oversight

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)

                      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




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                                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,