FOR THE PERIOD
JULY 1, 2007 THROUGH
JUNE 30, 2009

OPERATIONAL AUDIT

OKLAHOMA
OFFICE OF THE
ATTORNEY
GENERAL

Oklahoma State Auditor
& Inspector

 Audit Report of the Oklahoma
Office of the Attorney General
For the Period
July 1, 2007 through June 30, 2009

This publication is printed and issued by the State Auditor and Inspector, as required by 74 O.S. § 212. Pursuant to 74 O.S. §
3105, six copies have been prepared and distributed at a cost of $22.93. Copies have been deposited with the Publications
Clearinghouse of the Oklahoma Department of Libraries.

 April 29, 2010
TO THE ATTORNEY GENERAL
This is the audit report of the Oklahoma Office of the Attorney General for the period July 1, 2007 through June 30,
2009. The Office of the State Auditor and Inspector is committed to serving the public interest by providing
independent oversight and by issuing reports that serve as a management tool to the State. Our goal is to ensure a
government that is accountable to the people of the State of Oklahoma.
We wish to take this opportunity to express our appreciation to the agency’s staff for the assistance and cooperation
extended to our office during the course of our engagement.
Sincerely,

STEVE BURRAGE, CPA
STATE AUDITOR & INSPECTOR

 Oklahoma Office of
the Attorney General
Operational Audit
Agency Background

The Oklahoma Office of the Attorney General (Agency) provides legal counsel and
representation for state agencies and employees as well as represents the interests of
Oklahoma consumers, the state's natural resources and Oklahoma crime victims.
Table 1 summarizes the Agency’s sources and uses of funds for fiscal years 2008 and
2009 (July 1, 2007 through June 30, 2009).
Table 1 - Sources and Uses of Funds for FY 2008 and FY 2009
2008
Sources:
State Appropriations
Workers Compensation Awards
Other Fees
Court Filing Fee
Other Licenses, Permits, and Fees
Reimbursement for Administrative Expense
Federal Funds
Registration Fees
Court Awarded Judgments
Other

$

$
Uses:
Personnel Services
Professional Services
Travel
Miscellaneous Administrative
Rent
General Operating
Office Furniture and Equipment
Library Equipment - Resources
Refunds, Indemnities, Restitution
Payments to Local Government and Non-Profits
Other

$

$

2009

13,944,326
610,970
1,358,185
142,537
354,137
2,745,953
3,580,171
117,925
5,176,892
48,062
28,079,158

$

13,938,699
1,477,697
258,709
351,130
2,189,121
127,762
107,824
243,691
2,109,100
6,770,864
128,978
27,703,575

$

$

$

Source: Oklahoma PeopleSoft accounting system (unaudited, for informational purposes only)

1

14,772,069
664,030
1,244,951
136,647
280,650
2,662,966
3,315,313
161,811
5,383,238
136,164
28,757,839

14,198,660
1,819,890
168,240
244,258
2,183,543
103,638
203,547
222,301
1,651,558
7,163,844
51,478
28,010,957

 Oklahoma Office of
the Attorney General
Operational Audit
Purpose,
Scope, and
Sample
Methodology

This audit was conducted in response to 74 O.S. § 212, which requires the State Auditor
and Inspector’s Office to audit the books and accounts of state officers whose duty it is to
collect, disburse or manage funds of the state and 74 O.S. § 19a which requires the State
Auditor’s Office to audit the Law Enforcement revolving fund 1.
The audit period covered was July 1, 2007 through June 30, 2009.
We selected our samples in such a way that whenever possible, the samples are
representative of the populations and provide sufficient evidential matter. Sample
methodologies can vary and are selected based on the audit objective and whether the
total population of data was available. Random sampling is the preferred method;
however, we may also use haphazard sampling (a methodology that produces a
representative selection for non-statistical sampling), or judgmental selection when data
limitation prevents the use of the other two methods. We identified specific attributes for
testing each of the samples. When appropriate, we projected our results to that
population.
We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions based on our audit
objectives. This report is a public document pursuant to the Oklahoma Open Records Act
(51 O.S. § 24A.1 et seq.), and shall be open to any person for inspection and copying.

Objective 1 - Determine if the Agency’s internal controls provide reasonable assurance that revenues,
expenditures, and inventory were accurately reported in the accounting records.
Conclusion

Methodology

The Agency’s internal controls:
•

Do not provide reasonable assurance that revenues and inventory were accurately
reported in the accounting records;

•

Generally provide reasonable assurance that miscellaneous and payroll expenditures
were accurately reported in the accounting records. However, three issues were
noted which should be addressed.

To accomplish our objective, we performed the following:
•

Documented internal controls related to the receipting, expenditure, and inventory
processes which included discussions with Agency personnel, observation, and
review of documents;

•

Tested controls which included:
o

1
2

Reviewing a random sample of 60 expenditure claims (18 victim services
claims 2 totaling $197,304.90, 14 travel claims totaling $6,057.28, and 28
miscellaneous claims totaling $115,145.76) from the audit period to determine
if:


The claims were supported;



The invoice and voucher jacket was mathematically accurate;

The Law Enforcement revolving fund was inactive during the audit period.
Seventeen claims were randomly selected and one was judgmentally selected.

2

 Oklahoma Office of
the Attorney General
Operational Audit

Observation



The invoice was initialed by the program manger or the assistant attorney
general (victim services unit claims only);



The correct fund and account code was used;



The voucher jacket was signed by the first assistant attorney general (travel
only);



The voucher jacket was signed by the Agency finance manager
(miscellaneous only); and



The expenditure appeared reasonable given the Agency’s mission;

o

Determining if the person receiving the warrants was independent of the posting
and approval process;

o

Reviewing nine randomly selected months’ Peoplesoft “six-digit expenditure
reports" for vendor names which appeared unusual 3;

o

Reviewing a random sample of 12 months’ payroll claims. From these months,
we randomly selected three employees and haphazardly selected four additional
employees (40 employees selected in total) and reviewed the employees’
timesheets to ensure they were signed by them and their supervisors, ensured the
hours worked on the timesheets agreed to the hours worked on the payroll
claims, and the payroll claims were signed by the Agency’s finance manager;

o

Reviewing a random sample of two employees whose salary was reduced and 40
employees whose salary was increased to ensure a payroll transaction form or a
combined payroll transaction spreadsheet was approved by the first assistant
attorney general;

o

Reviewing a random sample of 40 employees who separated from the Agency to
ensure an approved “off-cycle” payroll claim included their name, the date of
the claim was no later than the month following their official termination date
and the claim was approved by the Agency’s finance manager; and

o

Reviewing a random sample of three months’ payroll analysis spreadsheets and
payroll claims to ensure the 14 employees separated in the month prior to the
selected months were not included.

Receipting Functions Should be Centralized
The Agency receives various types of receipts from restitution payments to telemarketing
registration fees. From discussions held with personnel in the finance department, the
consumer protection department, and the Medicaid fraud department, the latter two are
receipting funds prior to delivering them to the finance department for deposit. Staffs in
these two divisions believe it is important for them to have this responsibility to ensure
timely processing of pertinent data as well as having the ability to accurately report on
funds collected. However, an effective internal control system provides for a centralized
receipting system reducing the risk of theft or misappropriation of assets. Management
was unaware of the risks created by not ensuring this type of process was in place.

Recommendation

We understand the certain department personnel need the information included with the
payment to perform their jobs. However, they do not appear to need access to the funds

3

Unusual was defined as a vendor name that was unfamiliar to the auditor or not reasonable given the mission of the
Agency.

3

 Oklahoma Office of
the Attorney General
Operational Audit
associated with that information, only evidence the funds were receipted and deposited
by the applicable personnel in the finance department. We recommend management
develop policy and procedure requiring all funds to be initially received through the
finance department. Any relevant data provided with the funds should then be provided
to the appropriate department.
Views of Responsible
Officials

The Office of the Attorney General will consider revising policy to centralize all deposits
with the finance department. It is possible a compromise can be worked out with the
chiefs of the sections which are voicing opposition to this policy. These deposits are
related to the sections’ restitution payments, which each section claims responsibility for
tracking.

Observation

Lack of Segregation of Duties Related to the Receipting Process
Daily Deposits Not Occurring
The United States Government Accountability Office’s (GAO) Standards for Internal
Control in the Federal Government 4 states in part, “Key duties and responsibilities need
to be…segregated among different people to reduce the risk of error or fraud….No one
individual should control all key aspects of a transaction…”.
62 O. S. § 7.1 C. 1. requires receipts of $100 or more to be deposited daily.
The following was noted:
•

The assistant finance manager “A” and the finance manager (victim services unit)
are both responsible for:
o

Receipting funds;

o

Preparing the deposit; and

o

Posting the deposit into the PeopleSoft accounting system.

Additionally, the assistant finance manager “A” was responsible for performing the
clearing account reconciliation (July 2007 through December 2008) as well as
informally reconciling the Agency’s records to PeopleSoft accounting records (entire
audit period);
•

Daily deposits were not occurring for funds receipted of $100 or more.

Management was unaware of the risks created by not ensuring there was adequate
segregation of duties or by not making daily deposits. Deficiencies such as these increase
the risk that misappropriations of assets may occur.
It should be noted management had taken steps to address a portion of the issues
discussed prior to the start of the audit. During the audit period, assistant finance
manager “B” was the first person to receive the funds in the finance department. She
then passed the funds to assistant finance manager “A” and the finance manager (victim
services unit) for receipting. However, in August 2009, the assistant finance manger “B”
began entering the funds received into an excel spreadsheet prior to delivering the funds
to the applicable personnel. Additionally, in January 2009, the Agency finance manager

4

Even though this publication addressed controls in the federal government, this criterion can be treated as best
practices. The theory of controls applies uniformly to federal or state government.

4

 Oklahoma Office of
the Attorney General
Operational Audit
began performing the clearing account reconciliation rather than the assistant finance
manager “A”.
Recommendation

Views of Responsible
Officials

We recommend the following:
•

Funds received of $100 or more should be deposited daily;

•

The assistant finance manager “B” should continue entering all funds received by her
into the excel spreadsheet log. Processed deposit slips should be mailed directly to
the Agency finance manager from the State Treasurer’s Office (OST) where he
should agree the date and amounts to the excel spreadsheet log prepared by the
assistant finance manager “B”; and

•

The Agency’s reconciliation to PeopleSoft accounting records should be formalized,
performed by an employee independent of the receipting process, and reviewed by
the Agency’s finance officer.

Changes to the Office of Attorney General (OAG) finance procedures early in 2009 have
accommodated some of the recommendations. The current policy will be amended to
include daily deposits and formalizing the PeopleSoft reconciliation process.

Observation

Funds 700 and 705 Are Not Adequately Secured
Inadequate Segregation of Duties
An effective internal control system provides adequate security for unissued vouchers.
The United States Government Accountability Office’s (GAO) Standards for Internal
Control in the Federal Government 5 states in part, “Key duties and responsibilities need
to be…segregated among different people to reduce the risk of error or fraud….No one
individual should control all key aspects of a transaction…”.
The following was noted:
•

Fund 700 6 and 705 vouchers are not adequately secured;

•

The Agency finance manager has the ability to print fund 700 and 705 vouchers, is
responsible for reconciling both funds as well as preparing all financial information
presented to executive management related to the funds.

Management was unaware of the risks associated with not ensuring there was adequate
segregation of duties or by not adequately securing unissued vouchers. Deficiencies such
as these increase the risk that misappropriations of assets may occur.
Recommendation

We recommend:
•

Vouchers from fund 700 and 705 should be adequately secured and accessible to
authorized personnel only;

5

Even though this publication addressed controls in the federal government, this criterion can be treated as best
practices. The theory of controls applies uniformly to federal or state government.
6
Fund 700 is used to pay for any court cost associated with the Agency, the state of Oklahoma (including legal
expenses for other state agencies), or any other matter within the official responsibility of the Agency. Fund 705
accepts settlements in consumer protection matters, pays out restitution to victims, as well as other matters within
the official responsibility of the Agency.

5

 Oklahoma Office of
the Attorney General
Operational Audit

•

The duties performed by the Agency finance manager be segregated to ensure the
employee posting the payments into the Agency’s internal accounting software 7 is
independent of the approval process; and

•

The employee reconciling the fund is independent of the receipting and expenditure
approval and posting process.

Although not an ideal process, the Agency should be commended for performing this
reconciliation as it is not required by the Office of State Finance.
Views of Responsible
Officials

Generally, vouchers/checks for the 700 and 705 are secured. More diligence will be
made to insure the safety of blank checks, current policy requires them to be locked in the
Finance Officer’s office or secured in a locked closet with the personnel files at all times.
We will segregate the reconciling function to an employee that is separate from the
writing and posting process. We understand the need to separate the duties, however,
segregation of the employee posting the payments and the person writing the payments
will be difficult as there are only three finance staff. The approval process for checks
written from the 700 and 705 requires two people separate from the process to review and
sign each check. If the reconciling employee is separate from this function also, it should
help in reducing the risk for a misuse of funds.

Observation

Expenditures Not Approved
An effective internal control system provides an appropriate level of review of
expenditures.
From reviewing 60 expenditure claims, three victim services unit invoices ($38,181.22)
and one miscellaneous expenditure voucher jacket ($631.25) were not approved prior to
payment.
The approving officials believe the lack of approval was an oversight on their part.
Expenditure amounts may be inaccurate.

Recommendation

Views of Responsible
Officials

Observation

We recommend the approving officials exercise diligence when reviewing
invoices/voucher jackets and ensure their approving signatures are added to the
applicable documents as evidence that a review has been performed.

We agree more diligence by approving officials is needed and will be stressed in a
revision to the current accounting procedures.
Employee Separations
An effective internal control system provides assurance separated employees are removed
from payroll records in a timely manner.
During the period July 2007 through December 2008, a control was not in place to
provide management assurance that employees which separate from the Agency are
removed from payroll records in a timely manner. In January 2009, the office

7

This internal accounting software is QuickBooks and is used by the Agency finance manger in producing the fund
700 and 705 vouchers as well as in the reconciliation of these funds.

6

 Oklahoma Office of
the Attorney General
Operational Audit
administrator began comparing the payroll claims to a payroll analysis spreadsheet 8
(spreadsheet) created by the finance officer. The spreadsheet was not completed for June
2009; however, the employees were not included in the June 2009 payroll claims.
Recommendation

Views of Responsible
Officials

We recommend the office administrator continue performing the comparison of the
spreadsheet to the payroll claims and ensure the spreadsheet is completed for each month
for all payroll types.
The office administrator will continue performing the comparison of the spreadsheet to
the payroll claims and ensure the spreadsheet is completed for each month for all payroll
types.

Observation

Inventory Policy and Procedures Inconsistent with Oklahoma
Administrative Code
Oklahoma Administrative Code (OAC) 580:70-1-3(A) establishes the general threshold
for tangible asset inventory reports at $500.
OAC 580:70-5-1(a) requires an agency to affix a unique identifier as an inventory tag to
all tangible assets.
Agency policy requires inventory records be maintained in the format requested by the
Department of Central Services (DCS) while OAC 580:70-3-1 (c) outlines the
information required to be included in the inventory report.
After reviewing the Agency’s policy and procedures, the following was noted:
•

The reporting threshold established for furniture/equipment is $100. Although this
amount is less than the $500 established in the OAC, Agency personnel indicate they
only include assets valued at $500 or more on the inventory records;

•

Policy only requires computer/software inventory items be affixed with an inventory
tag.
Although the risk associated with Agency furniture is less than
computer/software items, this policy does not correspond with OAC requirements.
Agency personnel confirmed furniture items were not tagged; and

•

The furniture/equipment inventory listing does not appear to contain all the
information required by OAC 580:70-3-1(c). Items noted as being omitted were:
o

Asset tag number, model and serial number, if applicable, and acquisition date
and cost.

The Agency’s policies and procedures do not appear to be consistent with the OAC
addressing threshold levels, tagging tangible assets or completeness of inventory records.
Management was unaware of these inconsistencies.
Recommendation

We recommend the agency revise their policies and procedures to be consistent with
OAC 580:70-1-3(A) (asset threshold), 580:70-5-1(a) (tagging tangible assets) and
580:70-3-1 (c) (required fields of the inventory report).

8

The spreadsheet was created for the main payroll only during the audit period and includes but is not limited to the
employees’ names, their funding source, and their salary.

7

 Oklahoma Office of
the Attorney General
Operational Audit
Views of Responsible
Officials

The OAG concurs and will revise the agency policies and procedures to adopt the audit’s
recommendations and adhere to Oklahoma Administrative Code. A change of the
reporting threshold will be changed from $100 to $500.

Observation

Lack of Segregation of Duties Related to Inventory Process
The United States Government Accountability Office’s (GAO) Standards for Internal
Control in the Federal Government 9 states in part, “Key duties and responsibilities need
to be…segregated among different people to reduce the risk of error or fraud….No one
individual should control all key aspects of a transaction…”.
An effective internal control system provides for a periodic physical inventory count.
The following was noted:
•

•

For computer/software equipment, the information technology administrator is
responsible for:
o

Purchasing items;

o

Updating the inventory records which includes adding, deleting, and surplusing
items; and

o

Conducting the physical inventory count. However, a count has not occurred
since 2006.

The office administrator maintains the inventory records for furniture and is
responsible for conducting the inventory count. However, evidence of the most
recent furniture inventory count (January 2009) was not retained.

Management was unaware of the risks associated with not ensuring there was adequate
segregation of duties or by not conducting a periodic physical inventory count of the
Agency’s assets. Deficiencies such as these increase the risk that misappropriations of
assets may occur.
Recommendation

We recommend:
•

An employee without purchasing ability should be responsible for maintaining the
Agency’s inventory records;

•

An employee without the ability to update inventory records should be responsible
for completing the DCS Form 001 surplus inventory form; and

•

A physical inventory count of the computer/software equipment should be conducted
as soon as possible. The physical inventory count (both computer/software
equipment and furniture) should be conducted by an employee not responsible for
purchasing/surplusing goods or maintaining the inventory records. If discrepancies
are noted, the office administrator or designee, other than the personnel involved in
the physical count, should investigate and resolve. The Agency should also retain
documentation to support who performed the count, when the count was performed,
and any discrepancies noted during the count.

9

Even though this publication addressed controls in the federal government, this criterion can be treated as best
practices. The theory of controls applies uniformly to federal or state government.

8

 Oklahoma Office of
the Attorney General
Operational Audit
Views of Responsible
Officials

The OAG agrees that physical inventory counts should occur, at a minimum, annually.
The finance procedure will be revised to include these counts. We also agree that a
separate individual should perform the physical inventory count and use that information
to complete the DCS Form 001. However, we do believe that enough purchase controls
are in place with the agency approval process and P-Card process that the employee
purchasing may also update the inventory record. Documentation of inventory counts
will be maintained.

Additional Procedures Performed

Methodology

As a result of the control deficiencies identified under objective 1 of this report, the
following procedures were performed:
•

Reviewed the fund 700 and 705 warrant registers from the Agency’s internal
accounting system for payments to the Agency finance manager or vendor names
that would appear unusual 10. Thirty-one claims ($2,958,728.24) were reviewed and
no exceptions were noted.

Objective 2 - Determine whether the Agency complied with 15 O.S. § 775B.7, 74 O.S. § 19.2, 74 O.S. § 19.3,
and 74 O.S. § 250.4 3.
Conclusion

With respect to the claims tested, financial operations complied with the following
statues:
•

15 O.S. § 775B.7 – funds may be used for the purpose of implementing,
administering, or enforcing the provisions of the Telemarketer Restriction Act;

•

74 O.S. § 19.2 – funds may be used the purposes of investigation, civil action,
criminal action or referral to the district attorney in cases involving suspected
workers' compensation fraud; and

•

74 O.S. § 19.3 – funds may be used for the purposes of investigation, civil action,
criminal action, or referral to the district attorney in cases involving suspected
insurance fraud.

The Attorney General’s salary complied 11 with the provisions of 74 O.S. § 250.4 3 12 –
salary limitation on the position of Attorney General.

10

Unusual was defined as a vendor name that was unfamiliar to the auditor or not reasonable given the mission of
the funds.
11
It should be noted the annual salary exceeded the maximum amount by $25.
12
74 O.S. § 250.4 3. states the Attorney General’s salary is equal to the presiding judge of the court of civil appeals.
20 O.S. § 30.2A 1. sets the presiding judge’s salary of the court of civil appeals and 20 O.S. § 3.4 authorizes the
Board on Judicial Compensation to set judicial salaries. Two reports issued by the Board on Judicial compensation
were in effect during the audit period. The two salary limitations were:
1.
2.

$126,500 - effective July 1, 2006
$132,825 - effective July 1, 2008

9

 Oklahoma Office of
the Attorney General
Operational Audit
Methodology

To accomplish our objective, we performed the following:
•

Randomly selected 40 expenditures claims (37 from fund 205 totaling $29,249.11,
two from fund 220 totaling $51.59, and one claim from fund 225 totaling $22.80)
and tested them to ensure compliance with 15 O.S. § 775B.7 (fund 205), 74 O.S. §
19.2 (fund 220), and 74 O.S. § 19.3 (fund 225);

•

Reviewed the “HR Actions Report” from the PeopleSoft accounting system for the
audit period to ensure the Attorney General’s salary did not exceed the limit set by
law.

10

 OFFICE OF THE STATE AUDITOR AND INSPECTOR
2300 N. LINCOLN BOULEVARD, ROOM 100
OKLAHOMA CITY, OK 73105-4896
WWW.SAI.OK.GOV