Federal Prison System Annual Financial Statement
Fiscal Year 1998

Report No. 99-22
July 1999
Office of the Inspector General

The Federal Prison System (FPS) is comprised of the appropriated activities of the Bureau of Prisons (BOP), the Federal Prison Industries, Inc. (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 the 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. At fiscal year-end, the FPS confined approximately 122,316 offenders in 93 Federal facilities and contract facilities throughout the United States.

This audit report contains the Annual Financial Statement of the FPS for the fiscal year ended September 30, 1998. Cotton & Company, Certified Public Accountants, LLP issued a qualified opinion on the entity's FY 1998 financial statements. Cotton & Company determined that, except for approximately $100 million of financing resources that could not be supported, the FPS financial statements were fairly presented. This report also identifies one reportable condition related to financial reporting.

In FY 1997, the FPS received a qualified opinion on the combined statement of financial position (Office of the Inspector General Report No. 98-18). The audit identified two reportable conditions; neither was reported as a material weakness. The BOP addressed these issues during FY 1998.

The FPS noted as part of "Management's Overview" that its only mission critical system is Year 2000 compliant and fifty percent of the non-critical systems are also compliant. The Office of the Inspector General is unable to provide any assurance as to whether the mission critical system is compliant or that the FPS is at low risk.

For FY 1998, new reporting formats as required by Office of Management and Budget Bulletin No. 97-01, Form and Content of Agency Financial Statements, were implemented. For FY 1997, FPS prepared a statement of financial position and statement of operations and changes in net position. For FY 1998, FPS prepared a balance sheet, statement of net cost, statement of changes in net position, statement of budgetary resources, and statement of financing. Accordingly, comparative statements are not presented or required this year.