FLORIDA AUDITOR GENERAL

FLORIDA AUDITOR GENERAL ANNUAL REPORT NOVEMBER 1, 2005 THROUGH OCTOBER 31, 2006 WILLIAM O. MONROE, CPA

The Auditor General... 1 Recommended Statutory Changes... 5 Significant Audit Findings... 11 Other Activities... 68

LEGISLATIVE AUDITING COMMITTEE (During the Annual Report Period) Alternating Chair Stephen R. Wise Dave Aronberg Victor D. Crist Anthony C. Tony Hill, Sr. Bill Posey Alternating Chair Ed Homan Susan Bucher Michael J. Grant Paige Kreegel Juan C. Zapata

The Auditor General The Auditor General provides independent, unbiased, timely, and relevant information to the Legislature, entity management, and the citizens of the State of Florida which can be used to improve the operations and accountability of public entities. The organizational core values with which all practices of the Auditor General will be aligned are: Honesty and Integrity Commitment to ethical conduct and truthfulness in all relationships. Responsibility and Accountability Holding ourselves accountable and being responsible for our actions, taking pride in our professionalism and efficiency in our performance, and committing to the highest performance standards. Trust and Objectivity Being mindful of the reliance that is placed on our work and, therefore, taking a fact-based, nonpartisan, nonideological, fair, and balanced approach to all activities. Provision of Optimal Work Environment and Professional Growth Sharing of relevant information; giving positive, supportive reinforcement to others; fostering trust, teamwork and partnership relationships; providing good and safe physical work environments that protect and enhance personal health and welfare; being dedicated to each other s and the organization s success; and, encouraging and supporting employee education and training. The Auditor General and his staff will approach all work in an unbiased, open-minded manner. Findings will be reported in the same manner. The Auditor General will provide timely reporting to the Legislature, entity management, and the citizens of the State. Work will be planned so as to select the most appropriate topics to maximize government accountability, provide the greatest opportunity to improve government operations, cover areas of interest to the Legislature, and to complete all statutory and other assignments within the time frames established for those assignments. Reporting will be in clear, concise language so that it can be understood by all receiving the reporting. Reporting will include recommendations on how to improve the workings of government. The Auditor General and his staff will perform all work in a professional manner. Professional standards appropriate to the work performed will be followed. Findings and recommendations will be supported so as to preclude any doubt in the validity of the information provided. The Legislature, the public entities, and the citizens will recognize the Auditor General as a valuable resource for providing information and recommendations for improving government operations and accountability in Florida. 1

The Auditor General Questions regarding a particular subject may be directed to the following: Information Technology Audits and Professional Practice Edward J. Valenzuela, CPA Deputy Auditor General Phone: (850) 488-4983 Audit Managers: Jonathan E. Ingram, CPA Information Technology Audits Thomas L. Smith, CISA Information Technology Audit Support Educational Entities and Local Government Audits Michael J. Gomez, CPA Deputy Auditor General Phone: (850) 487-4998 Audit Managers: James M. Dwyer, CPA Local Government Reviews and Special Audits David W. Martin, CPA District School Boards Theodore J. Sauerbeck, Jr., CPA Colleges and Universities Joseph L. Williams, CPA Department of Education and Other Educational Entities State Government Audits The Auditor General may be contacted at: William O. Monroe, CPA Phone: (850) 488-5534 Auditor General FAX: (850) 488-6975 Email: flaudgen@aud.state.fl.us Web site: www.state.fl.us/audgen Address: G74 Claude Pepper Building 111 West Madison Street Tallahassee, Florida 32399-1450 Donald R. Hancock, CPA Deputy Auditor General Phone: (850) 487-4999 Audit Managers: Jane H. Flowers, CPA Health and Human Services Dorothy R. Gilbert, CPA Corrections and Employment Services Brenda K. Pelham, CPA State of Florida Single Audit Nancy C. Tucker, CPA General Government Services David R. Vick, CPA Transportation and Environmental Services Kathryn D. Walker, CPA Financial and Industry Services 2

The Auditor General The Auditor General is: A Constitutional Officer A Legislative Officer A Certified Public Accountant Users of Auditor General Reports: William O. Monroe, CPA Auditor General Copies of audit reports are available on the Internet and are distributed in hard copy or electronically to: Legislative members and staff Governing boards and management of State agencies, educational entities, and local governments Federal Government officials Bond rating agencies Media Other interested parties (including the general public) upon request The Auditor General: Conducts financial audits of the accounts and records of State agencies, State universities, district school boards, community colleges, and, as directed by the Legislative Auditing Committee, local governments. Conducts operational and performance audits of public records and information technology systems and performs related duties as prescribed by law or concurrent resolution of the Legislature. Participates in various State and National professional accounting and auditing organizations in order to provide input and influence accounting and auditing standards and procedures as they relate to and affect State and local government entities. 3

The Auditor General Types of Auditor General Audits The Auditor General performs numerous audits each year. Typically, these audits address three general areas: financial presentations, internal control concerns, and legal compliance issues. These audits consist of: Annual audit of the financial statements of the State of Florida. Annual audit of the Federal moneys provided to the State of Florida. Annual audits of the financial statements of the 28 community colleges and 11 State universities. Financial statement audits, operational audits, and attestation engagements of district school boards. Reports may be obtained by: Periodic operational audits of each of the State agencies, State universities, and the Writing the Auditor General Calling (850) 487-9024 community colleges. Emailing Audits of the 20 State Attorneys and 20 flaudgen@aud.state.fl.us, or Public Defenders. Visiting the Web site at Periodic reviews of each State agency s www.state.fl.us/audgen internal audit activity. (Reports may be obtained in Periodic audits of the major information systems of the State and various data centers. downloadable PDF format) Audits assigned by the Legislative Auditing Committee and audits of municipalities required by citizen petition. Annual review of local government, charter school, and other audit reports required to be submitted pursuant to Sections 218.39 and 215.97, Florida Statutes. Objectives of Auditor General Reports As the constitutional audit arm of the Legislature, the Auditor General provides independent, unbiased, objective information on the fiscal integrity of State government and other governmental entities, the public resources raised, and the purposes for which they were spent. Specifically, the Auditor General: Identifies and audits those operating units, programs, activities, functions, and transactions considered most vulnerable should a significant breakdown in internal control occur. Communicates, by an on-site presence and through various audit procedures, the Legislature s expectation that entity management and employees are accountable for the proper administration of public funds and the achievement of entity objectives. Reports on whether expenditures of State and Federal funds serve a public purpose; are made in compliance with applicable laws, rules, and regulations; and are administered in an economic, efficient, and effective manner. Reports on whether governmental entities have established proper management and accounting controls; financial reports and records are reliable; assets are safeguarded; and fraud, omissions, and illegal acts have a reasonable chance of being discovered. 4

Recommended Statutory Changes Section 11.45(7)(h), Florida Statutes, provides in part, The Auditor General shall transmit to the President of the Senate, the Speaker of the House of Representatives, and the Legislative Auditing Committee by December 1 of each year a list of statutory and fiscal changes recommended by the Auditor General. The following recommended statutory and fiscal changes are provided to the President of the Senate, the Speaker of the House of Representatives, and the Legislative Auditing Committee for consideration. These recommendations either were included in audit reports issued during the period November 1, 2005, through October 31, 2006, or arose during the course of performing the duties assigned to the Auditor General. They are presented by policy area to facilitate their use by the various committees of the Legislature. Auditor General staff are available to brief substantive committees and appropriation subcommittees, as appropriate, on these recommendations. The referenced reports may be viewed and downloaded from the Auditor General Web site located at www.state.fl.us/audgen. Policy Areas BANKING AND INSURANCE... 6 COMMERCE AND CONSUMER SERVICES... 6 COMMUNITY AFFAIRS... 7 GOVERNMENTAL OVERSIGHT AND PRODUCTIVITY... 8 TRANSPORTATION... 10 5

Recommended Statutory Changes Policy Area: Banking and Insurance Significant Control Deficiencies Existed at Citizens Property Insurance Corporation Section 26 of Chapter 2005-111, Laws of Florida, required that the Auditor General conduct an operational audit of Citizens Property Insurance Corporation and enumerated those areas to be included within the audit s scope. Several of the findings and recommendations included in the resulting audit report were addressed by the 2006 Legislature in Chapter 2006-12, Laws of Florida. The findings of the audit report are summarized in the Significant Audit Findings section of this annual report. Citizens Property Insurance Corporation Report Number: 2006-096 Issued: January 2006 Audit Manager: Don Hancock, CPA Policy Area: Commerce and Consumer Services Ensure Appropriateness of Unemployment Insurance Tax Rate The Agency for Workforce Innovation (Agency) is responsible for administering the State s Unemployment Insurance (UI) Program. The Agency contracted with the Department of Revenue (DOR), through an interagency agreement, to perform the duties of the tax collection service provider. The Unemployment Compensation (UC) System is the system used by DOR to calculate employer UI taxes. The Agency, together with DOR, should seek clarification of and revision to the Florida Statutes, as appropriate, to ensure that the interpretation of certain portions of Section 443.131, Florida Statutes, utilized to calculate the experience-based UI tax rate, is in accordance with legislative intent. Agencies: Agency for Workforce Innovation, Department of Revenue, and State Technology Office Report Number: 2006-071 Issued: December 2005 Audit Manager: Jonathan E. Ingram, CPA 6

Recommended Statutory Changes Policy Area: Community Affairs Encourage Local Governments to Address Audit Findings The Legislature should consider amending Section 218.39, Florida Statutes, to encourage local governments to take timely and appropriate action to address audit findings. For example, local governmental entities could be required to document in their public records, within a specified time period, corrective actions taken or the reasons for lack of corrective actions in response to recommendations in an audit report. Agencies: Local Governments Report Number: 2006-202 Issued: June 2006 Audit Manager: James M. Dwyer, CPA Clarify Legislative Intent Regarding Community Redevelopment Agency Reports of Activities The Legislature should clarify its intent with respect to the activities to be included in the reports of activities required by Section 163.356(3)(c), Florida Statutes, to be filed with the appropriate local governing authorities. Agencies: Community Redevelopment Agencies Report Number: 2006-186 Issued: June 2006 Audit Manager: James M. Dwyer, CPA 7

Recommended Statutory Changes Policy Area: Governmental Oversight and Productivity Clarify Responsibility for IT Governance Florida law needed clarification with respect to responsibilities for IT governance, including, in particular, IT security and risk management. The implementing provisions for the fiscal year 2006-07 General Appropriations Act amended Florida law to provide direction in this regard; however, these amended requirements will expire on July 1, 2007. The Legislature should consider continuing its efforts to clarify in Florida law, for periods subsequent to July 1, 2007, which entity is responsible for ensuring an adequate level of data and IT resource security at State agencies, including, in particular, conducting comprehensive IT risk analyses and maintaining information resource security policies and standards. Multi-Agency Report Number: 2007-005 Issued: July 2006 Audit Manager: Jonathan E. Ingram, CPA Require Affirmations of Independence from Those Selecting Contractors The Legislature should amend Section 255.29, Florida Statutes, to require, for construction contracts, the execution of written affirmations of independence. Department of Environmental Protection Report Number: 2006-059 Issued: November 2005 Audit Manager: David R. Vick, CPA The Legislature should consider amending Section 287.057(20), Florida Statutes, to require the execution of written affirmations of independence for procurements made by invitations to negotiate and requests for proposals. Department of Highway Safety and Motor Vehicles Report Number: 2007-026 Issued: September 2006 Audit Manager: David R. Vick, CPA 8

Recommended Statutory Changes Address the Impact of the Appearance of Conflicts of Interest in the Procurement Process The Legislature should consider the need to amend Part III of Chapter 112, Florida Statutes, to more clearly address the impact that appearances of a conflict of interest may have on the public s confidence in public procurement processes. Department of Highway Safety and Motor Vehicles Report Number: 2006-196 Issued: June 2006 Audit Manager: David R. Vick, CPA Address the Impact of Advertising Placed in State Public Information Materials The Legislature should amend Section 283.58, Florida Statutes, to address issues that have been introduced through Web-based publications and commerce and should consider whether Section 283.58, Florida Statutes, should be amended to require the preparation of an analysis addressing the impact that proposed advertising may have on the competition within an industry. The Legislature also should clarify in the statute agency authority to allow the placement of advertising external to public information material. Department of Highway Safety and Motor Vehicles Report Number: 2006-196 Issued: June 2006 Audit Manager: David R. Vick, CPA Transfer Rule-Making Authority for Surplus State Tangible Personal Property from the Auditor General to the Chief Financial Officer Chapter 2006-122, Laws of Florida, transferred responsibility for the promulgation of rules for recordkeeping and inventorying of tangible personal property owned by the State (Chapter 273, Florida Statutes) and certain local governments (Chapter 274, Florida Statutes) from the Auditor General to the Chief Financial Officer. However, such rule-making authority with respect to State-owned surplus tangible personal property was not transferred. The Legislature should consider transferring rule-making responsibility for State-owned surplus tangible personal property from the Auditor General to the Chief Financial Officer. Audit Manager: James M. Dwyer, CPA 9

Recommended Statutory Changes Policy Area: Transportation Amendment of Section 20.24, Florida Statutes, Needed The Legislature should amend Section 20.24, Florida Statutes, to eliminate the reference to the Bureau of Motor Vehicle Inspection. Department of Highway Safety and Motor Vehicles Report Number: 2007-026 Issued: September 2006 Audit Manager: David R. Vick, CPA 10

Our audit reports discuss various issues pertinent to the entities under audit. During the period November 1, 2005, through October 31, 2006, more than 190 reports were released by the Auditor General. The audit reports include findings and related recommendations. The following summarizes significant findings included in these audit reports. These findings are presented by policy area to facilitate their use by the various committees of the Legislature. Auditor General staff are available to brief substantive committees and appropriation subcommittees, as appropriate, on these findings. The entire report may be viewed and downloaded from the Auditor General Web site located at www.state.fl.us/audgen. Policy Areas BANKING AND INSURANCE... 12 COMMERCE AND CONSUMER SERVICES... 14 COMMUNITY AFFAIRS... 17 CRIMINAL JUSTICE... 22 EDUCATION... 23 ENVIRONMENTAL PRESERVATION... 51 GOVERNMENTAL OVERSIGHT AND PRODUCTIVITY... 53 HEALTH CARE... 62 JUDICIARY... 64 REGULATED INDUSTRIES... 64 TRANSPORTATION... 66 11

Policy Area: Banking and Insurance Significant Control Deficiencies Existed at Citizens Property Insurance Corporation (Citizens) No documentation was available to show that Citizens had conducted an enterprisewide evaluation of the effectiveness of operational and financial controls. Prior to October 2005, Citizens human resource policies and procedures did not require the verification of the education and experience claimed by prospective employees and, generally, no such verifications were performed. Citizens procedures did not ensure that background investigations had been performed for all employees at the time of employment. Also, for employees and management, background checks conducted by Citizens had been limited to Statewide criminal correspondence checks and did not include other steps that may identify information that may bear on the employee s suitability for employment. Statute did not require the Office of Insurance Regulation (OIR) to conduct reviews of the backgrounds and business dealings of Citizens management, officers, and Board members. Such reviews are required for voluntary insurers pursuant to Section 624.404(3), Florida Statutes. Citizens had made progress in developing effective standards of conduct and related policies and procedures. However, areas for improvement included, for example, an expanded description of the familial and personal relationships that should be considered a conflict of interest, enhanced requirements for filing annual conflict of interest forms, expanded prohibitions and guidance regarding the receipt of gifts, a methodology to be used to review financial disclosures for indications of actual and potential conflicts of interest, the addition of a requirement that members of the Board of Governors file financial disclosures, and the adoption of policies specifically restricting the use of Citizens assets to corporate business. Citizens had not developed and implemented comprehensive written procurement policies and procedures that would provide Citizens Board and management assurance that vendors would be selected and engaged in a manner that best serves the business interests of Citizens and the public interests of other stakeholders. There is no statutory provision of law exempting Citizens from the application of Section 112.061, Florida Statutes; however, our audit tests disclosed that the travel and per diem payments made by Citizens were often not made in accordance with the statute. Our review of statutes relevant to eligibility determinations and tests of the effectiveness of related Citizens procedures disclosed that enhancements in some areas may provide additional assurance that Citizens policies are issued to only those applicants who cannot find insurance in the voluntary market. Although Section 627.3515(1), Florida Statutes, requires that the OIR adopt and operate the Market Assistance Plan (Plan), we found no evidence that the OIR had adopted the Plan, and responsibility for Plan operation and oversight appeared to have been assumed by Citizens. Also, historical data was not available to allow a determination of the effectiveness of the Plan. 12

Further, the Plan had not obtained access to certain OIR data that may be helpful in matching those customers seeking insurance to the insurers offering insurance in the voluntary market. Although Section 627.3511(2), Florida Statutes, appears to limit the amount of bonus that may be paid to an insurer to $100 for each risk (policy) that the insurer removes, Citizens had developed several programs that provided bonuses of up to $300 for each policy removed. The bonus amounts paid or escrowed for each policy have averaged $148. In response to our inquiries, both Citizens and the OIR responded that Section 627.351(6)(g)3.a., Florida Statutes, authorizes the payment of bonuses in excess of $100 for each policy taken out. We found that necessary historical data, such as the complete address of the insured property, was not available for use in an assessment of the long-term effectiveness of the take-out programs. Our limited tests did disclose some evidence that risks had been returned to Citizens and then subsequently taken out again by another insurer. For its primary electronic policy administration systems, Citizens had not provided system functionality that allowed agents to electronically transact business, particularly with respect to commercial account and catastrophe claims information. Citizens has initiated the Single System Project, which is to provide improved functionality. Although Citizens had multiple functional units involved in addressing complaints, there was no one functional unit assigned the responsibility for coordinating the receipt and ensuring the timely and effective resolution of policyholder complaints. Because of deficiencies in Citizens monitoring of its adjuster resources contracted for the 2004 storm season, Citizens did not have a reliable means for determining the extent to which the services provided conformed to Citizens requirements or a basis for timely identifying performance issues that may have required corrective actions. For a sample of claims, we determined: Many documents in the 2004 and 2005 claim files were not dated. Notwithstanding the absence of dates in many instances, we were able to determine that for the 2004 storms, there was often a significant lag between the filing of a claim, the assignment of the claim to an adjuster, and the closing of the claim. With respect to the 2005 storm claims reviewed, claims were processed more expeditiously. The fees paid by Citizens to contracted adjusters and claims administrators were sometimes high in relation to the services received. Few files included an insurance-to-value analysis. Case reserves were not always properly maintained and adjusted to reflect the best and most recent estimate of the claim payment that will be due. For three claims, the amounts paid appeared to be inconsistent with claim file information. Actuarial studies were not available to demonstrate the extent to which the rates assessed through June 30, 2005, were, as required by Section 627.351(6)(d)1., Florida Statutes, actuarially sound. 13

In general, we found the approach used by Citizens to provide financing for its estimated 100-year probable maximum loss (PML) to be reasonable. Efforts to reduce the cost-of-carry associated with pre-event bonds should continue. Also, the amount of surplus available to assist in the financing of the 100-year PML could, as addressed in other findings of this report, be increased by assessing and collecting all premiums due under the authority of law; reducing, where possible, loss adjustment expenses; and engaging service providers through competitive means. A former employee of Citizens was the subject of an ongoing criminal investigation. The outcome of this investigation and its implications, if any, relative to the controls or operations of Citizens was unknown as of the close of our audit field work. Citizens Property Insurance Corporation Report Number: 2006-096 Issued: January 2006 Audit Manager: Don Hancock, CPA Policy Area: Commerce and Consumer Services The Financial Condition of the Florida Citrus Advertising Trust Fund Has Declined The fund balance of the Florida Citrus Advertising Trust Fund has declined from $22.8 million at June 30, 2002, to $10.2 million at June 30, 2006. The Department of Citrus (Department) could not provide documentation demonstrating that amounts advanced to a contractor had been appropriately spent. The Department made continued improvement in its contract management policies and procedures. Department of Citrus Report Number: 2007-031 Issued: October 2006 Audit Manager: Nancy C. Tucker, CPA Deficiencies Noted in the Office of Tourism, Trade, and Economic Development s (OTTED) Handling o f Collections and State Warrants OTTED did not always follow established procedures to ensure collections were timely deposited. OTTED did not ensure that warrants were mailed immediately upon receipt. 14

OTTED s procedures did not ensure that State funds were properly safeguarded. Executive Office of the Governor Report Number: 2007-025 Issued: September 2006 Audit Manager: Jane H. Flowers, CPA Improvements Needed in Controls Related to the One-Stop Management Information System (OSMIS) OSMIS provides functions for employment service providers, customers, program and agency management, and the Legislature in support of the workforce development vision. The Agency for Workforce Innovation (Agency) is the designated administrative agency for receipt of Federal workforce development grants and other Federal funds. The Agency also provides program and fiscal instructions to the regional workforce boards pursuant to plans and policies of Workforce Florida, Inc., the principal workforce policy board for the State. Access capabilities to the various modules within OSMIS had been granted to users who did not need the access for their job function. The Maintain User screen for security administration for the Financial Management module of OSMIS granted all access rights upon user set-up unless rights were specifically denied when the user account was established. There was a lack of coordination between the Agency and the regional workforce boards for security administration. Access capabilities to the OSMIS application had not been timely deleted for users who had terminated employment and no longer needed access. There was not a policy at the Agency to identify positions of special trust and there were no procedures for reviewing the work of employees who occupy critical or sensitive positions. Improvements were needed in certain security controls protecting OSMIS. Cash disbursement functionality within the Financial Management module of OSMIS included transactions not needed for cash disbursement processing. Written procedures for the reconciliation of OSMIS data to the Florida Accounting Information Resource Subsystem had not been developed. There were inadequate controls over certain aspects of the change management process. OSMIS user documentation did not always accurately reflect system functionality. 15

The Agency had not developed policies and procedures for exception reporting and error handling for OSMIS interface transactions. Agency for Workforce Innovation Report Number: 2006-086 Issued: January 2006 Audit Manager: Jonathan E. Ingram, CPA Controls Related to the Unemployment Compensation System Needed to be Enhanced The Agency for Workforce Innovation (Agency) is responsible for administering the State s Unemployment Insurance (UI) Program. The Agency contracted with the Department of Revenue (DOR), through an interagency agreement, to perform the duties of the tax collection service provider. The Unemployment Compensation (UC) System is used by DOR to calculate employer UI taxes. Additionally, the UC System is used by the Agency to determine eligibility and calculate benefit amounts for individuals seeking coverage under the UI Program. The Agency entered into a service level agreement with the State Technology Office (STO) to provide support services for the Agency s computer operations and mainframe applications, including the UC System. Effective July 1, 2005, the responsibilities of the STO were assumed by the Department of Management Services. The Agency did not reconcile the detail and summary wage and benefit claims files prior to the calculation of the employers experience-based UI tax rates for the 2005 calendar year. Our analysis of aggregate amounts for employer accounts disclosed aspects of the Agency s calculation of employers experience-based tax rates for the 2005 calendar year that were inconsistent with Florida law. The Agency did not maintain adequate policies and procedures or other guidance to support the decision-making process for the methodology used in the annual calculation of employers experience-based tax rates. Neither was there sufficient systems documentation of the calculation process. The Agency had not established adequate controls to prevent or timely detect the issuance of UC benefit payments to incarcerated persons. Agencies: Agency for Workforce Innovation, Department of Revenue, and State Technology Office Report Number: 2006-071 Issued: December 2005 Audit Manager: Jonathan E. Ingram, CPA 16

Policy Area: Community Affairs Town of Eatonville Follow-Up Audit Indicated Further Need for Corrective Action Section 11.45, Florida Statutes, requires us to perform appropriate follow-up procedures no later than 18 months after the release of an audit of a local government entity to determine the local government s progress in addressing the audit findings and recommendations. Our follow-up procedures disclosed that continuing improvements were needed to address the audit findings and recommendations contained in report No. 2004-178, which had been issued in April 2004. Our follow-up report disclosed that of 79 total findings, 10 had been adequately addressed, 33 had been partially addressed, and 36 had not been addressed. Town of Eatonville Report Number: 2007-035 Issued: October 2006 Audit Manager: James M. Dwyer, CPA Florida Keys Aqueduct Authority Management Controls and Financial Records Were Deficient in Several Respects We questioned several matters as to the public purpose served by incurring certain operating expenses or providing specific benefits to certain Florida Keys Aqueduct Authority (Authority) employees. The decisions to provide these expenses affect the fees charged to water and wastewater users. The Board had not established the legal level of budgetary control for monitoring Authority expenditures; budgetary comparison reports provided to the Board were incomplete; and the Authority did not consider all prior year net assets in preparing its budgets. Controls over cash and investments were inadequate as bank reconciliations were not always prepared timely and investment earnings could have been increased by investing with the State Board of Administration. The Authority could realize a cost savings and improved efficiency by changing its payroll processing to biweekly or monthly. Employment agreements with the current and former General Counsel and Executive Director contain provisions for severance pay without documenting the public purpose served. The provisions do not require cost savings as a prerequisite to severance pay. Health and life insurance provisions in certain employment agreements, as well as the personnel policy, were unclear as to what benefits were to be received by the employees and what liability the Authority was agreeing to assume upon employees retirement. 17

The Authority did not document the public purpose served or legal basis for $49,271 paid for employee awards and banquets. Controls over travel-related expenses could be improved as the Authority s policies and procedures for documenting travel were inadequate and Class C meal allowances were not reported to the Internal Revenue Service as taxable wages. The Authority did not allocate to the water system $160,000 paid by the wastewater system for the portion applicable to water system improvements, and some indirect costs for administrative support were not allocated to the wastewater system. The administration of contracts by the Authority was inadequate as: contracts with consultants and attorneys, and related invoices, did not contain specific deliverables or bases for payments; continuing contracts with engineers were used, contrary to Section 287.055, Florida Statutes; the Authority did not consider directly purchasing materials for major construction projects or awarding bids by major components; the Authority made overpayments or early payments to engineering firms and paid for services without the use of competitive bids; the Authority did not always establish final completion dates for wastewater projects or document the reasons for delays, possibly resulting in a failure to assess liquidated damages. The Authority used a law firm that was affiliated with its General Counsel, an employee, violating Section 112.313(3), Florida Statutes. Florida Keys Aqueduct Authority Report Number: 2007-012 Issued: August 2006 Audit Manager: James M. Dwyer, CPA Certain Financial Trends and Common Types of Findings Were Reported in Local Government Independent Audit Reports Our application of financial indicators to local governments disclosed certain financial trends that may be indicative of deteriorating financial conditions, including high levels of ad valorem millage rates for lesser-populated counties and higher-populated municipalities; insufficient levels of unreserved fund equity; declining excess of revenues over expenditures in governmental funds and decreasing operating incomes (or increasing operating losses) in proprietary funds; low or declining levels of cash and investments, as compared to current liabilities; and increasing long-term debt in governmental funds. Independent audits of local governments conducted by CPA firms for the 2003-04 fiscal year reported 5 municipalities and 41 special districts as meeting one or more of the financial emergency conditions as defined in Section 218.503(1), Florida Statutes. Additionally, our review of annual financial reports of local governments not required to file an audit report disclosed 4 special districts and 1 municipality that met a financial emergency condition. The number of local governments meeting one or more of the financial emergency conditions 18

increased significantly from the prior fiscal year, primarily due to a change in the financial conditions. The number of local governmental entities experiencing deteriorating financial conditions decreased by 16 percent since the 2002-03 fiscal year. The number of findings included in audit reports increased since the 2002-03 fiscal year, but has significantly decreased since the 1999-2000 fiscal year. Certain types of findings are frequently included in local government audit reports. For many of the audit reports, the findings were not sufficiently descriptive to allow a determination of the significance of the findings. A significant number of the findings reported for the 2003-04 fiscal year were also included in the audit reports for the prior fiscal year. Agencies: Local Governments Report Number: 2006-202 Issued: June 2006 Audit Manager: James M. Dwyer, CPA Improvements Were Needed in Various Aspects of the Local Government Financial Reporting System, Including Accountability and Reporting by Community Redevelopment Agencies Several taxing authorities did not timely provide tax increment funding to Community Redevelopment Agencies (CRAs) and the CRAs did not bill the taxing authorities for additional moneys and interest pursuant to Section 163.387(2)(b), Florida Statutes. Our review of expenditures of selected CRAs disclosed that: two CRAs could not demonstrate that expenditures complied with the respective CRA Plan and applicable law or were properly authorized; five CRAs did not maintain documentation to demonstrate that employees whose salaries and benefits were partially paid from CRA funds were paid commensurate with the time spent on CRA activities; two CRAs made contributions to private, nonprofit organizations without formal agreements and adequate control over the disbursement of funds by the organizations. Four CRAs did not adopt budgets by resolutions, contrary to law, and three CRAs overspent their budgets, also contrary to law. CRAs were not obtaining the financial audits required by law, and information requirements under law for CRA reports of activities had been inconsistently interpreted by the CRAs. 19

Several recommendations included in our report No. 2004-006, issued in July 2003, were considered to be still applicable for the purposes of this audit. They include findings related to the filing of annual financial reports by small local governments not required to submit audit reports; the Department of Financial Services local government database and electronic filing system; the Division of Bond Finance s report to the Department of Community Affairs on special districts not in compliance with Section 218.38, Florida Statutes; and Division of Retirement s procedures for review of actuarial reports and impact statements, and notification to pension plan administrators of incomplete filings of pension plan information. Agencies: Local Governments Report Number: 2006-186 Issued: June 2006 Audit Manager: James M. Dwyer, CPA City of Cape Coral s Management Controls and Financial Records Related to Assessment of Utility-Related Charges Needed Improvement The City had not maintained its accounting records on a current basis, or periodically reviewed them for completeness and accuracy. Written policies and procedures necessary to assure the efficient and consistent conduct of accounting and other business-related functions, and the proper safeguarding of assets, had not been established. The City had not provided for an adequate separation of duties in certain areas of operations or provided for the proper safeguarding of blank checks. The City did not consider all available net assets from prior fiscal years in adopting its budgets for utility funds, and reported budget over-expenditures totaling approximately $39 million in 7 utility funds. Bank reconciliations were not always performed timely and adequately reviewed. The City did not timely report and remit unclaimed property to the Florida Department of Financial Services. The City did not prepare a financial analysis, including a calculation of the economic gain or loss, prior to issuing refunding debt totaling $53 million. The City did not timely refund special assessments in excess of project costs for three utility expansion areas. Deficiencies in the City s administration of contribution in aid of construction (CIAC) and capital expansion fees included: use of a methodology for determining CIAC fees that may not appropriately match fees charged to actual costs incurred; inadequate controls to assure timely collection of CIAC fees; a change to CIAC and capital expansion fees through a vote of the City Council rather than an ordinance; and expenditures of CIAC and capital expansion fees for purposes not authorized by the City s Code of Ordinances or applicable case law. The City did not always charge utility users appropriate fees or timely bill for services rendered. 20

Costs for shared administrative expenses from departments other than utilities were not allocated to utility funds in a systematic and rational manner, and some costs were not supported as to the basis for the direct charge. Expenditures totaling $131,859 were not supported by documentation demonstrating the public purpose served. Contract management was inadequate in that: bond counsel was not selected through a competitive selection process; the City did not have written or properly signed contracts for several bond professionals; contracts were not monitored to ensure contractors performed in accordance with the contracts; Section 287.055, Florida Statutes, was not complied with in the procurement of the contract for a utility expansion program; and invoices were not adequately supported. Although the City had taken some actions to reduce water loss, unaccounted for water was in excess of 10 percent. Deficiencies in controls over the City s information systems included some City staff having inappropriate access to system resources. The City has not executed a lease agreement for its charter school and the frequency and timing of billings to the charter school for services provided by the City were not addressed by Ordinance. The City conducted discussions regarding the calculation of the charter school lease payments through a liaison rather then in a publicly noticed meeting. City of Cape Coral Report Number: 2006-182 Issued: May 2006 Audit Manager: James M. Dwyer, CPA The Division of Emergency Management s (Division) Federal Emergency Management Agency (FEMA) Reimbursement Procedures Required Enhancement The Division s verification and payment processing procedures for reimbursing FEMA did not provide adequate assurance that amounts were appropriate prior to payment. The Division s agreed-upon replacement amount for destroyed automobiles sometimes resulted in FEMA payments to individuals in excess of the pre-disaster value of automobiles. Department of Community Affairs Report Number: 2006-095 Issued: January 2006 Audit Manager: David R. Vick, CPA 21

Policy Area: Criminal Justice Cost Allocation Methodologies Needed for Criminal Justice Standards and Training Trust Fund Section 943.25, Florida Statutes, created the Criminal Justice Standards and Training Trust Fund within the Department of Law Enforcement (Department) to primarily provide funding for the administration of the Criminal Justice Professionalism Program (Program). The Department should implement cost allocation methodologies that identify and summarize all direct and indirect costs of the Program. Department of Law Enforcement Report Number: 2007-014 Issued: September 2006 Audit Manager: David R. Vick, CPA Deficiencies Existed in the Award and Management of Pharmaceutical Contracts The Department of Corrections (Department) did not utilize a competitive process for selecting TYA Pharmaceuticals as the vendor for a pill-splitting contract with a 71-month term and an expected cost of $12 million. In addition, the Deputy Assistant Secretary of Health Services Administration (who has since resigned) had a prior financial relationship with TYA Pharmaceuticals and participated in the decision to contract with TYA Pharmaceuticals for the service. Also, two documents used by the Department to ensure that proper contracting processes are utilized were not adequately completed. The Department was unable to provide records related to the employment of the Deputy Assistant Secretary of Health Services Administration. Contrary to the terms of the pill-splitting contract, the Department was not provided the information necessary to perform background checks for some TYA Pharmaceuticals employees prior to the individuals being hired or assigned to work under the contract. Additionally, the Department has not requested TYA Pharmaceuticals staff to submit to fingerprinting. Department records and procedures were not sufficient to ensure that pharmaceutical orders were properly approved, accurately priced, and filled within the time periods prescribed in the contracts. The Department had not established procedures to effectively measure TYA Pharmaceuticals performance in timely filling and delivering pharmaceutical orders as stipulated in the performance measure in the contracts. The Department did not always record contract payments to the applicable pharmaceutical contract in Department accounting records, limiting the Department s decision-making and monitoring abilities. 22

Although required by the repackaging contracts, the Department did not obtain an annual financial reporting package from TYA Pharmaceuticals until November 2005 (for the year ended December 31, 2004). The provision of an annual financial and compliance audit to the Department has been a contract condition in repackaging contracts between the Department and TYA Pharmaceuticals since January 1998. TYA Pharmaceuticals did not notify the Contract Manager in writing within seven days of receiving a Department of Health inspection report. Department of Corrections Report Number: 2006-080 Issued: January 2006 Audit Manager: Dorothy R. Gilbert, CPA Policy Area: Education GENERAL EDUCATION Administration o f Florida Bright Futures Scholarship Program (Program) Generally Complied with Laws and Rules For the fiscal year ended June 30, 2005, universities and community colleges generally administered the Program in accordance with laws, rules, and guidelines; properly accounted for moneys received and disbursed; and adopted adequate management controls. However, we did note the following: Two institutions did not timely refund overawards totaling $558 to the Department of Education. Two institutions did not timely reconcile scholarship award disbursements to students shown on their records with the disbursements reported to the Department of Education. Unidentified differences ranged from $6,665 to $28,200. Three institutions did not accurately calculate and report to the Department of Education the grade point average or credit hours earned for ten students. Three institutions did not timely return undisbursed Program funds to the Department of Education. Agencies: Various Colleges and Universities Report Number: 2006-173 Issued: April 2006 Audit Manager: Ted J. Sauerbeck, CPA 23

Enhancements Needed in Selected Florida School for the Deaf and the Blind Activities The School s staffing standards were not up-to-date. The School s legislative budget requests for the 2004-05 and 2006-07 fiscal years did not take into account Statewide salary increases provided by the Legislature. We also noted that funds for nonrecurring items were incorrectly included in the School s continuing funding base. The School s planning methodology and documentation for renovation, remodeling, and maintenance were in need of improvement. Florida School for the Deaf and the Blind Report Number: 2006-169A Issued: May 2006 Audit Manager: Joseph L. Williams, CPA The Florida Lottery s Financial Statements Were Fairly Presented Financial statements presented fairly, in all material respects, the financial position of the Lottery as of June 30, 2005, and the changes in financial position and cash flows thereof for the year then ended. For those items tested, the Lottery generally complied with significant legal requirements and implemented procedures that generally provide for internal control of Lottery operations. Section 24.113, Florida Statutes, requires no more than 35 percent of minority business retailers be owned by the same type of minority person, as defined in Section 288.703, Florida Statutes. As of August 29, 2005, retailers comprising one minority type totaled 65 percent of total minority retailers. We identified the need for enhancements to the Lottery s IT control practices. Department of the Lottery Report Number: 2006-098 Issued: January 2006 Audit Manager: Don Hancock, CPA 24

COLLEGES Financial Audits o f Colleges The following provides a summary of the findings of our audits of the financial statements of 26 community colleges (colleges) for the fiscal year ended June 30, 2005. The reports for the remaining 2 colleges (Daytona Beach Community College and Edison College) were issued prior to November 1, 2005. We found that the colleges financial statements presented fairly, in all material respects, the financial position of the colleges and their discretely presented component units as of June 30, 2005; the revenues, expenses, and changes in net assets; and the cash flows for the fiscal year then ended. We noted no matters involving internal control over financial reporting and operations that we considered to be material weaknesses. The results of our tests disclosed no material instances of noncompliance that were required to be reported under Generally Accepted Government Auditing Standards. Brevard Community College (2006-164), Broward Community College (2006-104), Central Florida Community College (2006-076), Chipola College (2006-094), Florida Community College at Jacksonville (2006-167), Florida Keys Community College (2006-083), Gulf Coast Community College (2006-129), Hillsborough Community College (2006-073), Indian River Community College (2006-085), Lake City Community College (2006-154), Lake-Sumter Community College (2006-170), Manatee Community College (2006-084), Miami Dade College (2006-112), North Florida Community College (2006-138), Okaloosa-Walton College (2006-158), Palm Beach Community College (2006-074), Pasco-Hernando Community College (2006-159), Pensacola Junior College (2006-078), Polk Community College (2006-091), Santa Fe Community College (2006-166), Seminole Community College (2006-172), South Florida Community College (2006-155), St. Johns River Community College (2006-147), St. Petersburg College (2006-168), Tallahassee Community College (2007-004), Valencia Community College (2006-160) Audit Manager: Ted J. Sauerbeck, CPA Twenty-six colleges are currently under audit for the fiscal year ended June 30, 2006, and reports will be issued by March 31, 2007. The following provides a summary of the findings of our audit of the financial statements of two colleges for the fiscal year ended June 30, 2006: We found that the colleges financial statements presented fairly, in all material respects, the financial position of the colleges and their discretely presented component units as of June 30, 2006; the revenues, expenses, and changes in net assets; and the cash flows for the fiscal year then ended. We noted no matters involving internal control over financial reporting and operations that we considered to be material weaknesses. 25

The results of our tests disclosed no material instances of noncompliance that were required to be reported under Generally Accepted Government Auditing Standards. However, for Daytona Beach Community College, we noted an immaterial instance of noncompliance. Daytona Beach Community College (2007-038), Pensacola Junior College (2007-033) Audit Manager: Ted J. Sauerbeck, CPA Operational Audits of Colleges The following are summaries of the findings of seven operational audits of colleges released during the Annual Report period. Two of these audits (Palm Beach Community College and Polk Community College) were for the fiscal year ended June 30, 2006, or selected actions taken prior thereto. The other five audits were for the period January 1, 2004, through December 31, 2004, and selected actions thereafter. Purchasing Practices Needed Improvement One college did not have adequate written policies and procedures addressing initiating, negotiating, preparing, approving, and monitoring of contractual agreements. Also, the college needed to improve its procedures for contracting with vendors, and for ensuring that vendors were properly insured. One college did not periodically solicit competitive proposals for banking services or otherwise demonstrate the reasonableness of such services (and the cost thereof) being received under its current banking services agreement. One college did not, for some professional services contracts, clearly define the scope and services to be performed by the contractors, or require the contractors to obtain appropriate insurance coverage. One college needed to improve controls over credit cards. One college did not timely close procurement card accounts for four former employees after their termination date. One college s purchasing card transactions were, in numerous instances, charged to incorrect expenditure codes. Also, college personnel did not audit supporting documentation maintained for purchasing card transactions, and purchasing card transactions generally were not, of record, reviewed and approved by supervisory personnel. One college entered into two lease-purchase agreements for equipment in which interest rates were not stated on the signed lease documents. The interest rate for one agreement could not be determined from college records, and the imputed interest rate for the other agreement was significantly in excess of the maximum rate authorized by law. 26

Three colleges needed to enhance their administration of construction projects. Broward Community College (2006-056), Florida Community College at Jacksonville (2006-132), Florida Keys Community College (2006-082), Hillsborough Community College (2006-065), Palm Beach Community College (2007-032), Polk Community College (2007-040), Tallahassee Community College (2006-137) Audit Manager: Ted J. Sauerbeck, CPA Enhancements Needed in Controls Over Payroll and Personnel One college had not implemented formal policies and procedures for telecommuting employees, and did not, of record, adequately monitor the work activities of a telecommuting employee who lived and worked outside the State. One college s administrative and instructional contracts were not always signed and returned to the Human Resource office or board of trustees in a timely manner, and instructional overload contracts were not approved by the president, contrary to the college's procedures. One college did not classify staff other than instructional and educational support employees for terminal sick leave purposes in a manner consistent with guidance provided by the Department of Education, Division of Community Colleges. One college s records did not always evidence that monthly leave reports were adequately reviewed by supervisory personnel. One college needed to improve procedures for monitoring the reasonableness and necessity of overtime worked. Also, numerous overtime requests were not properly completed, approved in advance by supervisory personnel, or timely submitted. One college made overtime payments to three student activity advisors that exceeded the college s established limits. One college needed to strengthen its monitoring procedures to ensure that faculty members are available during established office hours and, if not available, that alternate contact information is posted. One college did not document annual performance appraisals for three employees, and did not timely complete the performance appraisal for another employee. One college overpaid two employees a total of $23,185 for accumulated unused annual or sick leave upon termination, while another college had not taken adequate measures to recover terminal leave overpayments made to three former employees. One college did not require fingerprint checks for employees in positions of special trust or of a sensitive nature. Broward Community College (2006-056), Florida Community College at Jacksonville (2006-132), Florida Keys Community College (2006-082), Hillsborough Community College (2006-065), Polk Community College (2007-040), Tallahassee Community College (2006-137) Audit Manager: Ted J. Sauerbeck, CPA 27

Improvements Needed in Controls Over Cash and Receivables One college did not provide for timely bank reconciliations, and did not investigate and resolve unreconciled differences between the bank account balance and the general ledger balance. One college did not always maintain adequate Federal cash balances to cover disbursements, resulting in the use of other college moneys to cover these disbursements. Two colleges did not provide for adequate controls over electronic transfers of funds or did not timely record electronic transfers of funds to the accounting records. One college did not timely assign delinquent accounts to its contracted collection agency. Three colleges needed to improve controls over cash collections at decentralized locations, including an Institute of Public Safety, child care center, theatre, and Cosmetology Department. One college s cash deposits were not always made timely. Broward Community College (2006-056), Hillsborough Community College (2006-065), Palm Beach Community College (2007-032), Polk Community College (2007-040), Tallahassee Community College (2006-137) Audit Manager: Ted J. Sauerbeck, CPA Enhancements Needed in Controls Over Inventory and Capital Assets One college included obsolete items in its maintenance inventory, which inhibited its ability to minimize inventory storage costs. One college s tangible personal property purchases were not always timely recorded in the subsidiary property records. One college needed to improve procedures for disposing of tangible personal property. One college did not maintain sufficient subsidiary tangible personal property records. Three colleges did not adequately document the results of the annual physical inventory of tangible personal property, timely reconcile the results of the physical inventory to the property records, thoroughly investigate all differences, or report missing items to the appropriate law enforcement agency. Broward Community College (2006-056), Florida Keys Community College (2006-082), Palm Beach Community College (2007-032), Polk Community College (2007-040), Tallahassee Community College (2006-137) Audit Manager: Ted J. Sauerbeck, CPA Controls Related to Information Technology Resources Needed Improvement Two colleges had not fully implemented a formal ongoing security awareness program to apprise users of the importance of preserving the integrity, availability, and confidentiality of the data entrusted to them. 28

One college needed to improve security access controls, while another college needed to enhance procedures to ensure that terminated employees computer access was timely removed. Two colleges information technology (IT) business continuity plans lacked certain key provisions to facilitate a smooth recovery in the event of an actual disruption of IT operations, and one of the colleges had not fully tested the plan to ensure the plan s adequacy in the event of a disruption. One college did not adequately document testing and acceptance of each phase of new application software prior to implementation. Florida Community College at Jacksonville (2006-132), Palm Beach Community College (2007-032), Polk Community College (2007-040) Audit Manager: Ted J. Sauerbeck, CPA Improvements Needed in Financial Reporting and Budget Administration One college did not provide the board of trustees with sufficient financial information for use in monitoring the college s overall financial position. One college did not, contrary to Section 1013.61, Florida Statutes, include a capital outlay budget as a part of the annual budget. One college needed to enhance procedures for preparing and recording budget amendments. Also, approval of certain types of budget amendments was delegated to college staff, contrary to Florida Statutes and State Board of Education Rules. Broward Community College (2006-056), Polk Community College (2007-040) Audit Manager: Ted J. Sauerbeck, CPA Procedures for Ensuring the Propriety of Tuition and Fees Assessed Needed Improvements Two colleges had not established a written methodology or policy regarding the determination and justification of laboratory and other user fees, and did not always document the necessity of such fees or board of trustees approval thereof. One college carried forward to the 2005-06 fiscal year more student financial aid fees from the 2004-05 fiscal year than allowed by law. One college calculated student fees for continuing workforce education courses without using the indirect cost rate prescribed by the college's procedures manual, and did not document the basis for indirect rates used. In addition, the calculations of student fees for some continuing workforce education courses did not consider instructor and other direct course costs. 29

One college had not implemented adequate procedures to ensure it received all rental income to which it was entitled. Florida Keys Community College (2006-082), Polk Community College (2007-040), Tallahassee Community College (2006-137) Audit Manager: Ted J. Sauerbeck, CPA Enhancements Needed in Controls Over Expenditures One college did not spend student activity and service fee resources in a timely manner, which may have resulted in students not benefiting from activities financed with these fees. Also, the college did not always evidence that student activity and service fee expenditures benefited the student body in general. One college did not adequately monitor the personal use of cellular telephones provided to employees. One college, contrary to its established procedures, made additional travel advances to a traveler for which there were outstanding, unreconciled travel advances. Also, the college did not provide for reconciliations of travel advances to itemized travel vouchers in a timely manner. One college did not document its actual cost for several reimbursements from the Florida Department of Law Enforcement, Criminal Justice Standards and Training Commission, for the use of equipment or supplies used in domestic security training courses. In addition, the college was not entitled to reimbursements it received for lease-purchased equipment. Florida Community College at Jacksonville (2006-132), Florida Keys Community College (2006-082), Hillsborough Community College (2006-065) Audit Manager: Ted J. Sauerbeck, CPA Improvements Needed in Monitoring Compliance by Auxiliary Service Contractors Two colleges needed to improve procedures for monitoring food service, bookstore, and vending machine contractors compliance with the terms of written agreements. Palm Beach Community College (2007-032), Tallahassee Community College (2006-137) Audit Manager: Ted J. Sauerbeck, CPA 30

Written Policies and Procedures Needed to be Revised Polk Community College needed to revise its written policies and procedures to address certain areas of its financial operations, to reflect a new application software system and procedures in practice, and to be consistent with Florida Statutes and State Board of Education Rules. Polk Community College Report Number: 2007-040 Issued: October 2006 Audit Manager: Ted J. Sauerbeck, CPA Controls Over Motor Vehicle Usage Needed Improvement Palm Beach Community College needed to enhance its procedures for monitoring usage of college-owned motor vehicles. Palm Beach Community College Report Number: 2007-032 Issued: October 2006 Audit Manager: Ted J. Sauerbeck, CPA Enhancements Needed in Student Record Systems Tallahassee Community College had not implemented certain recommendations from an internal audit of its student record systems and had not reduced its time frame (one year or longer through the appeal process) for allowing grade changes. Tallahassee Community College Report Number: 2006-137 Issued: March 2006 Audit Manager: Ted J. Sauerbeck, CPA Controls Over Disbursement Processing Needed Improvement Hillsborough Community College needed to improve its disbursement processing controls associated with the college s on-line vouchering system. Hillsborough Community College Report Number: 2006-065 Issued: December 2005 Audit Manager: Ted J. Sauerbeck, CPA 31

SCHOOL DISTRICTS Certain Financial Trends Reported in School District Audit Reports The audits of 51 school districts were performed by the Auditor General and the audits of 16 school districts were performed by independent certified public accountants. At June 30, 2005, the 67 school districts Statewide had an average level of unreserved fund balance in the general fund that was approximately 8 percent of general fund revenues (financial condition ratio). Five of the 67 districts had financial condition ratios that were less than 2.5 percent, which is the same number of school districts with ratios of less than 2.5 percent at June 30, 2004. In these circumstances, the five school districts have significantly less resources available for emergencies and unforeseen situations than other school districts. Agencies: School Districts Report Number: 2007-011 Issued: August 2006 Audit Manager: David W. Martin, CPA Financial, Operational, and Federal Single Audits o f School Districts The following provides a summary of the findings of our financial, operational, and Federal Single audits of 42 school districts for the fiscal year ended June 30, 2005. We found that the school districts financial statements presented fairly, in all material respects, the financial position of the school districts as of June 30, 2005, and the respective changes in financial position and cash flows, as applicable for the fiscal year then ended. We noted no instances of noncompliance material to the financial statements which would be required to be reported under Generally Accepted Government Auditing Standards. We noted improvements were needed in controls over Federal awards at 26 of these school districts. These findings addressed compliance with Federal requirements for programs, including National School Lunch and School Breakfast Programs, Title I, Exceptional Student Education, and Twenty-First Century Community Learning Centers. The audits of these 42 districts also included an operational component, the objective of which was to determine whether District management controls promoted and encouraged: 1) compliance with applicable laws, administrative rules, and other guidelines; 2) the economic, effective, and efficient operation of the District; 3) the reliability of records and reports; and 4) the safeguarding of District assets. 32

The individual audit findings included in the audit reports for these 42 school districts, involving financial and operational topics, are summarized by topic below. District School Board, County of Baker (2006-060), Bay (2006-121), Bradford (2006-120), Charlotte (2006-144), Citrus (2006-130), Clay (2006-126), Columbia (2006-141), DeSoto (2006-111), Dixie (2006-109), Flagler (2006-135), Franklin (2006-125), Gadsden (2006-148), Gilchrist (2006-119), Glades (2006-140), Gulf (2006-062), Hamilton (2006-108), Hardee (2006-099), Hendry (2006-102), Hernando (2006-063), Highlands (2006-116), Holmes (2006-149), Indian River (2006-122), Jackson (2006-133), Jefferson (2006-113), Lafayette (2006-068), Levy (2006-101), Liberty (2006-077), Madison (2006-115), Martin (2006-131), Monroe (2006-184), Nassau (2006-105), Okeechobee (2006-069), Putnam (2006-150), St. Johns (2006-153), Santa Rosa (2006-127), Sumter (2006-079), Suwannee (2006-106), Taylor (2006-143), Union (2006-070), Wakulla (2006-066), Walton (2006-118), Washington (2006-114) Audit Manager: David W. Martin, CPA Financial and Federal Single Audits o f School Districts The following provides a summary of the findings of our financial and Federal Single audits of eight school districts for the fiscal year ended June 30, 2005. We found that the school districts financial statements presented fairly, in all material respects, the financial position of the school districts as of June 30, 2005, and the respective changes in financial position and cash flows, as applicable for the fiscal year then ended. We noted no instances of noncompliance material to the financial statements which would be required to be reported under Generally Accepted Government Auditing Standards. We noted improvements were needed in controls over Federal awards at six of these school districts. These findings addressed compliance with Federal requirements for programs, including National School Lunch and School Breakfast Programs, Title I, PELL Grant Program, and Twenty-First Century Community Learning Centers. The individual audit findings included in the financial and Federal Single audit reports for these eight school districts, involving financial matters, are summarized by topic below. District School Board, County of Escambia (2006-088), Hillsborough (2006-157), Lake (2006-110), Lee (2006-100), Leon (2006-151), Marion (2006-081), Pinellas (2006-136), Seminole (2006-067) Audit Manager: David W. Martin, CPA 33

Operational Audits of School Districts Separate operational audit reports were issued for ten school districts. The objective of these operational audits was to determine whether District management controls promoted and encouraged: 1) compliance with applicable laws, administrative rules, and other guidelines; 2) the economic, effective, and efficient operation of the District; 3) the reliability of records and reports; and 4) the safeguarding of District assets. The individual audit findings included in the operational audit reports for these ten school districts are summarized by topic below. District School Board, County of Escambia (2006-181), Hillsborough (2006-201), Lake (2006-205), Lee (2006-197), Leon (2006-191), Marion (2006-198), Miami-Dade (2006-103), Pinellas (2006-188), Sarasota (2007-030), Seminole (2006-174) Audit Manager: David W. Martin, CPA Improvements Needed in Controls Over Payroll and Personnel Our audits disclosed deficiencies in payroll and personnel controls at 39 school districts. These control deficiencies included weaknesses in fingerprinting and background screening, payroll processing procedures, termination payments, personnel practices, and performance pay plans. For 28 school districts, we noted that procedures for performing fingerprinting and background screening for employees and contracted vendors with direct student contact were not adequate. For four school districts, inadequate monitoring procedures relating to overtime and extra time payments were noted. For five school districts, we noted errors in the calculations of terminal leave payments and, for one school district, it was noted that procedures should be enhanced to ensure employee terminations are approved prior to payment. For one school district, records did not adequately distinguish the duties of independent contractors from those of individuals classified as employees. For six school districts, it was noted that performance pay plans appeared to limit participation by employees. For one school district, district policy permitted employees to be paid for unused annual leave earned during the fiscal year, a practice for which legal authority was not evident. District School Board, County of Baker (2006-060), Charlotte (2006-144), Citrus (2006-130), Clay (2006-126), DeSoto (2006-111), Escambia (2006-181), Flagler (2006-135), Franklin (2006-125), Gadsden (2006-148), Glades (2006-140), Hardee (2006-099), Hendry (2006-102), Hernando (2006-063), Highlands (2006-116), Hillsborough (2006-201), Holmes (2006-149), Jackson (2006-133), Jefferson (2006-113), Lafayette (2006-068), Lake (2006-205), Lee (2006-197), Leon (2006-191), Liberty (2006-077), Madison (2006-115), Martin (2006-131), Miami-Dade (2006-103), Monroe (2006-184), Okeechobee (2006-069), Pinellas (2006-188), Putnam (2006-150), St. Johns (2006-153), Santa Rosa (2006-127), Sarasota (2007-030), Seminole (2006-174), Taylor (2006-143), Union (2006-070), Wakulla (2006-066), Walton (2006-118), Washington (2006-114) Audit Manager: David W. Martin, CPA 34

Improvements Needed in Controls Over Capital Construction and Related Expenditures Improvements were needed over capital outlay expenditures in 28 school districts. Thirteen school districts did not have adequate procedures to establish minimum insurance requirements for architectural design professionals or construction contractors. For nine school districts, restricted capital outlay resources were expended for unauthorized purposes. For example, four school districts expended capital outlay tax levy moneys for projects and purposes not directly related to student instruction. At seven school districts, improvements were needed in monitoring the activities of construction management firms in the selection of subcontractors. For two school districts, improvements were needed in the required planning and budgeting procedures for capital outlay. At one school district, we noted that construction monitoring reports were not provided to the school board on a timely basis as well as several instances where the original substantial completion date for certain projects was several years prior to project closeout, which resulted in the district incurring significant additional costs in the completion of the projects. We also noted that improvements were needed for considering zoning requirements and the determination of contamination prior to land acquisition; the proper prequalification of construction contract bidders; documenting the appropriate selection and negotiation process for professional services; and proper documentation and approval of change orders. District School Board, County of Baker (2006-060), Charlotte (2006-144), Clay (2006-126), DeSoto (2006-111), Escambia (2006-088 and 2006-181), Franklin (2006-125), Gadsden (2006-148), Gulf (2006-062), Hillsborough (2006-201), Holmes (2006-149), Indian River (2006-122), Jackson (2006-133), Jefferson (2006-113), Lake (2006-205), Lee (2006-197), Leon (2006-191), Liberty (2006-077), Miami-Dade (2006-103), Monroe (2006-184), Nassau (2006-105), Pinellas (2006-188), St. Johns (2006-153), Santa Rosa (2006-127), Sarasota (2007-030), Suwannee (2006-106), Taylor (2006-143), Union (2006-070), Washington (2006-114) Audit Manager: David W. Martin, CPA Enhancements Needed in Controls Over Cash We noted that improvements were needed in controls over cash for 27 school districts. For eight school districts, it was noted that the districts, as public depositors, either did not fully comply with Florida Statutes requirements governing collateral management for public deposits or could not provide documentation evidencing compliance. For six school districts, we noted that improvements were needed in the preparation, approval, or timeliness of bank reconciliations. We also noted control deficiencies including inadequate separation of duties, inadequate controls over electronic funds transfer, and deficiencies in the safeguarding of collections. District School Board, County of Baker (2006-060), Bay (2006-121), Bradford (2006-120), Columbia (2006-141), Dixie (2006-109), Escambia (2006-181), Flagler (2006-135), Franklin (2006-125), Gadsden (2006-148), Gilchrist (2006-119), Glades (2006-140), Gulf (2006-062), Highlands (2006-116), Holmes (2006-149), Jackson (2006-133), Lee (2006-197), Leon (2006-191), Liberty (2006-077), Madison (2006-115), Pinellas (2006-188), Putnam (2006-150), Santa Rosa (2006-127), Sumter (2006-079), Taylor (2006-143), Union (2006-070), Wakulla (2006-066), Washington (2006-114) Audit Manager: David W. Martin, CPA 35

Purchasing Procedures Needed Improvement We noted that improvements were needed in controls over purchasing and expenditures at 20 school districts. For example, at three school districts, it was noted that the insurance companies utilized by the districts for employee health and benefits and property casualty coverage paid brokers or consultants based on a percentage of premium costs paid by the districts, possibly limiting the incentive of those third parties to recommend insurance coverage at the lowest and best price consistent with the level of quality desired. For five school districts, we noted that purchases were made without competitive bids or quotes, or bid documentation was not properly maintained. For three school districts, monitoring procedures over contracts for professional services needed improvement. For three more school districts, controls over the use of purchasing cards needed improvement. Other deficiencies noted included inadequate documentation for the payment of travel expenditures and for information technology purchases, and inadequate procedures regarding the use of District cellular telephones. District School Board, County of Bay (2006-121), Flagler (2006-135), Gadsden (2006-148), Hillsborough (2006-201), Holmes (2006-149), Indian River (2006-122), Jackson (2006-133), Jefferson (2006-113), Leon (2006-191), Liberty (2006-077), Miami-Dade (2006-103), Monroe (2006-184), Pinellas (2006-188), Sarasota (2007-030), Seminole (2006-174), Suwannee (2006-106), Taylor (2006-143), Wakulla (2006-066), Walton (2006-118), Washington (2006-114) Audit Manager: David W. Martin, CPA Internal Control Deficiencies Noted for Information Technology Operations Our audits disclosed deficiencies in information system controls at 19 school districts. These control deficiencies included weaknesses in various system security controls and disaster preparedness procedures. Also, for one school district, an inadequate separation of duties was noted in certain processes of the district s financial module, which increased the risk of unauthorized purchases being initiated and processed without detection. District School Board, County of Charlotte (2006-144), Clay (2006-126), Flagler (2006-135), Franklin (2006-125), Gadsden (2006-148), Gulf (2006-062), Hardee (2006-099), Hernando (2006-063), Highlands (2006-116), Hillsborough (2006-157), Holmes (2006-149), Indian River (2006-122), Jefferson (2006-113), Marion (2006-198), Pinellas (2006-188), Putnam (2006-150), Sarasota (2007-030), Taylor (2006-143), Washington (2006-114) Audit Manager: David W. Martin, CPA Enhancements Needed in Educational Facility Safety We noted that improvements were needed in educational facility safety at 17 school districts. For example, at two school districts, we noted that the school districts could enhance school safety procedures by providing floor plans of educational facilities, as required, to area law enforcement agencies and fire departments. We noted that 10 school districts did not provide for the required annual inspections of relocatable buildings used for classroom purposes, while one school district did not provide for the 36

correction of life safety deficiencies noted in two relocatables. Eight school districts did not perform the required annual safety inspections for some of its facilities, did not timely correct safety and maintenance deficiencies disclosed by the facility safety inspections, or did not timely submit the facility inspections to the school board for its approval. For two school districts, it was noted that enhancements in procedures were needed to ensure that all day-labor projects are inspected on a timely basis for compliance with building and life safety codes, and that proper documentation for such inspections be retained. Also, for one school district, improvements were needed to ensure that the school district utilized licensed, qualified contractors. District School Board, County of Escambia (2006-181), Franklin (2006-125), Gulf (2006-062), Hamilton (2006-108), Hardee (2006-099), Hillsborough (2006-201), Holmes (2006-149), Jackson (2006-133), Lake (2006-205), Lee (2006-197), Leon (2006-191), Liberty (2006-077), Madison (2006-115), Miami-Dade (2006-103), Okeechobee (2006-069), Suwannee (2006-106), Union (2006-070) Audit Manager: David W. Martin, CPA Improvements Needed in Record Keeping and Financial Records Management Procedures For 17 school districts, findings and recommendations addressed the need for improvements in record keeping and financial records management procedures. For example, for four school districts, numerous errors and omissions were noted in the preparation of the financial statements. For nine school districts, deficiencies were noted in accountability controls over goods and supplies inventories, which included a lack of monitoring procedures over per meal food costs for three of these districts. Other findings and recommendations addressed improvements that could be made in the allocation of interest to the appropriate funds, timely reimbursement claims for administrative services for Medicaid-eligible students, and reporting monthly financial information to the school board. District School Board, County of Clay (2006-126), Columbia (2006-141), Flagler (2006-135), Gadsden (2006-148), Gilchrist (2006-119), Glades (2006-140), Hernando (2006-063), Highlands (2006-116), Hillsborough (2006-201), Holmes (2006-149), Lee (2006-197), Leon (2006-191), Miami- Dade (2006-103), Nassau (2006-105), Pinellas (2006-188), Putnam (2006-150), Taylor (2006-143) Audit Manager: David W. Martin, CPA Controls Over Capital Assets Needed To Be Improved For 14 school districts, we noted improvements were needed in accountability for long-lived assets including land, buildings, improvements other than buildings, motor vehicles, and other tangible personal property. For example, for three school districts, it was noted that the detailed property records were not in agreement with amounts reported for these assets, or no reconciliations of capital asset additions were made to corresponding capital outlay expenditure accounts. In addition, for five school districts, we noted that detailed supporting records were not adequately maintained for accounts such as land, improvements other than buildings, and buildings and fixed equipment. For 11 school districts, deficiencies were noted in physical inventory procedures. For one school district, it was noted that tangible personal property items were not tagged or marked as property of the district in a timely manner. Also, for one school 37

district, we noted that the district s schedule of values for property casualty insurance coverage was not accurate and complete for the 2004-05 or 2005-06 plan years. District School Board, County of Bradford (2006-120), Escambia (2006-181), Flagler (2006-135), Franklin (2006-125), Gadsden (2006-148), Gilchrist (2006-119), Glades (2006-140), Jackson (2006-133), Jefferson (2006-113), Lake (2006-110 and 2006-205), Leon (2006-191), Pinellas (2006-188), St. Johns (2006-153), Union (2006-070) Audit Manager: David W. Martin, CPA Improvements Needed in Budgetary Controls For nine school districts, we noted improvements were needed in budgetary controls to ensure that expenditures do not exceed available resources and that resources are allocated to programs in accordance with law and Board directives. For one school district, improvements were needed over budget amendment tracking procedures to ensure the accuracy of budget amounts reported in the accounting records and financial statements. Additionally, for one school district, it was noted that the district could enhance its system for monitoring personnel costs and Board-authorized, filled, and vacant positions through the use of an automated position control system. District School Board, County of Baker (2006-060), Citrus (2006-130), Columbia (2006-141), Flagler (2006-135), Gadsden (2006-148), Marion (2006-198), St. Johns (2006-153), Taylor (2006-143), Union (2006-070) Audit Manager: David W. Martin, CPA Continued Monitoring of Charter Schools Needed For nine school districts, findings and recommendations addressed the monitoring of charter schools for compliance with charter contract provisions. Contract provisions which were not complied with by the charter schools included providing a school improvement plan, evidence of required insurance coverage, facility safety inspections, and financial reports. District School Board, County of Escambia (2006-181), Flagler (2006-135), Gadsden (2006-148), Highlands (2006-116), Hillsborough (2006-201), Lake (2006-205), Lee (2006-197), Pinellas (2006-188), Sarasota (2007-030) Audit Manager: David W. Martin, CPA Improvements Needed in the Administration of Self-Insurance Operations We noted that improvements were needed in the administration of self-insurance plans at six school districts. For one school district, we noted that the required documentation of the actuarial soundness of the self-insurance plan had not been submitted to the Office of Insurance Regulation; the required actuarial report was not obtained by this district in a timely manner; and the draft report indicated that net 38

assets were not sufficient to fund the minimum required reserve of 60 days of claims expenses. Additionally, we noted inconsistencies in, and lack of information provided to, the school board regarding the contract and fees paid to the third-party administrator for this same school district. For another school district, our finding addressed the need to monitor the self-insurance fund that experienced a deficit at fiscal year-end, and the need for the timely revision of the self-insurance funding plan to eliminate the deficit. For one school district, the self-insurance plan had been discontinued, but fund net assets of more than $9.3 million had not been returned to or used by the other funds (including Federal programs) that had contributed to the plan. For four school districts, we noted that the districts either did not periodically review documentation of the claims paid by third-party administrators or did not obtain, from a third-party administrator, a service organization report covering internal controls over the processing of claims payments. District School Board, County of Bay (2006-121), Clay (2006-126), Lee (2006-197), Leon (2006-191), St. Johns (2006-153), Sarasota (2007-030) Audit Manager: David W. Martin, CPA Financial Condition of School Districts Needs Monitoring Our audits of school districts include an analysis of the financial condition. Our 2004-05 fiscal year audits for five school districts included recommendations to enhance budgetary monitoring to ensure that an adequate fund balance is maintained in the general operating fund. These five school districts were experiencing a declining or weak financial condition. In these circumstances, these school districts have minimal resources available for emergencies and unforeseen situations. Additionally, our audits noted five school districts with declining fund balances in the Special Revenue Food Service Fund. For four of these school districts, transfers of unrestricted general operating fund moneys were made to supplement the school food service program resulting in an increased financial burden on the general operating fund. One school district s unreserved fund balance in the general fund exceeded the guidelines as provided for in Board policy; however, available resources were significantly less when considering the potential effect of expenditures and transfers of capital outlay tax levy moneys questioned elsewhere in the audit report. District School Board, County of Gilchrist (2006-119), Hamilton (2006-108), Hernando (2006-063), Lafayette (2006-068), Levy (2006-101), St. Johns (2006-153), Suwannee (2006-106), Taylor (2006-143), Walton (2006-118) Audit Manager: David W. Martin, CPA School District and Charter School Audit Reports Generally Prepared in Accordance with Applicable Standards and Rules Some audits of school districts are performed on a rotational basis by independent accounting firms and all audits of charter schools are performed by independent accounting firms. The results of our review of these audit reports prepared by independent accounting firms are described below. 39

For the 2003-04 and 2004-05 fiscal years, school district and charter school audit reports prepared by independent accounting firms were generally presented in accordance with Generally Accepted Government Auditing Standards, generally accepted accounting principles, and Chapters 10.800 and 10.850, Rules of the Auditor General. For the 2003-04 fiscal year, 33 charter schools and 2 school districts did not submit their audit reports timely. Seventeen charter schools did not submit their audit reports until after the June 30, 2005, filing deadline. For the 2004-05 fiscal year, 50 charter schools and 8 school districts did not submit their audit reports timely. Twenty-seven charter schools and one school district did not submit their audit reports until after the June 30, 2006, filing deadline. The majority of exceptions disclosed by our completeness reviews of the audit reports related to missing items such as required report language relating to opinion units, financial statements, notes to financial statements, auditor s reports, management letters, and auditee responses thereto. Our more comprehensive reviews of the audit reports disclosed instances of apparent noncompliance with certain requirements, primarily relating to the presentation of financial statements, note disclosures, and required supplementary information. Agencies: School Districts and Charter Schools Report Number: 2006-058 and 2007-036 Issued: November 2005 and October 2006 Audit Manager: David W. Martin, CPA Certain Financial Trends and Common Types of Findings Reported in Charter School Audit Reports Financial Trends Audits of 290 charter schools conducted by independent accounting firms for the 2004-05 fiscal year reported 81 charter schools with a deficit balance in the operating fund. Twenty of the 81 charter schools reporting a deficit balance were in their first year of operation. Of the 81 charter schools reporting a deficit, 52 charter schools had reported deficit balances in the previous year and, for 35 of these charter schools, the deficit balance had increased during the 2004-05 fiscal year. Of these 52 charter schools, 30 had reported deficits for three consecutive years. In addition, 15 of these 30 charter schools had reported deficit balances for four consecutive years. Significant Findings The predominant and most significant findings included in the charter school audit reports for the 2004-05 fiscal year were in the areas of: separation of duties, budget administration, policies and procedures, cash controls, capital assets, payroll and personnel administration, expenditures, records management, charter contract compliance, and charter school board meetings. Sixteen of the charter school audit reports classified certain findings as material weaknesses in internal control; for two of these 40

charter schools, the material weaknesses were determined to have a material impact on the schools financial statements or resulted in a disclaimer of opinion. Thirteen of the audit reports included statements by the auditors regarding the schools ability to continue operations on an ongoing basis. Agencies: Charter Schools Report Number: 2007-015 Issued: September 2006 Audit Manager: David W. Martin, CPA Improvements Needed in Information Technology Controls at Hillsborough County District School Board (District) To support its financial management needs, the District used an enterprise resource planning (ERP) software product, Lawson Software Insight 8 Business Management System, from Lawson Software, Inc., with included modules for Financials and Procurement (Financials), and Human Resources and Payroll. Improvements were needed in District security controls surrounding the Lawson Financials module and the overall IT environment. Additional IT audit matters were disclosed as Finding No. 1 in the District s Financial and Federal Single Audit Report, No. 2006-157, dated March 2006. Hillsborough County District School Board Report Number: 2006-178 Issued: May 2006 Audit Manager: Jonathan E. Ingram, CPA Controls Related to Lake County District School Board s Total Educational Resource Management System (TERMS) Need to be Enhanced Lake County District School Board (District) utilizes TERMS to manage its financial resources. District procedures for authorization of access to the network and TERMS were not followed in all instances. TERMS Financial Information Series emergency and temporary access requests were not approved by either the Chief Financial Officer or the Finance Director, the functional owners of the TERMS Financial Information Series data. Instead, they were approved by the Information Services Manager. Access capabilities to TERMS had been granted to users who did not need the access for their job function. Additionally, access to sensitive functions within the AS/400 midrange computer environment was not appropriately limited. 41

TERMS application security activity, such as modifications to user access privileges, was not systematically logged by the District, limiting the ability to monitor the appropriateness of security administration actions. We noted instances where the District did not remove access privileges for terminated employees in a timely manner. Improvements were needed in certain security controls protecting TERMS. The TERMS change management process needed strengthening. We noted instances where the District s IT Standard Operating Procedures needed enhancement. The District had in excess of 4,000 IT surplus personal computers (PCs) in storage. The hard drives of those PCs had not been prepared for disposal and were stored in facilities that were not environmentally controlled. Out-of-lease student PCs were not approved for disposition prior to being prepared and sold to students. Certain other District procedures related to the disposition of IT surplus equipment were not effective. Certain deficiencies related to the IT disaster recovery plan continued to exist. Procedures for the storage of AS/400 back-up tapes at designated off-site facilities were not followed. Physical security controls over the District s IT facilities continued to need improvement. Lake County District School Board Report Number: 2006-171 Issued: April 2006 Audit Manager: Jonathan E. Ingram, CPA Improvements Needed in Controls Related to Leon County District School Board s Total Educational Resource Management System (TERMS) Leon County District School Board (District) utilizes TERMS to provide application processing for personnel, payroll, and finance-related functions. TERMS application security activity, such as modifications to user access privileges, was not systematically logged by the District, limiting the ability to monitor the appropriateness of security administration actions. Improvements were needed in the segregation of duties within the Technology and Information Services area with regard to the ability of programming staff to modify and execute programs against production data without detection. The District did not have adequate written policies and operating procedures for TERMS users within the Finance Department. 42

Deficiencies were noted in network security controls in the District. District procedures for the removal of network access privileges of terminated employees needed strengthening. Improvements were needed in the District s storage and control of back-up tapes. Improvements were needed in the District procedures for the disposal of information technology equipment. Leon County District School Board Report Number: 2006-165 Issued: April 2006 Audit Manager: Jonathan E. Ingram, CPA Compliance with Florida Education Finance Program (FEFP) and Student Transportation The FEFP and student transportation appropriations represent a substantial allocation of State resources, with approximately $6.8 billion appropriated by the State in the 2004-05 fiscal year. FEFP and student transportation attestation examinations are made on a three-year cycle, with each school district being examined every three years. The primary purpose of these examinations is to determine if the school districts have complied with the full-time equivalent (FTE) membership and student transportation requirements upon which State funding is based. The Department of Education (DOE) uses the findings presented in these attestation examinations to adjust an individual school district s subsequent FEFP and student transportation allocations. For the fiscal year ending June 30, 2005, we issued 23 FEFP examination reports. To date, DOE has not initiated follow-up actions with the school districts for these examinations. Districts are permitted to appeal the results of these examinations to DOE through a hearing process. The two most common areas of noncompliance resulting in FEFP adjustments involved teacher qualifications and the preparation and maintenance of records to support the funding classification of students. District School Board, County of Baker (2007-003); Calhoun (2006-161); Clay (2006-199); Collier (2006-195); DeSoto (2006-200); Dixie (2006-180); Duval (2006-177); Franklin (2006-124); Highlands (2007-009); Indian River (2006-203); Leon (2006-139); Miami-Dade (2007-008); Monroe (2006-175); Orange (2006-179); Pinellas (2006-193); Putnam (2006-176); St. Lucie (2007-002); Sumter (2006-204); Suwannee (2006-189); Taylor (2006-093); Union (2007-001); Washington (2006-090); and Washington/Dozier (2006-089) Audit Manager: Joseph L. Williams, CPA 43

UNIVERSITIES Certain Information Technology Controls Related to the PeopleSoft Financials System at Florida International University (University) Needed to be Enhanced The University utilized PeopleSoft Financials as its enterprise resource planning (ERP) financial management solution. The PeopleSoft application suites operated within an Internet-based environment supported by the University s Division of Information Technology. There was a need for improved University-level governance of the PeopleSoft Financials System and the enterprise data contained therein. Improvements were needed in certain security controls within the overall operations of the application and the supporting network environment at the University. Deficiencies were noted in the University s procedures for restricting access to appropriate users. Improvements were needed in the change management process. Deficiencies were noted in the disaster recovery plan and process. Environmental control improvements were needed at the University s Data Center. Florida International University Report Number: 2007-006 Issued: July 2006 Audit Manager: Jonathan E. Ingram, CPA Improvements Needed in Controls Related to the Florida Agricultural and Mechanical University s (University) Information Technology (IT) Functions and Practices The University utilized the Oracle-PeopleSoft (PeopleSoft) Financials and Student Administration Systems as its enterprise resource planning (ERP) solution. The PeopleSoft Systems were operated within an Internet-based environment on servers housed and maintained by the Northwest Regional Data Center (NWRDC). The University did not provide sufficient records and documentation to allow for a timely evaluation of certain IT controls related to the support of the University s PeopleSoft Financials System. Deficiencies existed in various IT controls over the University s PeopleSoft Financials System, jeopardizing the integrity of application programs and data. The University had not developed an entitywide security program to ensure that exposures and vulnerabilities of IT resources had been sufficiently assessed by management and addressed 44

through enforced user and system security controls. Additionally, the University had not established a security management structure with a central figure (Information Security Manager or similar function) assigned the responsibility of overseeing the security program. Improvements were needed in University controls protecting the integrity of computer workstations that could access the PeopleSoft systems. Contrary to University policy, the University did not perform background checks of employees occupying IT positions or positions assigned to the PeopleSoft implementation project. Deficiencies were noted in certain security controls protecting the PeopleSoft Financials System, in addition to the matters noted in bullets 2, 3, and 4, above. Improvements were needed in environmental controls at the facility that housed the University s network server. The University lacked sufficient written policies and procedures for the disposal of IT equipment. The University did not have a current and comprehensive disaster recovery plan for its IT resources, including the PeopleSoft systems. The University had not established written performance requirements with NWRDC for the operation of the University s PeopleSoft servers. Florida Agricultural and Mechanical University Report Number: 2006-187 Issued: June 2006 Audit Manager: Jonathan E. Ingram, CPA Enhancements Were Needed in Certain Information Technology Controls Related to the PeopleSoft Financials System a t the University of Florida (University) The University used PeopleSoft Financials as its enterprise resource planning (ERP) financial management solution. The PeopleSoft application suites operated within an Internet-based environment referred to by the University as myufl systems. The myufl systems were built, deployed, and maintained by UF Bridges, a University division reporting to the Vice President of Finance and Administration. There was a need for improved University-level governance of the myufl systems and the enterprise data contained therein. Improvements were needed in segregating and limiting UF Bridges staff access within PeopleSoft Financials. Deficiencies were noted in general and application controls surrounding the myufl systems. 45

Improvements were needed in limiting access to the Data Center and to core network rooms located throughout the University. University of Florida Report Number: 2006-145 Issued: March 2006 Audit Manager: Jonathan E. Ingram, CPA Financial Audits o f Universities The following provides a summary of the findings of our audits of the financial statements of the 11 State universities and the University of South Florida St. Petersburg (a regional campus of the University of South Florida) for the fiscal year ended June 30, 2005. For all but one of the universities, we found that the universities financial statements presented fairly, in all material respects, the financial position of the universities and their discretely presented component units as of June 30, 2005; the revenues, expenses, and changes in net assets; and the cash flows for the fiscal year then ended. For Florida Agricultural and Mechanical University, we could not satisfy ourselves as to the amounts reported for several accounts on the university s financial statements for the fiscal year ended June 30, 2005. We noted no matters involving internal control over financial reporting and operations that we considered to be material weaknesses or reportable conditions for 7 universities. However, for Florida State University, University of Florida, and the University of North Florida, we noted certain matters involving internal control over financial reporting and operations that we considered to be reportable conditions. Also, we noted certain matters involving Florida Agricultural and Mechanical University s internal control over financial reporting and its operation that we considered to be material weaknesses. These weaknesses included information technology control deficiencies; inadequate documentation for, and control over, journal entries; inadequate and untimely bank reconciliations; lack of adequate supporting records for amounts reported as contracts and grants receivable, student fee accounts receivable, and capital assets; lack of adequate controls over collections received at the Central Cashier s Office; inadequate separation of duties, or adequate compensating controls, in certain areas of business operations; and significant turnover in key positions, and understaffing of certain areas of the university s business operations. The results of our tests disclosed no material instances of noncompliance or other matters that were required to be reported under Generally Accepted Government Auditing Standards. Florida Agricultural and Mechanical University (2007-007), Florida Atlantic University (2006-156), Florida Gulf Coast University (2006-092), Florida International University (2006-117), Florida State University (2006-162), New College of Florida (2006-107), University of Central Florida (2006-123), University of Florida (2006-142), University of North Florida (2006-146), University of South 46

Florida (2006-128), University of West Florida (2006-163), University of South Florida St. Petersburg (2006-097) Audit Manager: Ted J. Sauerbeck, CPA Eleven universities are currently under audit for the fiscal year ended June 30, 2006, and reports will be issued by March 31, 2007. Operational Audits of Universities The following are summaries of the findings of four operational audits of universities for the period January 1, 2004, through December 31, 2004, and selected actions thereafter. Written Policies and Procedures Needed to be Developed Two universities had not developed written policies and procedures pertaining to financial operations and related activities. New College of Florida (2006-055), University of North Florida (2006-064) Audit Manager: Ted J. Sauerbeck, CPA Controls Related to Information Technology Resources Needed Improvement Two universities access controls over information technology resources needed improvement. Also, one of the universities had not developed an adequate information technology disaster recovery plan. New College of Florida (2006-055), University of North Florida (2006-064) Audit Manager: Ted J. Sauerbeck, CPA Improvements Needed in Financial Reporting and Budget Administration One university did not provide the board of trustees with sufficiently detailed interim financial information for use in monitoring the university's overall results of operations and financial position. Three universities did not, contrary to Section 1013.61, Florida Statutes, include a capital outlay budget as a part of the annual budget. New College of Florida (2006-055), University of Central Florida (2006-052), University of North Florida (2006-064) Audit Manager: Ted J. Sauerbeck, CPA 47

Enhancements Needed in Controls Over Cash and Receivables One university s controls over petty cash funds needed improvement, and a $70,000 petty cash fund appeared to be excessive. Two universities bank account reconciliations were not always timely prepared, complete, or approved by supervisory personnel. Also, one of the college's reconciliations was prepared by an individual who had incompatible duties. One university did not provide for adequate controls over electronic transfers of funds. One university s accounts receivable write-offs totaling $263,455 for the 2003-04 fiscal year had not been reviewed and approved by the board of trustees, the university's president, or other appropriate levels of management. Three universities needed to improve controls over cash collections at decentralized locations, including collections related to parking citations and permits, postal services, and various auxiliary operations. New College of Florida (2006-055), University of Central Florida (2006-052), University of North Florida (2006-064), University of South Florida (2006-054) Audit Manager: Ted J. Sauerbeck, CPA Improvement Needed in Controls Over Capital Assets The University of North Florida had not, of record, investigated or reported as missing to the appropriate law enforcement agency numerous property items not located during the physical inventory of tangible personal property for the 2003-04 fiscal year. In addition, procedures for off-campus property were not always followed. University of North Florida Report Number: 2006-064 Issued: December 2005 Audit Manager: Ted J. Sauerbeck, CPA Specific Authority Needed to Assess International Student Service Charge Two universities implemented an administrative service charge for certain international students without specific authority to do so. University of Central Florida (2006-052), University of South Florida (2006-054) Audit Manager: Ted J. Sauerbeck, CPA 48

Improvements Needed in Monitoring Compliance by Auxiliary Service Conractors Two universities procedures were not sufficient to ensure that the universities received all food service or bookstore commissions to which they were entitled, or to ensure the contractor s compliance with other contractual requirements. New College of Florida (2006-055), University of South Florida (2006-054) Audit Manager: Ted J. Sauerbeck, CPA Enhancements Needed in Controls Over Payroll and Personnel One university s performance evaluations were not timely prepared for certain support personnel, and verifications of education and experience were not timely documented for several employees hired during the 2004 calendar year. One university s employment contract with its president did not address circumstances in which the president s compensation could be increased, and the president received compensation in excess of that provided for by the employment contract. In addition, written authorization was not obtained for that portion of the president s compensation to be paid by a university direct-support organization. One university s departments did not always document the completion of exit procedures to ensure that terminating employees had returned all property and settled outstanding accounts prior to the issuance of final salary payments. Two universities did not require background checks or fingerprinting for employees in positions of special trust or of a sensitive nature, or had not identified and defined all positions requiring background checks or fingerprinting. One university s Faculty Activity Reports were not always approved by supervisory personnel timely, or at all, and another university s Office of Audit and Compliance reported deficiencies with the university's Faculty Activity Reporting system. New College of Florida (2006-055), University of Central Florida (2006-052), University of North Florida (2006-064), University of South Florida (2006-054) Audit Manager: Ted J. Sauerbeck, CPA Improvements Needed in Controls Over Procurement of Goods or Services One university s purchase orders for professional services were not always approved prior to services being performed, and authorizations for additional architect/engineer services were not always approved prior to such services being performed. Also, payments for these services were not always supported by detailed documentation. One university s competitive procurement threshold exceeded the limit established by State Board of Education Rules. 49

Two university s controls over purchasing card (P-card) program needed improvement, and audit tests disclosed several P-card transactions that were not adequately supported, or were used for unauthorized purchases or otherwise used in a manner not consistent with purchasing card guidelines. One university had not provided for an adequate separation of duties relating to purchasing activities for several departments. One university and its direct-support organization had initially selected contractors to provide services related to the construction of a football stadium without benefit of the competitive selection process required by Section 1013.171, Florida Statutes. One university entered into an arrangement with its direct-support organization (DSO), a corporation affiliated with the DSO, and a developer to construct student housing facilities, parking garages, and a convocation center on the university's property at a total projected cost of approximately $200 million. Although the DSO was responsible for paying the project developer a guaranteed maximum price (GMP), the university agreed to fund any increases in the project developer s GMP. However, agreements associated with the project did not require the university board of trustees prior approval for increases in the GMP. One university s procedures for monitoring the selection of subcontractors by the construction manager (CM), and payments to the CM, needed improvement. Also, the university had not obtained a final certificate of occupancy for a Science and Engineering Building because of certain deficiencies that could cost approximately $3 million to correct. One university had numerous construction change orders that were not presented to the board of trustees for approval, and the board of trustees had not adopted policies delegating authority for approving change orders within pre-established amounts. One university s travel reimbursement vouchers for travelers that received travel advances were not always submitted in a timely manner. University of Central Florida (2006-052), University of North Florida (2006-064), University of South Florida (2006-054) Audit Manager: Ted J. Sauerbeck, CPA Transfers not in Accordance With Law The University of Central Florida did not make transfers required by law, or made transfers contrary to law, as follows: For several series of housing revenue bonds, the university did not transfer the amount of reserve deposits into the renewal and replacement funds required by Chancellor s Memorandum No. CM-D-31.00-02/97. 50

Contrary to Section 1009.24(8), Florida Statutes, the university transferred approximately $11.5 million of student athletic fees during the 2003-04 fiscal year to one of the university s directsupport organizations. University of Central Florida Report Number: 2006-052 Issued: November 2005 Audit Manager: Ted J. Sauerbeck, CPA Risk Management Controls Needed Improvement The University of Central Florida s insurable values for many of its buildings were significantly less than the historical costs of the facilities, and written insurance policies and procedures did not indicate the extent of coverage to be maintained. University of Central Florida Report Number: 2006-052 Issued: November 2005 Audit Manager: Ted J. Sauerbeck, CPA Policy Area: Environmental Preservation Enhancements Needed in Administration of Fixed Capital Outlay Projects at the Department of Environmental Protection (Department) The Department utilized a process for awarding construction contracts with expenditures totaling $8.7 million that was not competitive and did not comply with applicable rules and Department policy. Consequently, the Department cannot be assured that it received the best value for construction projects. Employees involved in the selection process for construction contracts were not required to provide written attestation of their independence regarding the entities subject to award of contracts. Such attestations would help ensure the selection of contractors in a fair and open manner. 51

The Department did not have effective controls in place to ensure timely and accurate recording of fixed capital outlay expenditures in the capital asset accounts and records. Department of Environmental Protection Report Number: 2006-059 Issued: November 2005 Audit Manager: David R. Vick, CPA Deficiencies Noted in the Department of Environmental Protection s (Department) Petroleum Preapproval Program (Program) Procedures and Site Management Processes Key Program documents were not always included in scanned cleanup site files used for site management by the Department and other interested parties. For one cleanup site with costs in excess of $5 million, documentation was not available explaining the Department s decision to use State resources to fully fund the cleanup and not seek any cost recovery from the responsible party. Required annual Site Manager visits were not always performed or documented. As a result, the Department cannot be assured that Site Managers have taken advantage of the benefits to be derived from such visits and complied with Department procedures and guidance. Training records were not always available or complete and did not, in some instances, demonstrate that Site Managers received required health and safety training. Program work orders, change orders, and invoices were not always processed in compliance with Department procedures and guidance. One cleanup site file did not contain documentation evidencing Department reasons for paying $11,000 for services provided by a subcontractor when the subcontractor did not achieve the goals established in the approved cost proposal. Some cleanup site contractors utilized environmental laboratories that were not certified by the State at the time of certain measurements, which could result in reliance on inaccurate test results. The Department s method for recording retainage withheld on work performed by cleanup site contractors resulted in overstatements of Program expenditures and liabilities and an understatement of encumbrances recorded in the State s accounting system. As of May 2005, each of the three accounts were misstated by $6.4 million. Department of Environmental Protection Report Number: 2006-057 Issued: November 2005 Audit Manager: David R. Vick, CPA 52

Policy Area: Governmental Oversight and Productivity Deficiencies Were Noted in the Administration of the Ad Valorem Tax Program by the Department of Revenue (Department) The Department had not developed uniform market area guidelines and the procedures manual for review of county assessment rolls was incomplete. Implementation of the Department s sampling plan for in-depth studies of county assessment rolls was deficient in that International Association of Assessing Officers statistical standards were not fully implemented; sample sizes were inadequate for some in-depth studies; sales were not stratified for the Department s AVQUAL study to enhance representativeness; and samples may not have been representative of the county tax rolls. Appraisal reports and Department records were not always adequate to ensure the reliability and credibility of value estimates and, as a result, assessments levels may not be supportable. The Department does not appear to be adequately addressing property description errors in county property data and the Department s policy relating to material misstatements of fact appears to conflict with applicable law. The Department s policy relating to property appraiser mass updates did not provide assurance that appropriate changes were made to county tax rolls. Some in-depth study appraisals were not reviewed in accordance with the Department s Guidelines. Contracting for outside appraisal services did not improve the numbers and quality of Department appraisals. The Department s policy of allowing 15 percent across the board adjustment for the 8 th criterion (net proceeds of sale after deduction of fees and costs) has no documented basis. Department of Revenue Report Number: 2007-037 Issued: October 2006 Audit Manager: James M. Dwyer, CPA Improvements Needed in Controls Related to the Florida Accounting Information Resource Subsystem (FLAIR) FLAIR is the State of Florida s accounting system. The Department of Financial Services (Department) is the functional owner of FLAIR. We continued to note instances where the Department did not timely remove access privileges of terminated employees. The Department also did not timely modify the access capabilities of 53

individuals who transferred or no longer required access to the Departmental Accounting Component of FLAIR. We noted a weakness in the Payroll Component user identification and authentication controls. We noted certain deficiencies in the Department s security control features and in Federal law compliance. The Department needed to expedite its review and revision of Division of Information Systems policies and procedures to provide current, written governance of its IT program. Department of Financial Services Report Number: 2007-027 Issued: October 2006 Audit Manager: Jonathan E. Ingram, CPA Enhancements Needed for Taxpayer Audits, Dispute Resolution, and Contracting Taxpayer audit files did not always include Sampling Agreements and Sampling Plans. The Department has not adopted comprehensive written procedures for processing requests for settlements and compromises of taxes, penalties, and interest. Contrary to Florida Statutes, the Department did not always maintain on file written closing agreements evidencing the understanding between the Department and the taxpayers regarding settlements and compromises greater than $30,000. Department employees who take part in the development or selection of criteria for evaluation, the evaluation process, and the award process for contractual services did not always attest in writing their independence from the entities evaluated and selected. Department of Revenue Report Number: 2007-022 Issued: September 2006 Audit Manager: Kathryn D. Walker, CPA Improvements Needed in State Agency Assessments of System and Network Vulnerabilities Our audit focused on evaluating the information technology vulnerability detection and remediation methodologies employed at selected State agencies; as well as the monitoring and oversight efforts provided by the Department of Management Services. 54

The results of our audit disclosed that Florida law needed clarification with respect to responsibilities for IT governance, including IT security and risk management. We also noted that improvements were needed in: Agencies vulnerability testing during interim periods between formal risk assessments. Controls to ensure that agency-authorized wireless access points were appropriately secured and in procedures to detect the presence of unauthorized wireless access points. Controls to ensure that agency-authorized modems were appropriately secured and in procedures to detect the presence of unauthorized modems. Disseminating IT security policies in a more secure manner. Multi-Agency Report Number: 2007-005 Issued: July 2006 Audit Manager: Jonathan E. Ingram, CPA The Administration of Federal Help America Vote Act of 2002 (HAVA) Moneys and Controls Related to the Florida Voter Registration System (FVRS) Needed Improvement HELP AMERICA VOTE ACT Through June 30, 2005, the Department of State (Department) has been awarded $160 million in HAVA funding on behalf of Florida. The Department did not have a procedure in place to evidence for the public record that voting systems being certified had met the requirements of Florida law. The Department s established procedures did not prohibit the Secretary of State and examiners from having a pecuniary interest in the examination and approval of voting equipment. The Department did not maintain a current, reliable control listing of voting systems certified and in use by the counties. In addition, the Department did not have a procedure in place to ensure that voting system information was on file with the Department. The Department incorrectly calculated the maintenance of effort required by the approved State of Florida HAVA Plan and also did not maintain the required level of expenditures for the 2004-05 fiscal year. Salary certifications required for employees who worked solely on the HAVA Program were not maintained. Also, personnel activity reports were not always maintained to support personnel costs charged to the HAVA Program. Contrary to Federal cost principles, payment for unused leave to a terminating employee was charged as a direct cost to the Program instead of being allocated as a general administrative expense to all activities of the governmental unit. Controls to ensure that voter education programs were in compliance with Florida law and Department rule were insufficient. 55

HAVA Program expenditures were not always properly supported. The Department did not always follow Federal requirements with regards to awards to other State agencies. FLORIDA VOTER REGISTRATION SYSTEM (FVRS) Improvements were needed in the Department s information technology risk management practices. The Department had not adopted a governance model addressing the management, use, and operation of FVRS commensurate with its authority and responsibility to ensure the system s security, uniformity, and integrity. Although the Department had put measures in place to help ensure the integrity of data in FVRS, improvements were needed in the processes for identifying duplicate registrations and ineligible voters. Department of State Report Number: 2006-194 Issued: June 2006 Audit Managers: Dorothy R. Gilbert, CPA Jonathan E. Ingram, CPA Wireless 911 Board (Board) Needs to Continue Efforts to Ensure Timely Rural County Grant Reporting During the 2004-05 fiscal year, four counties that received rural county grant moneys totaling $497,390 were required to submit quarterly reports. Our audit again disclosed that, in some instances, quarterly reports were not submitted. Department of Management Services Report Number: 2006-192 Issued: June 2006 Audit Manager: Dorothy R. Gilbert, CPA Local Government Audit Reports Were Generally Prepared in Accordance With Applicable Standards and Rules For the 2003-04 fiscal year, local government audit reports prepared by independent certified public accountants were generally presented in accordance with Generally Accepted Government 56

Auditing Standards, generally accepted accounting principles, and Chapter 10.550, Rules of the Auditor General for Local Governmental Entity Audits. For the 2003-04 fiscal year, as of May 30, 2006, 19 local governments did not provide for a required audit; 40 additional local governments may not have provided for a required audit; and 286 local governments did not submit their audit reports timely. Audits of seven local governments were performed by three different auditors who did not hold active licenses or permits issued by the State Board of Accountancy. Our completeness reviews disclosed several instances of apparent noncompliance with Government Accounting Standards Board Statement No. 34 requirements, primarily relating to management s discussion and analysis, presentation of financial statements, and certain note disclosures. Noncompliance was also disclosed related to note disclosures of pension plans and the presentation of schedules of findings and questioned costs for Federal awards and State financial assistance, respectively. Agencies: Local Governments Report Number: 2006-190 Issued: June 2006 Audit Manager: James M. Dwyer, CPA Nonprofit, For-Profit, and Other Single Audit Act Reports Were Generally Prepared in Accordance with Applicable Standards and Rules Of 417 nonprofit and for-profit organizations and other entities that submitted Florida Single Audit Act reports received for fiscal years ended January 31, 2004, through December 31, 2004, 128 (30.7 percent) did not meet the threshold established by law and were not required by law to provide for such audits. Required audit reports received, prepared by independent certified public accountants, were generally presented in accordance with Generally Accepted Government Auditing Standards, generally accepted accounting principles, and Chapter 10.650, Rules of the Auditor General, Florida Single Audit Act Audits Nonprofit and For-Profit Organizations. Audits of ten entities were performed by 13 different auditors who did not hold active licenses or permits issued by the State Board of Accountancy. The majority of exceptions disclosed by our review related primarily to submission and presentation of certain auditors reports and schedules. Agencies: Nonprofit and For-Profit Organizations and Other State Financial Assistance Recipients Report Number: 2006-183 Issued: May 2006 Audit Manager: James M. Dwyer, CPA 57

State Agencies Materially Complied With Federal Program Requirements During the fiscal year ended June 30, 2005, the State of Florida administered over 550 Federal awards programs, for which expenditures totaled approximately $24.4 billion. As a condition of receiving Federal Funds, the State is required to have a Single Audit conducted in accordance with U. S. Office of Management and Budget Circular No. A-133. Pursuant to these Federal guidelines, 40 major programs with expenditures totaling approximately $22.2 billion were audited. The administering State agencies generally complied, in all material respects, with the requirements applicable to the major programs. However, for three of the major programs, we modified our opinion on compliance as a result of material noncompliance with applicable Federal requirements and reported material weaknesses in internal controls over compliance. Centers for Disease Control and Prevention Investigations and Technical Assistance. The Department of Health did not maintain records of time worked to support salary costs charged for 9 of 16 employees. In the absence of appropriate support, we questioned salary costs totaling $422,319. Foster Care Title IV-E. The Department of Children and Family Services and contracted Community-Based Care Agencies did not properly document, in 10 of 40 cases reviewed, the determination of eligibility of children for which Foster Care payments were made. Maintenance payments relative to the 10 cases totaled $141,395. HIV Care Formula Grants. The Department of Health did not properly document, in 14 of 40 cases reviewed, the eligibility of clients to receive AIDS Drug Assistance Program assistance. Drug benefits valued at $127,762 were provided to the 14 clients. Our audit also disclosed other instances of noncompliance and internal control matters pertaining to the major programs administered by various State agencies, universities, and community colleges. Some of the instances of noncompliance resulted in questioned costs subject to disallowance by the grantor agency. The administering agencies must prepare a corrective action plan and disclose the status of prior audit findings in a Summary Schedule of Prior Audit Findings. Federal awarding agencies are responsible for issuing a management decision on audit findings within six months after receipt of the audit and ensuring that the administering agency takes appropriate and timely corrective action. The Single Audit Act also requires the auditor to follow up on prior audit findings during the annual Single Audit. Report Number: State of Florida 2006-152 (Compliance and Internal Controls Over Financial Reporting and Federal Awards) Issued: March 2006 Audit Manager: Brenda K. Pelham, CPA 58

State s Financial Statements Were Fairly Presented Except With Regard To State Land Financial statements, accompanied by applicable reports of the Auditor General, provide information concerning the financial condition and operation of the State to bond rating agencies, other interested financial institutions and creditors, the Legislature, State managers, Federal grantor agencies, and the public. The accuracy, completeness, and reliability of the State s financial statements, and the quality of the audit thereof, have direct impact on State government finances. For example, bond rating agencies consider the State s audited financial statements when setting the State s bond rating. A drop of even one category in a bond rating could result in an increase in the State s interest rates, which would result in millions of dollars of increased costs over the life of large bond offerings. At June 30, 2005, the State s general obligation bonds were highly rated with ratings of Aa1 (Moody s Investors Service), AAA (Standard and Poor s Corporation) or AA+ (Fitch, Inc.). Our Independent Auditor s Report on the audit of the State s financial statements, as reported in the Florida Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2005, concluded that in our opinion, except for the effects of such adjustments, if any, of not providing adequate documentation regarding the amount reported for land within the governmental activities, based on our audit and the reports of other auditors, the basic financial statements were fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. As similarly noted in prior reports, records of the Board of Trustees of the Internal Improvement Trust Fund were not adequate to document the ownership and valuation of a substantial portion of land, which is recorded at $3.667 billion and constitutes 27.5 percent of the reported land value, and 7.6 percent of capital assets reported for governmental activities at June 30, 2005. As a result, it was not practicable in the circumstances for us to determine whether the amount reported for land within the governmental activities was fairly presented. In our Report on Internal Controls over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards, we noted the following matters involving the internal control over financial reporting and its operation that we considered to be reportable conditions: Department of Environmental Protection records of the Board of Trustees of the Internal Improvement Trust Fund were not adequate to document the ownership and valuation of a substantial portion of the land reported within the governmental activities at June 30, 2005. This was considered to be a material weakness in internal control. The Agency for Workforce Innovation did not have adequate internal controls at year-end to ensure that taxes receivable and the related allowance accounts were reported in accordance with generally accepted accounting principles. 59

Other internal control matters, which were of lesser significance than reportable conditions, were also noted. Reports: State of Florida Florida Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2005 (Chief Financial Officer) Report Number 2006-152 (Compliance and Internal Controls Over Financial Reporting and Federal Awards) Issued: March 2006 Audit Manager: Brenda K. Pelham, CPA Improvements Needed Related to the Department of Community Affairs (Department) EMTraker System The Division of Emergency Management (Division) within the Department is responsible for maintaining a comprehensive Statewide program of emergency management and provides programs and services to assist communities in preparing for and responding to natural and man-made disasters. The Division uses the EMTraker System to assist in managing emergency situations. The EMTraker System provides a database and a communications link between local governments and emergency responders at the State Emergency Management Center. Improvements were needed in the Department s entitywide security program. Deficiencies were noted in certain security controls protecting the EMTraker System. Environmental control improvements were needed at the Department s data center housing various operational systems, such as EMTraker. Improvements were needed in the Department s Information Systems Development Methodology. Department of Community Affairs Report Number: 2006-134 Issued: March 2006 Audit Manager: Jonathan E. Ingram, CPA Certain Deficiencies Were Noted Relating to Various Agencies Web Sites, On-line Applications, and Supporting Networks State of Florida agencies increasingly relied on electronic government (e-gov) services for the delivery of government services to citizens; dissemination of information; enhanced interaction with vendors conducting business with the State; and more efficient government management. E-Gov utilizes 60

information technology, including the Internet and internal State networks (Intranets), to interact with citizens, State employees, and those conducting business with the State. Agencies could not demonstrate that certain Web sites and e-gov services were accessible to people with disabilities. Certain State Technology Office enterprise standards for coding and design of Web sites were not consistently followed. Agencies lacked written Web content management strategies for ensuring the integrity of Web site content. The six agencies within the scope of audit that had e-gov applications either had not established written procedures, or had incomplete procedures, for response strategies to be followed if personal identification information was compromised in a security breach. We noted deficiencies in hyperlinks within the agencies Web sites. Current written procedures for managing Web domain names were not maintained by all agencies. Written procedures had not been fully developed by several agencies for maintaining Web site availability during periods of high demand created by emergency events, such as hurricanes. Additionally, not all agencies addressed the recovery of e-gov services in their information technology disaster recovery plans. Certain deficiencies were noted in security-related controls at the Department of Highway Safety and Motor Vehicles. Multi-Agency Report Number: 2006-087 Issued: January 2006 Audit Manager: Jonathan E. Ingram, CPA Internal Auditors Generally Complied with Professional Auditing Standards Pursuant to Section 11.45(2)(k), Florida Statutes, we completed Quality Assessment Reviews of the Offices of Inspectors General and related internal audit activities of selected State agencies. Generally, the 11 Offices of Inspectors General reviewed had complied with Section 20.055, Florida Statutes, and applicable professional auditing standards. However, for 4 of these 11 agencies (Departments of Business and Professional Regulation, Elder Affairs, Environmental Protection, and the Agency for Workforce Innovation), we noted some engagement and compliance matters that, while not material to the agencies overall compliance with professional auditing standards, should be addressed by management. Agencies: Audit Manager: Various State Agencies Don Hancock, CPA 61

Policy Area: Health Care Risks Associated with Eligibility Issues for the KidCare Program Should be Addressed The Florida KidCare Program (Program) was created to provide health care benefits to previously uninsured, low-income children. The Agency for Health Care Administration (AHCA) is the lead State agency for the Federally-funded portion of the KidCare Program. The Florida Healthy Kids Corporation (FHKC), under contract with AHCA, is the largest of several providers of KidCare services. FHKC did not ensure that only eligible children were redetermined eligible for the Program during the period July 2004 through December 2004. The presumptive eligibility period established by FHKC allowed children to be enrolled, pending redeterminations, for up to four months after their six-month eligibility period. FHKC did not ensure that only eligible children were enrolled in the Program during the January 2005 enrollment period. The KidCare application format did not collect sufficient information to properly demonstrate eligibility. Despite legislative changes effective January 1, 2005, FHKC did not discontinue Statesubsidized KidCare coverage for State employee dependents until February 28, 2005. The additional two months of coverage cost approximately $35,000. KidCare procedures allowed for the potential concurrent enrollment of a child in both Medicaid and the State Children s Insurance Program. Due to a programming error, the Department of Health incorrectly enrolled children in the Children s Medical Services component of KidCare. Florida Healthy Kids Corporation Report Number: 2006-072 Issued: December 2005 Audit Manager: Jane H. Flowers, CPA While Improvements Were Noted Since Previous Audit, Additional Efforts to Reduce Errors in Eligibility Determinations Are Needed for the KidCare Program The Florida Healthy Kids Corporation (FHKC) did not ensure that only eligible children were participating in the Program during the period January 2006 through February 2006. To help avoid adverse selection, the number of children participating in the Healthy Kids Program whose family income exceeds 200 percent of the Federal Poverty Level must not exceed 10 percent of the total enrollees in the Healthy Kids Program. While FHKC has been 62

monitoring the participation rate for these children, it has not developed written procedures to ensure compliance with the statutory limit. For some applicants, the KidCare application format did not facilitate the collection of sufficient information to allow a complete evaluation of eligibility. Florida Healthy Kids Corporation Report Number: 2007-024 Issued: September 2006 Audit Manager: Jane H. Flowers, CPA Deficiencies Noted in Selected Department of Health (Department) Processes The Department is responsible for the State s public health system. Within this system, the Department has authority to screen newborns for various disorders, provide services to children with special health care needs through Children s Medical Services (CMS) Programs, and provide access to physicians and health services through the Division of Health Access and Tobacco. While authorized in July 2004, the Department did not begin billing private insurance for the cost of newborn screenings until March 2006. Additionally, the Department did not begin billing Medicaid until January 2005. The Department collects a $15 live birth fee from hospitals and birth centers and transfers a portion of the fee to the Agency for Health Care Administration to share in the cost of the State s Medicaid Program. However, there was no written agreement evidencing this arrangement. The CMS Early Steps Program is funded through the Individuals with Disabilities Education Act (IDEA), Parts B and C. While authorized to do so, the Department had not established a sliding fee schedule for services provided under IDEA, Part C, for the Program due to the commingling of IDEA, Part B and C, funds. The Department had not established unique accounting codes in the Florida Accounting and Information Resource Subsystem to appropriately identify the expenditures of each CMS program. The CMS Data System was, in some respects, not compliant with the Health Insurance Portability and Accountability Act. The Department had not established effective procedures for monitoring the Area Health Education Center Network. Department of Health Report Number: 2007-013 Issued: September 2006 Audit Manager: Jane H. Flowers, CPA 63

Policy Area: Judiciary Certain Aspects of the Administration of the Clerks of Court Operations Conference Could Be Improved Data for performance measures adopted by the Clerk of Court Operations Conference (CCOC) was only collected from the Clerks for six months rather than a full year and our review of the data submitted disclosed instances where the data was incomplete and inaccurate. Criteria established for determining whether the Clerks were meeting or exceeding the performance standards did not provide for a realistic assessment of the Clerks performance in terms of meriting increases in their maximum annual budgets. Contracts with two consultants were entered into without competitive selection or a documented basis for not subjecting these acquisitions of services to a competitive selection process. Clerk expenditure data used in determining the maximum annual budget amounts for each Clerk was incomplete and unverified by the CCOC. The CCOC policy for cellular telephone usage by staff does not require reimbursement for all personal calls made by the Executive Director. The amount of the Executive Director s monthly vehicle allowance was not supported by a typical month s travel voucher filed pursuant to Section 112.061(7)(f), Florida Statutes. Clerk of Court Operations Conference Report Number: 2006-185 Issued: May 2006 Audit Manager: James M. Dwyer, CPA Policy Area: Regulated Industries Improvements are Needed to the Department of Business and Professional Regulation s (Department) Single Licensing System and Revenue Processing Procedures The processes used to calculate the share-in-savings volume adjustment payments were not documented in sufficient detail to allow a reasonable verification of the appropriateness of the adjustment amounts. The Department had not established procedures requiring the conduct of periodic reviews of the integrity, reliability, and security of the data residing in its Single Licensing System. The Department had not taken the actions necessary to timely research and post all amounts collected to the applicable license records. 64

Various audit tests and analyses disclosed significant data reliability and processing issues for records residing in the Single Licensing System s Enforcement Module. The Department s Office of General Counsel is responsible for monitoring and pursuing collection of certain overdue accounts. Relative to these collections efforts, the General Counsel s Office has assigned incompatible duties to one individual. The Department did not perform reconciliations of the receipts recorded in LicenseEase to corresponding revenues and fund accounts maintained in FLAIR. Under certain circumstances, LicenseEase may improperly assess late penalties for license fees that were paid in a timely manner. The Department did not always comply with Florida Statutes that require the timely deposit of funds into the State Treasury. Various audit tests and analyses disclosed significant data reliability and processing issues with regard to the Division of Alcoholic Beverages and Tobacco s assessment and collection of penalties and interest. The Department uses the services of a contractor to collect and process e-payments receipted in LicenseEase. The Department did not perform procedures to verify the accuracy of fees charged by the contractor before paying for the services. Department of Business and Professional Regulation Report Number: 2007-010 Issued: August 2006 Audit Manager: Don Hancock, CPA Elevator Safety Inspection Process Could be Improved at Department of Business and Professional Regulation (Department) The Department has adopted policies and procedures, including a manual entitled Inspection Oversight and Contract Monitoring Procedures. However, our audit tests disclosed that the procedures and their application were in need of improvement. The Department s Certified Elevator Inspector licensure records did not always contain evidence that all licensure requirements had been met. Various audit tests and analyses conducted during this audit disclosed significant data reliability and processing issues. The Department did not timely monitor local governments with delegated regulatory authority, nor had it established a related on-site monitoring methodology, including analysis and follow-up processes. 65

It did not appear that the Department collected all elevator accident reports, and the accident reports that were received were often late and incomplete. Additionally, the Department did not analyze the accident reports that were received. Department of Business and Professional Regulation Report Number: 2006-075 Issued: December 2005 Audit Manager: Don Hancock, CPA Policy Area: Transportation Improvements Needed in the Department of Highway Safety and Motor Vehicles (Department) Procedures for the Creation of Specialty License Plates and the Acquisition of Commodities and Services The Department did not in a timely manner complete its determination of whether organizations seeking authorization to create a new specialty license plate met the requirements in law. Contrary to Department procedures, two specialty license plate survey organizations did not draw samples from all households in Florida. Contrary to law, those performing one of these surveys were not independent of the organization requesting the license plate. Improvements could be made in the Department s review and evaluation of the results of specialty license plate sample surveys. Improvements could be made in the Department s procurement procedures. For the 2004-05 and 2005-06 fiscal years, a more proactive approach to investing the Highway Safety Operating Trust Fund moneys could have provided additional annual interest earnings in excess of $567,000 and $407,000, respectively. Department of Highway Safety and Motor Vehicles Report Number: 2007-026 Issued: September 2006 Audit Manager: David R. Vick, CPA Deficiencies Noted in the Contracting Procedures for the Printing of the Florida Drivers Handbooks The Department of Highway Safety and Motor Vehicles (Department) did not document in the public record its consideration and disposition of any potential conflicts of interest identified in 66

connection with the evaluation of the vendor response to the Invitation to Negotiate. Departmental policies and procedures do not require the avoidance of instances in which there will exist the appearance of a conflict of interest on the part of Department management or employees involved in the procurement process. Section 283.58, Florida Statutes, authorizes distribution of public information without charge; however, it was not clear that the Department had the authority to allow the vendor to charge a shipping and handling fee of up to $6.95. Department of Highway Safety and Motor Vehicles Report Number: 2006-196 Issued: June 2006 Audit Manager: David R. Vick, CPA 67

Other Activities Policy Areas CHILDREN AND FAMILIES... 68 COMMUNITY AFFAIRS... 69 GOVERNMENTAL OVERSIGHT AND PRODUCTIVITY... 70 AUDITS ISSUED OR SCHEDULED TO BE ISSUED SUBSEQUENT TO OCTOBER 31, 2006, FOR CONSIDERATION DURING THE 2007 LEGISLATIVE SESSION... 72 Community-Based Care Transition Policy Area: Children and Families We participated in a project with the Office of Program Policy and Government Accountability (OPPAGA) to review the status of the transition to community-based care, including the processes the Department of Children and Family Services used to hold community-based care lead agencies accountable and monitor their ongoing viability. Our findings were included in OPPAGA report No. 06-05, issued in January 2006. Mental Health and Substance Abuse Corporation As required by Chapter 2003-279, Laws of Florida, we have participated in a project with OPPAGA to evaluate the State s substance abuse and mental health systems and its management. The project focuses on the extent to which the Substance Abuse and Mental Health Corporation (Corporation) has carried out its responsibilities as described in Section 394.655(3)(a), Florida Statutes, the degree to which the Department of Children and Family Services has cooperated with the Corporation, and the impact the organizational changes have had on the substance abuse and mental health systems. Our findings were included in OPPAGA report No. 06-12, issued in February 2006. 68

Other Activities Aging Resource Centers In accordance with Chapter 2004-386, Laws of Florida, we have participated in a project with OPPAGA to review and assess the Department of Elder Affairs process for determining an area agency s readiness to transition to aging resource centers. Our findings were included in OPPAGA report Nos. 06-20 and 06-62, issued in March 2006 and September 2006, respectively. The project is on-going until full transition is accomplished Statewide. Policy Area: Community Affairs Revisions to Rules of the Auditor General and Compliance Supplements Chapter 2006-122, Laws of Florida, transferred tangible personal property rulemaking authority for both State and local government-owned tangible personal property from the Auditor General to the Chief Financial Officer, effective July 1, 2006, except that the Auditor General retained rulemaking authority for agency records for State-owned tangible personal property certified as surplus property. Accordingly, Chapters 10.300, Rules of the Auditor General, State-Owned Tangible Personal Property, and 10.400, Rules of the Auditor General, Local Government-Owned Tangible Personal Property, were repealed and transferred to the Chief Financial Officer and Chapter 10.350, Rules of the Auditor General, State-Owned Surplus Tangible Personal Property, was created effective July 1, 2006. Rules of the Auditor General related to various statutory requirements for audits of local governments and nonprofit entities by independent certified public accountants are updated annually for changes in legal requirements, auditing standards, and generally accepted accounting principles. Updates for audits with audit periods ending June 30, 2006, or later, are as follows: Chapter 10.550, Rules of the Auditor General, Local Government Entity Audits, was revised to implement the requirement in Chapter 2006-218, Laws of Florida, which requires that audits of local governmental entities must include an affidavit signed by the chief financial officer of the local governmental entity stating that the local governmental entity has complied with the requirements of Section 163.31801, Florida Statutes, regarding impact fee ordinances or resolutions. Chapters 10.550, Rules of the Auditor General, Local Governmental Entity Audits, and 10.650, Rules of the Auditor General, Florida Single Audit Act Audits Nonprofit and For-Profit Organizations, were revised to clarify the requirement for reporting on the threshold used to distinguish Type A and B projects on the Schedule of Findings and Questioned Costs relating to State financial assistance. Chapter 10.700, Rules of the Auditor General, Audits of Certain Nonprofit Organizations, was revised to include audit requirements for the audit of the Babcock Ranch, Inc., a not-forprofit corporation created by Chapter 2006-231, Laws of Florida, and required by Section 259.1053(10(b), Florida Statutes, to be audited in accordance with rules adopted by the Auditor General. 69

Other Activities Chapter 10.850, Rules of the Auditor General, Audits of Charter Schools and Similar Entities, was revised to implement the provisions of Chapter 2006-190, Laws of Florida, which require charter schools and their auditors to comply with certain reporting requirements included in Sections 218.503 and 1002.33, Florida Statutes, regarding financial emergencies. Compliance supplements for audits of district school boards and court-related budgets and performance measures of clerks of the circuit courts by independent certified public accountants are also updated annually for changes in legal and other requirements. Updates for audits with audit periods ending June 30, 2006, or later, are as follows: The compliance supplement for court-related budgets and performance measures of clerks of the circuit court was revised primarily to include a procedure for audit of remittances of excess fees by the Clerks to the Department of Revenue. The compliance supplement for audits of district school boards was revised primarily to include procedures for audit of nonvoted discretionary local effort millage levies, use of Workforce Development Funds, policies for establishing insurance requirements for contracted educational facility design professionals, and agreements with educational facilities benefit districts. Policy Area: Governmental Oversight and Productivity Florida Financial Management Information System Subsystems Pursuant to the Florida Financial Management Information System (FFMIS) Act, Sections 215.90 through 215.96, Florida Statutes, the Auditor General shall provide technical advice, as allowed by professional auditing standards, on specific issues related to the design, implementation, and operation of each information subsystem. During the period of this Annual Report, the Auditor General provided technical advice, as considered appropriate, on subsystems of the FFMIS. Our participation in providing technical advice on these subsystems will continue as required. Activity and Unit Cost Information Section 18 of Chapter 2006-146, Laws of Florida, established a working group, consisting of representatives of the Executive Office of the Governor, the Office of Program Policy Analysis and Government Accountability, the Auditor General, the Department of Financial Services, and legislative appropriations committees, for the purpose of assisting in the development of legislative budget instructions relating to the computation of activity and unit cost information. Section 216.023(4)(b), Florida Statutes, requires that activity and unit cost information be included in agency legislative budget requests. 70

Other Activities The working group s recommendations, including an estimate of the associated implementation and operating costs, are to be submitted to the Executive Office of the Governor, the President of the Senate, and the Speaker of the House of Representatives by December 31, 2006. 71

Other Activities Audits Issued or Scheduled to Be Issued Subsequent to October 31, 2006, for Consideration During the 2007 Legislative Session Audit Entity Topic State Agencies Agency for Workforce Innovation Unemployment Insurance Program Black Business Investment Board and Black Business Investment Corporations Accountability for State Investment* Department of Children and Family Services Selected Administrative Areas Department of Education Selected Administrative Areas Office of Financial Regulation Money Transmitters Mortgage Broker and Lenders Other Regulatory Issues Department of Financial Services Revenue Processing Other Administrative Areas Department of Health Pharmaceutical Contracts Contract Management Selected Administrative Areas Office of Insurance Regulation Viatical Settlements Market Conduct Examinations Closed Claim Database Other Regulatory Issues Department of Law Enforcement FLEX Project Procurement of Data Mapping Software Lottery Financial Statements and Related Reports* Department of Management Services Selected Administrative Areas Follow-Up on Selected Prior Audit Findings People First MyFloridaMarketPlace School for the Deaf and the Blind Selected Administrative Areas Department of Transportation Central Office Monitoring Department of Veterans Affairs Outsourced Services Residents Deposits Trust Funds Resident Revenues Sims Nursing Home Other Administrative Matters *With OPPAGA 72

Other Activities Audits Issued or Scheduled to Be Issued Subsequent to October 31, 2006, for Consideration During the 2007 Legislative Session (Continued) Audit Entity Topic Local Governments Town of Cedar Grove Selected Areas of Financial Operations City of Riviera Beach and Riviera Beach Community Redevelopment Agency Selected Areas of Financial Operations Tampa-Hillsborough Expressway Authority Selected Areas of Financial Operations Florida Single Audit Act Audits Nonprofit and For-Profit Organizations Judicial Capital Collateral Regional Counsel Pilot Program Review of Florida Single Audit Act Report Nonprofit and For-Profit Organization Other Entities Effectiveness and Efficiency of Using Regular Attorneys Compared to Capital Collateral Regional Counsels School Districts Polk District School Board Student Attendance Systems St. Johns District School Board Selected IT Controls Colleges Brevard Community College Selected Areas of Financial Operations Central Florida Community College Selected Areas of Financial Operations Gulf Coast Community College Selected Areas of Financial Operations Indian River Community College Selected Areas of Financial Operations Lake-Sumter Community College Selected Areas of Financial Operations Manatee Community College Selected Areas of Financial Operations Miami-Dade College Selected Areas of Financial Operations North Florida Community College Selected Areas of Financial Operations Okaloosa-Walton College Selected Areas of Financial Operations Pasco Hernando Community College Selected Areas of Financial Operations St. Johns River Community College Selected Areas of Financial Operations St. Petersburg College Selected Areas of Financial Operations Santa Fe Community College Selected Areas of Financial Operations Valencia Community College Selected Areas of Financial Operations Other Clerks of Court Operations Corporation Selected Areas of Financial Operations 73

Other Activities Audits Issued or Scheduled to Be Issued Subsequent to October 31, 2006, for Consideration During the 2007 Legislative Session (Continued) Audit Entity Topic Universities Florida Agricultural and Mechanical University Selected Areas of Financial Operations Florida Gulf Coast University Selected Areas of Financial Operations University of West Florida Selected Areas of Financial Operations Florida State University Selected Areas of Financial Operations 74

FLORIDA STATE SYMBOL NAMES State Symbols: Shell - Horse Conch Shell (Section 15.033, F.S.) Saltwater Mammal - Porpoise (Section 15.038, F.S.) Bird - Mockingbird (Concurrent Resolution 1927) Animal - Florida Panther (Section 15.0353, F.S.) Tree - Sabal Palmetto Palm (Section 15.031, F.S.) Butterfly - Zebra Longwing (Section 15.0382, F.S.) Wildflower - Coreopsis (Section 15.0345, F.S.) Marine Mammal - Manatee (Section 15.038, F.S.) Fruit - Orange (Section 15.0315, F.S.) Reptile - American Alligator (Section 15.0385, F.S.)