OL A

OFFICE OF THE LEGISLATIVE AUDITOR
STATE OF MINNESOTA

Financial Audit Division Report

Department of Corrections
July 1, 2003, through June 30, 2005

July 27, 2006

06-20

Financial Audit Division
The Office of the Legislative Auditor (OLA) is
a professional, nonpartisan office in the
legislative branch of Minnesota state
government. Its principal responsibility is to
audit and evaluate the agencies and programs of
state government (the State Auditor audits local
governments).

OLA is under the direction of the Legislative
Auditor, who is appointed for a six-year term
by the Legislative Audit Commission (LAC).
The LAC is a bipartisan commission of
representatives and senators. It annually selects
topics for the Program Evaluation Division, but
is generally not involved in scheduling financial
audits.

OLA’s Financial Audit Division annually
audits the state’s financial statements and, on a
rotating schedule, audits agencies in the
executive and judicial branches of state
government, three metropolitan agencies, and
several “semi-state” organizations. The
division also investigates allegations that state
resources have been used inappropriately.

All findings, conclusions, and
recommendations in reports issued by the
Office of the Legislative Auditor are solely the
responsibility of the office and may not reflect
the views of the LAC, its individual members,
or other members of the Minnesota Legislature.

The division has a staff of approximately forty
auditors, most of whom are CPAs. The
division conducts audits in accordance with
standards established by the American Institute
of Certified Public Accountants and the
Comptroller General of the United States.
Consistent with OLA’s mission, the Financial
Audit Division works to:
• Promote Accountability,
• Strengthen Legislative Oversight, and
• Support Good Financial Management.
Through its Program Evaluation Division, OLA
conducts several evaluations each year.

To obtain a copy of this document in an
accessible format (electronic ASCII text, Braille,
large print, or audio) please call 651-296-1235.
People with hearing or speech disabilities may
call us through Minnesota Relay by dialing 7-1-1
or 1-800-627-3529.
All OLA reports are available at our web site:
http://www.auditor.leg.state.mn.us
If you have comments about our work, or you
want to suggest an audit, investigation, or
evaluation, please contact us at 651-296-4708
or by e-mail at auditor@state.mn.us

OLA

OFFICE OF THE LEGISLATIVE AUDITOR
State of Minnesota • James Nobles, Legislative Auditor

Senator Ann H. Rest, Chair
Legislative Audit Commission
Members of the Legislative Audit Commission
Joan Fabian, Commissioner
Department of Corrections

We conducted an audit of the Department of Corrections for the period July 1, 2003, through
June 30, 2005. Our audit scope included personnel and payroll controls and governmental
grants and subsidies. Our objectives focused on a review of the department’s internal controls
over these financial activities and its compliance with applicable legal provisions.
The enclosed Report Summary highlights our overall audit conclusions. The specific audit
objectives and conclusions for each area are contained in the individual chapters of this report.
We would like to thank staff from the Department of Corrections for their cooperation during
this audit.
/s/ James R. Nobles

/s/ Cecile M. Ferkul

James R. Nobles
Legislative Auditor

Cecile M. Ferkul, CPA, CISA
Deputy Legislative Auditor

End of Fieldwork: March 31, 2006
Report Signed On: July 21, 2006

Room 140 Centennial Building, 658 Cedar Street, St. Paul, Minnesota 55155-1603 • Tel: 651/296-4708 • Fax: 651/296-4712
E-mail: auditor@state.mn.us • TDD Relay: 651/297-5353 • Website: www.auditor.leg.state.mn.us

Department of Corrections

Table of Contents 


Page
Report Summary

1

Chapter 1. Introduction

3

Chapter 2. Personnel and Payroll Controls

7

Chapter 3. Governmental Grants and Subsidies

13

Status of Prior Audit Issues

17

Agency Response

19

Audit Participation
The following members of the Office of the Legislative Auditor prepared this report:
Cecile Ferkul, CPA, CISA
Ken Vandermeer, CPA, CFE
Pat Ryan
Steve Johnson, CPA

Deputy Legislative Auditor
Auditor Director
Auditor
Auditor

Exit Conference
We discussed the results of the audit with the following representatives of the
Department of Corrections at an exit conference on July 10, 2006:
Joan Fabian
Dennis Benson
Lisa Cornelius
Rich Schoenthaler
Chris Pizinger
Marcie Koetke
Chris Dodge

Commissioner
Deputy Commissioner
Assistant Commissioner
Chief Financial Officer, MINNCOR
Chief Executive Officer, MINNCOR
Director of Education
Financial Management Director

Department of Corrections

Report Summary 


Overall Conclusion:

Audit Scope:

The Department of Correction had inadequate
controls for monitoring certain payroll and
personnel transactions. The department generally
complied with material finance-related legal
provisions; however, it paid dentists more than the
statutory compensation limits. The department
could also improve its controls over grant funding
and reporting requirements.

Audit Period: 

July 1, 2003, through June 30, 2005 

Programs Audited: 

•	 Personnel and Payroll Controls
•	 Governmental Grants and
Subsidies

Agency Background:

Key Findings:
•	 The department did not comply with certain
payroll monitoring policies. (Finding 1,
page 9)
•	 The department did not adequately monitor
leave balance adjustments. (Finding 2,
page 10)
•	 The department exceeded statutory salary
limits paid to dentists. (Finding 3, page 11)
•	 The department did not adequately restrict
access to its pay rate and other high-level
personnel transactions. (Finding 4, page 11)
•	 The department did not ensure grantees met
grant funding requirements. (Finding 5,
page 14)
•	 The department did not ensure counties
complied with financial reporting requirements
for the community correction act. (Finding 6,
page 15)

The audit report contained six audit
findings relating to internal control and
legal compliance.

1


The Minnesota Department of
Corrections is a service and regulatory
agency. It has a broad range of
activities and responsibilities,
including the operation of ten
correctional facilities for adults and
juveniles. The department has
organized its operations into three
divisions: Facility Services, Support
Services, and Community Services.
The department also has units for
investigations, correctional industries,
and health services. Additionally,
volunteer citizen advisory groups
assist the department in the areas of
community corrections, women
offender programs, and correctional
industries. The department has over
4,000 employees.

Department of Corrections

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Department of Corrections

Chapter 1. Introduction 


The Minnesota Department of Corrections is a service and regulatory agency. It has a
broad range of activities and responsibilities, including the operation of ten correctional
facilities for adults and juveniles. The department organized its operations into three
divisions during the audit period: Facility Services, Operations Support, and Community
Services. The department also had units for investigations, correctional industries, and
health services. Additionally, volunteer citizen advisory groups assisted the department
in the areas of community corrections, women offender programs, and correctional
industries. The department had over 4,000 employees during the audit period.
The eight adult facilities served approximately 29,000 inmates during fiscal years 2004
and 2005. Inmates in state facilities had access to a variety of work, education, and other
program activities. The correctional industries program, MINNCOR, provided inmates
with work skills that could transfer to productive employment after release. Educational
programs focused on basic literacy instruction. The department also provided specialized
programs for sex offenders and chemically dependent inmates.
The Department of Corrections received the majority of its funding for operations from
General Fund appropriations. In fiscal year 2005, General Fund appropriations financed
83 percent of the department’s total expenditures. The department allocated state
appropriations to the correctional facilities based on various factors, including prior year
allocation, proposed spending plan, and inmate population estimates. In addition to the
state appropriations, the department had resources from other sources, including federal
grants and profit from the operation of MINNCOR Industries. These other resources are
dedicated for specific purposes. For example, profit from MINNCOR Industries is
dedicated to inmates’ vocational training.
Table 1-1 summarizes the department’s General Fund appropriations and its use of those
funds for fiscal years 2004 and 2005.

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Department of Corrections

Table 1-1
Financial Sources and Uses
General Fund Only
Fiscal Years 2004 and 2005
2004

2005

Appropriations
Appropriation Cancellations
Deficiency Appropriation (Note 1)
Receipts
Balance Forward In
Total Sources

$358,654,559
(426,813)
0
7,198
5,514,446
$363,749,390

$362,871,815
(373,785)
4,070,000
7,198
11,075,318
$377,650,546

Payroll
Aid to Counties
Other Expenditures
Total Expenditures
Balance Forward Out
Reverted Appropriations
Total Uses

$212,453,933
60,980,164
76,725,974
$350,160,071
11,075,319
2,514,000
$363,749,390

$216,977,535
60,885,772
97,820,944
$375,684,251
1,966,295
0
$377,650,546

Note 1:	

The department received authorization for a deficiency appropriation of approximately $4.1 million in fiscal year
2005 (Laws of Minnesota 2005, chapter 2, section 5, subd.1). The funds were primarily used for salary
shortages.

Source: 	 Minnesota Accounting and Procurement System as of April 4, 2006.

The Office of the Legislative Auditor selected the Department of Corrections for audit
based on an annual assessment of state agencies and programs. We used various criteria
to determine the entities to audit, including the size and type of each agency’s financial
operations, length of time since the last audit, changes in organizational structure and key
personnel, and available audit resources. It had been two years since our last audit of the
department.
We also issued a Special Review of MINNCOR Industries for the period July 1, 2003,
through March 31, 2006 (Report #06-21), which was released as a public document on
July 27, 2006. We conducted a special review after receiving allegations concerning
conflicts of interest, questionable contracting practices, improper disposition of state
surplus property, and inappropriate donations to certain nonprofit organizations. The
special review contained 8 findings and 15 recommendations.

Audit Approach
Our audit was conducted in accordance with Government Auditing Standards, issued by
the Comptroller General of the United States. Those standards require that we obtain an
understanding of the department’s internal controls relevant to the audit objectives. We
used the guidance contained in Internal Control-Integrated Framework, published by the

4


Department of Corrections
Committee of Sponsoring Organizations of the Treadway Commission,1 as our criteria to
evaluate agency controls. The standards also require that we plan the audit to provide
reasonable assurance that the department complied with financial-related legal provisions
that are significant to the audit. In determining the department’s compliance with legal
provisions, we considered requirements of laws, regulations, contracts, and grant
agreements.
To meet the audit objectives, we gained an understanding of the department’s financial
policies and procedures. We considered the risk of errors in the accounting records and
noncompliance with relevant legal provisions. We analyzed accounting data to identify
unusual trends or significant changes in financial operations. We examined documents
supporting the agency’s internal controls and compliance with laws, regulations,
contracts, and grant provisions.

1

The Treadway Commission and its Committee of Sponsoring Organizations (COSO) were established in
the mid-1980s by the major national associations of accountants. One of their primary tasks was to identify
the components of “internal control” that organizations should have in place to prevent inappropriate
financial activity.

5


Department of Corrections

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6


Department of Corrections

Chapter 2. Personnel and Payroll Controls


Chapter Conclusions
The Department of Corrections did not have adequate monitoring
controls to ensure payroll expenditures and leave records were accurate
and complete. The department generally complied with pay rate and
leave accrual requirements; however, it paid its dentists more than the
statutory salary limits.

Audit Objectives and Methodology
Our audit of personnel and payroll controls focused on the following questions:
•	 Did the department have controls to ensure that payroll expenditures recorded in
the payroll and accounting systems were accurate and complete?
•	 Did the department have controls to ensure that employee leave records were
accurate and complete?
•	 Did employees’ pay rates and leave accrual rates comply with requirements
outlined in compensation plans?

Background
Payroll is a significant expenditure for the State of Minnesota and the Department of
Corrections. During budget fiscal year 2005, payroll expenditures for the state were
about $3.1 billion. The department’s payroll for this period was approximately $237
million, or 7.5 percent of the statewide total.
Payroll was the largest administrative expenditure for the Department of Corrections,
comprising about 53 percent of its total expenditures. About 83 percent of the
department’s 4,089 employees worked at the correctional facilities. Employees belonged
to seven different bargaining units, including AFSCME,2 MAPE,3 and the Middle
Management Association.
The bargaining unit agreements and compensation plans specified employee
compensation and benefits, and allowed for some unique compensation transactions for
correctional employees. For example, since correctional facilities operate 24 hours a day,
365 days a year, correctional officers in the AFSCME bargaining unit received additional
compensation for shift differential, overtime, premium, and holiday compensation. Less

2
3

American Federation of State, County, and Municipal Employees
Minnesota Association of Professional Employees

7


Department of Corrections
than two percent of the department’s compensation cost was for overtime and premium
pay.
The department funded the majority of its payroll costs through the General Fund.
Table 2-1 summarizes the department’s compensation costs by funding source for fiscal
years 2004 and 2005.
Table 2-1 

Summary of Payroll Costs by Fund 

Fiscal Years 2004 and 2005

Fund
General
Miscellaneous Special Revenue
Federal
Miscellaneous Agency
Correctional Industries
Total Payroll Expense

2004
$212,453,933
9,489,011
1,768,174
547,363
6,464,491
$230,722,972

2005
$216,977,535
10,157,071
1,659,603
660,184
7,470,857
$236,925,250

Source: Minnesota Accounting and Procurement System.

Table 2-2 summarizes payroll costs by facility for fiscal years 2004 and 2005.
Table 2-2 

Department of Corrections 

Summary of Payroll Expenditures 

Fiscal Years 2004 and 2005 

Facility	
Central Office	
Stillwater
Lino Lakes 	
St. Cloud 	
Faribault
Moose Lake/Willow River 	
Rush City 	
Oak Park Heights 	
Red Wing 	
Shakopee
MINNCOR
Thistle Dew Camp 	
Sauk Center (Note 1)	
Total 	
Note 1:	

2004

2005

$ 66,873,593
2
	 3,947,349
23,473,251
20,248,625
	18,494,027
17,932,930
14,953,919
14,937,424
9,633,739
	9,288,515
8
	 ,120,757
2,732,004
86,839
$230,722,972

$ 74,593,499
23,806,594
20,165,222
19,593,410
18,660,938
18,328,080
15,829,568
15,120,158
9,818,919
9,352,943
8,963,615
2,616,812
75,492
$236,925,250

The department closed the Sauk Center facility during fiscal year 1999, but as part of a settlement agreement,
continues to pay health insurance premiums for retired employees.

Source: Minnesota Accounting and Procurement System.

Personnel and payroll responsibilities are shared by state agencies and two central
oversight agencies: the departments of Employee Relations and Finance. The two
oversight agencies maintain the central personnel and payroll system that is used by all
state agencies. This computer system has many edits to promote personnel and payroll

8

Department of Corrections
transactions that comply with legal provisions and terms in compensation plans. The
system also has extensive on-line policies and procedures to help state agencies make
complex decisions, such as hiring a new employee. However, agency personnel and
payroll officers are ultimately responsible for understanding and complying with
compensation plan terms and other pertinent legal provisions.
The commissioner of Employee Relations is the chief personnel and labor relations
manager for the executive branch. In this capacity, the commissioner of Employee
Relations oversees a wide array of functions, from negotiating compensation plans to
maintaining the civil service classification system. To fulfill these duties, Minnesota
Statutes give the commissioner of Employee Relations the authority to further delegate
certain responsibilities to individual state agencies. The commissioner used this authority
to delegate to the Department of Corrections the following duties:
•	 Establishment of starting pay rates for employees accepting initial employment to
state service.
•	 Determination of the rate of pay an employee receives upon promotion to a higher
classification.
•	 Determination of salary rates for work out of class positions.
The conclusions reached in this report are based solely on work done at the Department
of Corrections. In addition, the Office of the Legislative Auditor also performed audit
work to assess the adequacy of centralized personnel and payroll controls administered
by the departments of Employee Relations and Finance. Legislative Audit Report
#03-47, issued in August 2003, focused on security controls that protect the integrity and
confidentiality of data in the personnel and payroll system. It also assessed the adequacy
of central controls over pay rates, leave accruals, and payroll processing. Due to the
significance of payroll costs to the State of Minnesota, we continue to examine central
personnel and payroll controls and will be issuing another report to the departments of
Employee Relations and Finance at a later date.

Current Findings and Recommendations
1. 	 The Department of Corrections did not comply with payroll monitoring policies
established by the Department of Employee Relations.
The department did not periodically review the Self Service Time Entry Audit Report as
required by Department of Finance policy.4 The policy requires agencies to monitor
certain high risk transactions that it considers exceptions to the normal payroll process.
The report identifies two types of exceptions, employees who did not complete their own
timesheet and timesheets signed by a backup supervisor rather than the primary
supervisor. These exceptions indicate a potential breakdown in the control process over
the electronic processing of timesheets. The department began using self service time
entry in June 2004.
4

Department of Finance Operating Policy and Procedure PAY0017, Employee Self Service Time Entry.

9


Department of Corrections

According to the policy, agencies should review, at a minimum, a representative sample
of transactions appearing on the report each pay period. They should determine why
employees did not complete their own time entry, or why a backup supervisor approved
the time. The policy also requires agencies to record the reasons for the exceptions and
retain the information for audit purposes. The Self Service Time Entry Audit Report
should also be reviewed for possible trends where employees are not routinely
completing their time entry, or primary approvers are not routinely approving time. The
department initially reviewed the report at its central office, but discontinued the practice
of reviewing the report each pay period. In addition, the exceptions to normal processing
recorded each pay period did not always contain sufficient notation to properly explain
the situation.
A high volume of exceptions may indicate significant departures from established
processing procedures. It could also indicate a poorly designed control process, which
may require further revision to the delegation of supervisory reviews and the exception
report itself. However, reviewing the report each pay period, and properly documenting
comments to explain exceptions, may improve the departments focus on certain high risk
transactions. In addition, ensuring that employees complete their own time entry and that
primary supervisors routinely approve the time reports would reduce the number of errors
or irregularities and improve controls over this significant expenditure.
Recommendations
•	 The department should improve comment documentation explaining
exceptions reported each pay period on the Self Service Time Entry
Audit Report.
•	 The department should review the Self Service Time Entry Audit
Report each pay period to ensure employees are completing their own
time entry and primary approvers are routinely approving time.

2. 	 The Department of Corrections did not adequately monitor leave balance
adjustments.
The department did not adequately review leave balance adjustments made to employee
records by a payroll entry clerk. Department of Finance policy5 requires agencies to
monitor leave balance adjustments by reviewing the payroll register report.
Leave balance adjustments increase or decrease employees vacation, sick, and other leave
benefit balances. The department reviewed the payroll register report for certain unusual
codes, but did not review specifically for leave balance adjustments. Without a review of
leave balance adjustments, the risk of errors or irregularities increases.
Department of Finance Operating Policy and Procedure PAY0028, Agency Verification of Payroll and
Human Resource Transactions

5

10 


Department of Corrections
Recommendation
•	 The department should ensure leave balance adjustments are reviewed
according to DOER policy.
3. 	 The Department of Corrections exceeded statutory salary limits on salaries paid
to nine dentists.
The department paid nine full-time dental staff more than the annual salary for the agency
head. The department exceeded statutory salary limits in fiscal years 1996 to 2006 and
overpaid the dentists, in total, about $34,400.
Minnesota Statutes 2005, 43A.17, subd. 1 states:
…the head of a state agency in the executive branch is the upper limit on
the salaries of individual employees in the agency….
The agency head hourly pay rate is $51.91, while the dentists received hourly rates
between $51.99 and $57.05. The department incorrectly paid dentists under a medical
specialist exemption provided for in Minnesota Statutes 2005, 43A.17, subd. 4a.6 The
Department of Employee Relations, however, contacted the Department of Corrections
and explained that dentists do not qualify as medical specialists. The statute defines
medical specialists as doctors of medicine.6
The department is seeking repayment from the dentists. Minnesota Statues 2005, 16D.16
provides the department with authority to recoup overpayments resulting from
unintentional errors to current and former employees.
Recommendations
•	 The department should pay employee salaries within established
limits.
•	 The department should seek recovery for overpayments from current
and former employees.
4.	 The Department of Corrections did not adequately restrict access to its payroll
and personnel systems.
The department did not terminate the payroll and personnel systems access for 16
employees when the job duties of these employees changed and they no longer required
update access to employee compensation functions. With update access, these employees
could enter pay rate and other high level personnel transactions that may circumvent the
normal processing of certain transactions. In addition, two facilities have an excessive
number of positions with the ability to adjust leave balances.

6

The 2006 Legislature modified this statute to include doctors of dental surgery in the definition of medical
specialists, allowing them to be exempt from the salary limit. The new law is effective July 1, 2006.

11 


Department of Corrections
The personnel unit reviewed the payroll and personnel systems’ access privileges for a
job position when it was initially created and again when a person terminated
employment. A review of incompatible access privileges was also performed annually to
identify privileges that should not be assigned to the same person. However, the
department did not review security privileges for staff that transferred positions or
locations within the department. The department also did not centrally review the
number of positions with clearance to provide backup duties.
Unnecessary update access for either primary or backup positions could result in errors or
irregularities in the department’s compensation expenditures. Although the department
had detective controls in place to monitor compensation transactions, eliminating
unneeded update access would ensure preventative controls over payroll processing exist.
Recommendation
•	 The department should review payroll and personnel system access
privileges by job position, employee, and location for unneeded access
on an annual basis.

12 


Department of Corrections

Chapter 3. Governmental Grants and Subsidies


Chapter Conclusions
The Department of Corrections properly authorized grant awards but
did not adequately control grant and subsidy payment documentation.
Specifically, the department did not conduct reviews of grant and
subsidy payment documentation to monitor and assess the
appropriateness of expenditures by local governmental units.
The department complied with grant funding formula criteria or
allocations established in statute. However, the departments annual
monitoring of financial reporting requirements does not comply with
quarterly requirements established in statute.

Audit Objectives and Methodology
Our audit of grant and subsidy transactions focused on the following questions:
•	 Did the department have controls to ensure proper authorization of grant awards
to counties?
•	 Did the department have controls to ensure proper documentation exists to
support grant payments to counties?
•	 Did the department have controls to ensure grant award contracts communicate
legal provisions to comply with legislative intent?
•	 For the items tested, did the department comply with funding criteria and 

financial reporting requirements established in statute? 


Background
The Department of Corrections received grants for the purpose of improving the delivery
of correctional services. Most grants flowed through to counties to assist in the
development, implementation, and operation of community-based corrections programs.
Recipients used the funding for salary costs and other related program costs as allowed in
grant agreements or appropriation laws. The department distributed funds based on
statutory funding formulas or other criteria established in appropriation laws and grant
funding contracts.

13 


Department of Corrections
Grant expenditures comprised approximately 15 percent ($127 million) of total
expenditures. The funding source in fiscal years 2004 and 2005 was primarily the
General Fund ($124 million or 98 percent). The department processes all grant activity
through the grant and subsidy unit located in the central office. The department’s internal
audit unit reviewed fiscal years 2003 and 2004 grant activity paid to various workshops
or centers providing correctional services. Our testing concentrated on the grant activity
to counties not reviewed by the internal audit unit, which was approximately $124
million.

Current Findings and Recommendations
5. 	 The Department of Corrections did not ensure grantees met grant requirements
established in statute and grant contracts.
The department did not review detailed documentation supporting actual grant
expenditures. Local governmental units submitted financial information to the
department using various documents, such as budgetary reports, financial status reports,
and summarized financial information. However, grantees did not provide
documentation sufficient to ensure compliance with statutory guidelines, matching
requirements, and other grant provisions. In addition, on-sight reviews performed by the
department did not include verification of financial information provided by the grantee.
The department granted funds primarily to counties to supplement salary costs of
probation officers and other positions at the local level. Counties submitted budgetary
reports to apply for funding and financial status reports to request reimbursement or
report program expenditures. The financial status reports required an authorized
signature certifying counties paid grant funds pursuant to the grant requirements, and that
funding did not come from other sources. The financial status reports and grant
agreements also required grantees to maintain detailed documentation at the local
governmental unit.
Detailed documentation supporting expenses would include properly executed payrolls,
time records, invoices, contracts, receipts, vouchers, and other documents sufficient to
evidence the nature and propriety of the expenditure. Since the department did not
require submission of detailed documentation and did not review detailed documentation
at the local level, inappropriate expenditures could occur. For example, grant awards
intended for a specific program purpose could be misused for other programs or for
ineligible costs, or actual expenditure amounts could differ from reported expenditures.

14 


Department of Corrections
Recommendation
•	 The department should request detailed documentation supporting
expenses sufficient to evidence the nature and propriety of the
expenditure, or perform financial-related field audits to review
documentation maintained by grantees.

6. 	 The Department of Corrections did not enforce statutory provisions governing
financial reporting requirements for the community corrections act.
The department did not receive certified statements, such as financial status reports, on or
before the end of each calendar quarter from Community Correction Act counties. The
quarterly statements provide financial information for the 31 counties receiving monthly
advances for Community Correction Act grants. Without timely statements, the
department cannot comply with statutory requirements to perform quarterly settlements.
Minnesota Statutes 2005, 401.14, subd. 3 requires the department to distribute
Community Correction Act grant funding to eligible counties in 12 monthly installments.
Minnesota Statutes 2005, 401.15, subd. 1 requires counties to submit certified statements,
such as financial status reports, on or before the end of each calendar quarter. According
to the statute, the department shall make payment for any underpayment to counties and
may withhold any excess payments from subsequent monthly payments.
According to the department, funding for Community Correction Act grants is
decreasing, resulting in a lower risk that a county will not earn its monthly advance. In
fiscal year 2005, only one county did not earn its entire allocation of community
correction act funding. During fiscal years 2004 and 2005, the department analyzed year
end reports to determine if advances exceeded the reported expenditures for the fiscal
year. The department could seek changes to the statutory requirements for Community
Correction Act program monitoring to bring current practices in line with the statutes.
Recommendations
•	 The department should require counties to submit certified statements,
such as financial status reports, on or before the end of each calendar
quarter.
•	 The department could request statutory language changes to reflect
current monitoring requirements of Community Correction Act grant
funding.

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Department of Corrections

Status of Prior Audit Issues
As of March 31, 2006

October 29, 2003, Legislative Audit Report 03-56 covered the selected Department of
Corrections’ activities for the three years ended June 30, 2002. The scope of the audit
included employee payroll, contracts for health and food service, cell phone and special
expense expenditures, and correctional industries’ accounts receivable. The report
contained three issues pertaining to contracts for health and food service, cell phone and
special expense expenditures, and correctional industries’ accounts receivable. We did
not perform a follow-up on the prior audit issues.
Other Audit Coverage
December 2005, Department of Corrections Internal Audit of Grants and Subsidies
to Nonprofit Governmental Entities Report was published by the department. The
internal audit unit reviewed the fiscal year 2003 and 2004 nongovernmental grant
activity, providing coverage on approximately three percent of total grant expenditures.
Improved controls were noted since the fiscal year 2000 internal audit, with only minor
instances of insufficient documentation to support invoice charges and adjustments cited
as current findings.

State of Minnesota Audit Follow-Up Process
The Department of Finance, on behalf of the Governor, maintains a quarterly process for following up on
issues cited in financial audit reports issued by the Legislative Auditor. The process consists of an
exchange of written correspondence that documents the status of audit findings. The follow-up process
continues until Finance is satisfied that the issues have been resolved. It covers entities headed by
gubernatorial appointees, including most state agencies, boards, commissions, and Minnesota state colleges
and universities. It is not applied to audits of the University of Minnesota, any quasi-state organizations,
such as metropolitan agencies or the State Agricultural Society, the state constitutional officers, or the
judicial branch.

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18 


OFFICE OF THE COMMISSIONER

Contributing to a Safer Minnesota

July 19, 2006

James R. Nobles, Legislative Auditor
Office of the Legislative Auditor
Room 140 Centennial Building
658 Cedar Street
St. Paul, MN 55155-1603
Dear Mr. Nobles:
Thank you for the opportunity to discuss and comment on the recommendations arising from the
selected scope audit of the Department of Corrections. The efforts of your office are appreciated
in conjunction with completing this audit. Below please find a response for each finding in the
audit report.
Recommendation
The department should improve comment documentation explaining exceptions reported
each pay period on the Self Service Time Entry Audit Report.
Response
Although the Self Service Time Entry Audit Report is lengthy, the number of exceptions
on each page is most often limited to one, resulting in a low percentage of exceptions.
With ten different correctional facilities some exceptions will be generated just due to the
nature of operating with 24/7 staff coverage. Current supervisors have been instructed to
insert comments in Self Service Time Entry when they complete a timesheet for an
employee. This step will also be included in payroll instructions for supervisors. The
report will be monitored each pay period to ensure this step occurs. Additionally, we will
continue to monitor the usage of backup approvers and take any appropriate action.
Person Responsible:
Chris Dodge

Estimated Completion Date:
July 2006

www.doc.state.mn.us
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Recommendation
The department should review the Self Service Time Entry Audit Report each pay period
to ensure employees are completing their own time entry and primary approvers are
routinely approving time.
Response
The Department of Corrections agrees with this recommendation. Currently, some
payroll locations are reviewing the report each pay period, while others are utilizing the
report while conducting quarterly payroll reviews. We will comply with the Department
of Finance policy and all locations will conduct a comprehensive review of the report
each pay period.
Person Responsible:
Chris Dodge

Estimated Completion Date:
August 2006

Recommendation
The department should ensure leave balance adjustments are reviewed according to
DOER policy.
Response
The payroll register report is reviewed each pay period at all payroll locations, and
follow-up action is taken on any questionable entries. The reviewers are finance
employees who do not enter payroll transactions. We will continue this practice paying
special attention to leave balance adjustments. Upon completion of the review, the
reviewers sign and date the payroll register report.
Person Responsible:
Chris Dodge

Estimated Completion Date:
Completed

Recommendation
The department should pay employee salaries within established limits.
Response
The Department of Corrections did not interpret M.S. 43A.17, subd. 4(a) correctly when
establishing pay rates for dentists. When the Department received notification of
inaccurate pay rates, corrections were made immediately. The above-mentioned statutory
language was changed during the 2006 legislative session to include dentists as an
exception.
Person Responsible:
Karen McCarty

Estimated Completion Date:
Completed

Recommendation
The department should seek recovery for overpayments from current and former
employees.

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Response
The Department of Corrections has followed the Department of Employee Relations
policy on Collection of Overpayments for each of the dentists who were overpaid.
Collection letters were sent to each of the employees in early June 2006.
Person Responsible:
Karen McCarty

Estimated Completion Date:
Completed

Recommendation
The department should review payroll and personnel system access privileges by job
position, employee, and location for unneeded access on an annual basis.
Response
The Department of Corrections agrees with this recommendation. We currently receive
annual reports from the Department Finance indicating employees who have access to the
statewide accounting, personnel and payroll systems. Those reports are distributed and
reviewed for appropriateness by position and employee. Changes are processed as
necessary. There has been a considerable amount of position movement recently due to
the centralization and regionalization of financial and human resources activities, which
may have temporarily resulted in some employees having inappropriate access. Access
privileges will be reviewed each time an employee changes positions within the agency.
Person Responsible:
Chris Dodge

Estimated Completion Date:
July 2006

Recommendation
The department should request detailed documentation supporting expenses sufficient to
evidence the nature and propriety of the expenditure, or perform financial-related field
audits to review documentation maintained by grantees.
Response
The Department of Corrections will require all non-profits and counties to provide their
most current audit reports. The Department of Corrections periodically completes
program audits of all non-profits entities. This audit will now include a financial
component. Counties will be required to randomly submit expenditure detail information
as requested by the Department of Corrections internal auditor.
Person Responsible:
Chris Dodge

Estimated Completion Date:
December 2006

Recommendation
The department should require counties to submit certified statements such as financial
status reports on or before the end of each calendar quarter.

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Response
Counties are required to submit financial status reports on or before the end of each
calendar quarter. Occasionally county reports are submitted late. In those instances
Department of Corrections staff follow up with the county to ensure the report is
submitted.
Person Responsible:
Cheryl Jahnke

Estimated Completion Date:
Completed

Recommendation
The department could request statutory language changes to reflect current monitoring
requirements of Community Correction Act grant funding.
Response
The Department of Corrections will propose changes to statutory language to reflect
current monitoring requirements. This will be proposed during the next legislative
session.
Person Responsible:
Ken Merz

Estimated Completion Date:
June 2007

It is the goal of the department to have corrected all of the audit report findings no later than June
2007. Thank you again for the efforts of your staff.
Sincerely,

Joan Fabian
Commissioner
Copy: Dennis Benson, Deputy Commissioner
Harley Nelson, Deputy Commissioner
Lisa Cornelius, Assistant Commissioner/Agency Chief Financial Office

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