A R EPORT TO THE M ONTANA L EGISLATURE F -C A INANCIAL OMPLIANCE UDIT Department of Corrections For the Two Fiscal Years Ended June 30, 2008 O 2008 CTOBER L A EGISLATIVE UDIT D IVISION 08-15 Financial-Compliance Audits Legislative Audit Financial-compliance audits are conducted by the Legislative Committee Audit Division to determine if an agency’s fi nancial operations are properly conducted, the fi nancial reports are presented fairly, and Representatives the agency has complied with applicable laws and regulations. In Bill Beck performing the audit work, the audit staff uses standards set forth Bill Glaser Betsy Hands by the American Institute of Certifi ed Public Accountants and Hal Jacobson, Vice Chair the United States Government Accountability Offi ce. Financial- John Sinrud compliance audit staff members hold degrees with an emphasis in Bill Wilson accounting. Most staff members hold Certifi ed Public Accountant (CPA) certifi cates. Senators Joe Balyeat, Chair Government Auditing Standards, the Single Audit Act Amendments Greg Barkus of 1996 and OMB Circular A-133 require the auditor to issue certain Steve Gallus fi nancial, internal control, and compliance reports. Th is individual Dave Lewis agency audit report is not intended to comply with these reporting Lynda Moss requirements and is therefore not intended for distribution to Mitch Tropila federal grantor agencies. Th e Legislative Audit Division issues a statewide biennial Single Audit Report which complies with the above reporting requirements. Th e Single Audit Report for the two Audit Staff fi scal years ended June 30, 2007, was issued January 23, 2008. Th e Financial-Compliance Single Audit Report for the two fi scal years ended June 30, 2009, Jeane will be issued by March 31, 2010. Copies of the Single Audit Report Carstensen-Garrett can be obtained by contacting: Natalie Gibson Geri Hoffman Single Audit Coordinator Legislative Audit Division Brenda Kedish Offi ce of Budget and Program Planning Room 160, State Capitol Delsi Plummer Room 277, State Capitol PO Box 201705 Vickie Rauser PO Box 200802 Helena MT 59620-1705 Helena MT 59620-0802 Fraud Hotline Help eliminate fraud, Direct comments or inquiries to: waste, and abuse in Legislative Audit Division state government. Call Room 160, State Capitol the Fraud Hotline at: PO Box 201705 (Statewide) Helena MT 59620-1705 1-800-222-4446 (406) 444-3122 (in Helena) Reports can be found in electronic format at: 444-4446 Http://leg.mt.gov/audit LEGISLATIVE AUDIT DIVISION Tori Hunthausen, Legislative Auditor Deputy Legislative Auditors Monica Huyg, Legal Counsel James Gillett Angie Grove October 2008 The Legislative Audit Committee of the Montana State Legislature: This is our fi nancial-compliance audit report for the Department of Corrections for the two fi scal years ended June 30, 2008. This report contains 14 recommendations related to the department’s control structure, contract administration, various aspects of fi nancial accountability, and the department’s compliance with state laws and policies and department policies. The department’s response to the audit recommendations begins on page B-3, at the end of the audit report. We thank the director and his staff for their assistance and cooperation throughout the audit. Respectfully submitted, /s/ Tori Hunthausen Tori Hunthausen, CPA Legislative Auditor Room 160 • State Capitol Building • PO Box 201705 • Helena, MT • 59620-1705 Phone (406) 444-3122 • FAX (406) 444-9784 • E-Mail [email protected] i TABLE OF CONTENTS Figures and Tables .........................................................................................................iii Appointed and Administrative Officials .......................................................................iv Report Summary .........................................................................................................S-1 CHAPTER I – INTRODUCTION AND BACKGROUND .................................................................1 Introduction and Scope ..................................................................................................1 Background ....................................................................................................................2 Administration and Support Services ............................................................................6 Community Corrections .................................................................................................6 Youth Services ................................................................................................................6 Secure Custody Facilities ...............................................................................................7 Montana Correctional Enterprise ...................................................................................7 Prior Audit Recommendations .......................................................................................8 CHAPTER II – FINDINGS AND RECOMMENDATIONS ............................................................9 Internal Control Structure ..............................................................................................9 Contract Administration ..............................................................................................10 Contract Payment Monitoring ..............................................................................10 Overspent Appropriation Authority .............................................................................12 Medical Claims ............................................................................................................13 Room and Board Fees ..................................................................................................14 Inadequate Controls Over Prescription Drug Orders...................................................15 Internal Service Fund Rates .........................................................................................16 Use of General Fund Money .........................................................................................17 Cattle Inventory .............................................................................................................17 Indirect Costs ...............................................................................................................19 Administrative Rules ....................................................................................................20 Probation and Parole Officer Training .........................................................................21 Cash Deposits ...............................................................................................................22 Inmate Welfare Funds ..................................................................................................23 INDEPENDENT AUDITOR’S REPORT AND DEPARTMENT FINANCIAL SCHEDULES A-1 Independent Auditor’s Report ....................................................................................A-3 Schedule of Changes in Fund Balances & Property Held in Trust for the Fiscal Year Ended June 30, 2008 ....................................................................A-5 Schedule of Changes in Fund Balances & Property Held in Trust for the Fiscal Year Ended June 30, 2007 ....................................................................A-6 Schedule of Total Revenues & Transfers-In for the Fiscal Year Ended June 30, 2008 ....................................................................A-7 Schedule of Total Revenues & Transfers-In for the Fiscal Year Ended June 30, 2007 ....................................................................A-8 Schedule of Total Expenditures & Transfers-Out for the Fiscal Year Ended June 30, 2008 ....................................................................A-9 08-15 ii Montana Legislative Audit Division Schedule of Total Expenditures & Transfers-Out for the Fiscal Year Ended June 30, 2007 ...................................................................A-10 Notes to the Financial Schedules ...............................................................................A-11 DEPARTMENT RESPONSE ............................................................................................................B-1 Department of Corrections .........................................................................................B-3 iii FIGURES AND TABLES Figures Figure 1 Department of Corrections Adult Inmate Population by Fiscal Year .............................2 Figure 2 Department of Corrections Adult County Jail Population by Fiscal Year ......................3 Figure 3 Department of Corrections Adult Community Corrections Population by Fiscal Year .....3 Tables Table 1 Summary of Control Defi ciencies ...................................................................................1 Table 2 Department of Corrections Adult Population..................................................................5 08-15 iv Montana Legislative Audit Division APPOINTED AND ADMINISTRATIVE OFFICIALS Director’s Offi ce Mike Ferriter, Director Health, Planning, & Information Gary Hamel, Division Administrator Services Division Administrative & Financial Rhonda Schaffer, Division Administrator Services Division Community Corrections Pam Bunke, Division Administrator Youth Corrections Steve Gibson, Division Administrator Secure Custody Facilities Mike Mahoney, Warden, Montana State Prison Jo Acton, Warden, Montana Women’s Prison Human Resources Steve Barry, Division Administrator Montana Correctional Gayle Lambert, Division Administrator Enterprises Board of Pardons and Parole Term Expires Vance Curtiss, Chair 1/1/2009 Margaret Hall, Member 1/1/2010 John Rex, Member 1/1/2011 Melbert Eaglefeathers, Auxiliary Member 1/1/2009 Teresa McCann O’Connor, Auxiliary 1/1/2009 Member Darryl Dupuis, Auxiliary Member 1/1/2010 For additional information concerning the Department of Corrections, contact Bob Anez, Communications Director, at: P.O. Box 201301 Helena, MT 59620-1301 (406) 444-0409 e-mail: [email protected] S-1 REPORT SUMMARY Department of Corrections This fi nancial-compliance audit report contains the results of our audit of the Department of Corrections for the two fi scal years ended June 30, 2008. We issued an unqualifi ed opinion on the fi nancial schedules contained in this report. This means the reader can rely on the fi nancial information presented and the supporting detailed information on the state’s accounting records. This report contains 14 recommendations. The recommendations relate to the department’s control structure, contract administration, various aspects of fi nancial accountability, and the department’s compliance with state laws, state policies, and its own policies. The prior audit report contained 12 recommendations. The department implemented fi ve recommendations, partially implemented four recommendations, and did not implement three recommendations. The listing below serves as a means of summarizing the recommendations contained in the report, the department’s response thereto, and a reference to the supporting comments. Recommendation #1 We recommend the department complete implementation of state accounting policy concerning internal control. ..........................................................................................10 Department response: Concur .....................................................................................B-3 Recommendation #2 We recommend the department: A. Provide training to its contract liaisons to improve contract administration. B. Incorporate contract administration in its internal control documentation. ..........11 Department response: Concur .....................................................................................B-3 Recommendation #3 We recommend the department: A. Implement procedures to ensure it spends within its appropriation authority as required by law. B. Provide budget training to fiscal staff. ...................................................................13 Department response: Concur ....................................................................................B-4 08-15 S-2 Montana Legislative Audit Division Recommendation #4 We recommend the department monitor controls over medical claims to ensure they continue to work as intended. .......................................................................................14 Department response: Concur ....................................................................................B-4 Recommendation #5 We recommend the department deposit inmate room and board fees in the General Fund as required by state law. ......................................................................................15 Department response: Concur ....................................................................................B-4 Recommendation #6 We recommend the department implement procedures to ensure prescription drug orders received by correctional facilities are accurate and complete. ..........................15 Department response: Concur .....................................................................................B-5 Recommendation #7 We recommend the department monitor the progression of the general appropriations bill to ensure all approved internal service fund rates are included. ............................16 Department response: Concur .....................................................................................B-5 Recommendation #8 We recommend the department exhaust all available state special revenue fund authority before spending General Fund money as required by state law. ..................17 Department response: Concur .....................................................................................B-5 Recommendation #9 We recommend the department record its production livestock assets as noncurrent assets in accordance with state law. ..............................................................................18 Department response: Concur .....................................................................................B-5 Recommendation #10 We recommend the department: A. Comply with state law concerning acceptance of federal assistance and recovery of indirect costs. B. Modify and document its indirect cost rate development procedures to help ensure the rates are properly calculated. ............................................................................20 Department response: Concur .....................................................................................B-6 Recommendation #11 We recommend the department: A. Adopt administrative rules in accordance with state laws relating to monitoring of level three sexual offenders, prison industries training program, and electronic records of youth. B. Ensure the WATCh facility restricts offenders to the courtyard in accordance with administrative rule. .................................................................................................21 Department response: Concur .....................................................................................B-6