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Or Doc Trust Fund Audit 2004-31 (8-15-05)

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Report No. 2004-31
October 29, 2004

Department of Corrections
Inmate Trust Funds Audit

Secretary of State
Audit Report

Bill Bradbury, Secretary of State

Cathy Pollino, State Auditor, Audits Division

Summary
PURPOSE
The objective of this audit was to determine
if the Department of Corrections
(department) has adequate controls over inmate trust funds and maintains adequate
supporting documentation for recorded
transactions.

RECOMMENDATIONS
We recommend that the department perform
monthly cash reconciliations and improve
controls over check stock. In addition, we
recommend the department ensure documentation authorizing expenses posted to inmate
trust funds is retained.

RESULTS IN BRIEF
Although we found that the department has
implemented some internal controls to ensure proper recording of inmate trust transactions, we identified internal control weaknesses that should be addressed by the department.

AGENCY’S RESPONSE
The Department of Corrections generally
agrees with the audit findings and recommendations.

Background
As of January 1, 2004, more
than 12,250 inmates were incarcerated in Oregon Department
of Corrections (department)
state prisons. The department
maintains a trust fund for each
inmate. In mates can receive
money from a variety of
sources, including: donations
from friends and family, awards
for good behavior and participation in inmate work and education programs, such as those
administered by Oregon Correctional Enterprises. Inmates
also receive interest on the balance of their trust funds.

Inmates can use their trust
funds to pay expenses such
as those related to purchases at the facility store,
known as a canteen, or for
payments made to family
members. The department
deducts money from trust
funds to reimburse the department for medical expenses, postage, and disciplinary fines. Any amount
remaining in an inmate’s
trust fund is paid out to him
or her upon discharge.
In order to properly account for the trust funds, the
department utilizes the

TAG system to process
transactions and calculate
inmate trust balances. The
TAG system recorded approximately 1.2 million
transactions per year in calendar years 2002 and 2003.
As of December 31, 2003,
the cash balance in inmate
trust funds totaled almost
$3 million.

Audit Results
We found the department has adequately segregated most inmate trust
fund duties and implemented procedures
to ensure trust fund disbursements are
properly authorized. In addition, we
found inmate point awards were properly
recorded in inmate trust funds.
We did, however, identify certain
weaknesses related to cash reconciliations, check stock, and document retention. These weaknesses should be addressed by the department.

medical leave by the Trust Manager,
the cash reconciliation was not current
at the time of the audit. The department
is actively recruiting for the Trust Manager position. In addition, an Accountant 2 position has been included in the
Agency Request policy package to help
address the ongoing accounting work load. In the interim, the reconciliation
is being done within current resources
as time permits.
Check Stock Not
Adequately Controlled

Cash Reconciliations Not Performed
We found the department has not performed reconciliations between the ni mate trust fund balance and the corresponding Oregon State Treasury
(Treasury) account since July 2001.
The Oregon Accounting Manual
(OAM) states, “Reconciliations should
be performed between agency records …
and Treasury statements for funds maintained by Treasury.”1
The department has not made cash
reconciliations a priority. Not performing
cash reconciliations increases the risk
errors or fraud can go undetected for long
periods of time, making remediation potentially more problematic. Since the
commencement of our audit, the department has performed a reconciliation between its inmate trust fund balance and
Treasury’s balance as of December 31,
2003.
We recommend the department make
cash reconciliations a priority and reconcile the inmate trust fund balance to the
Treasury trust fund balance on a monthly
basis.

We found that the department had not
taken appropriate action to secure in mate trust fund check stock in accordance with OAM and Oregon State
Treasury Cash Management Manual
policies.2
Specifically, we noted the following:
• Two check signers have the ability
to print checks via the TAG system;
• Not all check stock was stored in
the locked safe due to storage constraints;
• Pre-printed check control numbers
are not utilized to control check
stock;
• A check log of used checks is not
maintained; and
• Periodic check stock inventories are
not performed.
It is important for agencies to properly secure check stock to decrease the
risk of unauthorized transactions.
We recommend the department follow the OAM and Oregon State Treasury Cash Management Manual guid-

Agency’s Response
The department agrees that cash reconciliations must be done in a timely manner. Due to extended illness and one-year
1

OAM 10.20.00PR.104

Page 2

ance and maintain adequate controls
over check stock. Specifically, the department should:
• Segregate the responsibilities to
print and sign checks;
• Secure all unused check stock;
• Utilize preprinted check control
numbers and a check control log to
control check stock; and
• Perform periodic check stock inventories.
Agency’s Response
The department agrees that the responsibility to print and sign checks
should be segregated. This finding is
the result of the Accounting Manager
covering responsibilities for vacant
Trust Manager Position by signing
checks. The Accounting Manager inadvertently retained the print capability
in his system profile, as his previous
position was Technical Support for the
Trust system. The department will correct this problem.
The department has addressed the
security of the check stock.
The department is reviewing the
process of tracking blank check stock.
The TAG system prints its own checks
with a MICR machine so blank check
has a lower risk of being misused than
preprinted stock. The department
agrees with the recommendation to use
a check control log and to perform periodic check stock inventories. Those
processes are being developed and staff
will be trained to maintain this process.
Inmate Authorization Not Located
We reviewed a sample of inmate account transactions that should have
been supported by documentation
signed by the inmate. Of the 50 trans-

2

OAM 10.10.00PR.106, .111,
10.20.00PR.143; Treasury Cash
Management Manual 02.18.02PO.105

SECRETARY OF STATE

Audit Results
actions sampled, we found one transaction that was not supported by documentation signed by the inmate (2 percent).
Without supporting documentation, it
was difficult to determine if this transaction was a legitimate charge against the
inmate’s trust fund.

are retained as authorization to disburse funds in the Central Trust Office.
The department agrees that all inmate
transactions should have corresponding
documentation and will continue to
monitor the CD 28 for complete signature authority.

According to department employees,
this transaction should not have been
processed without documented authorization by the inmate.

However, this finding is a canteen order form that does not process through
Central Trust. These transactions are
handled at the institution. The process is
as follows:

We recommend the department retain
documentation supporting appropriate
authorization of transactions.
Agency’s Response
All disbursements directly from an inmate’s account require both the inmate’s
signature and a DOC staff signature on a
document called a CD 28. All CD 28’s

mate’s account. The order is returned
to the inmate with the copy of the order
form attached to the paper sack. The
inmate signs the order form for the purchase at that point and the order form
is retained by each institution canteen.
The department agrees that the canteen ordering process should include
the collection and retention of the inmate’s signature. We will continue to
train canteen staff on this policy for all
canteen orders.

An inmate completes an order form
for a canteen product. The order is sent
to a central warehouse canteen staff
person who enters the order into TAG
and fills the order from inventory. At
that point, TAG automatically deducts
the amount of the order from the ni -

Objectives, Scope and Methodology
The objective of this audit was to determine if the Department of Corrections
(department) has adequate controls over
inmate trust funds and maintains adequate supporting documentation for re corded transactions.
During the audit, we reviewed a sample
of trust fund transactions recorded during
the period January 1, 2002 through December 31, 2003. In addition, we interviewed department employees responsible for maintaining the TAG system and
recording and processing inmate trust
fund transactions. We also reviewed applicable policies, procedures and laws
and regulations that relate to inmate trust
funds.
Fieldwork was conducted during February through June 2004. We conducted
our audit in accordance with generally
accepted government auditing standards.

R E P O R T N O . 2 0 0 4-3 1

Page 3

Secretary of State
Audits Division
BILL BRADBURY, SECRETARY OF STATE
C A T H Y P O L L I N O , S T A T E A U D I T O R , A U D I T S D I VI S I O N

255 Capitol St. NE Suite 500
Salem, OR 97310

Auditing to Protect the
Public Interest and Improve
Oregon Government.

AUDIT MANAGER : Jason M. Stanley, CPA, CFE
AUDIT STAFF: Ryan K. Dempster, CPA
Raul Valdivia, CPA
Raja Ismail
DEPUTY STATE AUDITOR: Mary E. Wenger, CPA
The courtesies and cooperation extended by the officials and staff of the
Department of Corrections were commendable and much appreciated.

This report, which is a public record, is intended to promote the best possible
management of public resources. Copies may be obtained by mail at:
Oregon Audits Division
255 Capitol Street NE, Suite 500
Salem, OR 97310
by phone at 503-986-2255 and 800-336-8218 (hotline), or
internet at Audits.Hotline@state.or.us and
http://www.sos.state.or.us/audits/audithp.htm.

 

 

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