REPORT
DIGEST

COMPLIANCE AUDIT
For the Two Years Ended:
June 30, 1998

Summary of Findings:

SYNOPSIS

• The Center lacked appropriate internal controls to detect when locally held funds on deposit exceeded FDIC insurance limits.

• The Center did not have an appropriate segregation of duties in connection with cash receipt activities. The same person received, recorded, and reconciled cash receipts at the Center.

• The Center's financial statements for its locally held funds contained a number of errors which management believes were directly related to the June, 1998 installation of a new accounting system. Center management believe they received inadequate training on the new accounting software system.

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

FY 1998

FY 1997

FY 1996

• Total Expenditures (All Appropriated Funds)

Personal Services
% of Total Expenditures
Average No. of Employees
Average Salary Per Employee

Inmate Compensation
% of Total Expenditures

Other Payroll Costs (FICA, Retirement)
% of Total Expenditures

Contractual Services
% of Total Expenditures

All Other Items
% of Total Expenditures

• Cost of Property and Equipment

$23,762,536

$15,893,820
66.89%
419
$37,933

$230,881
.97%

$1,985,000
8.35%

$2,302,923
9.69%

$3,349,912
14.10%

$37,976,158

$23,604,526

$15,622,679
66.19%
420
$37,197

$218,613
.93%

$1,916,654
8.12%

$2,207,933
9.35%

$3,638,647
15.41%

$35,623,578

$22,415,517

$14,974,677
66.61%
417
$35,910

$207,189
.92%

$1,804,952
8.03 %

$2,207,024
9.82%

$3,221,675
14.62%

$33,615,219

FY 1998

FY 1997

FY 1996

1,400

1,319

1,321

1/ 5.26

1/ 4.55

1/ 4.57

$16,865

$17,789

$16,920

925

885

885

38

45

44

Center's bank balance exceeded FDIC insurance limit

Limited time frame to learn new system did not allow time for the discovery and correction of errors

INTRODUCTION

We conducted a compliance audit of the Center as required by the Illinois State Auditing Act. We also performed certain agreed upon procedures with respect to the accounting records of the Center to assist our single audit of the entire Department. Financial statements for the Department will be presented in that report.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

UNINSURED LOCALLY HELD FUNDS

Bank balances in two locally held funds on deposit at one financial institution exceeded the Federal Deposit Insurance limits by approximately $16,000 to $26,000 for at least 13 days in May, 1998. This was due to the lack of appropriate internal controls which would detect when the bank balances had exceeded the FDIC insurance limit. This type of oversight could result in a possible loss due to uninsured balances or balances not fully collateralized. (Finding 1, page 9)

Center officials responded that additional collateral was secured and stated that cash balances will be more closely monitored in the future.

INAPPROPRIATE SEGREGATION OF DUTIES

During fiscal year 1998, the same employee received, recorded and reconciled cash receipts. Good internal controls dictate that an employee independent of recording and reconciling cash receipts receive these receipts and restrictively endorse them.

The lack of segregation of duties was due to the fact that one of the Center's cashiers had been on a leave of absence since October 1997. These duties should be segregated in order to reduce the risk of funds being misappropriated. (Finding 2, page 10)

The Department responded that the Center has assigned the receipting of cash to a person independent of the recording and reconciling process.

UNTIMELY AND INADEQUATE INSTALLATION OF NEW ACCOUNTING SYSTEM

The Center's financial statements for its locally held funds contained a number of errors which management believes were directly related to the June, 1998 installation of a new accounting system.

The Center switched from a Lotus spreadsheet program to the Fund Accounting and Commissary Trading System (FACTS) on May 23, 1998. A trainer was sent from the Department of Corrections Central Office in Springfield at the beginning of July 1998 in order to assist the Center in closing the books for the month of June and fiscal year 1998. Adjustments were made to the Center's books by the trainer prior to closing. However, documentation for these adjustments was not retained by the trainer. Additionally, these funds were closed prior to reconcilement being performed since the trainer, in the opinion of management, wanted to finish the training quickly. Management also believes the staff received inadequate training due to the quick training session.

Prudent business practices dictate that major software conversions be performed during a time in which the Center will have adequate time to correct errors associated with the conversion and learning the system. (Finding 3, page 11)

The Department accepted our recommendation to perform major software conversions during a period of time in which the Center will have adequate time to correct the errors.

_____________________________________
WILLIAM G. HOLLAND, Auditor General

WGH:TEE:pp

SPECIAL ASSISTANT AUDITORS

Our special assistant auditors were Dycus Bradley & Draves, P.C..