Management report, Department of Administrative Services, an organizational unit of the state of Georgia, year ended June 30, 1997

MANAGEMENT REPORT DEPARTMENT OF ADMINISTRATIVE SERVICES AN ORGANIZATIONAL UNIT OF THE STATE OF GEORGIA
YEAR ENDED JUNE 30, 1997
STATE OF GEORGIA DEPARTMENT OF AUDITS AND ACCOUNTS
254 WASHINGTON STREET
ATLANTA, GEORGIA 30334-8400

DEPARTMENT OF ADMINISTRATIVE SERVICES MANAGEMENT REPORT - TABLE OF CONTENTS -

LETTER OF TRANSMITTAL

SECTION I

SELECTED FINANCIAL INFORMATION

EXlllBITS

A ANALYSIS OF CHANGES IN FUND BALANCE

BUDGET FUND

2

B SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES

COMPARED TO BUDGET

BUDGET FUND

3

C RECONCILIATION OF SALARIES AND TRAVEL

4

SECTION II AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

SECTION ill CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

CLAUDE'L. VICKERS STATE AUDlmR
(404) 656-2174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.w., Suite 214 Atlanta, Georgia 30334-8400
January 9, 1998

Honorable Zell Miller, Governor Members ofthe General Assembly of Georgia
and Honorable Dotty W. Roach, Commissioner Department of Administrative Services
Ladies and Gentlemen:
As part of our audit ofthe statutory basis financial statements ofthe State of Georgia presented in the Report ofthe State Auditor, the general purpose fmancial statements ofthe State of Georgia presented in the State ofGeorgia Comprehensive Annual Financial Report, and the issuance of a Statewide Single Audit Report pursuant to the Single Audit Act Amendments, as ofand for the year ended June 30, 1997, we have performed certain audit procedures at the Department of Administrative Services. Accordingly, the fmancial statements and compliance activities of the Department of Administrative Services were examined to the extent considered necessary in order to express opinion as to the fair presentation of the financial statements contained in the foregoing documents and to issue reports on compliance and internal control as required by the Single Audit Act Amendments of 1996.
This Management Report contains information pertinent to the fmancial and compliance activities of the Department ofAdministrative Services as of and for the year ended June 30, 1997. The particular information provided is enumerated in the Table of Contents.
This report is intended solely for the use of management of the Department of Administrative Services. However, this report is a matter of public record and its distribution is not limited.
Respectfully submitted,
d~
Claude L. Vickers State Auditor
CLV:cm

SECTION I SELECTED FINANCIAL INFORMATION

FUND BALANCE - JULY 1.1996
Reserved Surplus

DEPARTMENT OF ADMINISTRATIVE SERVICES ANALYSIS OF CHANGES IN FUND BALANCE BUDGET FUND YEAR ENDED JUNE 30.1997

EXHIBIT "A"
$ 35,814,210.68 2,353,246.50
$ 38,167,457.18

FUND BALANCE - JUNE 30, 1997
SUMMARY OF FUND BALANCE Reserved Surplus Property Working Capital State Federal Inventories Federal Cost Allocation Overbill Georgia Distance Leaming and Telemedicine Office of Treasury and Fiscal Services State Purchasing Recycle Program
Surplus
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$ 30,465,604,05

$

281,017.85

557,332,60

3,422,281,85

1,000,000.00

19,825,507.83

300,000,00

38,171.58

$ 25,424,311.71

5,041,292.34

$ 30,465,604,05

DEPARTMENT OF ADMINISTRATIVE SERVICES SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES
COMPARED TO BUDGET BUDGET FUND
YEAR ENDED JUNE 30, 1997

EXHIBIT"B"

FUNDS AVAILABLE REVENUES
State Appropriation Other Revenues Retained
CARRY-OVER FROM PRIOR YEAR Transfer from Reserved Fund Balance

BUDGET

ACTUAL

VARIANCEFAVORABLE (UNFAVORABLE)

$ 41,684,605.00 $ 41,426,677.00 $

248,448,442.00

215,797,807.88

$ 290,133,047.00 $ 257,224,484.88 $

-257,928.00 -32,650,634.12
-32,908,562.12

179,119.00

32,018,961.34

31,839,842.34

$ 290,312,166.00 $ 289,243,446.22 $

-..:..l1,~06;;,;8;,:.;,7~1.;::,9.;,;,,7;:.,8

EXPENDITURES
Personal Services Regular Operating Expenses Travel Motor Vehicle Purchases Equipment Computer Charges Real Estate Rentals Telecommunications Per Diem, Fees and Contracts Rents and Maintenance Expense Payments to DOAS Fiscal Administration Direct Payments to Georgia Building Authority
for Capital Outlay Direct Payments to Georgia Building Authority
for Operations Telephone Billings Radio Billings Materials for Resale Public Safety Officers Indemnity Fund Health Planning Review Board Operations Payments to Aviation Hall of Fame Payments to Golf Hall of Fame Distance Leaming Grants

$ 51,618,646.00 $ 49,805,121.75 $

18,421,012.00

15,787,018.11

586,094.00

503,265.63

1,012,064.00

843,895.28

8,437,943.00

8,038,466.61

13,521,127.00

12,896,695.64

3,782,336.00

3,728,370.80

7,126,169.00

5,490,291.73

29,834,162.00

29,652,282.34

14,016,710.00

13,878,856.86

2,972,744.00

2,742,924.95

57,050.00

57,050.00

540,699.00 81,390,514.00
1,831,396.00 44,200,000.00
550,000.00 85,000.00 48,500.00 85,000.00
10,195,000.00

540,699.00 78,757,015.36
1,532,069.13 32,856,407.67
550,000.00 70,599.90 48,500.00 85,000.00
8,569,067.29

1,813,524.25 2,633,993.89
82,828.37 168,168.72 399,476.39 624,431.36
53,965.20 1,635,877.27
181,879.66 137,853.14 229,819.05
0.00
0.00 2,633,498.64
299,326.87 11,343,592.33
0.00 14,400.10
0.00 0.00 1,625,932.71

Excess of Funds Available over Expenditures

$ 290,312,166.00 $ 266,433,598.05 $ ---"--2"3",'8:7"8",_56';7".9;5'"
$ 22,809,848.17 $ ===2=2=,8=0.9.,.=8=48=..1..7= -3-

DEPARTMENT OF ADMINISTRATIVE SERVICES RECONCILIATION OF SALARIES AND TRAVEL
YEAR ENDED JUNE 30.1997

EXHIBIT"C"

Tot~ls per Annual Supplement

Accruals June 30, 1996 June 30, 1997

Adjustments Anderson, Bridges, Brown, Cagle, Christenberry, Emery, Johnson, Jordan, Opsatnick, Powell, Russell, Saleem, White,

JackA. Kenneth F. Mark L. Patricia G. George A., Jr. Robert J. Janice R. Arthur J. Sylvia F. Darrel J. Phyllis C. Glenda H. Debra A.

SALARIES
$ 36,571,052.68 $

TRAVEL 504,792.67

-11,975.08 55,255.85

1,415.86

-127.20 -225.30 -359.40 -225.30
-50.00 -225.30 -127.20 -546.00 -225.30 -120.00 -225.30 -127.20 -359.40

$ 36,614,333.45 $

503,265.63

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SECTIONll AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS

DEPARTMENT OF ADMINISTRATIVE SERVICES AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 1997

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIQNED COSTS

FINDING CONTROL NUMBER AND STATUS

401-96-01 401-96-02

Partially Resolved - See Corrective Action/Responses Partially Resolved - See Corrective Action/Responses

CORRECTIVE ACTIONIRESPONSES

EXPENDITURESILIABILITIESIDISBURSEMENTS Inadequacies in Operation ofthe Workers' Compensation Fund Finding Control Number 401-96-01

DOAS has completed the corrective action plan. Workers' Compensation is now issuing vendor checks for non-medical fee-schedule services to providers on a daily basis rather than the previous weekly check runs. This change in payment processing has further minimized rebilling and the exposure to duplicate processing.

Furthermore, the implementation ofthe Tele-Claim system allows DOAS to have an outside service provider do the actual claims entry and coding prior to its arrival in our offices. This system has made claims reporting easier on our customers and increased filing time by an average of 20 days. Previously, DOAS would frequently receive invoices for medical services prior to receiving a first report of injury. Once the first report of injury arrived some 20 days later, a second invoice for the same services would often times have already been received, thus setting the stage for the possibility of duplicate billing.

In addition to Tele-Claim, DOAS has made enhancements to its Risk Management Information System which feed all entries by the Workers' Compensation Specialists into the pending payables file. Once this information is fed into the system, it automatically reads the files of all previous payments made and reconciles it against the new entry. If three of five previously defined key elements match, a flag is sent up, and the Specialist making the entry is alerted to a possible duplication. Upon further investigation, the Specialist may override this flag, but a permanent indication is made in the record which ensures accountability.

GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number 401-96-02

DOAS concurs with this recommendation. DOAS has taken actions to ensure better control of equipment assets. During the reorganization of the Department effective September 1, 1997, the Internal Business Services unit was created to centralize certain support functions previously located in various DOAS divisions.

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DEPARTMENT OF ADMINISTRATIVE SERVICES AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 1997

PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

CORRECTIVE ACTIONIRESPONSES

GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number 401-96-02

Within Internal Business Services, a centralized InventorylFacilities sub-unit has been created to control all types of DOAS equipment inventories - computer, telecommunications and other
personal property. This is the first time that all ofthe DOAS inventory has been the responsibility
of a single office. The InventorylFacilities unit will ensure that a bi-annual inventory audit will occur.

An inventory has been taken for the fiscal year 1997. This new emphasis and centralized control will offer improved controls over the previous decentralized system. Property insurance coordination and reporting has been assigned to the InventorylFacilities sub-unit along with the processing of property insurance claims. As a result, it is possible to have closer coordination of inventory control and related insurance claims on the inventoried equipment. During fiscal year 1997, an internal design team was created to review the inventory process and to make recommendations. The design team's research and recommendations have been turned over to Coopers & Lybrand for the redesign ofthe DOAS inventory processes, which should be completed by the end of the fiscal year 1998 or early fiscal year 1999. They are examining methods for improved tracking of equipment from the time it is placed on an inventory schedule until the equipment is disposed either through transfer or declared surplus.

Issues currently being studied include: modification of forms related to installation or moving of equipment, assignment of equipment for employee use in offsite locations, consolidation of the three separate inventory systems used for inventory tracking, improvement of accuracy of data entry, and better methods of communicating inventory-related information. Also, DOAS is currently in the process of acquiring services to conduct a statewide inventory that will allow independent review and verification of property control status.

PRIOR YEAR FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS

FINDING CONTROL NUMBER AND STATUS

401-96-03 401-96-04

Previously Reported Corrective Action Implemented Previously Reported Corrective Action Implemented

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SECTION III CURRENT YEAR FINDINGS AND QUESTIONED COSTS

DEPARTMENT OF ADMINISTRATIVE SERVICES SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1997
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
CASH AND CASH EQUIVALENTS Inadequacies in Bank Reconciliation Procedures Finding Control Number: FS-401-97-01
For the year under review, the Department of Administrative Services' accounting procedures were not sufficient to provide for adequate control over the bank reconciliation process. Audit procedures and interviews with personnel of the Department revealed that bank reconciliations of the General Operating, Payroll and Conference bank accounts were not reconciled in a timely manner. Also, the General Operating bank account reconciliation contained unreconciled differences of $4,790.80 between the amount recorded on the general ledger and the bank statement.
The Department should establish the necessary procedures to ensure that bank reconciliations are timely reconciled on a monthly basis. The Department should take action to identify the unreconciled differences and make adjustments to the accounting records where appropriate.
GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FS-401-97-02
For the year under review, our examination included a review of the internal accounting controls utilized by the Department of Administrative Services in maintaining their State Property System and also included testing the system for compliance with State laws and regulations. The following conditions relating to inappropriate accounting practices were found to exist:
(I) Equipment additions and deletions were not reconciled to the general ledger expenditure accounts.
(2) Computer equipment deletions could not be documented.
In addition, four-hundred-fourteen (414) equipment items were selected to test the accuracy of the Department's property management records. These items contained a value of $2,902,528.77 out of a population of $148,773,675.46 and were selected for the purpose oflocating the equipment as recorded in the inventory records. The following deficiencies were noted:
(1) Sixty-two (62) items could not be located.
(2) Two (2) items were found in locations other than the location indicated in the equipment inventory records.
(3) Three (3) items did not have decal numbers attached. Items were identified by serial numbers or descriptions.
Also, during the physical inspection testing, thirty-three (33) items of equipment were located which were not included in the equipment inventory records.
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DEPARTMENT OF ADMINISTRATIVE SERVICES SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1997
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FS-401-97-02
The Department is required to maintain equipment inventories in accordance with provisions of the State Property Management System Manual. The discrepancies identified above were caused by the Department's failure to follow guidelines for maintaining equipment inventories.
The Department should establish the necessary internal controls and implement procedures to ensure the equipment inventory records are maintained in accordance with the State Property Management System Manual.
EXPENDlTURESlLlABILITIESIDISBURSEMENTS Inadequacies in Operation of the Workers' Compensation Fund Finding Control Number: FS-401-97-03
For the year under review, our examination included a review of the internal accounting controls used by the Department in administering its Workers' Compensation Fund. Our examination noted that refunds totaling $201,018.28 were received by the Workers' Compensation Fund due to overpayment or duplication of claim settlements. These refunds were voluntary on the part of recipients and were not discovered through normal edit procedures. During the claim processing, edits should be in place to "flag" duplicate or overpayments before settlement checks are issued. Because the known refunds may represent only a portion of the total duplicates and overpayments occurring, the loss due to the same cannot be estimated.
The Department ofAdministrative Services should install edits in the process procedures to prevent duplicate and overpayments.
FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS
ALLOWABLE COSTS/COST PRINCIPLES Overbillings of Communication Services Questioned Cost: $1,000,000.00 Finding Control Number: FA-401-97-01
The Department of Administrative Services furnishes and bills customer organizations for a variety of services. As a matter of practice, the Department of Administrative Services does not account for these services as internal service funds in accordance with generally accepted accounting principles. Operating balances, if any, are not carried over to the subsequent fiscal year. Funds remaining in these accounts are returned to the State's treasury as surplus.
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DEPARTMENT OF ADMINISTRATIVE SERVICES SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1997
FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS
ALLOWABLE COSTS/COST PRINCIPLES Overbillings of Communication Services Questioned Cost: $1,000,000.00 Finding Control Number: FA-401-97-01
Operating balances which may remain at the end of a fiscal year are generally a result of overbilling customer organizations. Overbillings occurred in Communication Services for fiscal years 1994, 1995, and 1996. Since such billings include Federal participation, the Federal Government is entitled to be reimbursed for its equitable portion ofthe overbillings.
The Department of Administrative Services has been involved in on-going negotiations with the U. S. Department ofHealth and Human Services regarding overbillings for fiscal years 1994 and 1995. Subsequent to June 30,1997, the Department ofAdministrative Services reimbursed the Federal government $652,971.00 for disallowances occurring during fiscal years 1994 and 1995. This amount was recorded as a liability at June 30, 1997. In anticipation of additional Federal disallowances, a reserved fund balance of$I,OOO,OOO.OO was established as of June 30, 1997 for overbillings in Communication Services which occurred during fiscal year 1996.
The Department of Administrative Services should establish internal service funds in accordance with generally accepted accounting principles for its billed services to ensure compliance with Federal regulations. Accordingly, overbillings occurring in the future would be used to reduce subsequent charges to customer organizations.
ALLOWABLE COSTS/COST PRINCIPLES Federal Disallowance of Indirect Cost Recoveries Questioned Cost: $385,800.00 Finding Control Number: FA-401-97-02
The Department of Administrative Services (DOAS) is an organizational unit of the State of Georgia and is included as a part of the State of Georgia Single Audit Report. Audit reports of prior years have noted on going problems with the Department's failure to comply with required Federal property management standards.
Based on a review of the statewide Single Audit for fiscal year 1995, the U. S. Department of Health and Human Services (USDHHS) has determined that the failure of DOAS to comply with the property management standards of OMB Circular A-I 02 meant the depreciation and/or use allowance costs that the State of Georgia has recovered through indirect cost, via the Statewide Cost Allocation Plan, have not been adequately supported, and thus are not recoverable costs. The USDHHS, as a result, requested that the State of Georgia establish the dollar amount ofdepreciation and/or use allowance costs which were inappropriately charged to federal programs during fiscal years 1993 through 1996.
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DEPARTMENT OF ADMINISTRATIVE SERVICES SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 1997 FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS ALLOWABLE COSTS/COST PRINCIPLES Federal Disallowance of Indirect Cost Recoveries Questioned Cost: $385,800.00 Finding Control Number: FA-401-97-02 In response to this request, the Georgia Department of Audits calculated a dollar amount which represents the costs the State of Georgia has recovered from the Federal government through indirect costs based on unsupported equipment inventories at the Department of Administrative Services for fiscal years 1993 through 1996. Based on our calculation, the State of Georgia collected $385,800.00 from the Federal government through indirect costs based on DOAS's unsupported equipment inventories. As of the date of this report, a final settlement has not been reached regarding this matter.
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