Maryland Prison Audit Reveals Potential Fraud "Undetectable"
by Michael Rigby
Maryland employees responsible for millions of dollars worth of equipment and funds perform their duties without adequate oversight or fiduciary controls, an audit of the Jessup Region of the Maryland Department of Safety and Correctional Services (DPSCS) has concluded.
The report, released by the state Office of Legislative Audits in February 2007 and covering the period November 5, 2003 through August 20, 2006, determined that poor supervision and the lack of standard accounting practices makes it impossible to detect fraud, theft, or the misappropriation of funds. The audit noted that three of the five findings currently expressed were addressed in an earlier audit of the region dated April 8, 2004.
At the time of the audit, the Jessup Region of the DPSCS comprised three prisons: the Jessup Correctional Institution (formerly the Maryland House of Correction-Annex), the Maryland Correctional Institution-Jessup, and the brutal dungeon known as the Maryland House of Correction, which closed permanently in early 2007. The Jessup Region consisted of 3,173 prisoners, 1,240 paid positions (including 970 guards) and had a budget of $107 million in fiscal year (FY) 2006.
Auditors noted in their first finding that the department lacked adequate controls to ensure that collections were actually deposited. For instance, cash receipt logs and cash receipt forms were not checked against validated deposit slips. What's more, pre-numbered cash receipt forms were not accounted for by an employee separate from the cash receipt function. (Separating the duties of employees who handle money reduces the likelihood that funds will be misappropriated and is standard practice in most positions involving fiduciary responsibility.) As a consequence, "collections could be misappropriated without detection," the audit concluded. The audit noted that funds deposited in FY 2006 totaled $2.4 million and consisted mostly of funds deposited on behalf of prisoners.
In finding number two, auditors criticized the department for not maintaining an adequate inventory of the Region's $6.8 million worth of equipment as set out in the Department of General Services Inventory Control Manual. At one unspecified prison, as of October 2006 no postings had been made to the equipment control log, and at the other two prisons $721,000 in adjustments were made to the equipment control accounts without supporting documentation or a supervisor's approval.
Moreover, equipment inventories were not timely performed at any of the prisons according to the schedule outlined in the inventory control manual. Missing items were not accounted for or investigated.
The audit's remaining three findings were addressed in the Office's 2004 report. They were repeated in the current report because prison officials had taken no steps to rectify the situation by implementing the audit's recommendations.
According to the report, inventory of materials and supplies purchased by the region--$7 million in FY 2006--were not and have not been adequately maintained. At all three prisons physical inventory of the ammunition is conducted by the same employee who is responsible for ordering it, and a single employee at one prison was responsible for investigating variances between monthly inventory counts and related inventory records.
Inventory practices were deficient in other areas as well. For example, perpetual inventory records for the Region's maintenance storerooms had not been maintained since 1990, and inventories of the Region's other storerooms were simply adjusted to reflect the physical end-of-month inventory rather than maintaining records on an ongoing basis and investigating discrepancies with the physical inventory. According to the auditors, some of these issues have been commented on in five previous audits dating back to 1992.
As for the disbursement of prisoner funds--$880,000 in FY 2006--the Region's lack of internal controls makes it possible for "errors or unauthorized disbursement's from the inmate fund account" to "occur and not be detected," according to the audit. Most notably, "an employee with access to blank inmate fund checks also had access to the related check signing machine and signature plate." This employee was also responsible for processing reimbursements to the prisoner fund, auditors observed. To make matters worse, employees maintained disbursement records and issued checks without supervisory oversight.
Finally, the audit noted that adjustments to overtime pay were not timely reviewed (as of September 2006 supervisors had not reviewed overtime adjustments since the pay period ending January 3, 2006). Additionally, other types of payroll adjustments, such as payments for shift differential and unused annual leave, were made with no supervisory review at all. This issue was also noted in the 2004 audit, and with annual adjustments to the Region's payroll totaling $11.1 million in FY 2006, the potential for misuse is glaring.
Until the DPSCS addresses these issues, Maryland taxpayers will remain unsure of how their money is being spent. This and other audits are available on the PLN website.
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