotes item repeated in full or part from preceding audit report

3

17

*

Material and Supplies
Finding 9 – Procedures and Controls Over Materials and Supplies
Inventory Were Inadequate

18

*

Equipment
Finding 10 – Adequate Control and Accountability Over Equipment
Was Not Established

19

Audit Scope, Objectives, and Methodology

21

Agency Response

Appendix

* Denotes item repeated in full or part from preceding audit report

4

Executive Summary
Legislative Audit Report on the Department of Public Safety and
Correctional Services – Baltimore Region
November 2006
•

The daily billing rate established in April 1999 to recover the Region’s
costs to temporarily house federal prisoners had not been renegotiated as
allowed by contract, resulting in as much as $3.5 million of unrecovered
State costs.
The Region should immediately evaluate its costs to hold federal prisoners
and renegotiate the contractual billing rate annually, if necessary, to ensure
full recovery of its costs.

•

The Region did not establish adequate control and accountability over
inmate fund accounts. Procedures over collections, disbursements, and
reconciliations for these funds were virtually nonexistent. For example,
the total of the inmate accounts, as reflected in the Region’s records,
exceeded the State’s balance by $429,574, certain checks were issued
without being signed by authorized check signers, and numerous
counterfeit checks were presented for payment.
The Region, in collaboration with the Department, should immediately
investigate the conditions of the inmate fund accounts at the Region and
establish proper controls over collections, disbursements, and reconciliations
for inmate accounts. Furthermore, the Region should seek help from the
Department to ensure that the established controls are fully complied with on
an ongoing basis.

•

Proper internal controls were not established over certain disbursement
transactions as three employees could both initiate and approve these
transactions and a critical logonid was shared among employees.
The Region should fully use the security features available on the Financial
Management Information System (FMIS) to ensure that only properly
authorized disbursement transactions are processed. Also, the Region should
ensure that unique FMIS logonids are not shared with other employees at any
time.

5

•

Proper internal controls were not established over certain payroll
functions.
The Region should ensure that supervisory personnel document their review
of adjustments recorded on the electronic payroll timekeeping reports. In
addition, supervisors should document their approvals for employees to work
overtime. Also, the Region should ensure that a unique logonid is used by
each employee responsible for entering payroll data into the system.

•

The Region did not promptly cancel corporate purchasing card accounts
of former employees, and did not retain vendor documentation to support
certain purchases.
The Region should comply fully with the Comptroller of the Treasury’s
Corporate Purchasing Card Program Policy and Procedures Manual
regarding timely cancellation of cards and maintaining proper vendor
documentation to support purchases.

•

Numerous accountability and control deficiencies were noted with respect
to the Region’s materials and supplies and equipment inventories. For
example, perpetual inventory records were not maintained for the
Region’s ammunition.
The Region should comply with all requirements of the Department of
General Services Inventory Control Manual for all materials and supplies and
equipment. The Region should also include ammunition in the perpetual
inventory records and separate the duties of inventory custodians from that of
inventory taking for ammunition.

6

Background Information
Agency Responsibilities
The Baltimore Region is a separate budgetary unit within the Division of
Correction in the Department of Public Safety and Correctional Services (DPSCS)
and consists of several units and facilities for adult male offenders.

Facilities Within the Division of Correction’s Baltimore Region
Facility
Maryland Correctional Adjustment
Center
Maryland Reception, Diagnostic, and
Classification Center
Metropolitan Transition Center
Baltimore City Correctional Center
Baltimore Pre-Release Unit

Security Level or Mission
Maximum Security
Medium/Minimum Security
Minimum Security
Monitors inmates that are allowed to
live in the community by using
electronic surveillance and frequent
contacts by correctional staff

Home Detention Unit

As of May 15, 2006, according to its records, the Region had a total population of
3,405 inmates. According to the State’s records, total Region expenditures were
approximately $97.4 million during fiscal year 2005, and the Region’s fiscal year
2006 appropriation provided for 1,369 employee positions, including 1,106
correctional officers.

Current Status of Findings From Preceding Audit Report
Our audit included a review to determine the current status of the eight
fiscal/compliance findings contained in our preceding audit report dated
September 30, 2002. We determined that the Region satisfactorily addressed
three of these eight findings. The remaining five findings are repeated and appear
as six findings in this report. In its response to our preceding audit report, the
Department of Public Safety and Correctional Services, on behalf of the Region,
generally agreed to implement the recommendations related to those findings.

7

8

Findings and Recommendations
Federal Inmate Housing
Finding 1
The daily rate, established in April 1999 to recover the Region’s costs to hold
federal prisoners, has not been renegotiated as allowed for by the contract.
This resulted in approximately $3.5 million of unrecovered State
expenditures during a four-year period.
Analysis
The daily rate of $132, established in April 1999 to recover the Region’s costs to
hold federal prisoners, has not been renegotiated as allowed by the contract,
resulting in unrecovered State expenditures. The contract with the U.S.
Department of Justice provides for the reimbursement of the costs for housing,
safekeeping, and subsistence of federal prisoners, and may be renegotiated once
per year.
Based on DPSCS records, we estimated that the Region’s daily cost per inmate to
house federal prisoners has increased during the audit period to $162 in fiscal year
2006. Based on cost data obtained from the State’s records for fiscal years 2003
through 2006, we estimated that the unrecovered costs for all of these years
totaled approximately $3.5 million (with fiscal year 2006 estimated to be $1.4
million).
Recommendation 1
We recommend that the Region immediately calculate its costs to hold
federal prisoners and renegotiate the contractual daily housing rate annually,
as necessary, to ensure full recovery of its costs.

Inmate Accounts
Background
Inmate accounts include funds earned by or received on behalf of inmates. These
funds, which are deposited with the State Treasurer, can be saved or inmates can
direct the Region to pay these funds to third parties. Collections received by the
Region on behalf of inmates totaled $2.1 million in fiscal year 2005 and $1.1
million during the first half of fiscal year 2006.

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The conditions described below in Findings 2 through 5, when taken as a whole,
indicate an almost complete lack of control and accountability over inmate funds
by the Region. These conditions are highly conducive to fraudulent activity,
although our testing did not disclose any specific fraudulent transactions by
employees.
Finding 2
The Region had not reconciled the aggregate balance of inmate accounts with
the corresponding records of the Comptroller of the Treasury, resulting in an
unreconciled difference of approximately $430,000.
Analysis
The Region had not reconciled the aggregate balance of inmate accounts per its
records (that is, the Maryland Offender’s Banking System, or MOBS) with the
corresponding records of the Comptroller of the Treasury. Although a
reconciliation was attempted for June 2005, all differences were not identified,
and differences that were identified were not resolved. As of January 31, 2006,
the total of the individual inmate accounts per MOBS of $498,377 exceeded the
Comptroller’s balance of $68,803 by $429,574. A similar condition was
commented upon during our preceding audit report. Specifically, as noted in our
prior audit report, as of March 31, 2002, the total of the individual inmate
accounts exceeded the Comptroller’s balance of $262,000 by $124,000.
Recommendation 2
We again recommend that the Region periodically reconcile the aggregate
balance of the individual inmate accounts with the corresponding records of
the Comptroller of the Treasury, that all differences be investigated and
resolved, and that these actions be documented and retained for future
reference. Also, given the overall lack of adequate controls and
accountability over inmate fund collections and the significance of the
problems noted in this report, we recommend that appropriate DPSCS
personnel conduct a thorough review and investigation of the issues and
assist in developing appropriate procedures and controls to safeguard these
funds.

10

Finding 3
The Region had not established adequate procedures to account for and
reconcile inmate working funds and to ensure the propriety of all inmate
funds checks presented to the bank for payment.
Analysis
The Region had not established adequate procedures to account for inmate
working funds and to ensure the propriety of related check activity. Our review
disclosed the following deficiencies:
•

Reconciliations of the inmate working fund checking account and
composition of funds analyses to account for the $65,800 of inmate
working funds advanced from the Comptroller of the Treasury had not
been completed since October 1999. Consequently, the Region’s
accounting records could not be relied upon to determine the accuracy of
the Region’s reported checking account balance. We attempted to
perform a composition of funds, as of January 31, 2006, and we
determined that the Region could not account for approximately $16,900
(or 26 percent) of the authorized advance.

•

During our review of cancelled checks issued during the first half of fiscal
year 2006, we identified twelve inmate working fund checks, totaling
$586 that were issued and cashed without being signed by authorized
check signers, as required, to ensure the propriety of the disbursements.
Eight of these checks were not signed at all and the other four had the
signature of an unauthorized person. Our review of the related supporting
documentation indicated that these disbursements appeared proper.

•

In a July 15, 2005 letter from its bank, the Region was advised that the
inmate working fund checking account had been compromised.
Specifically, numerous counterfeit checks had been presented for
payment, totaling approximately $6,700 and, as a result, the bank
recommended instituting Positive Pay.1 The bank also indicated that it
would no longer provide indemnification for counterfeit activity2 without
a preventive measure for the account. In response, the DPSCS Internal
Investigation Unit investigated the situation and determined that the

1

Positive Pay is a process whereby the bank is provided with a listing of all authorized checks at
the time of their preparation, which is then compared by the bank to checks presented for payment
to ensure their legitimacy.
2
We were advised that at no time either before or after the receipt of the May 12, 2006 letter did
the bank hold the Region responsible for payment of any counterfeit checks.

11

counterfeit checks were not the result of an internal problem and referred
the matter to local police authorities. As of May 12, 2006, counterfeit
checks were still being presented to the bank. Although the Region had
not instituted Positive Pay, it did institute an alternative procedure
whereby the Region reviewed the daily account activity recorded by the
bank for counterfeit checks and notified the bank of any such checks.
Although this process would detect counterfeit checks, it increases the risk
for human error and is more labor-intensive than an automated Positive
Pay process.
Due to the significant problems experienced by the Region concerning
accountability over inmate working funds, beginning in June 2005, the DPSCS –
Office of the Secretary finance personnel began assisting Region personnel with
the reconciliations and the fund compositions. However, full and complete
accounting for these funds had not yet been achieved as of May 2006.
According to the Region’s records, during fiscal year 2005, inmate fund
disbursements totaling $756,096 were processed through the inmate working fund
checking and petty cash accounts. Fiscal year 2006 (through April 10, 2006)
disbursements through the inmate work fund accounts totaled $633,197.
Recommendation 3
We recommend that the Region complete and document inmate working
fund bank reconciliations and composition of funds analyses on a monthly
basis, investigating and resolving any differences identified. We also
recommend that the Region ensure that all checks issued are signed by
authorized check signers, as required, and that a Positive Pay system for the
checking account be instituted.

Finding 4
The Region has not established adequate procedures to investigate and
resolve inmate accounts with negative balances.
Analysis
The Region had not investigated and resolved inmate accounts with negative
balances, which represent debts owed to the State. Furthermore, the Region did
not establish accounts receivable for inmate accounts with negative balances in
order to ensure collection of these receivables upon the inmates’ release.
Even though records indicate that the Region took action in July 2004 and April
2005 to investigate and to attempt to resolve certain accounts, significant negative

12

balances continued to exist. The Region indicated that the primary reason for
accounts having negative balances is that inmates are charged for State property
they destroyed while incarcerated. As a result of the April 2005 investigation of
selected accounts, the Region submitted 4 accounts, totaling $2,121, to the State’s
Central Collection Unit for collection efforts and 6 accounts, totaling $80, for
abatement. A February 2006 report generated by the Region, which we did not
verify, identified 7,422 inmate accounts with negative balances totaling $105,253,
including 75 accounts with negative balances in excess of $100 that had been
inactive from one to twelve years (for instance, one account had a negative
balance of $1,296). A similar situation was commented upon in our preceding
audit report in which we noted that an April 2002 report generated by the Region
identified 2,581 inmate accounts with negative balances totaling approximately
$28,000 that had been inactive for periods ranging from 1 to 9 years.
Recommendation 4
We again recommend that the Region investigate and resolve negative
balances for inmate accounts in a timely manner. We also recommend that,
when inmates with negative account balances are released, the Region
establish accounts receivable and comply with CCU regulations for collection
of these receivables.

Finding 5
The Region did not establish adequate controls over collections received on
behalf of inmates.
Analysis
The Region did not establish adequate controls over collections received on
behalf of inmates to reduce the risk of loss or misappropriation. The Region
received inmate collections, which were recorded on pre-numbered receipt forms,
at its finance office and at each of six institutions. Three of the institutions
deposited the funds directly, while the other three forwarded them to the Region’s
finance office for subsequent deposit. As previously stated, collections received
by the Region on behalf of inmates totaled approximately $2.1 million in fiscal
year 2005 and approximately $1.1 million in fiscal year 2006 (as of December 31,
2005). Our review disclosed the following specific deficiencies:
•

Certain deposit verifications were inadequate and were not always performed.
For example, the validated deposit slips for collections initially received by
three institutions and forwarded to the finance office were not compared to the
pre-numbered receipt forms initially prepared by the applicable institutions.

13

Based on records maintained by the Finance Office, deposits from collections
received by these three units during fiscal years 2005 and 2006 (through
December 2005) totaled approximately $1.2 million and $600,000
respectively. A similar condition was commented upon in our two preceding
audit reports.
•

The pre-numbered receipt forms used by the finance office were not
adequately accounted for as to issued, voided, or on hand. For example, the
process used by the Region to account for pre-numbered receipts only tested
certain receipts rather than accounting for all receipts, and even this process
was not performed timely or consistently. As of April 20, 2006, the Region’s
most recent test was for pre-numbered receipts issued in September 2005, and
this test had not determined that all receipts selected for review were properly
accounted for. A similar condition was commented upon in our preceding
audit report.

•

There was no documentation evidencing the transfer of collections from two
of the institutions to the finance office, and consequently, accountability over
these receipts was not maintained.

•

Checks received at one institution were not restrictively endorsed “for deposit
only” immediately upon receipt. Rather, the checks were restrictively
endorsed after being transferred to the finance office for deposit (which was
sometimes not until the next business day).

Recommendation 5
We again recommend that appropriate controls and processes be established
to account for collections. Specifically, we recommend that the Region
perform an independent verification that all recorded collections are
subsequently deposited by comparing all amounts recorded on the prenumbered receipt forms with the validated deposit ticket, and that the
Region periodically account for all pre-numbered receipt forms as to issued,
voided, or on hand for all units. We also recommend that the Region ensure
that documentation exists to support the transfer of cash receipts to the
finance office, and that all checks are restrictively endorsed “for deposit
only” immediately upon receipt.

14

Disbursements
Finding 6
Proper internal controls were not established over certain disbursement
transactions.
Analysis
The Region did not fully use the security features available on the State’s
Financial Management Information System (FMIS) to establish proper internal
controls over certain disbursement transactions, and a critical FMIS logonid was
shared among employees. As a result of these internal control deficiencies,
unauthorized transactions could be processed without detection. We noted the
following specific conditions:
• Three Region employees could both initiate and approve certain disbursement
transactions in which related invoices were not subject to an electronic
matching with purchase orders and/or receiving reports. In addition, one of the
employees could add vendors to the system. According to the State’s
accounting records, during fiscal year 2005, the Region processed $6.3 million
of these disbursements, of which $2 million were both initiated and approved
by the same employee. Similar conditions were commented upon in our three
preceding audit reports.
• Employees who were responsible for recording vendor transactions into FMIS
were, on occasion, provided a supervisor’s FMIS logonid to process
transactions after their logonids had expired. The supervisor had the ability in
FMIS to initiate and approve certain disbursement transactions and to add
vendors to the system. This sharing of logonids resulted in a loss of
accountability over FMIS transactions, and in reduced assurance over the
propriety of certain disbursement transactions processed by the Region.
Recommendation 6
We again recommend that the Region fully utilize the security features
available on FMIS to ensure that only properly authorized disbursement
transactions are processed for payment. We also recommend that the unique
FMIS logonids assigned to each employee not be shared with other
employees at any time.

15

Payroll
Finding 7
Proper internal control had not been established over the Region’s payroll.
Analysis
Proper internal control over the Region’s payroll had not been established.
Specifically, the supervisory employees who approved the payroll timekeeping
reports did not document that they had reviewed, for propriety and accuracy, the
supporting documentation (such as overtime authorization forms) for payroll
adjustments prior to their electronic release to the State’s Central Payroll Bureau.
Without verifying the propriety of payroll adjustments, errors and unauthorized
adjustments could be processed without detection. For example, our test of
overtime payments to ten employees for one pay period disclosed that overtime
authorization forms were not available to support 191 hours (36 percent) of the
526 hours of overtime paid. In addition, two of the ten overtime payments tested
were incorrectly calculated because the number of overtime hours paid did not
agree to the total overtime hours shown on the time cards. We were advised that
the Region later adjusted the employee’s pay for these errors.
Also, three Region employees (including one supervisor) shared one logonid to
record regular payroll entries, including overtime adjustments, into the State’s
payroll system. As a result, the accountability and propriety of regular payroll
entries, including overtime adjustments, was not ensured.
According to the State’s accounting records, regular employee payroll
expenditures for the Region totaled approximately $48.6 million during fiscal
year 2005, including approximately $2.9 million in overtime payments.
Recommendation 7
We recommend that supervisory personnel document their review of support
for adjustments recorded on the electronic payroll timekeeping reports, at
least on a test basis, and retain documentation of this review for future
reference. We also recommend that overtime hours be paid only when
properly documented authorization (such as a signed pre-authorization of
overtime by the supervisor) exists and for the correct amount(s). Finally we
recommend that a unique logonid be used by each employee responsible for
recording payroll data.

16

Corporate Purchasing Cards
Finding 8
The Region did not promptly cancel corporate purchasing card accounts for
terminated employees and did not retain vendor documentation to support
certain purchases.
Analysis
The Region did not promptly cancel corporate purchasing card accounts for
employees no longer working for the Region, and did not retain vendor
documentation to support certain purchases:
•

Four employees’ cards remained active for periods ranging from 6 to 12
months after their employment with the Region ended. The Comptroller of
the Treasury’s Corporate Purchasing Card Program Policy and Procedures
Manual states that purchasing cards must be cancelled immediately upon
employee separation.

•

Five transactions (totaling $8,160) out of 32 transactions (totaling $36,492)
reviewed were not supported by adequate vendor documentation. The
Manual requires that all purchasing card transactions be supported with a
descriptive vendor document such as a sales slip, packing slip, repair order or
invoice.

As of January 2006, 14 employees were issued corporate purchasing cards, and
purchasing card expenditures totaled $999,428 during fiscal year 2005 according
to the State’s accounting records.
Recommendation 8
We recommend that the Region fully comply with the requirements of the
Comptroller’s Corporate Purchasing Card Program Policy and Procedures
Manual, including the prompt cancellation of terminated employees’ cards
and the maintenance of proper vendor documentation to support every
purchasing card transaction.

17

Materials and Supplies
Finding 9
Procedures and controls over the Region’s materials and supplies inventory,
including the issuance and accountability for ammunition, were inadequate.
Analysis
Procedures and controls over the Region’s materials and supplies inventory,
including the issuance and accountability for ammunition, were inadequate. For
example, we noted the following deficiencies:
•

Requisition forms issued from the Region’s storerooms could be altered after
the issuance of goods, and additional items could be removed without
detection because the storeroom custodians had access to all three copies of
the requisition forms before two copies were forwarded to the inventory clerk
for updating the perpetual records. Additionally, we noted several instances
in which the requisition forms were not approved by the warden, as required.

•

Differences between perpetual inventory record balances and physical
inventories were not investigated and resolved, and related adjustments that
were recorded generally were not approved by management as required. That
is, the perpetual inventory records were adjusted for differences without
investigation as to the cause or need for the adjustment. In addition, our
physical count of 15 inventory items disclosed 7 differences totaling $3,867
between the physical quantities on hand and the quantities per the perpetual
inventory records. The Region could not explain these differences. Similar
conditions were commented upon in our preceding audit report.

•

Perpetual inventory records were not maintained for ammunition. Rather,
monthly physical counts of ammunition were conducted and recorded on an
Armory Inventory/Inspection Sheet; however, the counts were conducted by
an individual who had unrestricted access to the ammunition and, therefore,
was not independent. Furthermore, an independent verification of the
accuracy of the counts by the security chief was not performed. Finally,
required written authorizations from the warden for withdrawals of
ammunition from stock were not obtained. Consequently, our test counts
found differences between the physical quantities on hand and the
Inventory/Inspection Sheets. For example, the January 2006
Inventory/Inspection Sheet indicated that there were 1,075 more rounds of
shotgun shells than the actual quantity on hand at the time of our count, and
there were no records to indicate any authorized use subsequent to the date of
the Inventory/Inspection Sheet.
18

As a result of the aforementioned deficiencies, the Region’s management may not
readily detect any misappropriations or irregularities involving its materials and
supplies inventories, including ammunition. The Department of General Services
(DGS) Inventory Control Manual establishes certain requirements regarding
internal controls and related recordkeeping to be followed by State agencies.
While the Manual does not specifically address recordkeeping requirements for
ammunition, we were advised by DGS personnel that recording ammunition
quantities in the Region’s perpetual inventory would be an appropriate means of
maintaining accountability. The Region spent approximately $2.1 million during
fiscal year 2005 for materials and supplies, including approximately $30,000 for
ammunition, and reported an on-hand book value of $975,653 as of June 30,
2005.
Recommendation 9
We again recommend that the Region comply with the requirements of the
DGS Inventory Control Manual. Specifically, we recommend that inventory
clerks who maintain the perpetual inventory records periodically compare
the requisition copies used for inventory posting to the copies provided to the
employees receiving the goods, at least on a test basis, and ensure that all
required signatures are present. We also again recommend that differences
between the physical quantities on hand and the related perpetual records be
investigated and resolved by an employee who does not have access to the
materials and supplies stock and that inventory adjustments be reviewed and
approved by supervisory personnel, as required. Finally, we recommend
that the Region include ammunition in the perpetual inventory records, and
establish appropriate accountability and separation of duties between access
and recordkeeping.

Equipment
Finding 10
Adequate control and accountability over equipment, including security
items such as bulletproof vests, was not established.
Analysis
The Region had not established proper controls over its equipment inventory and
had not complied with the requirements of the DGS Inventory Control Manual.
As of June 30, 2006, the book value of the Region’s equipment, as reflected in the
State’s records, totaled approximately $6.9 million. Specifically, we noted the
following deficiencies:

19

•

The Region did not maintain an equipment control account independent from
the detail inventory records, nor did it periodically reconcile the control
account to the detail records. The unreconciled difference as of January 31,
2006 totaled $1,776,523 (that is, the total per the detail records exceeded the
control account balance). A control account provides a continuing summary
of transactions and a total dollar value control over amounts recorded in the
capital equipment detail records. The DGS Inventory Control Manual
requires that an independent equipment control account be maintained and
reconciled, at least quarterly, with the aggregate balance of the related detail
records.

•

As of February 23, 2006, the results of the physical inventories conducted
during September 2005 had been investigated, but had not been fully resolved.
The Region had determined that 1,427 missing items, valued at $470,819, had
been lost or stolen; however, these items had not been reported to DGS for
disposal authorization. Per the DGS Inventory Control Manual, a Report of
Missing or Stolen Personal State Property shall be forwarded to DGS within
10 working days of discovery of the loss.

•

The detail records did not include equipment items that were to be controlled.
For example, three equipment purchases, totaling $60,563 (consisting of a car,
92 bullet-proof vests, and assorted riot gear), of six equipment purchases
tested, totaling $151,979, were not recorded in the detail records. Also, 2 of
15 assets sighted on the Region’s premises (including a rifle) could not be
found in the detail records. Finally, 3 of 15 items selected from the detail
records (including a 32 inch TV) could not be physically located by Region
personnel.

Similar conditions regarding the maintenance of a control account were
commented upon in our four preceding audit reports. The remaining conditions
were also commented upon in our preceding audit report.
Recommendation 10
We again recommend that the Region establish proper controls over
equipment and comply with the requirements of the DGS Inventory Control
Manual.

20

Audit Scope, Objectives, and Methodology
We have audited the Baltimore Region of the Department of Public Safety and
Correctional Services for the period beginning March 20, 2002 and ending
January 31, 2006. The audit was conducted in accordance with generally
accepted government auditing standards.
As prescribed by the State Government Article, Section 2-1221 of the Annotated
Code of Maryland, the objectives of this audit were to examine the Region’s
financial transactions, records, and internal control, and to evaluate its compliance
with applicable State laws, rules, and regulations. We also determined the current
status of the findings contained in our preceding audit report.
In planning and conducting our audit, we focused on the major financial-related
areas of operations based on assessments of materiality and risk. Our audit
procedures included inquiries of appropriate personnel, inspections of documents
and records, and observations of the Region’s operations. We also tested
transactions and performed other auditing procedures that we considered
necessary to achieve our objectives. Data provided in this report for background
or informational purposes were deemed reasonable, but were not independently
verified.
Our audit scope was limited with respect to the Region’s cash transactions
because the Office of the State Treasurer was unable to reconcile the State’s main
bank accounts during the audit period. Due to this condition, we were unable to
determine, with reasonable assurance, that all the Region’s cash transactions were
accounted for and properly recorded on the related State accounting records as
well as the banks’ records.
The Region’s management is responsible for establishing and maintaining
effective internal control. Internal control is a process designed to provide
reasonable assurance that objectives pertaining to the reliability of financial
records, effectiveness and efficiency of operations including safeguarding of
assets, and compliance with applicable laws, rules, and regulations are achieved.
Because of inherent limitations in internal control, errors or fraud may
nevertheless occur and not be detected. Also, projections of any evaluation of
internal control to future periods are subject to the risk that conditions may
change or compliance with policies and procedures may deteriorate.

21

Our reports are designed to assist the Maryland General Assembly in exercising
its legislative oversight function and to provide constructive recommendations for
improving State operations. As a result, our reports generally do not address
activities we reviewed that are functioning properly.
This report includes findings relating to conditions that we consider to be
significant deficiencies in the design or operation of internal control that could
adversely affect the Region’s ability to maintain reliable financial records, operate
effectively and efficiently, and/or comply with applicable laws, rules, and
regulations. Our report also includes findings regarding significant instances of
noncompliance with applicable laws, rules, or regulations. Other less significant
findings were communicated to the Region that did not warrant inclusion in this
report.
The Department’s response to our findings and recommendations, on behalf of the
Region, is included as an appendix to this report. As prescribed in the State
Government Article, Section 2-1224 of the Annotated Code of Maryland, we will
advise the Department regarding the results of our review of its response.

22

Department of Public Safety and Correctional Services
Office of the Secretary
300 E. JOPPA ROAD • SUITE 1000 • TOWSON, MARYLAND 21286-3020
(410) 339-5000 • FAX (410) 339-4240 • TOLL FREE (877) 379-8636 • V/TTY (800) 735-2258 • www.dpscs.state.md.us

STATE OF MARYLAND

November 21, 2006

ROBERT L. EHRLICH, JR.
GOVERNOR
MICHAEL S. STEELE
LT. GOVERNOR
MARY ANN SAAR
SECRETARY
G. LAWRENCE FRANKLIN
DEPUTY SECRETARY
MARY L. LIVERS, PH.D.
DEPUTY SECRETARY

DIVISION OF CORRECTION
DIVISION OF PAROLE AND
PROBATION
DIVISION OF PRETRIAL
DETENTION AND SERVICES

Mr. Bruce A. Myers, CPA
Legislative Auditor
Office of Legislative Audits
301 West Preston Street
Room 1202
Baltimore, Maryland 21201
Dear Mr. Myers:

PATUXENT INSTITUTION
MARYLAND COMMISSION ON
CORRECTIONAL STANDARDS
CORRECTIONAL TRAINING
COMMISSION
POLICE TRAINING
COMMISSION
MARYLAND PAROLE
COMMISSION
CRIMINAL INJURIES
COMPENSATION BOARD
EMERGENCY NUMBER
SYSTEMS BOARD
SUNDRY CLAIMS BOARD
INMATE GRIEVANCE OFFICE

The Department of Public Safety and Correctional Services has reviewed the
November 2, 2006, draft audit report of the Baltimore Region, which consists of six
Division of Correction (DOC) units and facilities for adult male offenders including:
the Maryland Correctional Adjustment Center (MCAC), the Maryland Reception,
Diagnostic, and Classification Center (MRDCC), the Metropolitan Transition
Center (MTC), the Baltimore City Correctional Center (BCCC), the Baltimore
Pre-Release Unit (BPRU), and the Home Detention Unit (HDU) for the period
beginning March 20, 2002 and ending January 31, 2006. The Region, as well as the
Department, strives to ensure that the complex business functions and operations of
all the facilities/units are managed properly. Accordingly, we acknowledge the
importance of each audit finding and appreciate the constructive recommendations
that were made as a result of this audit. In fact, as a result of the Region’s
commitment to improve the efficiency and effectiveness of their operations, steps
were taken to implement several of the auditor's recommendations prior to the
issuance of this report to ensure the utilization of proper internal controls.
It should be noted that during or subsequent to this audit period, there have
been significant initiatives and achievements by the Region that were designed to
improve customer service to Maryland's citizens by increasing economy and
efficiency, creating safer communities, and enhancing relationships with local
governments and other stakeholders that share a mutual vision. The following is a
brief synopsis of some of the initiatives/achievements made:
♦

Additional security equipment and/or the replacement of existing
security equipment was made a priority purchase in order to ensure
the safety of employees, the public, and inmates. The equipment
includes Stab Vests, for correctional officers who work within the
institutions, Hand-Scanners, and Secure Scan. Secure Scan is
located at the front entrances of MRDCC and is a more sophisticated
technology for detecting contraband such as drugs, tobacco products,
cell phones, and weaponry.

Finding #2 - The Region had not reconciled the aggregate balance of inmate
accounts with the corresponding records of the Comptroller of the Treasury,
resulting in an unreconciled difference of approximately $430,000.
We agree. The Region will periodically reconcile the aggregate balance of the
individual inmate accounts with the corresponding records of the Comptroller
of the Treasury and all differences will be investigated and resolved. These
reconciliations will be documented and retained for future reference. Finally,
to improve the controls and accountability over inmate fund collections, the
Department will conduct a review of inmate fund issues and ensure the
development of appropriate procedures and controls.
Finding #3 - The Region had not established adequate procedures to account
for and reconcile inmate working funds and to ensure the propriety of all
inmate funds checks presented to the bank for payment.
We agree. The Region will properly complete and document inmate working
fund bank reconciliations and composition of funds analyses on a monthly
basis. In addition, the Region will immediately investigate and resolve any
differences identified as a result of these reconciliations and composition of
funds analyses. All documentation, including investigation results will be
retained for future reference. The Region will also ensure that no checks are
issued without being properly signed by an authorized check signer, and that a
Positive Pay system for the checking account is instituted.
Finding #4 - The Region has not established adequate procedures to
investigate and resolve inmate accounts with negative balances.
We agree. The Region will investigate and resolve, as practicable, negative
balances for inmate accounts in a timely manner. When inmates with
negative account balances are released, the Region will establish an accounts
receivable and comply with CCU regulations for collection of these
receivables. When collection is not deemed feasible or amounts are
immaterial, the Region will request approval from CCU to properly write-off
the negative balances.
Finding #5 - The Region did not establish adequate controls over collections
received on behalf of inmates.
We agree. Appropriate controls and processes will be established to account
for collections. Specifically, the Region will perform an independent
verification that all recorded collections are subsequently deposited by
comparing all amounts recorded on the pre-numbered receipt forms with the
validated deposit ticket. The Region will periodically account for all prenumbered receipt forms as to issued, voided, or on hand for all units.
Page 2 of 4

Additionally, the Region will ensure that documentation exists to support the
transfer of cash receipts to the finance office, and also that all checks are
restrictively endorsed “for deposit only” immediately upon receipt.
Finding #6 - Proper internal controls were not established over certain
disbursement transactions.
We agree. The Region will fully utilize the security features available on
FMIS to ensure that only properly authorized disbursement transactions are
processed for payment. The unique FMIS logon IDs assigned to each
employee will not be shared with other employees at any time.
Finding #7 - Proper internal control had not been established over the
Region’s payroll.
We agree. Supervisory personnel will document their review of support for
adjustments recorded on the electronic payroll timekeeping reports, at least on
a test basis, and documentation of this review will be retained for future
reference. In addition, overtime hours will be paid only when properly
documented authorization exists and for the correct amount(s). Finally, a
unique logon ID will be used by each employee responsible for recording
payroll data.
Finding #8 - The Region did not promptly cancel corporate purchasing card
accounts for terminated employees and did not retain vendor documentation to
support certain purchases.
We agree. The Region will fully comply with the requirements of the
Comptroller’s Corporate Purchasing Card Program Policy and Procedures
Manual, including the prompt cancellation of terminated employees’ cards
and the maintenance of proper vendor documentation to support every
purchasing card transaction.
Finding #9 - Procedures and controls over the Region’s materials and supplies
inventory, including the issuance and accountability for ammunition, were
inadequate.
We agree. The Region will comply with the requirements of the DGS
Inventory Control Manual. Specifically, the inventory clerks who maintain
the perpetual inventory records will periodically compare the requisition
copies used for inventory posting to the copies provided to the employees
receiving the goods, at least on a test basis, and ensure that all required
signatures are present. Also, the differences between the physical quantities
on hand and the related perpetual records will be investigated and resolved by
Page 3 of 4

AUDIT TEAM
Timothy R. Brooks, CPA, CFE
Audit Manager

James M. Fowler
Senior Auditor
Roger E. Jaynes, III
Edward J. Welsh, Jr.
Anthony M. Yancey
Staff Auditors

 

 

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