INTRODUCTION
This is the 1998 audit of Illinois Correctional Industries (ICI), a component of
the Department of Corrections. Correctional Industries operates manufacturing, service,
and agricultural industries within the adult correctional centers.
Based upon the extent of noncompliance noted during testing, our
auditors concluded that there is more than a relatively low risk that there exists other
significant noncompliance in areas not tested by the auditors.
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
TIRE RECYCLING OPERATIONS
Undocumented dealings with private tire businesses cost the State of Illinois
between $213,000 and $325,000 from 1994 to 1998. The ICI provided tire recycling services
to certain private businesses without written agreements and without apparent charge. It
also appeared that verbal bartering arrangements were made to trade services for goods.
The activities of the operation have been referred to the Department of State Police for
follow-up.
Although the Department established the tire recycling program in 1991, the Department
had never issued rules or regulations for it, as required by State law, nor had the
Department developed written operating procedures. In addition, there were often unclear
lines of authority; employees of the program were directed verbally by the ICI’s
former Chief Administrative Officer. (Finding 98-1, pages 15 through 17.)
Department management accepted our recommendations to: 1) establish administrative and
accounting control over its tire recycling program; 2) formally document its rules,
procedures, organizational structure, and its financial transactions; 3) avoid uneconomic
business transactions, and 4) avoid bartering arrangements absent specific statutory
authority.
MISCLASSIFIED WAGES DISTORTED INDUSTRY PROFIT AND LOSSES
By misclassifying wages of an industry superintendent and another employee, the ICI
distorted industry line profit and losses by $93,000 in FY1998 and $38,000 in FY1997. The
misclassified superintendent ran the Southwestern Recycling industry but his pay was
charged to Central Office Sales. The other employee was assigned to Illinois River Bakery
but had transferred to the Lincoln Asbestos Abatement industry in 1997.
In addition, Bakery management estimated they incurred about $30,000 in extra overtime
expense because the misclassified employee’s job position was not filled after
transfer.
The ICI prepares financial records for both its entity-wide and individual industry
operations. These records serve as the basis by which management evaluates relative
profits and losses of the industries. (Finding 98-2, pages 18 and 19.)
Department management agreed with our recommendation to review the functional
classifications of the ICI expenses and ensure they are charged to the proper industry.
DISTRIBUTIONS OF "FREE" MERCHANDISE
The Department gave away $22,000 in free merchandise to not-for-profit
organizations, State employees, and State agencies. We did not find documentation to
justify these free contributions, nor could we find the business related purpose in many
instances. We could not determine who actually received the merchandise from the
supporting documentation.
The free merchandise was mainly t-shirts, sweatshirts and jackets, but also included
items such as ball caps, cups, towels and legal pad holders. Many had golf insignias or
college logos. (In some instances, the required logo licensing fees had not been
paid.) Most of the request forms had been authorized by ICI’s former chief
administrative officer or his designee. (Finding 98-3, pages 20 and 21.)
Department management accepted our recommendation to limit the ICI’s free
distribution of merchandise to a level necessary for business purposes. We further
recommend the Department seek statutory clarification of its authority to make these
distributions. In cases where trademarked insignias are used, the Department should ensure
that required licensing fees are paid.
USE OF MOTOR POOL VEHICLES FOR EMPLOYEE COMMUTING
The Department allowed six ICI employees to use State motor pool vehicles for
commuting between work and home without proper written authorization. Although
Departmental reports, as filed with DCMS, stated there were no personally assigned
vehicles, the personnel records themselves would support the assertion that vehicles were
personally assigned to these six employees.
Five of the six employees had their payroll records and W-2 forms adjusted to reflect
their compensation for a total of 26,000 in personal miles. The sixth employee had no
compensation for the fringe benefit added to his payroll records or W-2 form. The
Department had received no documentation to justify the business purpose of any of the
19,000 miles on this vehicle.
The Illinois Administrative Code prohibits motor pool vehicles from being used for
commuting. In addition, a failure to report taxable fringe benefits could result in a loss
of State and federal tax revenue and may violate IRS regulations. (Finding 98-4, pages 22
and 23.)
Department management accepted our recommendation to comply with the Illinois
Administrative Code and IRS regulations regarding the use of State vehicles and the
reporting of any taxable employee fringe benefits.
SALES TAX NOT COLLECTED OR REMITTED
The Department did not assess, collect, or remit Retailers’ Occupation Tax
(sales tax) on sales made to non-governmental entities. During the audit period, ICI made
about $4 million in sales to non-governmental buyers without obtaining tax-exempt numbers
from the buyers. Uncollected sales tax is estimated at about $280,000 plus interest and
penalties. The Department is attempting to determine retroactively which buyers had
tax-exempt status. (Finding 98-12, pages 37 and 38.)
Department management accepted our recommendation to comply with sales tax laws.
According to the response, the Department will remit sales tax on the audit period sales
for which the ICI cannot document a tax-exempt status.
MARKETABLE SKILLS, WORK HABITS AND RECIDIVISM MEASURES
The Department had not adequately measured the benefits of the ICI program in terms
of providing inmates with marketable skills and work habits. Management could not provide
job placement rates for former ICI inmate workers after their release from prison, even
though statute had required such reporting since 1981.
State law has also required the Department to include recidivism statistics in
ICI’s annual report since 1981. The Department began including the number of ICI
recidivists in ICI’s FY 1997 annual report. However, the Department’s statistics
could be enhanced by comparing the recidivism rates of ICI and non-ICI inmates. The
Department could also analyze ICI recidivism for each job classification to determine the
effect of specific ICI jobs on recidivism rates.
A lack of sufficient performance measures may result in ICI policies that are
inconsistent with its statutory mandate. Some ICI operations may not provide marketable
skills for released inmates to enter the workforce. An example of an industry less likely
to produce a marketable skill is garment making, which uses antiquated equipment and
production techniques.
We recommended the Department implement adequate measures to monitor job placement
rates for former inmate workers, as required by law, or seek a legislative change. The
Department should also expand its analysis of recidivism rates for ICI inmates to include
comparison with recidivism rates for other Departmental inmates. (Finding 98-5, pages 24
and 25.)
According to the response, Department management partially accepted our recommendation
and has made arrangements to develop post-release employment statistics on former ICI
inmate workers. Management states it has no plans to develop data required for a
comparative analysis of recidivism rates.
LENGTHY REMAINING SENTENCES OF SOME INMATE WORKERS
The Department’s practice of assigning inmates with lengthy or life sentences
to the ICI program is inconsistent with the Department’s statutory mandate and with
the ICI mission.
As of August 1998, only 4 percent of the adult inmate population was assigned to the
ICI program. Many ICI jobs have been given to inmates who may never be released from
prison, or to inmates who will be well over 60 years old when released. Some ICI inmate
workers have lengthy projected minimum release dates and could conceivably monopolize jobs
for decades. This practice is inconsistent with ICI’s statutory mandate and with its
own mission.
During the audit, we reviewed ICI inmate worker data to determine the minimum time
until release. Of the inmate workers who had comparable data, nineteen percent had
sentences ranging from 20 years to life. Another 29 percent of the inmates had minimum
sentences ranging from 5 to 20 years. While we acknowledge inmates with lengthy sentences
may learn a marketable skill, they may never be able to use that skill outside of prison.
We recommended the Department take steps to maximize the number of inmates who: are
provided with marketable skills (pursuant to statute) and who become productive
citizens upon release (pursuant to ICI mission statement). When hiring inmates, the
Department should consider the expected time until release. The ICI program could have a
greater impact on the lives of released prisoners if the Department would focus its
efforts on training those inmates who are expected to be released in the near future. The
Department should limit its practice of hiring inmates with lengthy or life sentences to
the ICI jobs. (Finding No. 98-6, pages 26 through 29.)
Department management did not accept our recommendation. According to the response,
length of remaining sentence is one of many factors affecting the operation of a prison
industry, and ICI must strike a balance when considering these factors. According to the
response, management believes the mix of short-term and long-term inmates enhances the
overall success of the ICI program. Over half of the ICI inmate workers have a remaining
sentence of five years or less. The approximately 30 percent of ICI workers who have ten
or more years remaining on their sentences are often the more productive workers. They
also typically provide a stabilizing influence on their peers, both within the ICI work
location and the prison in general.
CONTROL OF "NEW FURNITURE" INVENTORY
One-fourth (or $223,579) of ICI’s "new furniture" finished goods
inventory was actually placed for use and display at various State agencies without proper
safeguards or agreements. Much of this furniture had been on location for more than one
year and was called display furniture.
The Department had no written policies or agreements to control the amount, location,
safety, or use of the display furniture. There were no agreements to ensure that the
furniture would actually be used for display purposes. Good business practice would
require the ICI to adequately safeguard its finished goods inventory of furniture and to
prevent its unnecessary deterioration due to everyday use, by State employees, prior to
sale. (Finding 98-8, pages 31 and 32.)
Management accepted our recommendation and states it will develop written policies for
its display furniture by April 1999.
OTHER FINDINGS
The remaining findings are considered less significant and have been given
appropriate attention by the Department. We will review progress towards the
implementation of our recommendations in our next audit.
Responses were provided by Mr. Mark B. Krell, CIA, Chief Internal Auditor for the
Department.
AUDITORS’ OPINION
Our auditors state that the June 30, 1998 financial
statements for the Correctional Industries are fairly presented in all material respects.
____________________________________
WILLIAM G. HOLLAND, Auditor General
WGH:JHL:pp
SPECIAL ASSISTANT AUDITORS
Our special assistant auditors for the engagement were Guthoff & Company,
LTD. |