Our report covers the financial audit of the Correctional Industries (ICI) for the fiscal year ended June 30, 2002 and a compliance audit for the two years ended June 30, 2002. ICI is a component of the adult division of the Illinois Department of Corrections. ICI operates manufacturing, service and agricultural industries within the adult correctional centers.

The Department (ICI) continues to make major decisions for new initiatives without documentation of: (1) sound business logic, including a cost/benefit analysis or (2) the initiative’s alignment with ICI’s goals as identified in their strategic plan. In addition, ICI did not have a system in place to review new programs after their implementation to monitor performance in relation to anticipated results and objectives.

Addressed in a prior finding was ICI’s decision to enter into a 10-year, $3.8 million lease of a large warehouse without documenting the soundness or strategic direction of that decision. The lease initially covered 102,500 square feet (with costs ranging from $3.32/sq. ft. for the first year to $4.15 sq.ft. in Year 10). ICI management’s goal was to have finished goods available for shipment when ordered. Previously, the inventory on hand had been limited to space available at prison sites across the State.

In the current period, ICI continued to assume its decision to operate the warehouse was fiscally sound and did not analyze the relative costs and benefits of leasing the warehouse. ICI amended the lease in March 2001 to include an additional 7,500 square feet, increasing the projected 10-year cost to about $4.1 million. As of the end of the audit period, ICI was continuing to operate the warehouse without determining whether funds spent on its operations were cost-effective.

The Department also made a decision to manufacture dolls without adequate planning and analysis. ICI could not provide us with any cost/benefit analysis done as part of the planning process for the operation. During FY02, inmates produced approximately 850 dolls and 296 dolls were sold at a loss of $5,887. Inventory records at June 2002 show an inventory of 534 dolls valued at $1,708 with a manufactured cost of $38,379. ICI management stated that they are discontinuing the program in FY03.

Failure to analyze the cost effectiveness of the major business decisions prior to implementation could result in an inefficient use of State resources.

We recommended the Department perform a cost/benefit analysis of each major operational decision and evaluate its coordination with ICI’s strategic plan prior to implementation. The cost/benefit analysis should continue after a program’s implementation to give management tools to monitor performance in relation to anticipated results. (Finding 1, pages 14 through 17)

Department management stated it will conduct cost/benefit analysis as needed for major program initiatives. Additionally, ICI will incorporate the need for cost/benefit analysis into its strategic plan and will monitor the fiscal performance of new programs on an ongoing basis.

The Department made payments totaling $53,025 to the lessor of its Pana warehouse building that were not in accordance with the lease agreement.

In August 2000, ICI entered into a 10-year lease agreement for a 102,500 sq. ft. warehouse. The original lease agreement outlined specifications for a security system to be provided by the lessor. In March 2001, ICI executed an amendment to the original lease that authorized a one-time payment of $46,800 to have a security system installed in the warehouse. ICI officials stated that they believed that the requirement for a security system had been removed from the original lease.

In March 2001, ICI executed another amendment to increase the rented square footage from 102,500 to 110,000. ICI paid $6,225 for three months back rent, prior to the amendment, for the additional square feet. There was no justification for ICI to pay rent retroactively, prior to the effective date of the amendment. ICI management stated that the payments were made because they had actually been using the additional square footage since occupying the building.

ICI management should carefully review all expenditures under lease agreements for propriety and if expenditures are deemed to be in error, ICI should pursue reimbursement. (Finding 2, page 18 through 19)

ICI management accepted our recommendation to review the appropriateness of payments under lease agreements and to pursue reimbursement if payments are deemed inappropriate.

The ICI has been unsuccessful in its plan to install an automated management information system. The ICI has incurred excessive costs for computer hardware, software and consulting services for the project that is neither complete nor effectively utilized.

The purpose of the system was to connect ICI central office with its 22 remote operations at the various correctional facilities. The initial projected costs from FY98 for the equipment and installation totaled $770,000. In our prior audit, we reported that ICI was only using three of the ten software modules purchased. The ICI did not track or document the installation process for the software modules. In the current audit period, ICI is still only utilizing the three software modules and costs related to the project approximated $960,000 at the end of the period.

During FY02, the Department of Central Management Services awarded a new bid in the amount of $550,950 for a consulting company to assist with software implementation. Although ICI requested the award be withdrawn due to concerns with the proposal, the additional estimated costs would bring the total project costs to over $1,510,000. ICI has plans to initiate a new RFP in fiscal year 2003 and their goal is to have contracts in place by fiscal year 2004.

ICI management needs to re-examine the need for the Management Information System project. If the project should continue, management should assess its current stage, complete the project, and implement the project in a timely, cost-efficient manner or seek other alternatives. (Finding 3, page 20 through 22)

ICI management accepted our recommendation, but stated that due to budgetary and personnel constraints, the Management Information System project is currently on hold. ICI management will re-examine the need for the project and decide whether it should continue.

The ICI continues to place employees on temporary assignment for extended periods. The lengthy assignments violate union agreements and circumvent required steps in the hiring process.

During the audit period, we noted sixteen employees working for extended periods in temporarily assigned positions. Of the sixteen, three were placed in Supervisor positions and eleven in Superintendent positions. In all cases, the positions were at higher level jobs than the employees were performing prior to the assignment.

Union agreements with the State set specific time limits of either 60 days (temporary change in workload or other reasonable work related circumstance) or 45 days (while employer posts and fills job vacancy) for temporary assignments within a twelve-month period. If assignments extend beyond the set timeframe, any extensions must be mutually agreed-upon. No evidence of mutual agreement was found. We noted the following situations during the audit:

The continued use of temporary assignments could result in employees performing work for which they are not qualified. In addition, requirements of the union agreements should be followed.

We recommended the ICI re-evaluate the propriety of its continued use of temporary assignments for long-term employment positions. For assignments to union positions, we recommended ICI comply with the union agreement for mutual agreement of extended assignments and to document this agreement in writing (Finding 5, pages 25-26). This finding was first reported in 1998.

The ICI management accepted our recommendation and stated that ICI will review the need for long-term temporary assignments on an ongoing basis. The ICI stated they will abide by the bargaining unit contracts. In addition, ICI stated that in all cases listed where temporary assignment time limits were exceeded, there was no other staff eligible within the industries unit at the facility. (For previous agency responses, see Digest Footnote #1.)

The remaining finding is considered less significant and is reportedly being given attention by the Department. We will review the progress towards the implementation of our recommendations in our next compliance audit.

Responses were provided by Ms. Deanna Marvin, CIA, Internal Audit Supervisor for the Department.