Audit Report on the Internal Controls Over Commissary Operations by the Department of Correction

AUDIT REPORT IN BRIEF

The Department of Correction (DOC) manages 15 inmate jails (facilities), 10 of which are on Rikers Island. DOC also operates hospital prison wards, court detention facilities, warehouses, commissaries, and other support units. There are 10 commissaries: eight on Rikers Island, one in Manhattan, and one in the Bronx. The commissaries offer various items for sale that can be purchased by the inmates. (See Appendix I.) In Fiscal Year 2003, DOC reported commissary revenues of approximately $14.2 million. This audit reviewed DOC internal controls over the commissary operations.

This audit was commenced at the request of the Department of Correction.

Our review of DOC commissary operations disclosed that the commissaries are providing the intended services to inmates. However, we determined that internal control weaknesses exist that raise serious questions about the adequacy of the commissaries’ controls over inventory and their compliance with DOC inventory procedures. Specifically, we found that the required quarterly inventory count performed by the George Motchan Detention Center (GMDC) and Eric M. Taylor Center (EMTC) commissaries on December 31, 2003, resulted in gross discrepancies of 94 and 89 percent respectively between the amounts of inventory on hand and the amounts reported in the inventory records. (The figures reflect the percentage of the number of items that had discrepancies in relation to the total number of items.) The GMDC and EMTC commissaries’ physical counts, which we observed, were conducted by personnel who were actively involved in day-to-day commissary operations, even though DOC procedures prohibit the active participation of such personnel. Moreover, although we observed and verified the December count, the commissary managers recounted certain items, which resulted in adjustments to the quarterly inventory count and a reduction of the existing inventory variances. The results of the recounts, not the original inventory count results, were entered in the Inmate Financial Commissary Management (IFCOM) computer system that is used for recording all inventory data.

In addition to the required quarterly inventory counts, commissary managers frequently conduct interim periodic inventory counts, adjust the inventory figures recorded in IFCOM, and restate variances without notifying and obtaining approval from the Central Commissary Unit (CCU), as required. DOC requires that the commissaries notify the CCU at least one day prior to conducting a physical inventory count and also requires the facility to investigate each inventory dollar variance. However, from October 1, 2003, to December 30, 2003, all 10 commissaries made 398 adjustments to the IFCOM records because of discrepancies between physical inventory counts and the inventory records of certain items. In all cases, the commissaries failed to notify the appropriate parties of the inventory counts and the resulting variances between the physical count and the IFCOM records.

DOC allows for the "condemnation" (discarding) of commissary goods that are damaged or have expired, but requires the proper approval and authorization. However, commissaries frequently condemn and dispose of inventory items without the proper approval and authorization. In general, the CCU has failed to enforce proper controls over the commissary operations. CCU does not enforce the commissaries’ compliance with DOC inventory procedures and reporting requirements. CCU also lacks adequate procedures to ensure that documentation submitted by the commissaries is complete and accurate. For example, condemnation forms did not always have the required approval signatures and many quarterly physical inventory report packages lacked required documentation or complete information.

To address these issues, the audit made nine recommendations. Some of the major recommendations were that DOC officials should:

• Ensure that all discrepancies in the inventory be properly investigated. The findings of the investigation must be documented in writing and reported to the appropriate management level, as required.
• Ensure that commissary personnel follow the DOC Inventory Control Policy and Procedures Manual when conducting inventory counts. Commissary personnel should not conduct inventory counts.
• Enforce the procedures that require commissaries to notify the CCU prior to conducting interim periodic inventory counts. All subsequent adjustments to IFCOM should be approved and authorized.
• Ensure that the condemnation procedures are followed prior to condemning and discarding any items in inventory. This would include prior approval from the CCU, examination of the condemned items by the appropriate personnel, and listing of each item on a Condemnation Request Form and Verification Form.
• Require the CCU to adequately monitor the commissaries and enforce their compliance with the DOC inventory procedures and reporting requirements; carefully review documents submitted by the commissaries for completeness and accuracy; and request, where applicable, documentation that is missing and additional information when documentation is incomplete.

The matters covered in this report were discussed with DOC officials during and at the conclusion of this audit. A preliminary draft report was sent to DOC officials and discussed at an exit conference held on June 8, 2004. On June 11, 2004, we submitted a draft report to DOC officials with a request for comments. We received a written response from the DOC Commissioner on June 25, 2004. The Commissioner generally agreed with the audit findings and indicated that DOC plans to implement all nine recommendations.