ISSUED: October 22, 2001

EXECUTIVE SUMMARY - LEGISLATIVE AUDITS

Idaho Military Division

PURPOSE AND SCOPE - We have completed certain financial audit procedures on the Idaho Military Division's financial activities that occurred during the fiscal years ended June 30, 1999 and 2000. These procedures, together with procedures performed at other State agencies, allow us to express our opinion on the statewide general-purpose financial statements prepared by the State Controller's Office. Since a major federal program was present, appropriate procedures and required tests were made in order to issue the federally required Single Audit.

CONCLUSION - Three findings and recommendations are included in this report that will, if implemented, improve efficiency, compliance, and controls of the Division. These issues include improving the rotary account procedures to ensure compliance with guidelines, replacing the armory checking accounts with other bill-paying methods, separating some accounting duties, and making transfers instead of writing warrants to improve controls.

Although we discussed three issues for improvement, we conclude that the financial operations of the Division meet accepted standards and that the Division substantially complies with laws, regulations, rules, grants, and contracts for which we tested compliance.

FINDINGS AND RECOMMENDATIONS - The three findings and recommendations are summarized below:

1. Rotary account reconciliations are not made in a timely manner, and advances made to non-State employees resulted in $6,800 in unreimbursed expenditures. The Military Division advanced State rotary account funds to non-State employees (federal employees). Over $6,800 of these advances, made more than two years ago, have not been reimbursed. Attempts to get reimbursement of these funds have failed since some of these federal employees are no longer in the Idaho National Guard. Therefore, there is little chance of collecting all of these outstanding funds.

Also, rotary account reconciliations have not been prepared and submitted to the State Controller's Office in a timely manner as required by State policy. In addition, the authorized rotary amount of $40,000 is too high for the limited amount of activity that is processed through the account.

We recommend that the Division comply with the rotary account guidelines by: (1) collecting outstanding advances within one month of the initial advance; (2) prohibiting advances to non-State employees by adopting a formal policy; (3) reconciling the rotary account in a timely manner; and (4) reducing the authorized balance to $10,000 or $12,000. If the Division does not comply with the rotary account guidelines, we would recommend that the State Controller's Office close the account.

2. Armory checking accounts lack tight internal controls; as a result $2,600 has been misappropriated. Advances totaling about $350,000 annually are deposited into bank accounts for the 25 armories and used to pay for janitorial services, utilities, security, and other small miscellaneous expenses. Our prior audit report recommended improvements in internal controls and accuracy of financial information, including the possibility of closing the bank accounts and processing all expenditure transactions for the armories through the State's accounting system. (See prior audit finding and recommendation #1.) The Division complied with the recommendation with the exception of closing the bank accounts and processing transactions through the State accounting system. Since the last audit, a misappropriation of up to $2,600 has occurred at two armories. Additional funds may have been misappropriated, but due to the poor record keeping, an amount could not be determined.

We recommend that the Division strengthen controls and reduce the risk of future mismanagement of funds by closing the armory checking accounts and paying and processing all expenditure transactions through the State accounting system.

3. Accounting policies and documentation controls would reduce the possibility of errors and improve efficiency. The Division's accounting requirements are complex, with many specific State and federal requirements. Thus, good policies and procedures are needed to ensure accurate accounting data, compliance with regulations, and efficient processing of data. The Division should review and strengthen the following areas:

• The custody and recording of receipts as well as the write-off of receivables in the Bureau of Hazardous Materials by segregating duties.

• The inefficient practice of writing warrants between Division funds by using interfund transfers.

We recommend that the Division improve internal control procedures by: 1) segregating duties over receipt collection and recording; 2) establishing a separate review for write-off receivables; and, 3) changing the method of transferring money between funds to eliminate the need to issue warrants to itself.

PRIOR FINDINGS AND RECOMMENDATIONS - The prior FY 98 audit report included four findings and recommendations.

1. General Fund money was advanced to armory bank accounts; however, the subsequent detailed expenditure transactions were not recorded in the accounting records. The advances of $350,000 were deposited into 25 separate private armory bank accounts and used to pay for janitorial services, utilities, security and other small miscellaneous armory expenses. The advances were recorded as rental expenses, but were not later adjusted to actual expenditure classifications. Also, armory rental income of $30,000 to $35,000 a year was not recorded in the State's accounting system, and the money in the bank accounts was not earning interest.

The Division made changes to reclassify expenditures in the State accounting records to reflect actual expenditures and to reconcile the armory bank accounts on a monthly basis. The Division had decided not to close the individual armory bank accounts and continued to advance the armory money. However, recently discovered misappropriations of money at two armories caused the Division to re-analyze how it could meet the emergency maintenance and security needs of the armories if it were to close the armory bank accounts. CLOSED (See current finding and recommendation #2.)

2. The Disaster Emergency Operations Center does not have a backup generator. The Bureau of Disaster Services operates an Emergency Operations Center during disasters. The purpose of Emergency Operations Center is to direct and coordinate State emergency relief work and assist local governments with emergency response efforts. There was no emergency generator dedicated to the Emergency Operations Center. If a power disruption occurred during an actual disaster, the Division would experience difficulties providing the needed assistance to emergency relief personnel. The Division received appropriation authority in the FY 01 budget for the purchase of a backup power generator and is in the process of acquiring and installing the generator. CLOSED.

4. Time recording by some employees may violate Idaho Personnel Commission (now the Division of Human Resources) rules and result in improperly accrued earned administrative leave. Some employees were consistently recording more than 40 hours a week on time sheets by recording leave time. As a result, employees were earning administrative leave by taking vacation or other types of leave. In one instance, an employee reported 44 hours of leave in a single week. This employee accrued four hours of earned administrative leave in a week no hours were worked. The Division has made a change in scheduling policies that does not allow employees to modify their work schedule to record over 40 hours a week unless they have actually worked those hours. CLOSED.

AGENCY RESPONSE - The Division reviewed the report and is in general agreement with its contents. The Division's full response is included in the Findings and Recommendation section of the report.

FINANCIAL SUMMARY - The procedures completed and described above help us express our opinion on the fairness of presentation of the statewide Comprehensive Annual Financial Report (CAFR). Although no opinion is given on the financial data presented in this report, one is given on all State funds in the CAFR, including the financial data presented on the following pages.

The Division received a $4.5 million General Fund appropriation for general administration. The Division also received a General Fund transfer of $725,400 to the Disaster Emergency Fund and $1.5 million to the Natural Restoration Fund. This was used to pay the State's 25% share of costs to repair the damage caused by three federally declared disasters. The Division received $21 million for maintaining federal assets used for National Guard activities. Approximately $487,500 in other receipts are reimbursements from Boise City for fire protection at the Boise Air Terminal.

OTHER ISSUES - In addition to the findings and recommendations, we discussed other less important issues which, if changed, would improve internal control, ensure compliance, or improve efficiency.

This report is intended solely for the information and use of the Idaho Military Division and the Idaho Legislature, and is not intended to be, and should not be, used by anyone other than these specified parties.

We appreciate the cooperation and assistance given to us by the Division's Adjutant General, Major General John Kane, and his staff.

QUESTIONS CONCERNING THIS DOCUMENT SHOULD BE DIRECTED TO:

Ray Ineck, CGFM, Acting Supervisor, Legislative Audits