STATE OF
NORTH CAROLINA

FISCAL CONTROL AUDIT REPORT ON
DEPARTMENT OF CORRECTION
RALEIGH, NORTH CAROLINA
FOR THE PERIOD JULY 1, 2004, THROUGH JANUARY 31, 2005

OFFICE OF THE STATE AUDITOR
LESLIE W. MERRITT, JR., CPA, CFP
STATE AUDITOR

FISCAL CONTROL AUDIT REPORT ON
DEPARTMENT OF CORRECTION
RALEIGH, NORTH CAROLINA
FOR THE PERIOD JULY 1, 2004, THROUGH JANUARY 31, 2005

THEODIS BECK
SECRETARY OF THE DEPARTMENT OF CORRECTION

STATE OF NORTH CAROLINA

Office of the State Auditor
2 S. Salisbury Street
20601 Mail Service Center
Raleigh, NC 27699-0601
Telephone: (919) 807-7500
Fax: (919) 807-7647
Internet
http://www.ncauditor.net

Leslie W. Merritt, Jr., CPA, CFP
State Auditor

AUDITOR’S TRANSMITTAL

The Honorable Michael F. Easley, Governor
The General Assembly of North Carolina
Mr. Theodis Beck, Secretary,
Department of Correction
This report presents the results of our fiscal control audit of the Department of Correction for
the period July 1, 2004, through January 31, 2005. Our work was performed by authority of
Article 5A of Chapter 147 of the North Carolina General Statutes and was conducted in
accordance with the standards contained in Government Auditing Standards issued by the
Comptroller General of the United States. The objective of a fiscal control audit is to gather
and evaluate evidence about internal control over selected fiscal matters, such as financial
accounting and reporting; compliance with finance-related laws, regulations, and provisions
of contracts or grant agreements; and/or management of financial resources.
The results of our audit disclosed deficiencies in internal control and/or instances of
noncompliance or other matters that are considered reportable under Government Auditing
Standards. These items are described in the Audit Findings and Recommendations section of
this report. We also noted certain matters that we reported to management of the Department
of Correction in a separate letter dated August 24, 2005.
North Carolina General Statutes require the State Auditor to make audit reports available to
the public. Copies of audit reports issued by the Office of the State Auditor may be obtained
through one of the options listed in the back of this report.

Leslie W. Merritt, Jr., CPA, CFP
State Auditor

TABLE OF CONTENTS
PAGE
BACKGROUND INFORMATION ....................................................................................................1
OBJECTIVES, SCOPE, METHODOLOGY, AND RESULTS ................................................................3
AUDIT FINDINGS AND RECOMMENDATIONS...............................................................................6
DISTRIBUTION OF AUDIT REPORT ............................................................................................17

BACKGROUND INFORMATION

The Department of Correction is one of the largest agencies in state government. With over
19,000 employees, the Department is responsible for the custody, supervision and care of
individuals sentenced after the conviction of a felony or serious misdemeanor. The Secretary
of the Department, Mr. Theodis Beck, oversees the Department’s operations and an annual
budget of $1 billion. The major divisions of the Department include the Division of Prisons,
the Division of Community Corrections, and Correction Enterprises.

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[ This Page Left Blank Intentionally ]

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OBJECTIVES, SCOPE, METHODOLOGY, AND RESULTS
OBJECTIVES
As authorized by Article 5A of Chapter 147 of the North Carolina General Statutes and in
accordance with the standards contained in Government Auditing Standards issued by the
Comptroller General of the United States, we have conducted a fiscal control audit at the
Department of Correction.
The objective of a fiscal control audit is to gather and evaluate evidence about internal control
over selected fiscal matters, such as financial accounting and reporting; compliance with
finance-related laws, regulations, and provisions of contracts or grant agreements; and/or
management of financial resources. Our audit does not provide a basis for issuing an opinion
on internal control, and consequently, we have not issued such an opinion.
Management is responsible for establishing and maintaining effective internal control.
Internal control is a process designed to provide reasonable assurance that relevant objectives
are achieved. Because of inherent limitations in internal control, errors or fraud may
nevertheless occur and not be detected. Also, projections of any evaluation of internal control
to future periods are subject to the risk that conditions may change or compliance with
policies and procedures may deteriorate.

SCOPE
Our audit scope covered the period July 1, 2004, through January 31, 2005, and included
selected internal controls in the following organizational units:
Division of Administration – Controller’s Office
This organizational unit is responsible for the general accounting functions of the
Department. The unit accounts for and issues financial reports covering all
Department operations.
Division of Prisons
This Division houses, clothes, and feeds approximately 37,000 inmates incarcerated
in 78 prisons located throughout the State.
Division of Community Corrections
The Division of Community Corrections supervises offenders released into the
community, either probationers whose active sentences have been suspended, or
parolees and post release offenders who have served a prison sentence and are being
reintegrated into the community. The Division supervises approximately 115,000
probationers and more than 2,600 parolees and post-release offenders.

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OBJECTIVES, SCOPE, METHODOLOGY, AND RESULTS (CONTINUED)

Correction Enterprises
Correction Enterprises operates the State’s prison industries. More than 2,200 inmates
work in jobs ranging from manufacturing to farming. The Division’s plants
manufacture license plates, highway signs, paint and janitorial products. Inmates
work in printing, duplicating, sewing, and woodworking jobs. There are also farms,
laundries, a cannery, a meat processing plant, and an optical plant.
During our audit, we considered internal control related to the following accounts and control
objectives:
Sales and Services – These are revenues of the Correction Enterprise Division. At
January 31, 2005, Correction Enterprises reported a total of $49 million dollars in
vendor sales. We examined internal control designed to ensure that the Department
properly accounts for and reports these revenues.
Miscellaneous Revenues – These revenues are mostly commissions earned from the
use of phones in the prisons. We examined internal control designed to ensure that the
Department properly accounts for and reports these revenues.
Contract Employees – These expenditures are for the payment of contract employees
hired by the Department. We examined internal control designed to ensure that the
Department properly paid these employees based on the terms of their employment
contracts.
Inmate Labor – These expenditures are for the payment of wages to inmates. We
examined internal control designed to ensure that hours worked were properly
documented and approved.
Purchased Services – These expenditures are for the purchase of services from
vendors outside of state government. We audited nine different accounts dealing with
the purchase of medical services for inmates. We also audited the miscellaneous
contractual expenditures account. We examined internal control designed to ensure
the Department properly accounts for and reports these expenditures.
Purchase of Supplies and Materials – These expenditures are for the purchase of
supplies and materials needed to run the prison system on a daily basis. We audited
the purchase of inmate uniforms and the bulk purchase of prescription drugs by the
Division of Prisons. We examined internal control designed to ensure the Department
properly accounts for and reports these expenditures.
Travel Expenditures – These expenditures are for the payment of lodging and meals
while employees are in a travel status. We examined internal control designed to
ensure the Department properly accounts for and reports these expenditures and that
the travel complies with the regulations outlined in the State Budget Manual.

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OBJECTIVES, SCOPE, METHODOLOGY, AND RESULTS (CONCLUDED)

Cellular Phone Service – These expenditures are for the payment of cellular phone
services. We examined internal control designed to ensure the Department properly
accounts for and reports these expenditures.
Small Purchases of Direct Raw Materials – Direct raw materials are expenditures
incurred primarily by the Division of Correction Enterprises for the purchase of raw
materials to be used in the production of products for sale to customers. We audited
the small purchases of these raw materials for compliance with both State and
Departmental small purchasing policies.

METHODOLOGY
To accomplish our audit objectives, we gained an understanding of internal control,
performed tests of control effectiveness, and/or performed direct tests of the accounts and
transactions as we considered necessary in the circumstances. Specifically, we performed
procedures such as interviewing personnel, observing operations, reviewing policies,
analyzing accounting records and examining documentation supporting recorded transactions
and balances.

RESULTS
The results of our audit disclosed deficiencies in internal control and/or instances of
noncompliance or other matters that are considered reportable under Government Auditing
Standards. These items are described in the Audit Findings and Recommendations section of
this report. We also noted certain other matters that we have reported to management in a
separate letter dated August 24, 2005.

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AUDIT FINDINGS AND RECOMMENDATIONS
1.

PURCHASING RULES WERE CIRCUMVENTED
The Division of Correction Enterprises of the Department of Correction split purchase
requisitions so as not to exceed the $5,000 threshold that would require the Division to
seek competitive bids. The Division of Departmental Purchasing and Services failed to
monitor or react to the improper purchase requisitioning practices of the Division of
Correction Enterprises. As a result, the Division of Departmental Purchasing and
Services did not detect or failed to stop numerous split purchase requests by the Division
of Correction Enterprises. Splitting purchases is likely to increase costs; however, it is
unknown if the failure to seek competitive bids has cost the Department additional funds.
Our analysis of small purchase requisitions made by the Division of Correction
Enterprises and the oversight responsibility of the Division of Departmental Purchasing
and Services revealed the following:
a. The sewing, furniture, and metal products plants of the Division of Correction
Enterprises were mainly responsible for splitting purchase requisitions. The
following illustrates a few of the many instances noted during the audit period
(July 1, 2004, through January 31, 2005) where the Division deliberately split
purchase requisitions. The Division made some requisitions only minutes apart:
1) On August 11, 2004, a plant made two requisitions for the same product
for $4,310 and $4,175 within 11 minutes of each other;
2) On August 25, 2004, a plant made two requisitions for the same product at
$4,940 each within a few seconds of each other;
3) On October 19, 2004, a plant made two requisitions for the same product
for $2,805 each within 13 minutes of each other;
4) On December 1, 2004, a plant made two requisitions for the same product
for $4,512 each within 30 minutes of each other.
b. A responsibility of the Division of Departmental Purchasing and Services is to
monitor and compile purchase requisitions from the Department’s various
sections, obtain from outside vendors the best purchase terms possible, and make
the purchase. We found, however, that the purchasing practices of this Division
largely echoed the split-purchase requisition habits of the Division of Correction
Enterprises. Split purchases were made, many just minutes apart;
c. Different purchasing agents of the Division of Departmental Purchasing and
Services often issued purchase orders for the same products, thus making
monitoring of purchases for the same product difficult. For instance, on
January 25, 2005, a purchasing agent issued two purchase orders and another
agent issued a third purchase order for split requisitions from a plant for the same
product for $4,640, $4,590 and $4,590, respectively, within nine minutes of each
other. All three purchases were made from the same vendor;
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AUDIT FINDINGS AND RECOMMENDATIONS (CONTINUED)

d. The Department’s policy for small purchases lacks proper enforcement emphasis.
This policy, dated February 4, 2004, states: “Purchasing Officers and Purchasing
Agents are encouraged to analyze purchasing habits of users to insure that small
purchasing rules are not abused or circumvented.” The policy “encourages” rather
than requires purchasing officers and purchasing agents to analyze purchasing
habits of users. Also, we found no documented procedures as to how purchasing
agents should react in the event they encounter situations that circumvent
purchasing policies.
The State of North Carolina Agency Purchasing Manual requires state agencies to engage
in the competitive bid process when making purchases over $5,000. Seeking competition
for small purchases (purchases of $5,000 or less) is not required.
We conducted extensive inquiries of personnel from the Division of Correction
Enterprises and the Division of Departmental Purchasing and Services. The main
purpose of our inquires was to determine whether the Division of Correction Enterprises
intentionally circumvented state and departmental purchasing policies by splitting
purchases and making frequent small purchases to avoid competition. We determined the
following:
a. Management of the Division of Correction Enterprises stated it was not aware or
only vaguely aware of state purchasing rules;
b. Correction Enterprises management stated that it was aware of the practice of
splitting purchases, thought it was an allowable practice, and had utilized it for
more than nine years. Consequently, the Division’s two approval levels did not
see the need to question the split requisitions;
c. Correction Enterprises management asserted that it split purchases because of
business-related factors such as consistency and volatility of products,
standardization and compatibility of products, inadequacy of inventory space,
customer needs, and multiple plants purchasing the same products;
d. The Department operated under two different small purchasing policies. The
Department’s Fiscal Policy and Procedures § .2600—Accounts Payable and
Procurement Policy defines small purchases as purchases equal to or less than
$1,000 but does not address purchases for amounts ranging from $1,000 and up to
$5,000. This policy is the one the Division of Correction Enterprises stated it
complied with. The Division of Departmental Purchasing and Services, however,
operated under a different small purchasing policy.
This policy, dated
February 4, 2004, addressed purchases of $5,000 and less and was written in
conformity with state purchasing rules. This policy was not disseminated to
personnel of other departmental units or divisions but used only by Division of
Departmental Purchasing and Services staff;

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AUDIT FINDINGS AND RECOMMENDATIONS (CONTINUED)

Before completion of fieldwork on this audit, the Department took some corrective action
when it became evident that small purchasing rules had been circumvented. Duties were
reassigned and reports produced to identify purchasing trends. Policy was changed to
require key individuals in the purchasing process to guard against split purchases to avoid
competition. The small purchasing policy provisions used by the Division of
Departmental Purchasing and Services were incorporated into Fiscal Policy and
Procedures § .2600 and the revised policy was distributed throughout the Department
with instruction that all employees having procurement responsibilities comply with the
revised policy.
Recommendation: The Division of Correction Enterprises should ensure that its
personnel, especially those who are responsible for making requisitions, are aware of and
comply with state and department purchasing rules, regulations, and policies. The
Division’s approval levels should examine requisitions for compliance with purchasing
rules before approving them. The Division should consider a process where current and
future needs are estimated and should seek term contracts where economically
advantageous and feasible in order to foster better product price, minimize price
fluctuations, and to enhance the small purchase process.
The Division of Departmental Purchasing and Services should categorize requisitions by
commodity types or codes. A commodity type should be assigned to, processed, and
controlled by the same purchasing agent. The Division should provide guidance to
purchasing agents on how to handle situations that circumvent purchasing policies. The
Division should continue to run periodic reports to identify purchasing trends and should
investigate any deviation from purchasing rules.
The Department should clarify the purchasing responsibilities between the Division of
Correction Enterprises and the Division of Departmental Purchasing and Services and
should review its policies and procedures and make needed changes. Policies should be
communicated and enforced. Also, when necessary because of product standardization,
compatibility, or other pertinent factors, the Department should ask for exemption from
the bid process requirements by seeking a “waiver of competition” from State Purchasing
and Contract.
Department Response: The Department appreciates the State Auditor’s Office
examining Correction Enterprises small purchases after receiving my written request
dated April 1, 2005. We have reviewed and concur with the audit findings, and have
taken the following corrective action:
The Departmental Small Purchasing Policy has been incorporated into the DOC Fiscal
Policy & Procedures Section .2600, distributed throughout the Department of Correction,
and posted on the DOC Controller's website. The Department is currently revising
the .2600 Policy to strengthen the guidelines on obtaining competition and avoiding
splitting purchases.

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AUDIT FINDINGS AND RECOMMENDATIONS (CONTINUED)

Departmental Purchasing Management and Correction Enterprises Management are
working closely together to monitor compliance with purchasing policies. Weekly joint
management meetings are held to discuss purchasing-related issues (grouping like
commodities, reviewing specifications to ensure opportunities for competition, and
discussing upcoming needs and time-sensitive requirements).
In fiscal year 2004-05, Departmental Purchasing issued 72,601 purchase order lines
valued at $257,551,390. With this volume of purchases it would be difficult to assign
Purchasing Agents based on commodity type and codes as recommended. However, the
Department has established a new Correction Enterprises Purchasing Section (supervisor
and three staff) to manage commodity purchasing requirements of Correction Enterprises.
Departmental Purchasing Management now regularly analyzes weekly and quarterly
reports available in E-Procurement to monitor requisitions and identify repetitive requests
which could be consolidated or bid as agency specific term contracts. These reports,
however, do not provide all necessary information and the process of generating data can
be quite labor intensive. The Department will work with appropriate State Government
officials to seek improvements in reporting capabilities at the agency level.
Correction Enterprises is closely monitoring purchases to ensure annual usage is
requisitioned at one time and procured on agency specific contracts. Correction
Enterprises Management is ensuring that products used by multiple plants are compiled
into a single bid package and placed on agency specific contracts. They are also utilizing
E-Procurement reports to monitor raw material requisitioning practices.
DOC Internal Audit will increase audits of this area.
2.

THE DEPARTMENT MADE SALARY OVERPAYMENTS
The Department of Correction made overpayments to a large number of current and
former employees. The Department estimates it may not be able to collect as much as
30 percent, or $154,000, of these overpayments and may have to write them off resulting
in a loss of financial resources. The problem of salary overpayments was first noted
during the fiscal year 2000 audit.
Based on our examination and analyses of the accounts receivable software package that
tracks payroll overpayments we discovered the following:
•

Total overpayments made during the seven-month audit period were about
$242,000, of which the Department collected about $117,000 or 48 percent;

•

Salary overpayments were made to 377 people during the audit period (monthly
average of 54 people);

•

About $516,000 was still outstanding at January 31, 2005, of which $451,000 is
over 90 days old.
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AUDIT FINDINGS AND RECOMMENDATIONS (CONTINUED)

We selected a sample of 40 overpayments to determine their causes. We found that
36 overpayments, or 90 percent, were made because the payroll office was not notified in
a timely manner of the employees’ separation from the Department.
The Department has made a series of efforts to address the problem of payroll
overpayments. The Department wrote a comprehensive policy on how to handle payroll
overpayments. The manual also contains step-by-step instructions on how to facilitate
collections through a number of strategies including voluntary payment, payroll
deductions, civil suits and referrals to the Attorney General’s Office, Department of
Revenue tax refund set-offs, and private collection agencies.
The Department also purchased an accounts receivable software package to track payroll
overpayments. Accounts are maintained on each employee or former employee; monthly
statements are mailed; various reports are shared with management including invoice
reports, receipts and aging reports. A copy of each individual payroll overpayment is
sent to the Division’s chief financial officer to follow up, to ascertain why the
overpayment occurred, and to take appropriate corrective or disciplinary action if
applicable.
Recommendation: The Department should review its policies and procedures and
develop effective procedures that will eliminate or minimize payroll overpayments. A
key component to a solution is the Department’s notification process to the payroll office
when employees leave the Department. A clearly defined notification process should be
implemented and actively enforced. The Department should continue its efforts to track,
report, and collect overpayments.
Department Response: The Department agrees that payroll overpayments were made
largely due to the Payroll Office not being notified by facilities/sections in a timely
manner of the employees’ separation from the Department. The Department of
Correction Personnel Manual and the Department’s Fiscal Policy and Procedure Manual
require DOC locations to immediately call the Payroll Office to place stop payments on
employees who have separated from employment or exhausted leave and fallen into a
leave without pay status.
There are several factors, some external to the Department, that make it extremely
difficult to eliminate all overpayments. These include high number of DOC locations
(400+), an early month end payroll deadline, direct deposit of employee checks, high
turnover of staff (more than 300 separations per month), and mandatory salary
continuation payments due to on the job injuries which are later determined to be
unfounded. When an overpayment does occur, the Controller’s Office notifies the
respective Fiscal Officer of the Division in which the overpayment occurred to alert them
of the overpayment. The Controller’s Office requests the Division to investigate the
circumstance which led to the overpayment, and to address their staff with disciplinary
action if appropriate. As indicated in the audit, the Department has a comprehensive
policy on how to handle payroll overpayments when they do occur.

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AUDIT FINDINGS AND RECOMMENDATIONS (CONTINUED)

DOC Personnel is developing training on separations for facility human resource
professionals as a prevention strategy for reducing payroll overpayments. Payroll
overpayment reports are run monthly by the Controller’s Office. This information will be
shared with DOC Personnel to identify the units/facilities with the highest number of
overpayments to target those facilities for training.
While the Department’s goal is to eliminate salary overpayments, it is important to note
the number and amount of overpayments in context with the overall number of
employees and total payroll. The monthly average of 54 salary overpayments is just
over ¼ of 1 percent (.28%) of approximately 19,000 employees and the monthly average
dollar amount of overpayments is .07 percent of the total monthly gross salary.
DOC Internal Audit will monitor and determine if Department policies are followed and
inform management to assist in ensuring appropriate corrective action is taken.
3.

DISBURSEMENT PROCESS CONTAINS WEAKNESSES
The Department made payments that were not properly supported, were not cancelled to
prevent duplicate payment, had not been approved for payment, or that were not always
paid timely. The failure to adequately document payments and to obtain approvals from
authorized officials put the Department at risk of paying for services or goods that were
not rendered or paying the incorrect amount. There is an increased risk of duplicate
payment when documentation is not marked or defaced when paid or when
disbursements are not paid from original invoices. Also, late payment of invoices
prevents the Department from taking advantage of cash discounts.
We tested several types of expenditures made by the Department. The results of our tests
of disbursements made by the accounts payable section were as follows:
a. A test of 17 expenditures from the largest medical expenditures uncovered
deficiencies. Although the amounts expended were determined to be proper, the
exceptions disclosed control weaknesses that could otherwise have lead to
different outcomes:
1) Five transactions, a total of $23,006, were paid based on invoices that did
not state the amounts due the provider. The accounts payable clerk
calculated the amounts payable based on submitted timesheets and paid the
amounts without any approval;
2) Although the amounts expended under the contract were deemed proper,
one invoice for $17,500 was paid five times and paid without obtaining
approval;
3) A provider was paid $35,000 from an invoice for $17,500, and then paid
again from the same invoice for a total of $70,000. Although the payments
were determined to be proper, they were not approved for payment.
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AUDIT FINDINGS AND RECOMMENDATIONS (CONTINUED)

b. A test of disbursements classified as “miscellaneous” by the Department
uncovered some exceptions. From a sample of 40 such disbursements we noted
the following:
1) Eight items were not paid in a timely manner or in accordance with
purchase terms;
2) Four items were not cancelled with a paid stamp to prevent duplicate
payment. One item was paid twice due to this oversight;
3) Four items were not paid from original invoices. They were paid from
faxed documents or photocopies of invoices;
4) The receipt date for two invoices was not indicated; therefore,
timeliness of payment could not be determined;
5) One invoice was not approved for payment.
c. In a test of 25 “extradition” disbursements made by the accounts payable section,
we noted that none were paid in a timely manner or in accordance with purchase
terms.
Also, the following exceptions were noted in a sample of 40 disbursements made by the
Division of Correction Enterprises:
a. Fourteen items were not paid in a timely manner or in accordance with purchase
terms;
b. Four disbursements were not supported by the original invoice and one
disbursement was not supported by any documentation;
c. The receipt date for seven invoices was not indicated; therefore, timeliness of
payment could not be determined;
d. Two invoices were not cancelled when paid.
Recommendation: The Department should adhere to prescribed policies and procedures
for the processing of cash disbursements. Amounts paid should be adequately
documented, required approvals should be obtained before payments are made,
supporting documentation should be cancelled to prevent duplicate payments, and
payments should be made in a timely manner.
Department Response: The Department agrees with this finding and will take corrective
action to strengthen controls and compliance with policy. The Controller’s Office will
update internal procedures and provide additional training to accounts payable staff to
ensure that invoices are date stamped when received and date stamped when entered for

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AUDIT FINDINGS AND RECOMMENDATIONS (CONTINUED)

payment. The Controller’s Office will assign a position to audit paid invoices for
compliance with policy. A formal notification system will be used to notify the chain of
command when invoices are submitted late or incorrectly to the Controller’s Office for
payment.
The Controller’s Office has written internal procedures which require supervisory
approval before payment of a fax or photocopy invoice is made. While DOC agrees that
paying from an original invoice is the best practice, some vendors follow the practice of
faxing an invoice for payment. In these cases, no original invoice is sent and the fax is
the original. In addition, some vendors e-mail their invoices, which would be printed off
the computer or in the case of ITS E-billing, the invoice is downloaded and printed off
the computer. There are also cases where the original invoice has never been received in
the accounting office and the vendor is demanding payment. The vendor, in these cases,
may fax the invoice to expedite payment and the accounting office will pay based on the
fax to prevent services from being stopped or late fees from occurring. The Controller’s
Office recognizes there is a potential risk associated with paying from faxes or
photocopies and has implemented additional procedures to increase controls.
The Department agrees with the findings related to medical expenditures. The monthly
amount of $17,500 due to a vendor was based on the contracted amount and it was the
appropriate dollar figure to pay, no overpayments occurred: however, an invoice will be
required from the vendor for the $17,500 before payment is made.
The Department would also like to note that disbursements for the Division of Correction
Enterprises are actually made by the General Accounting Section of the Controller’s
Office.
DOC Internal Audit will increase its monitoring of this area.
4.

PRISON FACILITIES DID NOT VERIFY HOURS WORKED BY INMATES
The Department of Correction does not adequately verify hours worked by inmates
before paying them incentive wages. Failure to verify hours worked by inmates leads to
a greater risk of unauthorized payments to inmates. Also, this failure is a violation of the
Department’s fiscal policies.
The Department does not require verification of hours worked by inmates (the activity
attendance sheet) to be submitted to the controller’s office. Instead, each supervisor is
expected to sign and retain the activity attendance sheet. However, our tests disclosed
that supervisors at some facilities did not sign and retain the activity attendance sheets.
We tested one Correction Enterprise plant at each of the 18 Division of Prisons facilities
in our sample and found that plant supervisors at 11 Correction Enterprise plants did not
sign and retain activity attendance sheets.
Recommendation: The Department should continue to monitor compliance with its
policies and procedures and should take corrective action whenever violations of its
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AUDIT FINDINGS AND RECOMMENDATIONS (CONTINUED)

policies are uncovered. The Department should inform facility supervisors of the
importance of verifying hours worked by inmates and maintaining the appropriate
documentation. The Department should consider changing its requirements for
documentation completion and retention and should investigate the feasibility of
requiring the submission of pay documentation to the controller’s office.
Department Response: The Department agrees with this audit finding and will inform
facility/plant supervisors of the importance of verifying hours worked by inmates and
maintaining the appropriate documentation. The audit finding indicated that the auditor’s
test was limited to Correction Enterprises plants and found they were deficient in signing
and retaining activity attendance sheets. Correction Enterprises plant supervisors
indicated they were not able to print the required report due to a lack of
equipment/software that allowed the report to be printed. Therefore, signed
documentation verifying hours worked by inmates was not available for review. Fiscal
Policy and Procedures were updated June 7, 2005, to allow for verification of inmate
hours worked by use of a “screen print” to accommodate Correction Enterprises plant
equipment/software. Correction Enterprises plants can now print, sign and retain copies
as indicated by Fiscal Policy and Procedure. Also, DOC Internal Audit will continue to
monitor compliance with the policy as part of its field audits.
5.

CONTROL OF CELL PHONES NEEDS IMPROVEMENT
The Department has not accumulated the data necessary to attain a reasonable level of
control over the use of cell phones nor has it sufficiently enforced its own policy
regarding the payment of cell phone bills. As a result, the Department’s ability to
identify inaccurate billings and overcharges has been compromised. Also, the risk that
unauthorized cell phone use can occur and not be detected has increased.
•

The Department’s cell phone database contains inaccurate data and lacks certain
key data. Cell phones are assigned to the various units/facilities of the
Department. Departmental policy also requires that they be assigned to contact
persons or users. Of the 769 cell phones in the database, 462 phones were not
assigned to specific persons. Also, the Department was billed for 14 phones for
which there was no record in the database and the database contains data on
36 cell phones the Department previously cancelled or had returned for repair;

•

Of 40 cell phone expenditures tested by us, we found that facility/section heads or
designees did not review and certify the validity of charges for 12 of the
expenditures by the stipulated deadline, and for nine of these, approvals were still
outstanding as of completion of the audit.

During the course of our fieldwork, we informed the Department of the deficiencies. The
Department responded and took corrective action regarding the deficiencies in the
database in May 2005.

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AUDIT FINDINGS AND RECOMMENDATIONS (CONCLUDED)

Recommendation: The Department should regularly maintain the cell phone database.
This would include assigning the phones to individual users. The inventory of phones in
use by the Department should be verified and billings should be checked to ensure that
the Department pays for only phones that are actually in use. The Department should
institute measures to foster timely approval of cell phone charges.
Department Response: The Department concurs with the audit findings, and has taken
the following corrective action:
Policy requires cellular phone charges to be reviewed and approved by the
facility/section head or designee and then to notify the Controller’s Office that the bill
has been reconciled and approved. The Controller’s Office has implemented procedures
to more closely monitor approvals and follow up in a timely manner, if approvals are not
received according to policy. A formal notification system is now being used to notify
the chain of command when approvals are not received timely.
The Department has updated the cell phone database and the cell phone form (CPSRDOC) to comply with policy .2400. Reports from the updated cell phone database have
been sent to facilities/sections to be verified. Billings are now reviewed monthly to
ensure that the Department pays for only phones that are actually used. Periodic audits
will be performed by Departmental Purchasing to ensure accuracy of the database. This
audit will include verifying with facilities/sections the cell phone assignment, contact
persons, cancellation and returns for repairs.
DOC Internal Audit completes a physical inventory of cell phones assigned to each
facility/section and reviews cell phone monthly bills for proper approval during field
audits. Management is informed of Internal Audit’s findings. Internal Audit will
continue to monitor cell phone assignment and approval of monthly bills to ensure
policies are followed.

15

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16

DISTRIBUTION OF AUDIT REPORT

In accordance with General Statutes 147-64.5 and 147-64.6(c)(14), copies of this report have
been distributed to the public officials listed below. Additional copies are provided to other
legislators, state officials, the press and the general public upon request.
EXECUTIVE BRANCH
The Honorable Michael F. Easley
The Honorable Beverly M. Perdue
The Honorable Richard H. Moore
The Honorable Roy A. Cooper, III
Mr. David T. McCoy
Mr. Robert L. Powell
Mr. Theodis Beck

Governor of North Carolina
Lieutenant Governor of North Carolina
State Treasurer
Attorney General
State Budget Officer
State Controller
Secretary of the Department of Correction

LEGISLATIVE BRANCH
Appointees to the Joint Legislative Commission on Governmental Operations
President Pro Tempore
Senator Marc Basnight, Co-Chair
Senator Charles W. Albertson
Senator Thomas M. Apodaca
Senator Daniel G. Clodfelter
Senator Walter H. Dalton
Senator Charlie S. Dannelly
Senator James Forrester
Senator Linda Garrou
Senator Kay R. Hagan
Senator Fletcher L. Hartsell, Jr.
Senator David W. Hoyle
Senator John H. Kerr, III
Senator Ellie Kinnaird
Senator Jeanne H. Lucas
Senator Anthony E. Rand
Senator R. C. Soles, Jr.
Senator Richard Y. Stevens
Senator A. B. Swindell, IV
Senator Scott Thomas

Speaker of the House
Representative James B. Black, Co-Chair
Representative Alma S. Adams
Representative Martha B. Alexander
Representative Harold J. Brubaker
Representative Lorene T. Coates
Representative E. Nelson Cole
Representative James W. Crawford, Jr.
Representative William T. Culpepper, III
Representative W. Pete Cunningham
Representative Beverly M. Earle
Representative Pryor A. Gibson, III
Representative Joe Hackney
Representative R. Phillip Haire
Representative Dewey L. Hill
Representative Lindsey H. Holliman
Representative Julia C. Howard
Representative Howard J. Hunter, Jr.
Representative Margaret M. Jeffus
Representative Daniel F. McComas
Representative Charles L. McLawhorn
Representative Henry M. Michaux, Jr.
Representative Richard T. Morgan
Representative Edd Nye
Representative William C. Owens, Jr.
Representative Deborah K. Ross
Representative Drew P. Saunders
Representative Wilma M. Sherrill
Representative Joe P. Tolson
Representative Edith D. Warren
Representative Thomas E. Wright
Representative Douglas Y. Yongue

Other Legislative Officials
Mr. James D. Johnson

Director, Fiscal Research Division

October 18, 2005
17

ORDERING INFORMATION

Copies of this report may be obtained by contacting the:
Office of the State Auditor
State of North Carolina
2 South Salisbury Street
20601 Mail Service Center
Raleigh, North Carolina 27699-0601
Internet:

http://www.ncauditor.net

Telephone:

919/807-7500

Facsimile:

919/807-7647