State Auditor Crit Luallen today, along with Corrections Commissioner John Rees, released an examination of Kentucky Correctional Industries. The examination was requested because in April of this year, Correctional Industries reported finding approximately 250 checks, cash, and unprocessed credit charges totaling over $377,000 in a manager's office. Checks had accumulated over four years.
"Our examination revealed flawed business practices, lack of financial controls, and gross mismanagement of previous administrators. Our auditors conducted an extensive analysis over these past months, but because of the lack of controls we were unable to conclusively account for all Correctional Industries' receipts. These findings represent, as Lt. Governor Pence said on May 7 when the examination was requested, a 'deplorable neglect of duty.' " Ms. Luallen said at a press conference held at the headquarters of Kentucky Correctional Industries in Frankfort.
Commissioner Rees said, "This was an extreme example of lack of oversight. We have put the control measures in place to make sure that nothing like this ever happens again. I am committed to making Kentucky Correctional Industries an integral part of this Department. With this behind us, we can focus on our mission: creating more jobs for inmates and generating more revenue."
The auditor also noted that the report was turned over to the Kentucky State Police "to determine if further investigation is warranted."
The Corrections Department originally estimated $480,000 was recovered from an employee's desk. This figure was reduced when duplicate checks and checks that were not related to KCI sales were ultimately processed.
The examination revealed that of the $377,751.86 of un - deposited receipts at Kentucky Correctional Industries, KCI had deposited over $338,000. $4,601.85 has remained un-deposited and KCI is continuing to recover that amount.
The report offered ten recommendations for improving KCI's internal procedures and controls, which have been, or are in the process of being implemented by the Corrections Department. Among the recommendations are that KCI should restrictively endorse checks immediately upon receipt, cash receipts should be deposited on a daily basis, remittance advices should be sent with bills and returned with payments, and KCI should investigate bills over 30 days past due.
Auditor Luallen also expressed dismay at the situation. "I can certainly understand the surprise and outrage experienced by Lieutenant Governor Pence and Commissioner Rees when this situation first came to their attention. The fact that an employee would put over $377,000 in payments in a drawer and not deposit them for years is simply unbelievable. Of equal concern is that financial controls were not in place to insure that the employee's managers would prevent or detect these actions. In short, there appears to have been a complete lack of oversight of cash management at Kentucky Correctional Industries.