A u d i t o r - C o n t r o l l e r - T r e a s u r e r - T a x C o l l e c t o r Internal Audit S o n o m a C o u n t y Type sidebar content. A sidebar is a standalone supplement to the main document. It is often aligned on the left or right of the page, or located at the top or bottom. Use the Text Box Tools tab to change the formatting of the sidebar text box.] Sonoma County Sheriff s Office Inmate Welfare and Jail Store Trust Funds For the Period July 1, 2012 through June 30, 2013!t the request of the (Office) we performed an audit of the Inmate Welfare (IWTF) and Jail Store (JSTF) trust funds for the period July 1, 2012 to June 30, 2013 and determined that: oth funds were managed in accordance with the trust funds policies and procedures manual (Manual) developed by the Office and relevant laws. Profit from the commissary operations was transferred to the IWTF as required by the Manual and the Penal Code Section 4025. There are some opportunities for improving internal control procedures over commissary profit transfers, operating reserves and store inventory. The revenues and expenditures in the Annual IWTF and JSTF Reports (pages 10 & 11) represent transactions executed in compliance with the Manual and the law. Audit No: 3485 Report Date: September 16, 2014 Audit Chief: Kanchan K. Charan, CPA, CGMA Audit Supervisor: Damian Gonshorowski, CPA, CGMA Auditor: Olga Gray, CPA, CGMA
Table of Contents Sonoma County Sheriff s Office Audit No. 3485 For the Period July 1, 2012 through June 30, 2013 Introduction and Background 1 Objectives and Scope 3 Procedures 4 Results 5 Observations and Recommendations 7 Inmate Welfare Trust Fund Report 10 Jail Stores Trust Fund Report 11 Note 1: Inmate Welfare Trust Fund Report and Jail Stores Trust Fund Report Presentation 12 Attachment (Management Response Letter) 13
Introduction and Background Introduction We have completed an audit of the Sonoma County Sheriff s Office (Office) Inmate Welfare and Jail Store Trust Funds for the period July 1, 2012 through June 30, 2013. We conducted our audit in accordance with the International Standards for the Professional Practice of Internal Auditing (Standards). These Standards require that we identify, analyze, evaluate, and document sufficient information and evidence to achieve our audit objectives. We believe that the evidence obtained provides a reasonable basis for the results, observations, and recommendations contained in our report. The purpose of this audit report is to furnish management independent and objective analyses, recommendations, and other information concerning the activities reviewed. The audit report is a tool to help management identify and implement improvements. We would like to thank management and staff of the Sheriff s Office for their time, information and cooperation throughout the audit. Background As authorized under the California Penal Code Section 4025, the Office established a County Jail Commissary (Commissary) to purchase and sell goods and supplies to inmates. The Office manages the IWTF and the Commissary. Profits from the Commissary operations, in addition to telephone commissions and interest earned by IWTF, are to be used by the Office primarily for the benefit, education and welfare of the inmates. During fiscal year (FY) 2013, the Office managed approximately $1.3 million of inmate funds that involved the following three interrelated areas: Inmate Trust Accounts - The Office maintains a trust account for each inmate to account for the monies he/she arrived with and subsequent receipts and disbursements as authorized by the inmate. The balance is returned to the inmate upon release. The Inmate Welfare Fund - This fund is maintained to account for the receipt and use of all funds covered by the Penal Code Section 4025, including payment for enhanced inmate programs and activities. Audit No: 3485 Page 1
Introduction and Background The Jail Commissary - A commissary is operated by the Office for the benefit of the inmates. A variety of products are sold to inmates at competitive prices. All profits are transferred to the IWTF in accordance with the Penal Code Section 4025. The activities of the commissary are accounted for in the JSTF. When an inmate is booked into custody, an account is set up in the Sheriff s accounting system (UNIX) to account for the money in the inmate s possession. Additional money may be deposited in their accounts via the jail lobby kiosks, telephone or the internet. Inmates may spend the money in their accounts for commissary items, phone cards, or other purposes. IWTF is set up as a fund in the ounty s financial accounting system. For the fiscal year ended June 30, 2013, this fund had $318K in revenues and $658K in expenditures. During that period, $746K in jail commissary profit was transferred from JSTF to IWTF. The IWT& s primary source of revenue is profits from the operation of the Commissary transferred annually from the JSTF. The fund s other significant revenue source is the commissions earned from the telephone vendor on charges for telephone calls initiated in the jail facilities. We separately audited the contract between Global-Tel Link, the telephone vendor, and the Office. IWTF earns 57% in commissions from charges for telephone calls made from the jail. During the audit period, IWTF s largest expenditure, in the amount of $211k (Starting Point), was for inmate drug and alcohol abuse counseling services, paid to the Sonoma County Health Services Department (HSD). Other significant expenditures were salary reimbursement costs for Program Officers and Detention Assistants ($162k); inmate educational programs performed by Sonoma County Office of Education ($97k) and the inmate law library ($45K). The Sheriff s Office operates a commissary, located in the Main Adult Detention Facility (MADF), to serve inmates at the MADF as well as the North County Detention Facility (NCDF). The prices for commissary items are aimed to be comparable to convenience store prices. All profits generated from commissary sales benefit the inmates by funding the IWT& s programs and providing other inmate recreational materials. All profits, with the exception of $100k in operating reserve, were transferred to the IWTF, as required by the Penal Code Section 4025. During our audit period, $746k in profits was transferred to IWTF. Audit No: 3485 Page 2
Objectives and Scope Objectives The objectives of this audit were to determine whether: 1. Inmate accounts were maintained in compliance with the Manual and relevant laws, including Government Code Sections 26640, 26641, 26642, 26643, and 26646. 2. The money deposited in the Inmate Welfare Fund was expended in accordance with the Manual and relevant laws, including Penal code Section 4025. 3. Profits from the operations of the jail commissary were transferred to the IWTF in accordance with the Manual and Penal Code Section 4025. 4. Revenues and expenditures in the annual financial reports filed with the County Board of Supervisors represent transactions executed in accordance with the Manual and the law Scope The audit covered the period July 1, 2012 through June 30, 2013. The scope of our work included but was not limited to the following: o A preliminary survey to update our knowledge of the operating environment; identify changes in laws and regulations, systems, personnel and organization structure. o A risk analysis to identify significant risks of non compliance with policies, procedures or laws, loss or misuse of assets and inefficiencies in processes. o A review and evaluation of internal controls designed to ensure compliance with the above requirements and to adequately reduce the risk identified. Our audit included inquiry, observation, and tests to assess the adequacy of documentation supporting compliance with relevant Penal Code and California Government Code Sections and the Manual. Audit No: 3485 Page 3
Procedures Procedures We performed the procedures outlined below, to achieve our audit objectives: 1. Examined a sample of monthly bank reconciliations. 2. Examined documentation and procedures relating to cash counts and reconciliations to department records. 3. Examined support for management and IWTF Committee approvals of trust fund expenditures. 4. Selected a sample of IWTF and JSTF expenditures, and examined supporting documents (purchase order, receiving report, vendor's invoice, and check). 5. 'ained understanding of the Office s cost allocation process relevant to the audit. 6. Performed revenue analysis for IWTF and JSTF based on inmate population and prior year actual and current year budgeted account balances. 7. Performed expenditure analysis for IWTF and JSTFs based on inmate population and prior year actual and current year budgeted account balances. 8. Reviewed internal controls over inventory. 9. Recalculated debit card revenue based on the number of cards sold per debit card perpetual records. 10. Evaluated selected aspects of jail commissary operations including profit transfers and control over physical inventories. Audit No: 3485 Page 4
Results Results Objective #1: Inmate's money and accounts are maintained in compliance with the Manual and relevant laws, including Government Code Sections 26640, 26641, 26642, 26643, and 26646. We determined that inmate accounts were maintained in compliance with the Manual and relevant laws. The Office s key controls over inmate accounts consist of 1) issuance of system generated receipts to respective inmates supporting the account balance, disbursements, and deposits and 2) monthly reconciliation of the total inmate funds per UNIX and Touchpay systems to the total of cash on hand, cash in treasury and bank deposits. We performed a walkthrough of these processes and conducted tests to gain assurance that required procedures were followed consistently. We noted no exceptions. Objective #2: The money deposited in the Inmate Welfare fund is expended in accordance with the Manual and relevant laws, including Penal code Section 4025. We determined that the money deposited in the IWTF during our audit period was expended in accordance with the Manual and relevant laws. We tested a sample of disbursement transactions for authorization, accuracy, support, compliance with applicable laws and regulations and proper recording in the general ledger. We noted no exceptions. Objective #3: Profit from commissary operations was transferred from JSTF to the IWTF in accordance with the Manual and Penal code Section 4025: We determined that the profit from the operations of the Commissary for the fiscal year ended June 30, 2013 was transferred to the IWTF as required by the Manual and Penal code Section 4025. However, we noted that there are no written policies for the establishment and use of the amount of profit to be retained as working capital, the timing of the calculation and transfer of commissary profits and segregation of incompatible inventory related functions. Audit No: 3485 Page 5
Results Objective #4: Revenues and expenditures in the Annual Inmate Welfare Trust Fund and Jail Stores Trust Fund Reports represent transactions executed in compliance with the Manual. We determined that the revenues and expenditures in the annual Inmate Welfare Trust Fund and Jail Stores Trust Fund Reports (pages 10 & 11) represent transactions executed in compliance with the Manual. Our procedures in this area included: 1) Identification and follow up of material variances between the current and prior year account balances. 2) Identification and follow up of material variances between actual and budgeted account balances. 3) Review of IWTF Committee minutes for proper approval of expenditures. 4) Review of policies and procedures over the operations of the Commissary 5) Test of a sample of Commissary transactions 6) Evaluation of reasonableness of Commissary profits based on inmate population. 7) Recalculation of debit card revenue based on the number of cards sold per debit card perpetual records. We noted no exceptions. Audit No: 3485 Page 6
Observations and Recommendations Observations Observation #1: The Office does not have written policies addressing the timing of the calculation or transfer of the Commissary profits from the JSTF to the IWTF. Transfers are done once a year and it is a practice to leave behind a certain portion of the profits ($100k in fiscal year 2013) as working capital. The law does not specify the frequency of the transfers of commissary profits or the portion that can be retained as working capital. It simply states /any profit shall be deposited in an inmate welfare fund to be kept in the treasury of the County. Material amounts of profits retained in the JSTF for extended periods of time without reasonable justification may indicated violations of Penal Code Section 4025. Recommendation #1 Written policies and procedures should be established that clearly describe the Commissary profit transfer process and use of Commissary operating reserves. The policy should establish the reserve balance and prescribe procedures for its monitoring, use and replenishment. The timing of the calculation and transfer of the profits should also be covered in the policy. Observation #2: We noted the following key weaknesses in internal controls over inventory: 1) Physical inventory counts are performed by employees who also stock and sell inventory items. 2) When processing payments, the accounts payable clerk does not verify that the items purchased have been added to the perpetual inventory system. Detention Assistants who have access to commissary merchandise inventory perform physical inventory counts. They also reconcile the physical counts to the perpetual system and have the ability to modify perpetual inventory records. Inventory related duties should be sufficiently segregated to prevent one person from misallocating inventory items and concealing it either by changing perpetual or fiscal inventory Audit No: 3485 Page 7
Observations and Recommendations records. Individuals, who perform reconciliations between physical counts and perpetual records, perform physical counts or update perpetual records should not have access to inventory in their normal course of duties. Accurate perpetual records are necessary to ensure timely and accurate identification of loss or unaccounted use of inventory items. Internal control procedures over payments for inventory items purchased should ensure that items purchased have been added to the perpetual system. Recommendation #2 Physical inventory counts should be performed on at least a bi-annual basis by individuals who are not involved in the processing and recording of inventory transactions. All material adjustments should be investigated and explained with detailed documentation on the adjustment sheet. The IWTF committee should review annual inventory counts in accordance with the IWTF policies and procedures. Sheriff s!ccounts Payable Section should match inventory items entered into the perpetual system per system generated reports, to those listed on invoices prior to processing payment. Observation #3: The HSD provides inmate drug and alcohol abuse counseling services and allocates the cost of 73% of 5.05 fulltime program employees to the Office out of which 34 % is paid by IWTF. The basis for the Office s or the IWT& s share of this cost is not documented. Annually approximately $211k is paid to the HSD. The Sonoma County Office of Education provides education services to inmates under a contract with the Office. The documentation provided with each billing is not sufficient for staff to ascertain that the amount being billed is accurate. Annually, approximately $97k is paid to the Sonoma County Office of Education. The Sheriff s Office has a contract with Legal Research Services (LRS) to provide research services to inmates. Charges are based on the number of pages of research information provided. The Office s staff does not verify that the number of pages used to calculate the charges agree with the number of pages of research material delivered. Audit No: 3485 Page 8
Observations and Recommendations Recommendation #3 a) The Office should gain an understanding of the methodology used by HSD to allocate drug and alcohol abuse counseling services cost to the Office and IWTF and conclude as to whether or not the methodology is reasonable. The methodology should be reviewed periodically to ensure it continues to accurately estimate inmate consumption of mental health resources. Analytical procedures should be perfumed to ensure the charges are accurately calculated. b) The Office should gain an understanding of the methodology used by the Sonoma County Office of Education to calculate the charges for education services provided to inmates. Appropriate documentation should be requested to ascertain the charges are accurate. c) The Office staff should ensure that the number of pages of legal research information included in bills from LRS agree with the number of pages of legal research information delivered prior to processing payment. Audit No: 3485 Page 9
Sonoma County Sheriff's Office Inmate Welfare Trust Fund Report For the Fiscal Year Ended June 30, 2013 Beginning Fund Balance $ (42,292) Revenues Interest Vending Commissions Telephone Commissions Intake Bag Reimbursement GovPayEXP Jail Bond Advertising Touch pay Messaging Miscellaneous Revenue Transfer from Jail Stores Trust-Phone Card Transfer from Jail Stores Trust 5,370 18,372 215,406 27,972 3,775 35,040 2,116 9,946 164,796 581,572 Total revenues 1,064,365 Expenditures Repairs to Inmate Equipment Starting Point Salary Reimbursement Costs Program Officers Detention Assistant Postage Inmate Newspapers DIRECTV Inmate Equipment Games/Athletic Equipment Legal Research Associates (LRA) Inmate Education Programs Friend Outside Services Welfare Bags Audit Miscellaneous 151,080 11,590 5,484 210,650 162,670 161 7,679 1,384 33,355 8,731 44,566 129,232 29,000 16,520 8,000 190 Total operating expenditures 657,622 Total operating income (loss) 406,743 Change in fund balance 406,743 Beginning fund balance (42,292) Ending Fund Balance 364,451 See Note 1 on page 12 Page 10
Sonoma County Sheriff's Office Jail Stores Trust Fund Report For the Fiscal Year Ended June 30, 2013 Beginning Fund Balance $ 392,204 Revenues Commissary Sales 1,259,939 Vending Machine Sales 48,086 Recycling Revenue 327 Total revenues 1,308,352 Expenditures Salary and Benefits Salary/Benefits 207,276 Total salary and benefits expenditures 207,276 Merchandise Expenditures Notions 49,480 Telephone Cards 124,700 Snacks 325,030 Stationary 7,070 Postage 43,548 Vending 47,549 Total merchandise expenditures 597,377 Operating Expenditures Supplies 1,613 Overhead 19,880 Repairs 1,014 Printing 3,619 Data Processing 5,560 Audit 8,000 Total operating expenditures 39,686 Operational Transfers Transfer to IWT 581,572 Phone Card Revenue to IWT 164,796 Total operational transfers 746,368 Taxes Sales Tax 9,849 Total sales tax 9,849 Total expenditures and operating transfers 1,600,556 Change in fund balance (292,204) Beginning fund balance 392,204 Ending fund balance $ 100,000 See Note 1 on page 12 Page 11
Notes Note1: Fund Reports Presentation These cash basis Trust Statements were prepared for the purpose of presenting revenues and expenditures of the pursuant to the Penal Code Section 4025 (e) and is not intended to be a presentation in conformity with generally accepted accounting principles. The revenue and expenditures are presented on a cash basis. Accordingly, note disclosures required by Governmental Accounting Standards are not presented, since such disclosures are not required by the California Penal Code Section 4025. Sonoma County Sheriff s Office Audit No: 3485 Page 12
STEVE FREITAS Sheri.ff-Coroner ~onoma <!Countp ~bertff's <!&fftce LORENZO DUENAS Assistant Sheriff Law Enfon:ement Division RANDALL WALKER Assistant Sheriff Detention Division September 8, 2014 Kanchan Charan, Audit Chief Sonoma County Auditor-Controller-Treasurer-Tax Collector Internal Audit RE: Fund audit for the period July 1, 2012 through June 30, 2013 Dear Mr. Charan: We have received and reviewed your staffs audit of the Inmate Welfare Trust (IWT) and Jail Stores Trust (JST) Funds for the period July 1, 2012 through June 30, 2013. We appreciate the work on this and are submitting the following responses to the audit recommendations. Your audit outlined a number of recommendations aimed at actions that should be undertaken by the Sheriffs Office. Sheriffs staff have discussed these recommendations and outlined below are the discussions points which address the issues raised for each of the recommendations that are presented in your report. 1. Written policies and procedures should be established that clearly describe the Commissary profit transfer process and use of Commissary operating reserves. The policy should establish the reserve balance and prescribe procedures for its monitoring, use and replenishment. The timing of the calculation and transfer of the profits should also be covered in the policy. We agree with this recommendation and are planning to update and revise the IWT policies and procedures this fiscal year. All revisions will be approved by the IWT committee and the Sheriff will ultimately approve the final version of the policies and procedures. 2. Physical inventory counts should be performed on at least a bi-annual basis by individuals who are not involved in the processing and recording of inventory transactions. All material adjustments should be investigated and explained with detailed documentation on the adjustment sheet. The IWTF committee should review annual inventory counts in accordance with the IWTF policies and procedures. Administration Division 2796 Ventura Avenue Santa Rosa, CA 95403 707.565.2781 Law Enforcement Division 2796 Ventura Avenue Santa Rosa, CA 95403 707.565.251 1 Detention Division 2777 Ventura A venue Santa Rosa, CA 95403 707.565.1422 Coroner 3336 Chanate Road Santa Rosa, CA 95404 707.565.5070
Fund Audit July I, 20 12 through June 30, 2013 Page2 Sheriff's Accounts Payable Section should match inventory items entered into the perpetual system per system generated reports, to those listed on invoices prior to processing payment. We agree with this recommendation; however, the impacts of this suggestion need to be evaluated in relation to the affected employees' existing workload. Most operational areas, including Accounts Payable, lack capacity to absorb new/more duties. However, Sheriffs staff understand the importance of inventory reconciliation and controls and realize that this suggestion could offer several benefits, such as establishing more efficient processes that may help indirectly address workload issues. Therefore, a thorough analysis will be conducted to determine if and how these new procedures can be implemented. Since 2005, the Sheriffs Office has requested funding for a comprehensive Jail Management System (JMS). A JMS can include a commissary module which would help provide standardized best practices for inventory management and control. We believe a new computerized system would help us implement recommendation #2. At this time, funding for a JMS has not been identified. 3. a) The Office should gain an understanding of the methodology used by HSD to allocated drug and alcohol abuse counseling services cost to the Office and IWTF and conclude as to whether or not the methodology is reasonable. The methodology should be reviewed periodically to ensure it continues to accurately estimate inmate consumption of mental health resources. Analytical procedures should be per/umed to ensure the charges are accurately calculated. Beginning July 2014, the Sheriffs Office added a new department analyst that will be focusing on inmate programs. One of the first tasks will be assessing programs provided by HSD. The HSD alcohol abuse counseling is one program that is funded by both IWT and AB 109 funding sources. A FY 14-15 priority for this analyst is to gain an understanding of the methodology used by HSD to allocate IWT and AB 109 Realignment drug and alcohol abuse counseling service costs to the inmate population and conclude as to whether or not the methodology is reasonable. In addition, the analyst will develop a bill review process. Processes and methodologies will be documented in the memorandum of understanding (MOU) with the Department of Health Services as appropriate. This MOU will contain a provision that requires periodic updates by both parties. b) The Office should gain an understanding of the methodology used by the Sonoma County Office of Education to calculate the charges for education services provided to inmates. Appropriate documentation should be requested to ascertain the charges are accurate. We are assuming this recommendation is addressing the Sonoma County Office of Education (SCOE)'s calculation to offset part of the Program costs with Average Daily Attendance (ADA) and Lottery revenue. Despite multiple efforts by Sheriffs staff, the Sonoma County
Fund Audit July 1, 2012 through June 30, 2013 Page 3 Office of Education (SCOE) has been resistant to disclose the full details of their methodology to provide an ADA offset. Going forward, Sheriffs staff intend to update these details in the related contract with SCOE. The new Programs Analyst will also work with the Programs Sergeant to verify inmate participation in the SCOE Program and verify and reconcile inmate participation to the services being billed by SCOE. c) The Office staffshould ensure that the number ofpages of legal research information included in bills from LRS agree with the number ofpages of legal research information delivered prior to processing payment. The Sheriffs Office believes the cost of verification of the number of pages provided by LRA outweighs the benefit or risk of inaccurate billing and payment. The Sheriffs Office intends to work with LRA to determine a more cost effective basis for payment. Any changes resulting from discussions with LRA will be documented in the Sheriffs contract with LRA. The Sheriffs Office would like to thank you for performing the Inmate Welfare Trust and Jails Stores Trust Funds audit. We appreciate the information provided to us through your observations and recommendations. We can assure you that the Sheriffs Office is aware of the issues that have been pointed out in this audit. We appreciate your independent analysis and recommendations. 7~/J/.l\ S~~ Fd(~ Sheriff-Coroner Cc: Olga Grey, Auditor Randal Walker, Assistant Sheriff Heidi Keith, Administrative Services Director Connie Newton, Administrative Services Officer Susan Stark, Department Analyst