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 • 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. • Electronic copies of our audit reports can be viewed or downloaded from our website at http://www.ola.state.md.us. • Alternate formats may be requested through the Maryland Relay Service at 1-800-735-2258. • 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 2 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. 4 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 5 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. 10 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