REPORT DIGEST

DEPARTMENT OF CORRECTIONS

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2022

Release Date:  July 6, 2023

FINDINGS THIS AUDIT: 8

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  0 -- 6 -- 6
Category 2:  0 -- 2 -- 2
Category 3:  0 -- 0 -- 0
TOTAL:  0 -- 8 -- 8

FINDINGS LAST AUDIT: 8

Category 1: Findings that are material
weaknesses in internal control and/or a
qualification on compliance with State
laws and regulations (material
noncompliance).
Category 2: Findings that are
significant deficiencies in internal
control and noncompliance with State
laws and regulations.
Category 3: Findings that have no
internal control issues but are in
noncompliance with State laws and
regulations.

State of Illinois, Office of the
Auditor General
FRANK J. MAUTINO, 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 TTY (888) 261-2887

This Report Digest and Full Report are
also available on the worldwide web at
www.auditor.illinois.gov

INTRODUCTION

This digest covers the Department’s
Financial Audit as of and for the year
ended June 30, 2022.  A separate digest
covering the Department’s Compliance
Examination will be released at a later
date.

SYNOPSIS

• (22-2) The Department did not
maintain accurate and adequate property
records and did not timely and
accurately record all capital asset
information in its financial records.

• (22-4) The Department did not ensure
proper financial reporting was
performed for the Offender 360 project.

• (22-5) The Department did not
properly reconcile and adequately
document its reconciliation process to
provide assurance census data submitted
to its pension and other postemployment
benefits (OPEB) plans was complete and
accurate.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

WEAKNESSES IN THE FINANCIAL ACCOUNTING
FOR, AND INACCURATE AND INADEQUATE
RECORDKEEPING OF CAPITAL ASSETS

The Department of Corrections
(Department) did not maintain accurate
and adequate property records and did
not timely and accurately record all
capital asset information in its
financial records.

The Enterprise Resource Planning (ERP)
asset module used for property records
was not updated timely and accurately
for numerous assets capitalized by the
Department. Therefore, the Department
used manually compiled capital asset
summaries and depreciation calculations
to prepare financial reporting forms
related to capital assets for
submission to the Office of Comptroller
and in determining the amounts reported
in the financial statements. Some
conditions noted include:

• The Department did not update its
property records accurately and timely.
Auditors noted additions totaling
$935,757 and Capital Development Board
(CDB) capitalized transfers from 116
projects totaling $116,817,154 dating
back to Fiscal Year 2011 were reflected
in the capital asset amounts in the
financial statements but not entered in
the ERP records. Auditors also noted
duplicate entries in the ERP system
amounting to $294,822.

• The Department did not record in the
ERP system capital assets totaling
$16,667,148 and related accumulated
depreciation, totaling $250,007, for a
CDB Project transferred from the
Department of Juvenile Justice in
Fiscal Year 2018.  Beginning
accumulated depreciation was
understated by $2,800,129, Fiscal Year
2022 depreciation expense was
understated by $833,357, loss on
disposal was overstated by $2,161,452
and the net book value as of June 30,
2022 was overstated by $1,380,972.

• The Department did not use the
default useful life and depreciation
calculation in ERP for various asset
classes. There are approximately
176,690 asset items recorded in ERP for
which the Department had to manually
calculate the deprecation and
accumulated depreciation amounts.

• The Department did not consistently
apply its capitalization policy and did
not accurately maintain its manual
capital asset schedules supporting the
financial statements. Some of the
errors noted were:
— Inaccuracies caused understatements
in capital asset costs by $1,734,070,
depreciation by $4,282,871, loss on
disposal by $140,327, beginning
accumulated depreciation by $1,353,723,
and beginning net position by
$4,803,545.
— Miscalculations caused Fiscal Year
2022 depreciation to be understated by
$3,574,164.
— Assets transferred out or demolished
in prior years totaling $1,279,793 were
still included as capital assets and
reported with a net book value of
$174,941 as of June 30, 2022.
— A CDB Project for demolition of
buildings totaling $3,702,033 was
erroneously capitalized rather than
expensed.
— Impairment adjustments totaling
$950,983 to reduce the reported value
for assets determined to be impaired in
prior years were not reflected in the
capital asset balances.

The Department subsequently adjusted
the financial statements to correct the
significant errors and included the
required disclosures in the notes to
the financial statements. (Finding 2,
pages 68 – 72) This finding has been
reported since 2008.

The auditors recommended the
Department:

• Identify and assign sufficient
resources to perform the required tasks
related to property record keeping and
capital assets reporting.

• Strengthen its procedures over
property and equipment to ensure
complete, accurate and timely recording
in the ERP property system.

• Develop and document procedures for
tracking, monitoring and proper
accounting of construction in progress
from inception to completion.

• Incorporate internal review
procedures within its property function
to ensure capital asset information is
complete, properly recorded, and
accounted for to permit the preparation
of reliable financial information and
reports to the Office of Comptroller.

The Department accepted the
recommendation and stated they have
been working diligently to maintain
resources to adequately update records.
The Department noted this is
historically an area of high turnover.

The Department also stated that
although the topic sentence of the
finding has been repeated since the
Fiscal Year 2008 engagement, the issues
noted in the current year finding are
significantly different from those
noted during the Fiscal Year 2008 and
subsequent year’s engagements. The
Department stated that over the years,
various issues have been identified by
the auditors and corrected by the
Department, including the Department’s
utilization of an entirely different
fixed asset recordkeeping system than
in Fiscal Year 2008. Therefore, the
Department stated they believe they
have implemented an effective
corrective action plan to address the
individual items noted in the findings
over the years since the Fiscal Year
2008 engagement.

An Auditor’s Comment noted that
although the Department has implemented
a different property system since 2008,
the concerns reported 16 years ago
continue to exist: improper recording
of CDB transfers, depreciation
misstatements, and insufficient support
for reported capital asset amounts.
Despite the Department’s progress on
some individual exceptions over the
years, weaknesses persist in the
Department’s process for financial
accounting for and reporting of capital
assets.

LACK OF PROPER FINANCIAL REPORTING OVER
OFFENDER 360 PROJECT

The Department did not ensure proper
financial reporting was performed for
the Offender 360 project.

The Department adjusted its books to
record total internally generated
software costs of $103,775,797 and
accumulated amortization costs of
$59,683,728 as a prior period
adjustment in the Fiscal Year 2022
financial statements and amortization
costs of $13,144,538 for the current
fiscal year. Auditors noted the
following:

• The Department recorded and
capitalized the full project costs as
of June 30, 2021 of $103,775,797
provided by the Department.
— The Department had not maintained
sufficient records to determine the
project development costs related to
the Offender 360 and the Youth 360
system or to be able to separate the
costs between capitalizable amounts and
expenses.
— $75,489,958 of vendor support and
Department staffing costs could not be
broken down in any reliable manner to
determine the proper amount of
development costs to be capitalized.
The Department also had not maintained
detailed time records for staff
involvement in development tasks.
— The Department incorrectly
capitalized subscriptions for licenses
totaling $28,285,839.

• The Department calculated
amortization on the capitalized costs
based on the incorrect date. As a
result, accumulated amortization
calculated by the Department totaling
$72,828,266 as of June 30, 2022 was
overstated by an unknown amount.

• The Department miscalculated a
$7,359,021 amortization adjustment,
which caused beginning accumulated
amortization costs to be understated
and current year amortization costs to
be overstated by unknown amounts.
(Finding 4, pages 76 – 78) This finding
has been reported since 2014.

The auditors recommended the Department
assign and train responsible staff and
implement internal controls to ensure
the costs related to future internally
developed software are adequately
tracked by development stage and
project, analyzed for accurate
calculation of costs to be capitalized
and amortized, and accurately recorded
in the financial statements.

The Department accepted the
recommendation and stated responsible
staff within the Department are
ensuring development costs are
adequately tracked, analyzed, and
accurately recorded in the financial
statements.

INADEQUATE INTERNAL CONTROLS OVER
CENSUS DATA

The Department did not properly
reconcile and adequately document its
reconciliation process to provide
assurance census data submitted to its
pension and other postemployment
benefits (OPEB) plans was complete and
accurate.

The data file from State Employee’s
Retirement System of Illinois (SERS)
and the Department’s listing of
employees indicated 12,556 and 12,626
employees, respectively. The Department
was unable to provide adequate
documentation to support the
reconciliation between both data sets
to isolate the details of employees not
found in each of the data sets and the
disposition of the differences to
properly establish completeness.

As a part of the reconciliation
process, the Department did not receive
responses from all employees to verify
data accuracy and no documentation was
provided to the auditors on how the
Department established accuracy of the
data for these employees. As a result,
auditors were unable to obtain
assurance the Department had properly
performed a complete initial
reconciliation of its census data
recorded by SERS to its internal
records to establish a base year of
complete and accurate census data.
(Finding 5, pages 79 – 81)

The auditors recommended the Department
ensure complete reconciliation of its
active members’ census data from its
underlying records to the SERS report
of census data submitted to the plan’s
actuary to provide assurance census
data submitted to the pension plan was
complete and accurate. Auditors further
recommended the Department re-evaluate
the data for the base year ended June
30, 2021 to identify any instances
where data discrepancies may still
exist and work with SERS to correct all
such unresolved errors in the full
reconciliation of Department and SERS
records.

The Department accepted the
recommendation and noted the difference
in the number of employees identified
by SERS and the Department is a total
of 70 (0.56%) employees, which
represents less than 1% of the
population provided by SERS. The
Department also stated the census data
reconciliation instructions provided by
SERS instructed the Department to
verify the census data contained within
a file provided by SERS against
Department records to determine
accuracy but did not mention the
Department should compare the file
received from SERS to the Department’s
payroll records to determine the SERS
file contained all the employees
eligible for retirement. The Department
also stated they will work to complete
the base year reconciliation of the
employee census data.

In an auditor’s comment, we noted the
requirement to agree Department and
SERS records is implicit in the
definition of reconciliation, which
means ensuring two sets of records are
in agreement. The Guidance also
required Department staff to verify,
for each employee in service on June
30, 2021, that the employee’s personnel
file contents matched the SERS census
data extract provided and the
Department’s personnel and payroll
systems. Further, reconciliation and
documentation requirements were also
communicated in the Finding 2020-005
and in meetings with the Department.

OTHER FINDINGS

The remaining findings pertain to
inadequate controls over year-end
financial reporting, computer systems,
service providers, locally held funds
and inventory. We will review the
Agency’s progress towards the
implementation of our recommendations
in our next financial audit.

AUDITOR’S OPINIONS

The auditors qualified their opinion on
the governmental activities for Finding
2022-004. Except for this matter, the
auditors stated the financial
statements of the Department as of and
for the year ended June 30, 2022 are
fairly stated in all material respects.

This financial audit was conducted by
Adelfia LLC.

JANE CLARK
Division Director

This report is transmitted in
accordance with Section 3-14 of the
Illinois State Auditing Act.

FRANK J. MAUTINO
Auditor General

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