Department of Juvenile Justice Youth Centers

Transcription

1 Audit Report Department of Juvenile Justice Youth Centers September 2001

2 This report and any related follow-up correspondence are available to the public and may be obtained by contacting the Office of Legislative Audits or the Department of Legislative Services - Office of the Executive Director, 90 State Circle, Annapolis, Maryland. Alternate formats may be requested by contacting the Office of Legislative Audits at , (voice), or (toll-free voice), or (fax), and (Maryland Relay Service). Audit reports can also be viewed or downloaded from the Internet. Our web site address is

3 September 24, 2001 Delegate Samuel I. Rosenberg, Co-Chair, Joint Audit Committee Senator Nathaniel J. McFadden, Co-Chair, Joint Audit Committee Members of Joint Audit Committee Annapolis, Maryland Ladies and Gentlemen: We have audited the Department of Juvenile Justice Youth Centers for the period beginning May 26, 1998 and ending May 6, Our audit disclosed that adequate internal controls were not established over the processing of disbursement transactions. Additionally, the Center did not sufficiently control inventory withdrawals. Respectfully submitted, Bruce A. Myers, CPA Legislative Auditor

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5 Agency Responsibilities Background Information The Centers, which is a unit of the Department of Juvenile Justice, operates five residential facilities (two located in Allegany County and three in Garrett County) and a holdover facility (located in Washington County). The residential and holdover facilities are administered by a headquarters unit located in Cumberland, Maryland. The residential facilities provide services and treatment to delinquent male youths adjudicated and committed to the Department by various courts of the State. These services include schooling, a positive peer culture program, and community service activities at each of the facilities. In addition, substance abuse treatment is provided at one facility. The holdover facility is used for the shortterm detention of youths from Allegany, Garrett and Washington counties. During fiscal year 2001, the Centers served an average daily population of 161 youths (residential facilities -158 youths; holdover facility - 3 youths). Prior to December 1999, three of the five residential facilities operated a Leadership Challenge program, also referred to as a boot camp program. This program provided rehabilitation and therapeutic intervention to juvenile offenders through a highly structured and regimented schedule. As a result of alleged incidents of child abuse at two of the facilities that operated such a program, the Leadership Challenge programs at the three facilities were discontinued and certain employees were terminated. In addition, one of the three facilities was closed during December 1999 but reopened in April The juvenile population was significantly reduced for several months at the other two facilities. Current Status of Findings From Preceding Audit Report Our audit included a review to determine the current status of the two fiscal/compliance findings included in our preceding audit report dated September 8, We determined that the Centers satisfactorily addressed one of those findings. The remaining finding is repeated in this report. 3

6 Disbursement Transactions Findings and Recommendations Finding #1 The Centers had not established proper internal controls over the processing of disbursement transactions. Analysis The Centers did not fully utilize the available security features of the State s Financial Management Information System (FMIS) to restrict users' access and prevent unauthorized disbursements. Specifically, four employees could both initiate and process certain disbursement transactions that were not subject to independent approval. In addition, one of these employees could release disbursement transactions to the Comptroller of the Treasury - General Accounting Division for payment. Under these conditions, the Centers lacked assurance that only valid authorized transactions were processed. During fiscal year 2001, these employees both initiated and processed disbursement transactions totaling $775,081. The Centers failure to fully use the security features of FMIS was commented upon in our preceding audit report. Recommendation #1 We again recommend that the Centers fully utilize the available FMIS security features by establishing independent on-line approval requirements for all critical disbursement transactions. We have advised the Centers on accomplishing the necessary separation of duties utilizing existing personnel. Materials and Supplies Finding #2 There was inadequate accountability and control over inventory withdrawals. Analysis Adequate procedures were not in effect to prevent unauthorized inventory withdrawals from the Centers central warehouse. Specifically, requisition forms 4

7 were signed by the employees receiving the goods, as evidence of receipt. Subsequently, the storeroom custodian forwarded the signed forms to the inventory clerk for posting to the perpetual inventory records. However, the inventory clerk did not compare the signed requisition forms used for inventory postings to the copies provided to the employees receiving the goods. As a result, requisition forms could be altered after the delivery of goods and additional items could be removed from stock without detection. During fiscal year 2001, expenditures for materials and supplies totaled approximately $677,000. This inventory was primarily maintained at the Centers central warehouse. As of June 30, 2001, the book value of the materials and supplies inventories in the central warehouse totaled $57,385. Recommendation #2 We recommend that the inventory clerk periodically compare, on a test basis, the requisition copies received for inventory posting to the copies provided to the employees receiving the goods. 5

8 Audit Scope, Objectives and Methodology We audited the Department of Juvenile Justice Youth Centers for the period beginning May 26, 1998 and ending May 6, The audit was conducted in accordance with generally accepted government auditing standards. As prescribed by the State Government Article, Section of the Annotated Code of Maryland, the objectives of this audit were to examine the Centers financial transactions, records and internal control, and to evaluate its compliance with applicable State laws, rules and regulations. We also determined the current status of the findings contained in our preceding audit report. In planning and conducting our audit, we focused on the major financial related areas of operations based on assessments of materiality and risk. Our audit procedures included inquiries of appropriate personnel, inspection of documents and records, and observation of the Centers operations. We also tested transactions and performed other auditing procedures that we considered necessary to achieve our objectives. The Centers management is responsible for establishing and maintaining effective internal control. Internal control is a process designed to provide reasonable assurance that objectives pertaining to the reliability of financial records, effectiveness and efficiency of operations including safeguarding of assets, and compliance with applicable laws, rules and regulations are achieved. Because of inherent limitations in internal control, errors or fraud may nevertheless occur and not be detected. Also, projections of any evaluation of internal control to future periods are subject to the risk that conditions may change or compliance with policies and procedures may deteriorate. Our reports are designed to assist the Maryland General Assembly in exercising its legislative oversight function and to provide constructive recommendations for improving State operations. As a result, our reports generally do not address activities we reviewed that are functioning properly. This report includes findings relating to conditions that we consider to be significant deficiencies in the design or operation of internal control that could adversely affect the Centers ability to maintain reliable financial records, operate effectively and efficiently and/or comply with applicable laws, rules and regulations. Our audit did not disclose any significant instances of noncompliance with applicable laws, rules, or regulations. 6

9 The response from the Department of Juvenile Justice, on behalf of the Centers, to our findings and recommendations is included as an appendix to this report. As prescribed in the State Government Article, Section of the Annotated Code of Maryland, we will advise the Department regarding the results of our review of its response. 7

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12 Disbursement Transactions Findings and Recommendations Finding #1 The Centers had not established proper internal controls over the processing of disbursement transactions. Analysis The Centers did not fully utilize the available security features of the State s Financial Management Information System (FMIS) to restrict users' access and prevent unauthorized disbursements. Specifically, four employees could both initiate and process certain disbursement transactions that were not subject to independent approval. In addition, one of these employees could release disbursement transactions to the Comptroller of the Treasury - General Accounting Division for payment. Under these conditions, the Centers lacked assurance that only valid authorized transactions were processed. During fiscal year 2001, these employees both initiated and processed disbursement transactions totaling $775,081. The Centers failure to fully use the security features of FMIS was commented upon in our preceding audit report. Recommendation #1 We again recommend that the Centers fully utilize the available FMIS security features by establishing independent on-line approval requirements for all critical disbursement transactions. We have advised the Centers on accomplishing the necessary separation of duties utilizing existing personnel. AGREE IN-PART/DISAGREE IN-PART: While the Youth Center staff, cited in the Analysis, have the ability to add, change and delete a voucher in ADPICS, they do not have the ability to release a voucher in R*STARS. Only the Superintendent can release payments. Without the ability to release payments the transaction cannot be completed. Adding independent on-line approval paths in ADPICS for direct vouchers will significantly increase processing times. Manual approvals, in conjunction with existing FMIS security, provide adequate internal control in the approval process. No single employee is able to initiate, approve and release a payment transaction. The Department has agreed to remove the Superintendent s ability to initiate R*STARS Direct Vouchers. On June 28, 2001, a profile change was submitted to Annapolis which, when processed, will remove the Superintendent s ability to initiate R*STARS Direct Vouchers.

13 Materials and Supplies Finding #2 There was inadequate accountability and control over inventory withdrawals. Analysis Adequate procedures were not in effect to prevent unauthorized inventory withdrawals from the Centers central warehouse. Specifically, requisition forms were signed by the employees receiving the goods, as evidence of receipt. Subsequently, the storeroom custodian forwarded the signed forms to the inventory clerk for posting to the perpetual inventory records. However, the inventory clerk did not compare the signed requisition forms used for inventory postings to the copies provided to the employees receiving the goods. As a result, requisition forms could be altered after the delivery of goods and additional items could be removed from stock without detection. During fiscal year 2001, expenditures for materials and supplies totaled approximately $677,000. This inventory was primarily maintained at the Centers central warehouse. As of June 30, 2001, the book value of the materials and supplies inventories in the central warehouse totaled $57,385. Recommendation #2 We recommend that the inventory clerk periodically compare, on a test basis, the requisition copies received for inventory posting to the copies provided to the employees receiving the goods. AGREE: Effective June 28, 2001 the Youth Center inventory clerk periodically compares, on a test basis, the requisition copies received for inventory posting to the copies provided to the employees receiving the goods. This review is documented on the warehouse withdrawal copy by the inventory clerk s signature and date.