Audit Report 98-12, (3/98)
TABLE OF CONTENTS
OFFICE OF THE INSPECTOR GENERAL COMMENTARY AND SUMMARY
MANAGEMENT LETTER REPORT
BOP MAINTENANCE PROGRAMMERS AND SYSTEMS ANALYSTS HAVE ACCESS TO FINANCIAL DATA AND PROGRAMS
CERTAIN EXPENSES AND REVENUES ARE NOT REPORTED IN THE YEAR THEY OCCUR
EMPLOYEE BENEFITS LIABILITY WAS NOT RECOGNIZED
UNRECONCILED FUND BALANCE WITH TREASURY
PRIOR-YEAR TREASURY PAYMENT MODULE DIFFERENCES ARE UNRECONCILED
ACCOUNTS RECEIVABLE BALANCES ARE UNDERSTATED
NO ALLOWANCE FOR CERTAIN DOUBTFUL ACCOUNTS
ALLOCATIONS TO OTHER FEDERAL AGENCIES ACCOUNT WAS NOT PERIODICALLY RECONCILED
REAL PROPERTY DEPRECIATION POLICY INVOLVES DELAYS BEFORE DEPRECIATION COMMENCES
TRUST FUND INVENTORY VALUATION
APPENDIX - AUDIT DIVISION ANALYSIS AND SUMMARY OF ACTIONS NECESSARY TO CLOSE REPORT
OFFICE OF THE INSPECTOR GENERAL
COMMENTARY AND SUMMARY
The Federal Prison System (FPS) is comprised of the appropriated activities of the Bureau of Prisons (BOP), Federal Prison Industries (FPI) and the Commissary Trust Fund (Commissary). BOP is charged with overseeing the operations of the prison system. Its mission is to protect society by confining offenders in controlled environments of prisons and community based facilities. FPI operates under the trade name UNICOR and is a wholly-owned, self-sustaining, government corporation manufacturing products for sale to federal agencies while providing employment and training to inmates in the prison system. The Commissary, also self-sustaining, provides inmates with access to products and services not provided by the BOP.
Federal prisons have been in existence since 1891 when Congress enacted legislation authorizing the construction of three federal penitentiaries under the authority of the Justice Department's Superintendent of Prisons and Prisoners. In 1930, the BOP was established through Public Law 218-71 to oversee federal prisons. In 1932, Congress approved the operation of Commissaries within federal prisons. Finally, in 1934 the FPI was formed as a component of the FPS. Presently, the FPS includes approximately 105,000 offenders confined in 86 federal facilities and contract facilities throughout the United States.
In FY 1996, FPS received $2.9 billion for its appropriated activities. The Salaries and Expense appropriation was $2.45 billion. The Building and Facilities appropriation was $357 million and $13.5 million was appropriated for Violent Crime Reduction Program (VCRP) activities. In addition, $152 million and $485 million in funds were generated through Commissary and FPI revolving fund activities, respectively.
The OIG contracted with Cotton & Company, Certified Public Accountants (CPA), to perform the FY 1996 audit of the FPS Combined Statement of Financial Position (Report 97-25A) as part of the Department of Justice's (DOJ) effort to implement the Government Management Reform Act of 1994 (GMRA). GMRA requires an annual financial statement audit of the DOJ beginning with FY 1996. The audit was conducted in accordance with Office of Management and Budget Bulletin No. 93-06, "Audit Requirements for Federal Financial Statements." The OIG performs an oversight role in the audit process and ensures compliance with the GMRA by monitoring the progress of the audit, reviewing supporting workpapers, coordinating the issuance of reports, and following up on findings and management letter issues.
The audit of the FPS FY 1996 combined statement of financial position resulted in a disclaimer of opinion. The independent auditors were unable to substantiate a significant portion of real property because the FPS did not maintain appropriate accounting records and relevant documentation beyond the 6 year federal records retention period. The independent auditors also determined that real property was not capitalized or depreciated properly and that construction work in progress and accounts payable may be overstated. The independent auditors were unable to apply audit procedures sufficiently to determine the extent to which the combined statement of financial position may have been affected by these conditions. As a result, the scope of the independent auditors' work was not sufficient for the auditor to express an opinion.
The auditors prepared the management letter as part of their audit of the FY 1996 FPS financial statement. The auditors were not contracted to perform control testing sufficient to enable them to express an opinion on the internal control structure or compliance with laws and regulations. Accordingly they do not express such opinions. However, they did note certain conditions involving the internal control structure and its operations. The management letter presents those internal control weaknesses that, in the independent auditor's opinion, do not have a material effect on the financial statements, but are areas of the management process that could, in some instances, adversely affect the organization's ability to record, process, summarize, and report financial data.
In this management letter, the auditors noted weaknesses in the following areas: (1) information system security, (2) recording of expenses and revenues, (3) recording of Federal Employees' Compensation Act (FECA) liability, (4) Fund Balance with Treasury reconciliation, (5) Treasury payment module reconciliation, (6) accounts receivable, (7) allowance for doubtful accounts, (8) allocations to Other Federal Agencies reconciliation, (9) depreciation for real property, and (10) Trust Fund Inventory Valuation. Strengthening internal controls in these areas is considered to be important and presents an opportunity to improve operating efficiency.
OFFICE OF THE INSPECTOR GENERAL, AUDIT DIVISION
ANALYSIS AND SUMMARY OF ACTIONS NECESSARY
TO CLOSE THE REPORT