Department of Corrections budgetary compliance report for the fiscal year ended June 30, 2010

Fiscal Year 2010

- -.-a n - of

Corrections

Budgetary Compliance
Report
For the Fiscal Year Ended June 30,2010

Department of Audits and Accounts
Russell W, Hinton State Auditor
State Government Division John A. Thornton, Director

FORTHE FISCALYEARENDED JUNE 30,2010
Independent Accountant's Report .................................................................................................... i Statement of Funds Available and Expenditures Compared to Budget
By Program and Funding Source Budget Fund ........................................................................................................ 1
Current Year Findings and Questioned Costs Schedule of Findings and Questioned Costs ..................................................................... 10

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DEPARTMENOFTAUDITSAND ACCOUNTS
270 Washington Street, S.W. Suite 1-156 Atlanta, Georgia 30334-8400
INDEPENDENT ACCOUNTANT'S REPORT
The Honorable Brian Owens, Commissioner Georgia Department of Corrections
and Members of the Georgia Department of Corrections
We have examined the Georgia Department of Corrections' compliance with the 2010 Approp"tions Act, as amended, (Final Budget) and Article VII, Section IV Paragraph VIII of the Constitution of the State of Georgia for fiscal year ended June 30, 2010. Management is responsible for the Georgia Department of Corrections' compliance with the following requirements:
An appropriated budget unit cannot overspend their authorized budgeted amounts at the legal level of budgetary control (funding source within program). This means that amounts reflected in the "variance" column under the heading of Expenditures Compared to Budget in the Statement of Funds Available and Expenditures Compared to Budget by Program and Funding Source Budget Fund are not negative variances.
Article VII, Section IV Paragraph VIII of the Constitution of the State of Georgia provides, in part, "...the credit of the State shall not be pledged or loaned to any individual, company, corporation or association." As applied here, this means that amounts reflected in the "variance" column under the heading of Excess (Deficiency) of Funds Available Over/(Under) Expenditures in the Statement of Funds Available and Expenditures Compared to Budget by Program and Funding Source Budget Fund are not negative variances.
Our responsibility is to express an opinion on compliance with the aforementioned requirements for the Georgia Department of Corrections based on our examination.
Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants and, accordingly, include examining, on a test basis, evidence about the Georgia Department of Corrections' compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on the aforementioned organization's compliance with the specified requirements; however, our report may be useful to legal counsel or others in making such determinations.

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'fhc Budgetary C'ompllance Reporl (HCK) for the Georgia Depaizment of C'orrcctions ~ c p o ~ t u d instances of II~II-compl~anicvie111 thc Cu~~stitutioonf the State of Cieorgia ill rllc Depilr/~llu~llcrl ildi~llzir7lsrrrlflo1p1rogram arid an Lrrlc.o~ltot lled program. As discussed in finding FS-467- 1 0 100. wc were unable to conlinn that tl~escrcported instances o l non-compliance \vere accuratc I t also appcals that the deficiency of funds available in the Dep~1rtwrel7la,ll~/~~~inistr~pnrtoiogrratm is offset by an excess of funds aiailablc in Ihc Food L I ~ FL u~rrrr Oj~ercrtro~psrogranl tha~also docs not appcnr accuratc A s a rewit. m c \\ere unable to detcrminc \\hcther thc Department \\as i l l cumpllancc \v~tlithc ~eqi~llemenotsf the Appropriations Act. a \ amenclcd. ( 1-lnal Hudgcr) and the Constitution of'the SL'ILo~l .Geurgla f o ~the L ~ c ~ / ~ ~ I I . .I,~$(I /~/I~I~II~~/Iu\I/I.pLrIo/gIrOamM. hood riircl [ ~ i ~ Oi ~~m~errriropnr.o~gram and the (!I?( oi~t~~ollpero~gi'ram
In our opinion, except I'or the matters disclosed in tlie prcccding p:iragrnpli. the Georgia 1)cpartmcnt of' Corrections complied, in all material respects, with thc afolcmcntioned rcquirclments for the fiscal ycar cnded .lurie 30. 201 0.
In the Schedule of Findings and (Jllcstioned Cost section of' this report. wc have reportcd all findings and q~~estionecdosts relatcd ro the Georgia Departnient of ('orrections' compliance \z ilh the 2010 Appropriations Act. as amcndcd. (Final Budget) and Article VII. Section IV Paragraph V [ I I of the Constitution of tlic Stclte of' Georgia for fiscal ycar cndcd .7~11i3e0. 2010: inclu~ling any identified deficiencies in internal control over co~npliancewhich were determinccl to be either material weaknesses or signi1ic:unt deficiencics.
A separate ~nanagementreport will be issued to the Board and nianagement of he Georgia
Department of Corrections disclosing other illformation pertinent to the financial and compliance activities of thc organization.
I'his report is intended solelj for the information and iise of'the I3oard and managen~ent01' tlie Gcorgia Department of Con-cctions and mnnagcmcnt US thc State of Cieorgin. including tllc Governor and the Georgia General Assembly. 'l'his scport is not intended to be and should not be ~lsedby anyone other than these specilicd parties klowever. this report 1s ;I matter of puldlc
rccord and its distribution is 1101 linlited.
liespccth~llysubmitted.
Russell W. tlinton. ('I'A. ('CiFkl State Auditor

Department of Corrections
Statement of Funds Available and Expenditures Compared to Budget By Program and Funding Source Budget Fund For the Fiscal Year Ended June 30,2010

Departmental Administration State Appropriat~on State General Funds Federal Funds Federal Funds Not Specifically ldentified Other Funds
Tntal Departmental Administration
Bainbridge Probation Substance Abuse Treatment Center State Appropriation State General Funds Federal Funds Federal Funds Not Specifically Identified Other Funds
T d a l Bainbridge Probation Substance Abuse Treatment Center
Food and Farm Operations State Appropriation State General Funds Stale Funds - Prior Year Cany-Over State General Funds - Prior Year Federal Funds Federal Funds Not Specifically ldentified Other Fund5
Tntal Food and Farm Operations
Health State Appropriation State General Funds
State Funds - Pnor Year Carry-Over State General Funds - Prior Year
Federal Funds Federal Funds Not Specifically ldentified
Other Funds
Total Health
County Jail Subsidy Stale Appropriation State General Funds Federal Funds Federal Funds Not Spec~ficallyldent~fied Other Funds
Tulal County Jail Subsidy
Offender Management State Appmpriation State General Funds Federal Funds Federal Funds Not Specifically ldentified Other Funds
Tntal Offender Managemenl

Original Appropriation

Amended Apprnpriatiin

Final Budget

Funds Current Year
Revenues

Available Compared to Budget

Prior Year

Total

Carry-Over

Funds Available

Variance Positive (Negative)

ExpendituresCompared to Budget

Variance

Aclual

Positive (Negative)

Excess (Deficiency) of Funds Available
OverMUnder) Expendilures

Department of Corrections
Statement of Funds Available and Expenditures Compared to Budget By Program and Funding Source Budget Fund For the Fiscal Year Ended June 30,2010

Parole Revocation Centers State Appropriation State General Funds Federal Funds Federal Funds Not Specifically Identified Other Funds
Total Parole Revocation Centers
Private Prisom State Appropriation State General Funds Other Funds
Total Private Prism
Detention Centers State Appropriation State General Funds Federal Funds FederalFunds Not Specifically ldentified Other Funds
Total Detention Centers
Probation Diversion Centers State Appropriation State General Funds Federal Funds Federal Funds Not Spec~ficallyldentified Other Funds
Total Probation Diversion Centers
Probation Supervision Stare Appropriation State General Funds Federal Funds Federal Funds Nor Specifically ldentified Other Funds
Total Probation Supervision
State P r i s m State Appropriation State General Funds
State Funds - Ptior Year Carry-Over
State General Funds - Prior Year Federal Funds
Federal Funds Not Specifically Identified American Recoveryand ReinveslmenlAct of 2009
Federal Funds Not Specifically ldent~fied State Eiscal Stabilization Fund
Stabilization Fund - Government Services Other Fund?,
Total State Prisons

Original Appropriation

Amended Appropriation

Final Budget

Funds
Current Year Revenues

Department of Corrections
Statement of Funds Available and Expenditures Compared to Budget By Program and Funding Source Budget Fund For the Fiscal Year Ended June 30,2010

Transitional Centers State Appropriat~on State General Funds Other Funds
Total Transitional Centers
Program Not Identified State Appropriation State General Funds Federal Funds Federal Funds Not Specifically Identified Other Funds
Total Program Not Identified
Budget Unit Totals

Original Appropriation

Amended Appropriation

Final Budget

Funds
Current Year Revenues

Available Canpared to Budget

Prior Year

Total

Carry-Over

Funds Available

Variance Positive (Negative)

Expenditures Compared to Budget

Actual

Variance Positive (Negative)

Excess (Deficiency) of Funds Available
Over/(Under) Expenditurps

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DEPARTMENOFTCORRECTIONS Schedule of Findings and Questioned Costs For the Fiscal Year Ended June 30,2010

Finding Control Number: FS-467- IO- 100 ACCOUNTING CONTROLS (OVERALL) BUDGET Inaccurate Statutory (Budgetary) Basis Financial Statements

Condition:

The Budgetary Compliance Report (BCR) for the Department of Corrections (Department) reported the following instances of noncompliance with the Constitution of the State of Georgia:

Program
Departmental Administration Uncontrolled Program Uncontrolled Program

Fund Source
Federal Funds Not Specifically Identified Federal Funds Not Specifically Identified
Other Funds

Funds Available Under Expenditures $16,518,353.20
,050,072.2
$1,3 18,068.08

Based on our testing, however, we were unable to confirm that these reported instances of non-compliance were accurate. While we were unable to obtain sufficient evidential matter to make correcting adjustments, it appears that the deficiency of funds available in the Departmental Administration program is offset by an excess of funds available in the Food and Farm Operations program that also does not appear accurate.

Also, current year balances were reported in Uncontrolled Program which is not a valid budget program according to the 2010 Amended Appropriations Act. These balances should have either been recorded in other valid programs of the Department, or should have been subject to correcting adjustments related to prior budget periods.

As a result, in our examination of the Department's BCR, we were unable to determine whether the Department was in compliance with the requirements of the Appropriations Act, as amended (Final Budget), and the Constitution of the State of Georgia for the following programs:

1) Departmental Administration,
2) Food and Farm Operations, and 3) Uncontrolled Program.

Criteria:

The Appropriations Act, as amended, (Final Budget) prohibits an agency from overspending their authorized budgeted amounts at the legal level of budgetary control (funding source within program). As applied here, this means that amounts reflected in the "variance" columns of the appropriated budget unit's budgetary comparison schedule at the legal

DEPARTMENOTF CORRECTIONS Schedule of Findings and Questioned Costs For the Fiscal Year Ended June 30,2010
level of budgetary control are not negative variances and do not result in a deficiency of funds available under expenditures.

Article VII, Section IV Paragraph VIII of the Constitution of the State of Georgia provides, in part, "...the credit of the State shall not be pledged or loaned to any individual, company, corporation or association." As applied here, this means that amounts reflected in the "variance" column under the heading of Excess (Deficiency) of Funds Available Over/(Under) Expenditures in the Statement of Funds Available and Expenditures Compared to Budget by Program and Funding Source Budget Fund are not negative variances.

The accounting records for each appropriated budget unit of the State should be maintained in such a manner to allow for budgetary reporting to be accurately prepared and supported.

Information:

The BCR reflects the Department's budgetary activity at the legal level of budgetary control as prescribed by the FY 2010 Amended Appropriations Act. Also at this level, the BCR reports whether the Department is operating within the debt limitations of the Constitution of the State of Georgia which prohibits expenditures from exceeding funds available.

Cause:

As of fiscal year end, the Department was unable to adjust prior budget year carry-over amounts to the correct budget program. As a result, when prior year carry-over amounts were recognized as funds available in the current year, the Department reported large deficits or large excesses of funds available in the programs where corrections are needed. The Department has had conversations with the State Accounting Office with the goal of working together during fiscal year 201 1 to correct those prior year carry-over amounts.

Effect:

The amounts reported in the Department's BCR for the three programs identified should not be used for decision-making purposes at the legal level of budgetary control.

Recommendation: The Department should manage its budgetary activity at the legal level of control, which is fund source within program. In order to produce accurate and useful BCR reports in the future, actions to be taken by the Department should include, but not be limited to, the following:

1) Obtain additional understanding and needed training regarding Program-Based Budgeting.
2) Ensure that current activity is not co-mingled with prior year activity.
3) Identify the correct programs and make appropriate adjustments for prior budget year amounts.

DEPARTMENOTF CORRECTIONS Schedule of Findings and Questioned Costs For the Fiscal Year Ended June 30,2010

View of Officials:

When Program Based Budgeting was initially implemented, there was insufficient guidance available regarding the impact it would have on requirements for financial reporting, including that programlfund source would become the legal level of reporting. It was viewed by Corrections only as a tool to identify costs of the specific activities (Programs) within the Department. As such, much attention was given to the expensing of items in the proper program, but revenue did not receive such attention. Because the general ledger reporting was still done at the Department-wide level, revenue was generally brought in under the Administration program. Also, surplus repayments were paid strictly from the same program including surpluses from years prior to implementation of Program Based Budgeting. As a result, the Department has both prior year deficits and surpluses when viewed at the programlfund source line detail. When working in FYIO, the Department used the tools available in Peoplesoft, e.g., Program Budget Comparison Report (PBCR), to pay close attention to the balance of current funds available compared to current expenses. According to the PBCR, the Department had no negative variances at the end of FY 2010. As the BCR was being completed, the Department was made aware that the previously mentioned deficitslsurpluses would be captured in the final reports. As such, the deficits took the three mentioned combinations of program and fund source into a final deficit number. Moving forward, the Department will work closely with the State Accounting Office to remedy these prior year variances so that they will no longer impact the final numbers for the Department.

As an additional note, following any requested post-closing adjustments, the Department has never closed out a fiscal year with an overall deficit balance.

Finding Control Number: FS-467-1O- I01 ACCOUNTING CONTROLS (OVERALL) BUDGET Audit Adjustments to the Budget Comparison Report and Other Budgetary Deficiencies

Condition:

Our examination found that the Department of Corrections (Department) generally maintained their "current year appropriations" at the legal level of budgetary control as prescribed by the 2010 Appropriations Act, as amended, (Final Budget). However, erroneous carry-over balances from prior years had a negative impact on the Department's Budgetary Compliance Report (BCR). As a result, numerous audit adjustments were necessary to correct and prepare for presentation the BCR for the Department. Specifically, the following audit adjustments were made:

I ) An adjustment to Uncontrolled Programlother Funds to reserve $15,065.1 1 that had not been recognized as funds to be reserved by the Department.

DEPARTMENOTF CORRECTIONS Schedule of Findings and Questioned Costs For the Fiscal Year Ended June 30,2010
2) An adjustment to the Detention Centers and Transitional Centers programs for $8,428.43 and $12,112.17 respectively to move expenditures from Other Funds to State General Funds in order to remove deficiencies in funds available in the current year.
3) An adjustment to the Bainbridge Probation Substance Abuse Treatment Center progradFederal Funds Not Specifically Identified for $361.95 to recognize deferred revenue that had not been previously recognized by the Department in order to remove a deficiency in funds available in the current year.
4) An adjustment to the Uncontrolled ProgramFederal Funds Not Specifically Identified for $1 , I 68,180.68 to remove a deficit ending fund balance from this program and fund source and move it to the Departmental Administration prograndFederal Funds Not Specifically Identified in order to prevent unidentified program activity in future budget years.
In addition to the deficiencies noted above and in finding FS-467-10100, the Department also had numerous underlying budgetary deficiencies that became apparent when reviewing the Department's overall ending balance by program and fund source and when performing analysis to determine prior budget year fund balance.
The following instances of overall deficit ending fund balances were noted. These deficit fund balances indicate apparent noncompliance with State Laws relating to either the current budget year or prior budget years:
Fund Balance

DEPARTMENOTF CORRECTIONS Schedule of Findings and Questioned Costs For the Fiscal Year Ended June 30,2010
In addition, an analysis to identify ending fund balance by prior budget years revealed the Department also had the following deficiencies with their statutory (budgetary) basis financial statements:

Criteria:

Diversion Centers Probation Supervision State Prisons Transitional Centers

Other Funds Other Funds Other Funds

$1 8,958.59 $1,285,596.50 $1 30,928.14

The Appropriations Act, as amended, (Final Budget) prohibits an agency from overspending their authorized budgeted amounts at the legal level of budgetary control (funding source within program). As applied here, this means that amounts reflected in the "variance" columns of the appropriated budget unit's budgetary comparison schedule at the legal level of budgetary control are not negative variances and do not result in a deficiency of funds available under expenditures.

Article VII, Section IV Paragraph VIII of the Constitution of the State of Georgia provides, in part, "...the credit of the State shall not be pledged or loaned to any individual, company, corporation or association." As applied here, this means that amounts reflected in the "variance" column under the heading of Excess (Deficiency) of Funds Available Over/(Under) Expenditures in the Statement of Funds Available and Expenditures Compared to Budget by Program and Funding Source Budget Fund are not negative variances.

DEPARTMENOTF CORRECTIONS Schedule of Findings and Questioned Costs For the Fiscal Year Ended June 30,2010

The accounting records for each appropriated budget unit of the State should be maintained in such a manner to allow for budgetary reporting to be accurately prepared and supported.

In accordance with Statewide Accounting Policies and Procedures issued by the State Accounting Office (SAO) on Management Responsibilities, "...the management of each state organization is responsible for the accuracy and completeness of its accounting and financial records and reports." In addition, "Management of each individual state organization is also responsible for ensuring compliance with applicable laws and regulations."

Internal controls over the period-end financial reporting process should include controls over the general ledger and the BCR. Further, these internal controls should be sufficiently designed and be in-place to identify misstatements due to error or fraud.

Information:

The BCR reflects the Department's budgetary activity at the legal level of budgetary control as prescribed by the FY 2010 Amended Appropriations Act. Also at this level, the BCR reports whether the Department is operating within the debt limitations of the Constitution of the State of Georgia which prohibits expenditures from exceeding funds available.

Cause:

During the year, management of the Department utilized the budget comparison reports available in Peoplesoft to monitor their budgetary activity. However, in their efforts to monitor this activity, they did not factor in all aspects of Program Budgeting as it relates to the State's statutory basis of accounting and budgetary statement presentation, such as prior year carry-over and other items affecting the changes in fund balances.

Effect:

Insufficient internal controls over the period-end financial reporting process increases the risk that material misstatement in the financial statements and BCR will occur and not be detected.

Recommendation:

The Department should implement policies and procedures, as needed, to ensure that all adjustments are properly recorded in the accounting records and that the Budgetary Compliance Report is accurate prior to it being presented for review.

In addition, the Department should manage its budgetary activity at the legal level of control, which is fund source within program. In order to produce accurate and useful BCR reports in the future, actions to be taken by the Department should include, but not be limited to, the following:

DEPARTMENOFTCORRECTIONS Schedule of Findings and Questioned Costs For the Fiscal Year Ended June 30.2010

I) Obtain additional understanding and needed training regarding Program-Based Budgeting.
2) Ensure that current activity is not comingled with prior year activity.
3) Identify the correct programs and make appropriate adjustments for prior budget year amounts.

ViewofOfficials:

With the exception of item #I, these adjustments were requested/approved as a result of the same situation that created finding FS-467-10-100. Prior year deficits1surpluses carried forward as current year activity and negatively impacted the ending balances at the programtfund source level. The adjustments were made so that the Department could begin F Y l l without those balances negatively impacting another year. Given that we were able to identify the correct progradfund source combination with an associated surplus to move the deficits into, the Department chose to proceed with the adjustments. Moving forward, the Department will work closely with the State Accounting Office to make sure these adjustments are entered correctly into Peoplesoft along with the adjustments needed for the deficit variances in FS-467- 10-100.

Finding Control Number: FS-467-10-102 ACCOUNTING CONTROLS (OVERALL) REVENUES AND RECEIVABLES EXPENSESIEXPENDITURES AND LIABILITIES BUDGET Use of Incorrect Fund Source Identifiers

Condition:

The Department of Corrections (Department) failed to use correct fund source identifiers for three Federal program grants. CFDA Nos. 16.OFA, DEA Confiscated Funds and Regional Fugitive Task Force, were direct Federal grants but were identified by the Department within the accounting system using fund source numbers designated for Restricted Other Funds. CFDA No. 84.391, Special Education Grants to States, Recovery Act (ARRA), was an indirect Federal grant from the Georgia Department of Education but was identified by the Department within the accounting system using fund source numbers that are designated for Intra-State Other Funds.

In addition, the Department also budgeted for these Federal grants as Other Funds instead of Federal funds.

Criteria:

The Accounting Procedures Manual, Section 2, states, "The initial two digits of a fund source (program) have been standardized for statewide reporting purposes." The fund source range of 10-29 should be used for Federal Restricted - Direct Programs, and the fund source range of 30-39 should be used for Federal Restricted - Indirect Programs.

DEPARTMENOFTCORRECTIONS Schedule of Findings and Questioned Costs For the Fiscal Year Ended June 30,2010

Financial Management Policies and Procedures issued by the Office of Planning and Budget and State Accounting Office for Budgeting of Federal Funds from Another State Agency, Policy No. 02.01.0501, states that "Federal funds received from sources other than the Federal government should be amended as Federal funds if the receiving agency is required to comply with the original grant or other financial assistance requirements."

Cause:

The Department failed to have adequate policies and procedures in place for managing their fund source structure to ensure it was in compliance with the Accounting Procedures Manual and for properly budgeting for Federal funds.

Effect:

Failure by the Department to maintain their fund source structure as required by the Accounting Procedures Manual resulted in the Department's Budgetary Compliance Report being misstated between Federal and Other Funds. Since the Department budgeted these Federal grants as Other Funds instead of Federal as they should have been, there is no negative variance for expenditures compared to budget present on the Statement of Funds Available and Expenditures Compared to Budget By Program and Funding Source in the Department's Budgetary Compliance Report. However, there are deficiencies of funds available under expenditures present on the Statement.

Recommendation:

The Department of Corrections should implement policies and procedures to ensure their fund source structure is in compliance with the Accounting Procedures Manual and that Federal grant funds are budgeted as Federal and not as Other Funds.