UNITEDSTATESGENERAL ACCWNTING OFFICE REGIONAL OFFIX ROOM 204, ‘I 61 PEACHTREE STREET, N E ATLANTA, GEORGIA 30303 - Mr. Donald A. Hutchison, Superintendent Federal Prison Industries, Inc. Federal Correctional Institution Tallahassee, Florida 32304 b%bS7 91 Dear Mr. Hutchison: During our audit of the Federal Prison Industries, Inc. (FPI), financial statements at the Federal Correctional Institution (FCI) , Tallahassee, Florida, for fiscal year 1970, which was made pursuant to the Government Corporation Control Act (31 U.S.C. 841), we noted a number of deficiencies which are presented in detail below for your consideration and appropriate action. t NEED FOR IMPROVEMENTTN ACCOUNTING FOP INVENTORY i At the time of our review, variances between the inventory records and the physlcal inventory exlsted for 98, or about 50 percent, of the 195 items of raw materials and supplies; and we were informed by the FPI lead foreman that the variances existed because inmates (1) failed to record issues from the storeroom, (2) incorrectly recorded some issues, or (3) did not record items returned to the storeroom, We counted 20 items, valued at $19,000, and found that the inventory records varied from the physical inventory by $1,600, or 8.5 percent of recorded value. FPI expanded the physical znventory to all 195 items, valued at $36,500, and found variances amounting to $2,300, or 6.2 percent of recorded value. L FPI personnel followed a procedure of countzng the raw ’ materrals and supplies inventory before the annual physical inventory was taken, and variances found between the inventory records and the count were corrected by preparing requisitions for materials issued to work-in-process without ldentlfylng the variances as adjustments resulting from physical inventory, In order to provide better control and reporting of inventories, we believe that inmate stock reoord clerks should 4 50 TH ANNWERSARY 1921- 1971 , be more closely supervised to assure more accurate recording of inventory transactions, and that all znventory adjustments should be properly identified, COST DATA NEEDED TO SUPPORT DISBURSEMENTS FOR UTILITIES The FCI is required by Polxy Statement 10572 to compute the actual cost of producing utilities each month and furnish FPI with a copy of the cost computations for verifying the propriety of the utility billings. However, our review of disbursements for utilities for May and June 1970 disclosed that the amounts billed were not supported by cost computations. The FPI Office Manager stated that FPI had not received cost computations from FCI to support the utility billings for the last 2 fiscal years. We believe that FPI should obtain cost computations from FCI that show the actual costs of producing utllltles in order that the propriety of utility billings can be assured. METERS NEEbED TO RECORDSTEAM USED BY FPI The FCI Chief Engineer informed us that the amount of steam used by FPI was not accurately measured because one of the two lines providing steam to FPX bypassed the meter, and he sard that ,the meter on the other line measured condensate instead of steam , flow and some of the steam evaporates or escapes when used and therefore is not measured. The FCI Chief Engineer stated that FCI would install new steam meters to be furnished by FPI whzch will accurately measure the steam used. FPI SHOULD PAY UTILITY EXPENSE FOR VOCATIONAL TRAINING FPI has the responsibilxty to pay all vocational training expenses, but it did not recexve and pay bills for utilities furnished by FCI for vocational training activities. The FCI Chief Engineer informed us that FPI was not billed for utxlitles furnzshed to vocational training by FCI. The FCI Business Manager said that FPI was not billed for utfli&i.es because part of the space for vocational training was occupied by FCI without charge, The FPI internal auditors polnted out In their 1970 audit: report that FPI was not being billed for utilities furnxshed to vocational training, but the znternal auditors d&d not provide Ya recommendation for correcting the deficiency, During our exit conference, the FCC Warden agreed that FPI was not billed for util\tiea furnlshed to vocational training and he stated that FCI would make a study to determine the feasibilzty of metering the utilities used by vocational training. In order to preclude FCI bearing expenses for vocational training, we belleve that FPI should be billed for utilities used in vocational tralnlng, and if FCI should determine that installa- tion of meters is not feasible, we belleve that the FCI engineer should estzmate the usage for billing drtrposes. We also believe that FCI should pay FPI for the vocational tralnLng space occupied by FCI; or as an alternative, the billings for utilities furnished to vocational trarnlng could be credited by an amount representing cost for the space occupied by FCI. NEED TO SEGREGATEDELIVERY COSTS FROM MANUFACTURING COSTS FPI treated the revenue from operatzon of a delivery truck as “other income" but treated the costs of operating the truck as manufacturing costs, This practice not only failed to match revenue against applicable costs, but also resulted In an over- statement of manufacturing costs. In order to expedite the receipt and shipment of furniture, FPI operates its own dellvery truck and bills customers a trans- portatlon fee, Before fiscal year 1970, FPI recorded the revenue from operation of the truck as sales and recorded the costs for operating the truck as manufacturing costs, but pursuant to a recommendation In an internal audzt report, FPI recorded the revenue for fiscal year 1970, which amounted to $16,000, as “other income." We were advised by the FPI OffLce Manager that costs of about $16,000 for operating the truck were treated as manufacturing cost because the FPI internal auditors dLd not recommend a change kk! cm in the treatment of such costs. 7DI- In order to properly match costs against applzcable revenue s I and correctly state cost of sales, we believe that FPI should czg treat the costs of operating the delivery truck as "other expense" and treat the revenue as "other income." NEED TO SURVEY VAN-TYPE TRAILERS FOR CAPITALIZATION PURPOSES Lzz3 PPI owns and uses trro van-type trailers acquired from surplus In 19Gl that have not been surveyed for capitalization and depreci- 55 ation purposes as required by section VIII of the FPI manual. Ass j$j result, depreciation expense on the trailers has not been considered in computing income earned by FPI, Section VIII of the FPI manual r(lquLres that a Board of Survey be appolntcd to establxsh the value of property acquired from surplus and, when the appraised value LS $100 or more, that the property be capztallzed. The trawlers had an acquisition cost of about $3,000 each and therefore should have been surveyed in accordance with the FPI manual. This matter was included m our I eport da”ted May 31, 1967, to the Superintendent, FPI Tallahassee, <lnd we were informed by the FPI Offxe Manager that corrective actlon had not been taken because the FPI Washington offxe gave verbal instructions not to capitalize the trawlers, We belleve that FPI Tallahassee should survey the two van-type trailers and, if the appraised value for each 1s $100 or more, the trailers should be capltalzzed and depreciated over the remalnxng useful loves in accordance with section VIII of the FPI manual. We wish to acknowledge the cooperation extended to ouz representatives during our audit. We would appreciate your. comments, including actions taken or planned, on the matters discussed herem. * I Copies of thus letter are being sent to the Asslstsnt Attorney General for Admlnistratzon, Department: of Justice; the Commlsszoner of Industries, Federal Prison Industrzes, Inc.; and the Warden,, Federal Correctaonal Institution, Tallahassee, Florida. Very truly yours,
Deficiencies Noted During Audit
Published by the Government Accountability Office on 1971-01-20.
Below is a raw (and likely hideous) rendition of the original report. (PDF)