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Audit for California Prison System Reveals High Potential for Fraud and Misappropriation of Public Funds

Audit for California Prison System Reveals High Potential for Fraud and Misappropriation of Public Funds


In July 2011, the California State Controller’s Office (SCO) released the results of its accounting audit of the office revolving fund (ORF) of the California Department of Corrections and Rehabilitation (CDCR). The audit, covering the 13-month period which ended July 31, 2010, made six findings and 36 related recommendations. Among the key findings: (1) the CDCR effort to collect overpayments of salary and travel advances from employees was “grossly inadequate” and resulted in delayed collection of millions of dollars in receivables; (2) as a result of serious internal control deficiencies related to ORF transactions, there is a “high potential” for fraud, abuse, and misappropriation of public funds; and (3) CDCR used the ORF to make payments – such as parolee’s “gate money” – that, while legitimate, exceeded its authorized appropriation.


Responding to the SCO audit, CDCR acknowledged the issues identified in the report and noted that it had already fully implemented 22 of the report’s 36 recommendations. CDCR indicated that the audit had “spurred” it to “prioritize the vigorous collection of outstanding debts” by centralizing accountability and oversight. As a result of these efforts, CDCR noted, the outstanding balance of advances had been reduced by $2.2 million (roughly a third of the total identified in the report); additionally, CDCR was “now collecting more advances than we are issuing each payroll period.”


CDCR indicated that it would continue with its efforts until the issues identified in the audit had been surmounted. It listed measures it had already adopted to establish and improve internal controls. Those measures included technological upgrades to streamline the collection process; the development of a monitoring system to track benchmarks and progress; regular reviews of aging reports to track outstanding debts; and increased training and policy development to ensure timely collection.


In finding that CDCR did not collect ORF receivables in a timely manner, the SCO relied on the fact that since almost all ORF receivables consist of salary and travel advances to (present and former) employees, “there should be a minimal amount of ORF receivables outstanding.” Yet, the data it collected indicated that, of $6.2 million in outstanding receivables, nearly two-thirds had been outstanding for longer than 60 days, while 7.5% had been outstanding for more than three years – the point at which the possibility of collection ceases to be realistic.


Source: California Department of Corrections and Rehabilitation Audit Report, Administrative and Internal Accounting Controls over the Office Revolving Fund: July 1, 2009 through July 31, 2010; California State Controller, July 2011.


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