FINANCIAL OPERATIONS (Amounts in Thousands)

FY 2007

FY 2006

OPERATING REVENUES........................................................

     $38,433

      $37,507

OPERATING EXPENSES..........................................................

       38,699

38,001

            Operating Income / (Loss).................................................

     $   (266)

     $   (494)

NONOPERATING EXPENSES

    Loss on Disposal of Fixed Assets................................................

            (34)

            (24)

Transfers to Other Funds...............................................

          (580)

        (3,905)

            Net Income /(Loss).............................................................

      $   (880)

     $ (4,423)

    Net Assets, Beginning of Year (as restated for FY 2007)........................

        17,297

         22,989

    Net Assets, End of Year...............................................................

      $16,417

       $18,566

SELECTED ACCOUNTS, AS OF JUNE 30, (Amounts in Thousands)

2007

2006

Cash...........................................................................................

$     925

$1,277

Accounts Receivable..................................................................

$     324

$   351

Due From Other Funds...............................................................

 $  4,344

$5,505

Inventories..................................................................................

$10,595

$8,977

Property, Equipment and Livestock, Net of Depreciation...............

$  4,580

$6,897

HIGHEST TEN INCOME PRODUCING INDUSTRIES (Unaudited)

FY 2007

FY 2006

Dixon Optical............................................................................

Illinois River Bakery...............................................................

Vandalia Farm Meat Processing................................................

Menard Farm Meat Processing................................................

Stateville Soap.........................................................................

Danville Boxes......................................................................

Menard Farm Waste Removal...............................................

Menard Knit.........................................................................

Vandalia Farm Milk Processing.............................................

Centralia Mattress..................................................................

$2,907,047

345,354

339,806

81,698

74,199

73,990

62,813

29,042

25,574

23,823

$3,006,219

1,005,371

426,289

78,997

117,105

147,982

67,056

180,701

406,994

(16,651)

HIGHEST TEN (LOSS) PRODUCING INDUSTRIES (Unaudited)

FY 2007

FY 2006

Jacksonville Modular Furniture Installation..............................

Shawnee Metal Furniture.........................................................

Lincoln Asbestos Abatement..................................................

Sheridan Garment Cutting..........................................................

Decatur Furniture....................................................................

Western Illinois Food Processing.............................................

Dwight Garment.................................................................

Decatur Sewing...................................................................

Hill Meat Processing..............................................................

Logan Refinishing...............................................................

$(445,665)

(380,378)

(341,490)

(220,332)

(178,428)

(171,359)

(168,017)

(116,198)

(109,020)

(107,725)

$(462,343)   

(147,042)

(342,228)

(382,670)

82,711

147,385

174,330

77,377

406,922

113,246

DEPARTMENT OF CORRECTIONS - CORRECTIONAL INDUSTRIES EXECUTIVES

During Engagement Period:   Roger Walker, Director, Department of Corrections; James R. Underwood, Chief Executive Officer, Correctional Industries

Currently:  Roger Walker, Director, Department of Corrections; James R. Underwood, Chief Executive Officer, Correctional Industries

Net assets were restated by $1,269,000

Reconciliations were not performed resulting in a $232,000 unexplained difference

Audit adjustments recommended totaled $8,900,000

Differences between ICI accounting records and data reported to the State Comptroller

$511,000 error in employee compensated absences

Exceptions considered to be a material weakness in IDOC and ICI’s internal controls

INTRODUCTION

ICI is a division of the IDOC and operates 36 manufacturing, service and agricultural industries within IDOC correctional centers. 

FINDING, CONCLUSION, AND

RECOMMENDATION

      IDOC and ICI are required to prepare annual financial statements of ICI’s financial activity to comply with reporting requirement set forth by the Office of the Comptroller (Comptroller).  It is the responsibility of ICI and IDOC to maintain their accounting records and prepare their financial statements in accordance with generally accepted accounting principles (GAAP), and the accounting records and financial statements be materially free of errors and omissions.  During our financial audit of ICI we noted the following exceptions:

·        IDOC determined ICI’s capitalization policy and dollar thresholds for depreciating State property were not consistent with IDOC’s.  As a result, a change in estimated useful lives was made across all ICI capital assets.  In addition, our testing noted errors in the spreadsheet used to compute depreciation expense.  The culmination of the above exceptions resulted in a restatement of the ICI fiscal year 2007 beginning net assets. The beginning net assets were reduced by $1,269,000.

·        There were no reconciliations performed between the cash balances per ICI accounting records and the cash balance per the Comptroller’s records during fiscal year 2007.  As of June 30, 2007 the balance per ICI accounting records was $1,155,000, the balance per the Comptroller’s records was approximately $923,000.  IDOC and ICI cannot reconcile the difference of $232,000.

·         IDOC made a decision to stop using the accrual basis general ledger accounting system used by ICI in previous years.  Our audit of the ICI financial statement balances revealed significant errors within account balances, which required extensive adjustments.  We recommended 15 audit adjustments totaling $8,900,000.  The majority of the adjustments were to correct account balances for non-recording, overstatements, understatements or errors made during the year.

·        Thirteen differences were identified between the amounts per the ICI accounting records and the amounts reported by ICI to the Comptroller as part of ICI’s required GAAP reporting.

·        Testing of ICI’s compensated absence schedule revealed it contained amounts for accrued sick leave that should not have been accrued.  It was determined the accrued compensated absences balance was overstated as of June 30, 2007 by approximately $511,000.

ICI management indicated the exceptions were due to staff shortages and changes that occurred as a result of ICI accounting function being transferred to IDOC.

Because of the significance of the exceptions noted, we consider these to be a significant deficiency in ICI’s and IDOC’s internal control and a material weakness.  A material weakness is a significant deficiency or a combination of significant deficiencies that result in more than a remote likelihood that material noncompliance will not be prevented or detected by ICI’s and IDOC’s internal control.

We recommended IDOC devote sufficient resources to its financial accounting function such that the ICI financial information is properly recorded and accounted for to permit the preparation of reliable financial information and GAAP reporting.  (Finding 07-1, pages 22-25)

     IDOC management concurred with our finding and recommendation and stated the staff involved in the reporting and other accounting functions will receive training in order to present accurate and complete financial information in the future.

      AUDITORS’ OPINION

      Our auditors stated the June 30, 2007 financial statements of the Illinois Department of Corrections - Correctional Industries are fairly presented.

____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:RPU:pp

SPECIAL ASSISTANT AUDITORS

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