Management report, Department of Insurance, an organizational unit of the state of Georgia, year ended June 30, 2001

STATE OF GEORGIA

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MANAGEMENT REPORT DEPARTMENT OF INSURANCE AN ORGANIZATIONAL UNIT OF THE STATE OF GEORGIA YEAR ENDED JUNE 30, 2001
Russell W. Hinton state Auditor

DEPARTMENT OF INSURANCE MANAGEMENT REPORT - TABLE OF CONTENTS -
LETTER OF TRANSMITTAL SECTION I
SELECTED FINANCIAL INFORMATION EXHIBITS
A ANALYSIS OF CHANGES IN FUND BALANCE BUDGET FUND
B SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES COMPARED TO BUDGET BUDGET FUND
C RECONCILIATION OF SALARIES
SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS

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RUSSELL W. HINTON
STATE AUDITOR
(404) 6562174

DEPARTMENT OF AUDITS AND ACCOUNTS
254 Washington Street, S.w., Suite 214 Atbnta. Georgia 30334-X400
September 25,2001

Honorable Roy E. Barnes, Governor Members of the General Assembly of Georgia
and Honorable John W. Oxendine, Commissioner Department ofInsurance

Ladies and Gentlemen:

,

As part ofour audit ofthe statutory basis financial statements ofthe State ofGeorgia presented in the State ofGeorgia Report ofthe State Auditor, the general purpose financial 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, 2001, we have performed certain audit procedures at the Department of Insurance. Accordingly, the financial statements and compliance activities of the Department of Insurance were examined to the extent considered necessary in order to express an 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 financial and compliance activities of the Department ofInsurance as of and for the year ended June 30, 2001. The particular information provided is enumerated in the Table of Contents.

This report is intended solely for the information and use of management of the Department of Insurance and is not intended to be and should not be used by anyone other than these specified parties.

..---Respectfully submitted, .

.......



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Ru sell W. Hinton State Auditor



SECTION I SELECTED FINANCIAL INFORMATION

DEPARTMENT OF INSURANCE ANALYSIS OF CHANGES IN FUND BALANCE
BUDGET FUND YEAR ENDED JUNE 30, 2001
FUND BALANCE - JULY 1, 2000 Reserved Surplus
ADDITIONS Adjustments to Prior Year's Accounts Payable Excess of Funds Available over Expenditures Exhibit "B" Reimbursement of Prior Year's Expenditures
DEDUCTIONS Unreserved Fund Balance (Surplus) Returned to Office of Treasury and Fiscal Services Year Ended June 30, 2000 Adjustments to Prior Year's Accounts Receivable Reserved Fund Balance Carried Over from Prior Year as Funds Available
FUND BALANCE - JUNE 30, 2001
SUMMARY OF FUND BALANCE Reserved Federal Financial Assistance Surplus

EXHIBIT "A"

$

48,001.21

, 606,234.13

$ 654,235.34

$

23,631.45

159,982.75 10.00

$ 183,624.20

$ 606.234.13
14,185.93 48,001.21
$ 668,421.27
$ 169,438.27

$ 102,647.26
66,791.01

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DEPARTMENT OF INSURANCE SCHEDULE OF FUNDS AVAILABLE AND EXPENDITURES
COMPARED TO BUDGET BUDGET FUND
YEAR ENDED JUNE 30, 2001

EXHIBIT "B"

FUNDS AVAILABLE REVENUES
State Appropriation Federal Revenues Other Revenues Retained
CARRY-OVER FROM PRIOR YEAR

Transfer from Reserved Fund Balance
EXPENDITURES Personal Services Regular Operating Expenses Travel Motor Vehicle Purchases Equipment Computer Charges Real Estate Rentals Telecommunications Per Diem, Fees and Contracts
Excess of Funds Available over Expenditures

BUDGET

ACTUAL

VARIANCE FAVORABLE (UNFAVORABLE).

$ 15,650,323.00 $ 15,650,323.00 $

1,682,020.00

1,020,755.14

688,204.00 . 144.433.19

$ 18,020,547.00 $ 16,815,511.33 $

0.00 -661,264.86 -543,770.81
-1,205,035.67

0.00

48,001.21

48,001.21

$ 18,020,547.00 $ 16,863,512.54 $ -1,157,034.46

$ 14,435,404.00 $ 13,870,727.34 $

761,893.00

751,964.20

435,414.00

419,420.32

185,100.00

184,729.04

90,328.00

28,156.00

313,272.00

236,918.49

796,248.00

796,048.00

405,207.00

345,043.32

597,681.00

70,523.08

564,676.66 9,928.80 15,993.68 370.96
62,172.00 76,353.51
200.00 60,163.68 527,157.92

$ 18,020,547.00 $ 16,703,529.79 $ 1,317,017.21 --"'-'--......:..;;-'-'-~ $ 159,982.75 $ ==,.;,;15~9*,9~8~2.;,;,,75~

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DEPARTMENT OF INSURANCE RECONCILIATION OF SALARIES
YEAR ENDED JUNE 30, 2001
Total per Annual Supplement Accruals June 30, 2001

EXHIBIT "C"
$ 10,152, 138.19
7,797.98
$ 10,159,936.17

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SECTION II CURRENT YEAR FINDINGS AND QUESTIONED COSTS

DEPARTMENT OF INSURANCE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2001
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
GENERAL LEDGER Inadequacies in Control Over Accounts Payable Finding Control Number: FS-408-0l-0l
Our examination included a review ofthe internal accounting controls and procedures utilized by the Department of Insurance in recording adjustments to the various modules comprising the statewide Phoenix accounting system. Our testing revealed that, at June 30,2001, the Department's general ledger balance for accounts payable did not balance with the ou.t. standing accounts payable as reflected in the accounts payable (subsidiary) module. This condition resulted because numerous prior year carry-over balances remained on the general ledger module without being recorded in the accounts payable module. As a result, numerous reconciling items existed at June 30, 2001. These reconciling items occurred because, in many cases, the Department used manual journal vouchers, which are posted only to the general ledger, instead of adjustment vouchers, which are posted directly to the modules and automatically update the general ledger. The Department was unable to provide the necessary documentation to support all reconciling items.
The Department is required to balance subsidiary accounting records to the general ledger in accordance with the Accounting Procedures Manual for the State of Georgia as published by the State Auditor. Management's failure to ensure that subsidiary modules are in balance with the general ledger module causes internal reports to management, generated from the subsidiary modules, to be inaccurate and misleading. This condition can lead to erroneous decisions by the Department's management as well as by the State of Georgia's executive decision makers.
To ensure accurate and timely reporting of financial information from subsidiary modules, the Department of Insurance should consider using adjustment vouchers rather than manual journal entries to the extent possible as a matter ofroutine. This will allow the natural flow ofthe subsidiary modules into the general ledger module to correct adjustments to the accounting records that are determined to be necessary. The Department should also ensure that adequate supporting documentation is maintained for all adjustments and reconciling items.
GENERAL LEDGER Ending Balances in Balance Sheet Clearing Accounts Finding Control Number: FS-408-01-02
Our examination included a review ofthe internal accounting controls and procedures utilized by the Department of Insurance in recording adjustments to the various modules comprising the statewide Phoenix accounting system. Our testing revealed that, at June 30, 2001, the Department's general ledger module contained ending balances in the balance sheet clearing accounts. These clearing accounts have been provided in the State Chart of Accounts to facilitate the accumulation of transactions which are subsequently distributed to appropriate accounts. At June 30, no balances should remain in clearing accounts.
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DEPARTMENT OF INSURANCE SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2001
FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
GENERAL LEDGER Ending Balances in Balance Sheet Clearing Accounts Finding Control Number: FS-408-01-02
Management's failure to ensure that these accounts do not have balances at the end of the year can materially misstate the financial statements ofthe Department and can lead to erroneous decisions by the Department's management as well as by the State of Georgia's executive decision makers.
.
The Department should ensure that clearing account balances have been distributed to appropriate accounts at the end ofeach accounting period and that no balances remain in the clearing accounts at fiscal year end.
GENERAL FIXED ASSETSIPROPERTY MANAGEMENT Inadequacies in Operation of Property Management System Finding Control Number: FS-408-01-03
Our examination included a review ofthe internal accounting controls utilized by the Department of . Insurance 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:
(1) Equipment additions were not reconciled to the general ledger expenditure accounts.
(2) Equipment inventory records for additions were updated incorrectly. Limited testing of current year additions revealed that current year equipment purchases were added to the equipment inventory records twice, overstating the Equipment Inventory by the amount of $422,122.06.
The Department is required to maintain equipment inventories in accordance with provisions ofState laws and regulations. The discrepancies identified were caused by the Department's failure to follow guidelines for maintaining equipment inventories.
The Department should establish the necessary internal controls to ensure that equipment inventories are maintained in accordance with State laws and regulations.
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