Prevent. Protect. Prepare.
Pat McCrory, Governor / Kieran J. Shanahan, Secretary
MEMORANDUM
TO:Tass Jansen, Director
Alexander Woodworking Plant, #8136
FROM:Timothy D. Harrell
DATE:May 22, 2013
SUBJECT:Audit of Alexander Woodworking Plant
Internal Audit has completed a Scheduled Audit of Alexander Woodworking Plant. The audit report is attached.
The purpose of the audit was to evaluate the effectiveness of the systems of management control by:
reviewing and appraising the adequacy, accuracy, and soundness of accounting, financial, and operating controls
determining the extent of compliance with established policies and procedures
determining the extent to which assets and resources are accounted for and safeguarded
We thank you and your staff for your assistance and cooperation during this audit. If you have questions or need further assistance, please contact our office.
TH/he
Attachments
cc:Audit File #8136
Tass Jansen
May 22, 2013
Page 1
ec:W. David Guice
Joe Prater
Karen Brown
Robert Leon
Mike Baldwin
Bennie Aiken
Marvin Mervin
Jean Burke
Joan Taylor Saucier
Roberta Morgart
Council of Internal Auditing
TABLE OF CONTENTS
I...... EXECUTIVE SUMMARY 1
II...... INTERNAL AUDIT RATING SCALE 3
III.FINDINGS AND RECOMMENDATIONS...... 6
A.ACCOUNTS PAYABLE AND PROCUREMENT...... 6
B.FIXED ASSETS...... 7
C.incentive wage FUND...... 8
D.TELEPHONES...... 8
E.TRAVEL AND OTHER REIMBURSEMENTS...... 9
F.MANUFACTURING INVENTORIES...... 10
i. executive summary
The Woodworking Plant of Correction Enterprises is located in Taylorsville, North Carolina at Alexander Correctional Institution. The Plant has nine employees and provides jobs for approximately sixty medium custody inmates housed at this facility.
Internal Audit conducted a ScheduledAudit of the facility January 14–22, 2013. The previous audit was completed in May 2009. A Scheduled Audit is a full audit performed to ensure the adequacy and effectiveness of the facility’s internal controls and the quality of performance in carrying out assigned responsibilities in accordance with fiscal policies and procedures.
The scope of the audit included examination of Accounts Payable and Procurement, Fixed Assets, Incentive Wage Fund, Telephones, Travel and Other Reimbursements, and Manufacturing Inventories.
Our audit disclosed no exceptions, strong internal controls and a knowledgeable staff in the Fixed Assets and Incentive Wage Fund areas.
A few findings, minor in nature, were noted in the Accounts Payable and Procurement, Telephones, Travel and Other Reimbursements, and Manufacturing Inventories areas. In the Accounts Payable and Procurement area, three purchase orders, encumbering $2,749.23, were more than sixty days old and needed to be closed. Procurement Card invoices were not signed by the supervisor, and some transactions were not pre-approved. In addition, the Plant Director approved Direct Processing Forms for his own lodging expenses when direct billed. In the Telephones area, cellular phone charges were not approved by the cell phone holder’s supervisor. In the Travel and Other Reimbursements area, reimbursement forms (DC-114s) were not on file for audit review and incorrect per diem amounts were identified. In the Manufacturing Inventories area, the physical inventory test count did not agree to the perpetual inventory record (Inventory Valuation Detail by Warehouse Report).
These appraisals are reflected in the Internal Audit Rating Scale and the Findings and Recommendations included with this report.
We held an exit conference on January 30, 2013, to inform Plant management of our findings and recommendations. The following were present.
- Tass Jansen, Correction Enterprises Director I
- Larry Morrison, Correction Enterprises Manager
- Kevin Smith, Correction Enterprises Manager
- Victoria Newsome, Processing Assistant
- Mike Baldwin, Correction Enterprises Director II
- Harriett Edmisten, Regional Audit Supervisor
- George Randlett, Internal Auditor
- Libby Elder, Internal Auditor
During the course of the audit and the exit conference, we provided Plant personnel with schedules as needed to explain exceptions and to serve as supporting documentation.
The Correction Enterprises Director I acknowledged agreement with all findings and recommendations.
In addition to our normal distribution, we may send excerpts from this report to other DPS managers as we deem appropriate.
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II. Internal Audit Rating Scale
Scheduled Audit
Alexander Woodworking Plant
#8136
Listed below are the major areas examined in this audit and overall ratings assigned by auditors. Major areas are comprised of individual categories as listed on the following pages. Ratings given to categories or major areas are not averages. Ratings are based on standard audit procedures, and reflect the auditors’ assessment of the facility’s performance in various categories. The risk associated with individual findings is a large component of this assessment and may significantly impact a rating.
Rating Scale Guidelines
1 -No exceptions, strong internal controls, staff appears knowledgeable
of policies and prescribed procedures
2 -Meets expectations, a few exceptions minor in nature
3 -Some improvement needed to strengthen controls or minimize risks
4 -Below expected performance level, significant improvement needed
Overall Rating
Rating
Accounts Payable and Procurement /2
Fixed Assets /1
Incentive Wage Fund /1
Telephones /2
Travel and Other Reimbursements /2
Manufacturing Inventories /2
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II. Internal Audit Rating Scale
Rating Scale Guidelines
1 -No exceptions, strong internal controls, staff appears knowledgeable
of policies and prescribed procedures
2 -Meets expectations, a few exceptions minor in nature
3 -To minimize risk, some improvement needed to strengthen controls
4 -Below expected performance level, significant improvement needed
Accounts Payable and Procurement
/ 1 / 2 / 3 / 4- Separation of Duties
- Direct Processing (DC-702) Purchases
- Procurement Card (P-Card) Purchases
- Purchase Orders
- NCAS/E-Procurement Security Access
Fixed Assets
/ 1 / 2 / 3 / 4- Separation of Duties
- Annual Fixed Asset Inventory
- Inventory Controls
- Changes, Updates, and Follow-up
- Transfers and Disposition of Assets
- Solid Waste Recycling Program
- Vehicle Mileage and Maintenance Records
Incentive Wage Fund
/ 1 / 2 / 3 / 4- Pay Grades
- Time Reporting
- Payroll and Supporting Documentation
Telephones
/ 1 / 2 / 3 / 4- Internal Controls
- Review and Approval
- Cellular Phone Procedures
Travel and Other Reimbursements
/ 1 / 2 / 3 / 4- Mileage Reimbursement
- Allowance for Meals, Lodging, and Other
- Complete and Accurate Documentation
- Signatures and Approvals
Manufacturing Inventories
/ 1 / 2 / 3 / 4- Standard Operating Procedures
- Perpetual Inventories
- Physical Inventories
- NCAS Cycle Counts
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IIi. FINDINGS and recommendations
A.ACCOUNTS PAYABLE AND PROCUREMENT
We reviewed the procedures used for purchase orders and local purchases processed on Direct Processing Forms (DC-702s) and Procurement Cards (P-Cards) for compliance with the DPS Fiscal Policy and Procedure Manual at .2600. The following exceptions were noted.
1.Purchase Orders Outstanding
Condition: A review of purchase orders having an open status in the North Carolina Accounting System (NCAS) disclosed three, totaling $2,749.23, were more than sixty days old. A list of purchase orders was provided to facility personnel for corrective action.
Criteria: Each section should review the CORCOS Open Purchase Orders Report each month and take appropriate action to correct problem purchase orders that remain open after delivery or in which errors are noted. The CORCOS Open Purchase Orders Report should be signed and dated by the individual reviewing the report each month and maintained on file within the facility/section. [Reference: .2606 G.3.–5.]
Cause: The Processing Assistant informed DPS Auditors that she reviewed the CORCOS Open Purchase Orders Report each month; however, she overlooked notifying Controller’s Accounting Section concerning the need to change the dollar amount of these three purchase orders and to close them out.
Effect: Failure to closeout outstanding purchase orders results in unnecessarily encumbering funds that could be used for other purposes.
Recommendation: Plant staff should review the CORCOS Open Purchase OrdersReport monthly to ensure invoices are paid timely, and purchase orders and encumbrances are closed appropriately. Staff should continue to work with DPS Purchasing and Controller’s Accounting Section, as appropriate, to ensure any purchase orders marked complete or having a zero balance are closed in the system. Staff should provide written instructions by email or facsimile of any requested changes. Information identifying the reason for the changes needed to close outstanding purchase orders and encumbrances. Corrective action was initiated by plant staff during the audit.
2.Procurement Card (P-Card) Purchases
Condition: Our review of twelve P-Card statements and forty-five transactions for the period September 2012 through December 2012 revealed receipts/invoices for forty-four (98%) transactions were not signed by the supervisor and one (2%) was not signed by the cardholder. Two (4%) were not properly approved prior to purchase. A similar finding was noted in the prior audit and corrective action continues to be needed.
Criteria: A pre-approval worksheet for P-Card purchases is required by fiscal policy and the DC-704 or a similar form may be used for this purpose. Original receipts should be signed and dated by the cardholder. All original documents relating to a purchase should be given to the cardholder’s supervisor for signature acknowledging the purchases. [Reference: .2608 E. and E.4.c.]
Cause: The Plant Director and the Processing Assistant informed DPS Auditors that they were informed a few months back that the Supervisor no longer had to sign the receipts, but they were unsure where this information came from. The other transactionsthat were identified with our review were due to an oversight by the facility staff.
Effect: Failure to process P-Card purchases within the guidelines of policy results in a lack of accountability and oversight for transactions, and increases the risk of improper use of P-Cards.
Recommendation: Plant Management should ensure all procurement policies and procedures are followed as stated in the criteria above. It is also encouraged that, when in doubt, facility staff should contact the DPS Controller’s Office, Accounting Section for direct guidance for these types of transactions.
3.Direct Processing Forms (DC-702s)
Condition: Our review of eight DC-702s revealed where the Plant Director pre-approved and approved DC-702s for his own lodging expenses when direct billed.
Criteria: Each Division/Section shall require a pre-approval form for DC-702 purchases. The DC-704 or similar form may be used for this purpose. Purchases should not be pre-approved or approved by the Purchaser. [Reference: .2609 B.1., Best Practices]
Cause: The Processing Assistant and Plant Director informed DPS Auditors that all purchases on DC-702s were completed in their entirety at the plant and sent directly to the Controller’s Accounting Section. Although other travel expenses for the Director which were requested on the Travel and Other Reimbursements form (DC-114) were sent through Enterprise Administration for approval, they neglected to complete the DC-702s.
Effect: Failure to properly complete purchasing procedures increases the risk of improper purchases and payments. The risk of loss is increased and may result in misappropriation of funds.
Recommendation: Plant Management should ensure purchase documents are processed and maintained in accordance with policy and that separation of duties is maintained within the purchasing process. It is also encouraged that, when in doubt, facility staff should contact the DPS Controller’s Office, Accounting Section for direct guidance for these types of transactions.
B.FIXED ASSETS
We conducted a 22 percent test count of fixed assets, valued at $1,000 and over, to provide assurance that assets were properly accounted for. We reviewed fixed asset records to verify internal controls and to ensure compliance with the DPS Fiscal Policy and Procedure Manual at .2700. Copies of all schedules relative to our physical inventories were provided to facility personnel. No exceptions were noted.
C.INCENTIVE WAGE FUND
We reviewed incentive wage operational and accounting procedures for compliance with the DPS Fiscal Policy and Procedure Manual at .0200 and Prisons Policy and Procedure Manual. No exceptions were noted.
D.TELEPHONES
We reviewed internal controls over telephones and cellular phones assigned to the facility for compliance with the DPS Fiscal Policy and Procedure Manual at .2400 and .3200. We examined telephone records for the months of September,October, and November 2012 for evidence that charges were reviewed for appropriateness. The following exception was noted.
Review of Cellular Telephone Charges
Condition: The charges for onecellular telephone on the EBills were not approved by the cell phone holder’s supervisor. A similar finding was noted in a prior audit and corrective action continues to be needed.
Criteria: The preferred method for the approval of cellular charges is that the pages of the EBill for cellular charges for each individual cell phone should be emailed by the Facility’s designated EBill employee to the cellular phone holders for review. The cell phone holders should review the pages and send an email confirmation back indicating that all charges are correct and were only for official state business. The cell phone holder should then forward an email with the attached cell phone bill to their supervisor for review and approval. The supervisor should then forward the email with their approval and attached cell phone bill back to the Facility’s designated EBill employee. The designated EBill employee should print the email, with approvals, and retain it with the Centrex bill Expense Summary Page that has been signed by the Facility Head or designee. [Reference: .2404A.3.]
Cause: The Plant Director informed DPS Auditors that his cellular phone charges were not approved by his supervisor due to an oversight.
Effect: Failure to thoroughly review and certify the Facility’s cellular telephone bills could result in unauthorized cellular phone charges to the Department.
Recommendation: Plant Management should ensure cellular telephone bills are properly reviewed and approved according to Fiscal Policy. This ensures an effective approval process and that charges being assessed are accurate.
E.TRAVEL AND OTHER REIMBURSEMENTS
We examined reimbursements to employees for the period September 7 through December 7, 2012, to determine accuracy and compliance with the DPS Fiscal Policy and Procedure Manual at .1400 and .4000. The following exceptions were noted.
1.Reimbursement of Travel and Other Expenses Form (DC-114)
Condition: Our review of fourteen paid travel reimbursements revealed two (14%) DC-114s were not available for review at the facility. The missing DC-114s were provided by the employees.
Criteria: Copies of DC-114s and receipts should be kept in a central file at the facility for audit purposes for a period of three years. [Reference: .1413 A.]
Cause: The Processing Assistant informed DPS Auditors her failure to keep a copy was an oversight.
Effect: Failure to maintain approved copies could result in internal control weaknesses and possible over or under payments.
Recommendation: Plant Management should implement procedures to ensure all DC-114s are accurately completed and copies with all attachments maintained and available for review.
2.Improper Reimbursement Request for Meals
Condition: A review of fourteen DC-114 copies, submitted for payment, disclosed two (14%) were for incorrect amounts. One employee claimed breakfast on October 8, 2012, when they were ineligible. Examination of the employee’s travel reimbursement form disclosed where the employee did not depart their duty station prior to 6:00 am. Another employee had requested an incorrect allowance amount for dinner reimbursement. Correction Enterprises Accounting identified the errors and the employees were correctly reimbursed.
Criteria: To claim breakfast when the employee is not in overnight status, the employee should (1) depart their duty station prior to 6:00 a.m. and return to the duty station after 8:00 a.m. and (2) extend the workday by 2 hours. A dinner $17.90 rate shall be used for reporting allowable subsistence expenses incurred while traveling on official state business. [Reference: .1404 H.2.a. and .1404 B.]
Cause: The Processing Assistant informed DPS Auditors that the discrepancies were oversights.
Effect: Failure to properly monitor travel requirements for reimbursement could result in over/underpayments for meals.
Recommendation: Plant Management should implement procedures to ensure DC-114s are reviewed for accurate reimbursement requests prior to approving and submitting expenses for reimbursement.
F.MANUFACTURING INVENTORIES
We reviewed operating processes, documentation, and related internal controls to determine if manufacturing inventories were adequately monitored, controlled, and properly safeguarded to minimize the risk of loss. We reviewed the flow of goods from the raw material inventory, through work-in-process, to the finished goods inventory. The following exception was noted.
Incorrect Raw Materials Inventory
Condition: Nineteen (56%) of thirty-four items in our test count of raw materials did not agree to the perpetual inventory record (Inventory Valuation Detail by Warehouse Report) resulting in a total variance of $1,891.11 (1% of the sample value of $142,682.49). A similar finding regarding raw material inventory was noted in the prior audit and corrective action continues to be needed.
Criteria: The perpetual inventory in NCAS should agree with the physical inventory of items. [Reference: Best Practices]
Cause: The Correction Enterprises Manager informed DPS Auditors that items were inadvertently left off the direct issue list, and not direct returned when added back to inventory. He also disclosed an item (No. 12090) incorrectly counted in the June 2012 Cycle Count.
Effect: Failure to maintain an accurate inventory creates the opportunity for misappropriation and theft of stock. Inaccurate inventory records may also result in insufficient stock on hand to meet the operational needs of the warehouse.
Recommendation: Plant Management should ensure staff is aware that inventory removed from the raw materials area is recorded on the Direct Issue list and deducted from the perpetual inventory on a daily basis. Once removed from the storeroom and recorded on the Direct Issue list, it should not be returned to the raw materials area unless a Direct Return is completed. Facility Management should ensure staff is thorough and accurate when completing the physical inventory and updating NCAS.
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