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Md Doc State Audit - Jessup Region 2007

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Audit Report

Department of Public Safety and Correctional Services
Jessup Region
February 2007

OFFICE OF LEGISLATIVE AUDITS
DEPARTMENT OF LEGISLATIVE SERVICES
MARYLAND GENERAL ASSEMBLY

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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.

February 16, 2007

Delegate Charles E. Barkley, Co-Chair, Joint Audit Committee
Senator Nathaniel J. McFadden, Co-Chair, Joint Audit Committee
Members of Joint Audit Committee
Annapolis, Maryland
Ladies and Gentlemen:
We have audited the Jessup Region of the Department of Public Safety and
Correctional Services, which comprises the Maryland House of Correction, the
Jessup Correctional Institution, and the Maryland Correctional Institution –
Jessup, for the period beginning November 5, 2003 and ending August 20, 2006.
Our audit disclosed that improvements were needed to increase controls over cash
receipts, equipment, materials and supplies, inmate funds, and payroll.

Respectfully submitted,

Bruce A. Myers, CPA
Legislative Auditor

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Table of Contents
Background Information

4

Agency Responsibilities
Current Status of Findings From Preceding Audit Report

4
4

Findings and Recommendations

5

Cash Receipts
Finding 1 – Adequate Controls Had Not Been Established to Ensure
That Recorded Collections Were Subsequently Deposited

5

Equipment
Finding 2 – Equipment Records Were Not Adequately Maintained
and Physical Inventories Were Not Completed, as Required

5

*

Materials and Supplies
Finding 3 – Storeroom Record Keeping and Inventory Procedures
Were Deficient

7

*

Inmate Funds
Finding 4 – The Region Had Not Established Proper Internal Controls
Over Inmate Fund Disbursements

8

*

Payroll
Finding 5 – Certain Types of Adjustments Were Not Subject to
Supervisory Review, and Reviews of Overtime Adjustments
Were Not Performed Timely

Audit Scope, Objectives, and Methodology
Agency Response

9

10
Appendix

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

3

Background Information
Agency Responsibilities
The Jessup Region is a separate budgetary unit within the Division of Corrections
of the Department of Public Safety and Correctional Services and consists of
several facilities for adult male offenders.
Facilities Within the Division of Correction’s Jessup Region
Inmate Population
Facility
Security Level
as of
August 20, 2006
Maryland House of Correction
Maximum
1,021
Security
Jessup Correctional Institution
Maximum
1,175
Security
Maryland Correctional Institution –
Medium
977
Jessup
Security
Total
3,173
According to the State’s records, total Region expenditures were approximately
$107 million during fiscal year 2006. In addition, the Region’s fiscal year 2007
appropriations provided for 1,240 positions, including 970 correctional officers.
On May 3, 2006, the Board of Public Works authorized changing the name of the
Maryland House of Correction – Annex to the Jessup Correctional Institution.

Current Status of Findings From Preceding Audit Report
Our audit included a review to determine the current status of the five findings
contained in our preceding audit report dated April 8, 2004. We determined that
the Region satisfactorily addressed two of these findings. The remaining three
findings are repeated in this report.

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Findings and Recommendations
Cash Receipts
Finding 1
Adequate controls had not been established to ensure that recorded
collections were subsequently deposited.
Analysis
The Region had not established adequate internal controls to ensure that recorded
collections were subsequently deposited. Specifically, collections initially
recorded on pre-numbered cash receipt forms and cash receipt logs were not
verified to validated deposit slips. Rather, recorded collections were compared to
the certificates of deposit before the deposits were made, and such comparisons
were not documented. In addition, pre-numbered receipt forms were not
periodically accounted for as to issued, voided, or on hand by an employee
independent of the cash receipts function. Consequently, collections could be
misappropriated without detection. According to the State’s accounting records,
amounts deposited by the Region totaled approximately $2.4 million during fiscal
year 2006, and consisted primarily of funds received on behalf of inmates.
Recommendation 1
We recommend that an employee independent of the cash receipts function
verify collections recorded on pre-numbered cash receipt forms and cash
receipt logs to the validated deposit slips, and that such verifications be
documented. We also recommend that this employee periodically account
for the pre-numbered receipt forms as to issued, voided, and on hand. We
advised the Region on accomplishing the necessary separation of duties using
existing personnel.

Equipment
Finding 2
Equipment records were not adequately maintained and physical inventories
were not completed, as required.
Analysis
The Region did not adequately maintain records for equipment, and had not
completed physical inventories of equipment in accordance with the requirements
of the Department of General Services (DGS) Inventory Control Manual. As of

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June 30, 2006, the book value of the Region’s equipment, as reported to DGS,
totaled approximately $6.8 million. Specifically, we noted the following
conditions:
• As of October 2006, no postings had been made to the equipment control
account for one institution since August 2004. In addition, adjustments
totaling approximately $721,000, made to the control accounts maintained for
the other two institutions, were not supported or approved by appropriate
supervisory personnel.
• Physical inventories of equipment at two institutions had not been completed
since February 2003, and a physical inventory of sensitive equipment at the
third institution had not been completed since March 2005. Specifically,
although equipment items at the three institutions were generally inventoried
during fiscal years 2005 and 2006, as of October 2006, the results of the
physical inventories had not been compared to the detail equipment records
and missing items had not been identified and investigated.
The DGS Inventory Control Manual requires that an inventory control account be
maintained to provide a history of acquisitions and disposals. The Manual also
requires that a complete physical inventory of non-sensitive capital equipment be
taken at least once every three years and that a complete physical inventory of
sensitive equipment items be conducted at least once every year. The Manual
further requires that differences between physical counts and the detail records be
investigated, approved, and used to update the equipment records.
Recommendation 2
We recommend that equipment control accounts be maintained on a current
basis, and that the control account be periodically reconciled to the aggregate
balance of the related detail records. We also recommend that required
adjustments to the equipment control accounts be documented and subject to
approval by supervisory personnel. We further recommend that physical
inventories of equipment be completed timely, reconciled to the related detail
records, and any resulting differences investigated.

6

Materials and Supplies
Finding 3
The Region had not established proper internal controls over materials and
supplies, including storeroom record keeping and inventory procedures.
Analysis
Numerous record keeping and inventory deficiencies existed that precluded
adequate internal control over materials and supplies. According to the State’s
accounting records, during fiscal year 2006, the Region’s materials and supplies
expenditures (excluding commissary purchases) totaled approximately $7 million.
As of June 30, 2006, the book value of materials and supplies (excluding
commissary inventory) reported to DGS totaled approximately $1.4 million. Our
review disclosed the following deficiencies:
• For one institution, copies of completed requisition forms were not provided
to employees who received dietary items. Consequently, the inventory clerk
could not compare completed requisition forms used for inventory record
postings with copies signed by and provided to employees receiving the
goods, which documented the number of items received.
• For two institutions, perpetual inventory records for ammunition were
maintained by the related custodians and, at all three institutions, physical
inventories of ammunition were conducted by the respective custodians. In
addition, the custodian of one institution’s dietary storeroom investigated
variances between the monthly inventory counts and the related perpetual
inventory records.
• Perpetual inventory records were not adequately maintained. For example,
such records for the Region’s maintenance storerooms have not been
maintained since 1990, and records for ammunition at one institution were not
maintained during our audit period. Additionally, the perpetual inventory
records for the Region’s other storerooms were simply adjusted to reflect the
balances of the month-end physical counts for several months during fiscal
year 2006; rather, Region personnel should have posted individual purchases
and withdrawals on an ongoing basis.
The DGS Inventory Control Manual specifies the requirements for adequate
separation of employee duties, proper controls over inventory withdrawals, and
the proper maintenance of perpetual inventory records. Many of these conditions
were noted in our preceding audit report, some of which have been commented
upon in five preceding reports dating back to October 1992.
7

Recommendation 3
We again recommend that the Region establish proper internal controls over
materials and supplies. Detailed recommendations were provided to the
Region which, if implemented, would correct the conditions identified.

Inmate Funds
Finding 4
The Region had not established proper internal controls over inmate fund
disbursements.
Analysis
The Region had not established proper internal controls over disbursements from
the inmate fund checking account. Specifically, an employee with access to blank
inmate fund checks also had access to the related check signing machine and
signature plate. In addition, this employee prepared portions of the inmate fund
compositions and processed inmate fund reimbursements from the Comptroller of
the Treasury. Furthermore, supervisory personnel did not review documentation
supporting inmate fund disbursements or signed checks prior to issuance. As a
result of these internal control deficiencies, errors or unauthorized disbursements
from the inmate fund account could occur and not be detected. Similar conditions
were commented upon in our preceding audit report.
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 disburse these funds to third parties. During fiscal year 2006,
inmate fund disbursements processed by the Region from the checking account
totaled approximately $880,000.
Recommendation 4
We again recommend that employees with access to blank inmate fund
checks not have access to the related check signing machine and signature
plate. We also again recommend that supervisory personnel review
supporting documentation for inmate fund disbursements and signed checks
prior to issuance, at least on a test basis.

8

Payroll
Finding 5
Certain types of adjustments made to the Region’s payroll were not subject
to supervisory review, and reviews of overtime adjustments were not
performed timely.
Analysis
The Region had not established sufficient control to ensure that only proper
payroll adjustments were processed. Although Region supervisory personnel
reviewed adjustments for overtime on a test basis, other payroll adjustments (such
as payments for unused annual leave and shift differential) were not reviewed. In
addition, supervisory reviews of overtime adjustments were not timely performed.
As of September 2006, Region supervisory personnel had not reviewed any
adjustments for overtime since the pay period ending January 3, 2006.
According to the State’s accounting records, the Region processed payroll
adjustments totaling $11.1 million during fiscal year 2006, which included
$970,000 in adjustments other than for overtime payments. The lack of
supervisory review of payroll adjustments was commented upon in our preceding
audit report.
Recommendation 5
We again recommend that Region supervisory personnel review
documentation supporting all types of payroll adjustments, at least on a test
basis, and that such reviews be completed timely and documented.

9

Audit Scope, Objectives, and Methodology
We have audited the Jessup Region of the Department of Public Safety and
Correctional Services for the period beginning November 5, 2003 and ending
August 20, 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 Region 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.

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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.

11

Finding #2 – Equipment records were not adequately maintained and
physical inventories were not completed, as required.
We agree. The equipment control accounts will be maintained on a current
basis, and the control accounts will be periodically reconciled to the
aggregate balance of the related detail records. Also, required adjustments to
the equipment control accounts will be documented and subject to approval
by supervisory personnel. Further, physical inventories of equipment will be
completed timely, reconciled to the related detail records, and any resulting
differences will be investigated.
Finding #3 – The Region had not established proper internal controls over
materials and supplies, including storeroom record keeping and inventory
procedures.
We agree. The Region will establish proper internal controls over materials
and supplies, including an adequate separation of employee duties, proper
controls over inventory withdrawals, and the proper maintenance of
perpetual inventory records.
Finding #4 – The Region had not established proper internal controls over
inmate fund disbursements.
We agree. The employee with access to the blank inmate fund checks will
not have access to the related check signing machine and signature plate.
Also, supervisory personnel will review supporting documentation for
inmate fund disbursements and signed checks prior to issuance, at least on a
test basis.

2

AUDIT TEAM
Mark A. Ermer, CPA
Audit Manager

Carlton A. Sexton
Senior Auditor

Jason A. Harris
Staff Auditor

 

 

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