REPORT DIGEST

 

DEPARTMENT OF CORRECTIONS - CORRECTIONAL INDUSTRIES

 

FINANCIAL AUDIT

For the Year Ended:

June 30, 2003

 

SUMMARY OF FINDINGS:

 

Total this audit                         1

Total last audit                         5

Repeated from last audit          0

 

Release Date:

March 2, 2004

 

 

 

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

AUDITOR GENERAL

 

To obtain a copy of the Report contact:

Office of the Auditor General

Iles Park Plaza

740 E. Ash Street

Springfield, IL 62703

(217) 782-6046 or TDD (217) 524-4646

 

This Report Digest is also available on

the worldwide web at

http://www.state.il.us/auditor

 

 

 

 

SYNOPSIS

 
  • The Illinois Correctional Industries (ICI) did not have adequate costing procedures for its finished goods and work-in-progress inventories.

 

 

 

 

 

 

 

 

 

 

 

{Expenditures and Activity Measures are summarized on the next page.}

 

                           ILLINOIS DEPARTMENT OF CORRECTIONS

                                      CORRECTIONAL INDUSTRIES

                                                  FINANCIAL AUDIT

                                      For the Period Ended June 30, 2003

 

FINANCIAL OPERATIONS

FY 2003

FY 2002

REVENUES

    

Operating Revenues

$42,459,000

$46,971,000

EXPENSES

    

Operating Expenses

40,999,000

45,976,000

Operating Income

$1,460,000

$995,000

NONOPERATING REVENUES (EXPENSES)

    

Rental Income

$291,000

$329,000

Loss on Disposal of Fixed Assets

(103,000)

(218,000)

Interest Expense

(3,000)

(6,000)

Net Nonoperating Revenues

185,000

105,000
     

Net Income

$1,645,000

$1,100,000

Net Assets, Beginning of Year

$40,854,000

$39,754,000

Net Assets, End of Year

$42,499,000

$40,854,000

SELECTED BALANCE SHEET ACCOUNTS, AS OF JUNE 30,

2003

2002

Cash

$1,735,000

$16,675,000

Accounts Receivable

$399,000

$481,000

Due From Other Funds

$25,110,000

$7,088,000

Inventories

$10,248,000

$11,525,000

Property, Equipment and Livestock,

Net of Depreciation

$8,637,000

$9,158,000

Net Assets - Unrestricted

$33,882,000

$31,739,000

SELECTED ACTIVITY MEASURES (Unaudited)

2003

2002

2001

Average Number of Inmate Workers

Number of Industries at June 30,

1,125

39

1,290

46

1,475

50

CORRECTIONAL INDUSTRIES' CHIEF ADMINISTRATIVE OFFICER

During Audit Period: Kenneth Dobucki, Chief Administrative Officer (through 12/31/02),

                                Brad Sassatelli, Acting Chief Administrative Officer

Currently: Brad Sassatelli, Acting Chief Administrative Officer

 

 

 

 

 

 

 

 

Labor and factory overhead components were not adjusted to actual amounts incurred

 

 

 

 

INTRODUCTION

Our report covers the financial audit of the Correctional Industries (ICI) for the fiscal year ended June 30, 2003. 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.

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

INADEQUATE INVENTORY COSTING PROCEDURES

The Department (ICI) did not have adequate costing procedures for its finished goods and work-in-progress inventories.

We noted the following in our observation of physical inventories and tests of inventory valuation:
  • Work-in-progress (WIP) inventory is not quantified at every stage of the production process. Labor and factory overhead costs are charged as period costs and established as WIP costs only when the quantities are established.
  • Labor and factory overhead components of WIP and finished goods inventory costs are based on standard costs using budgeted costs and are not adjusted to actual amounts incurred.

Department personnel stated that WIP is at a minimum level at year-end and due to staff turnover, the computation of actual costs to restate standard labor and overhead rates had not been done.

The Department subsequently recomputed labor and overhead rates to actual costs for FY03 financial reporting purposes.

We recommended the Department review and evaluate its inventory costing procedures to provide formal guidelines in the determination of WIP inventory quantities and accumulation of production costs. We also recommend the Department recompute labor and overhead rates used in inventory pricing and costing on a regular basis to ensure that inventories and cost of sales are stated at actual costs. (Finding 1, pages 22-23)

Department officials responded that they have contracted with an accounting firm to examine their procedures for cost accounting and to develop and implement recommendations for their cost accounting process.

AUDITORS' OPINION

Our auditors stated that the financial statements for the Correctional Industries as of June 30, 2003 and for the year then ended are fairly presented in all material respects.

 

_____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:CML:pp

SPECIAL ASSISTANT AUDITORS

Our special assistant auditors for this engagement were E.C. Ortiz & CO., LLP.