Lisa R. Collier, CPA, CFE, CIDA
First Assistant State Auditor

An Audit Report on

Agribusiness at the Department of
Criminal Justice
March 2021
Report No. 21-016

State Auditor’s Office reports are available on the Internet at http://www.sao.texas.gov/.

An Audit Report on

Agribusiness at the Department of
Criminal Justice
SAO Report No. 21-016
March 2021

Overall Conclusion
Texas Government Code, Section 497.112(b),
requires the Department of Criminal Justice
(Department) to develop and improve its
agricultural operations using information from
the annual Cost Statement prepared by its
Agribusiness, Land and Minerals Division
(Agribusiness).

Agribusiness
Background Information
The Agribusiness, Land and Minerals
(Agribusiness) Division of the
Department of Criminal Justice
(Department) reported that in 2018 it
produced food and fiber crops, animals,
canned foods, and meat items with a
market value of $90.7 million.

The Department reported that it has largely
In addition, the Department received
been successful in managing its agricultural
$8.5 million in land revenues from
operations, having saved $160.3 million from
sources such as leases, easements, oil
calendar years 2014 to 2018 by producing food
and gas royalties, and grazing fees.
and fiber items instead of purchasing those
The Department used Agribusiness
products to feed a population of 145,019
products externally. However, the
offenders in 106 prison units during
Department’s processes for managing its
2018. Agribusiness planned to
exclusively supply a diverse range of 33
agricultural operations are not comprehensive
products to the Department, including
enough to ensure that these operations are
ham, cantaloupe, and eggs, in fiscal
consistently cost-effective. Although the
year 2020.
Department reported that most of its
Sources: The Department’s 2018 Cost
Statement; the Department’s Fiscal
agricultural operations were cost-effective
Year 2018 Statistical Report; the
from 2014 to 2018, the Department consistently
Department’s website, as of December
1, 2018; Agribusiness’ Fiscal Year 2020
produced a significant number (46 percent) of
Planned Food Projections; and Food
items that were not cost-effective during that
Service’s listing of items to be procured
time. The Department should implement
externally in fiscal year 2020.
processes to identify products that are not
cost-effective and make management decisions
based on that analysis. In addition, the
Department should produce its Cost Statements timely to enable Agribusiness and
Laundry, Food and Supply (Food Service) to use this data to determine the
following year’s purchases.
Most of the audited data in the 2018 Cost Statement was accurate. The
Department reported $92.6 million in sales revenues and $61.4 million in cost of
goods sold and other operating expenses in the calendar year 2018 Cost Statement.
However, to reduce the risk of significant errors in future Cost Statements, the
Department should improve the design, implementation, and operating
effectiveness of some of the key processes it uses to account for its agricultural
operations and to create its annual Cost Statement. The 2018 Cost Statement was
the most recent cost statement produced at the time of the audit.

This audit was conducted in accordance with Texas Government Code, Sections 321.0131, 321.0132 and 321.0133.
For more information regarding this report, please contact Michael Simon, Audit Manager, or Lisa Collier, First Assistant State Auditor,
at (512) 936-9500.

An Audit Report on
Agribusiness at the Department of Criminal Justice
SAO Report No. 21-016

Auditors identified weaknesses in the Department’s controls over access to certain
information systems. Additionally, auditors assessed controls over the
Department’s financial and purchasing systems. While the Department had some
controls in place, it should strengthen certain controls. To minimize security risks,
auditors communicated details about these identified weaknesses separately to the
Department in writing.
Pursuant to Standard 9.61 of the U.S. Government Accountability Office’s
Generally Accepted Government Auditing Standards, certain information was
omitted from this report because that information was deemed to present
potential risks related to public safety, security, or the disclosure of private or
confidential data. Under the provisions of Texas Government Code, Section
552.139, the omitted information is also exempt from the requirements of the
Texas Public Information Act.
Table 1 presents a summary of the findings in this report and the related issue
ratings. (See Appendix 2 for more information about the issue rating classifications
and descriptions.)
Table 1

Summary of Subchapters and Related Issue Ratings
Subchapter

Issue Rating a

Title

1-A

The Department Should Use Cost Statement Data to Improve Cost-effectiveness

High

1-B

The Department Should Produce Agribusiness Cost Data in Time for Its Use in
Planning the Next Fiscal Year’s Food Purchases

Medium

2-A

Most of the 2018 Cost Statement Data Was Accurate

Low

2-B

The Department Should Strengthen Its Processes to Ensure That Data Used to
Prepare Future Cost Statements is Accurate

Medium

3-A

The Department Should Improve Certain Controls to Help Ensure the Reliability of
Data Used to Prepare the Agribusiness Cost Statement

High

3-B

The Department Should Continue Strengthening Information Technology Controls
over Its Financial Data

Low

3-C

The Department Should Improve Certain Controls to Protect Its Assets

Medium

a A subchapter is rated Priority if the issues identified present risks or effects that if not addressed could critically affect the audited
entity’s ability to effectively administer the program(s)/function(s) audited. Immediate action is required to address the noted concern
and reduce risks to the audited entity.
A subchapter is rated High if the issues identified present risks or effects that if not addressed could substantially affect the audited
entity’s ability to effectively administer the program(s)/function(s) audited. Prompt action is essential to address the noted concern and
reduce risks to the audited entity.
A subchapter is rated Medium if the issues identified present risks or effects that if not addressed could moderately affect the audited
entity’s ability to effectively administer the program(s)/function(s) audited. Action is needed to address the noted concern and reduce
risks to a more desirable level.
A subchapter is rated Low if the audit identified strengths that support the audited entity’s ability to administer the
program(s)/function(s) audited or the issues identified do not present significant risks or effects that would negatively affect the audited
entity’s ability to effectively administer the program(s)/function(s) audited.

ii

An Audit Report on
Agribusiness at the Department of Criminal Justice
SAO Report No. 21-016

Auditors communicated other, less significant issues separately in writing to the
Department’s management.

Summary of Management’s Response
At the end of certain chapters in this report, auditors made recommendations to
address the issues identified during this audit. The Department agreed with the
recommendations in this report.

Audit Objectives and Scope
The objectives of the audit were:


To determine whether the Department has processes and related controls to
help ensure the accuracy and completeness of the cost-related data that
prison units report and that the Department compiles into an annual cost
statement.



To determine whether the Department uses cost statement data and related
analyses to make decisions for developing and improving agricultural
operations, as required by statute.

The audit scope covered the 2018 Cost Statement, use of 2018 Cost Statement
data, and controls over the Department’s significant information technology
systems. The scope also included a review of significant internal control
components related to the 2018 Cost Statement data.

iii

Contents
Detailed Results
Chapter 1

The Department Should Expand Its Use of Cost
Statement Data and Related Analyses to Improve
Agricultural Operations ............................................... 1
Chapter 2

Data in the Department’s 2018 Cost Statement Was
Generally Accurate; However, the Department Should
Improve the Processes It Uses to Account for and Report
on Its Agricultural Operations ....................................... 9
Chapter 3

The Department Should Strengthen Information
Technology Controls over Agribusiness Data .................... 14

Appendices
Appendix 1

Objectives, Scope, and Methodology ............................. 17
Appendix 2

Issue Rating Classifications and Descriptions .................... 21
Appendix 3

Internal Control Components ...................................... 22
Appendix 4

Listing of Cost Savings and Losses by Category: 20142018 ................................................................... 24
Appendix 5

Related State Auditor’s Office Report ........................... 25

Detailed Results
Chapter 1

The Department Should Expand Its Use of Cost Statement Data and
Related Analyses to Improve Agricultural Operations
Background

Texas Government Code, Section 497.112(b) requires the Department of
Criminal Justice (Department) to use information provided in its Agribusiness,
Land and Minerals Division’s
(Agribusiness) Cost Statement (Cost
Definition of Cost-effectiveness
Statement) to develop and improve
According to Department Guidelines, “Agribusiness,
Land and Minerals’ primary objective is the costagricultural operations. In its
effective production of food and fiber to be
Agribusiness/Food Service Resource
consumed or used to provide for the subsistence of
the agency’s incarcerated offender population.
Coordination Guidelines (Guidelines),
Agribusiness’ success in meeting this objective is
measured by comparing actual cost of production for
the Department communicated its
component and end products to the market value of
expectation that Agribusiness is to
like or closely similar products.”
manage production of food and fiber
Source: The Department’s Agribusiness/Food Service
Resource Coordination Guidelines, Chapter 3;
for its incarcerated offenders in a
Agribusiness Annual Cost Statement and Trend
Analysis.
cost-effective manner (see text box
for more information on costeffectiveness). The Guidelines state that the Department will measure the
cost-effectiveness of its agricultural operations by comparing its cost to
produce products against the market value of “like or closely similar”
products.
The Cost Statement contains data that compares the Department’s cost for
producing each of 69 different agricultural goods with a corresponding
market value that Agribusiness has determined. The Department reported
that it has largely been successful in managing its agricultural operations, by
achieving $160.3 million in cost savings from calendar years 2014 to 2018.1
The Cost Statement contains five years’ worth of data because it enables
management to consider product performance over time, instead of just on
one or two years’ results, which may be outliers.

1

The most recent cost statement available at the time of the audit was the 2018 Cost Statement, which management
presented to the Board of Criminal Justice on July 16, 2019.

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Chapter 1-A

The Department Should Use Cost Statement Data to Improve Costeffectiveness

□
Chapter 1-A
Rating:
High 2

The Department’s processes for managing its agricultural operations are not
comprehensive enough to ensure that these operations are consistently costeffective. Although most of the agricultural operations were cost-effective
from 2014 to 2018, the Department consistently produced a significant
number of items that were not cost-effective during that time. The
Department should implement processes to identify products that are not
cost-effective and make management decisions based on that analysis.
Auditors examined the accuracy of the 2018 Cost Statement, which was the
most recent Cost Statement available at the time of the audit.
Almost Half of the Agricultural Products Were Not Cost-effective

The Department’s Cost Statements show savings of $160.3 million from 2014
to 2018 from producing goods, compared with what it would have cost to
purchase those items externally. However, the Cost Statements also show
that during this period, 32 of the Department’s 69 agricultural products (46
percent) were not cost-effective. The Department could have saved $17.0
million if it had purchased these products rather than produced them. Most
of these products consistently cost more to produce than to purchase for all
or most of the five year period. Specifically :


In each of the five years, 13 products cost more to produce than to
purchase. The Department could have saved $13.0 million by choosing to
purchase these 13 products.



In four of the five years, an additional four products cost more to produce
than to purchase. The Department could have saved $1.5 million by
choosing to purchase these four products.



In three of the five years, an additional five products cost more to
produce than to purchase. The Department could have saved $1.0 million
by choosing to purchase these five products.

Appendix 4 lists categories of agricultural items that the Department
produced and the associated cost savings and losses for calendar years 20142018.

2

The risk related to the issues discussed in Chapter 1-A is rated as High because they present risks or effects that if not
addressed could substantially affect the audited entity’s ability to effectively administer the program(s)/function(s) audited.
Prompt action is essential to address the noted concern and reduce risks to the audited entity.

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The Department’s Current Processes Did Not Comprehensively and Consistently
Identify Products That Were Not Produced Cost Effectively

The Guidelines state that Agribusiness’ primary objective is cost-effective
production of agricultural products. The Guidelines also require Agribusiness
to implement strategic operational changes to minimize offenders’ feeding
costs when that action is determined to be in the best interests of the agency
based on this analysis. The Department uses annual reviews and trend
analyses to evaluate the cost effectiveness of its agricultural operations.
Management has taken steps to improve cost effectiveness based on
available data. However, these analyses have not consistently resulted in the
Department identifying products that have not been cost effective and
documenting its decisions based on available data.
Department management performs an annual analysis on the annual Cost
Statement, but it has not developed a formal plan or policy to document this
analysis and its planned changes to minimize costs. For example, the
Agribusiness Division program supervisors met to review and analyze the
2018 Cost Statement, as required by the Guidelines. However, the
Department has no documentation of the results of this meeting, including
how the supervisors used cost and production data to determine the longterm cost-effectiveness of Agribusiness’ products.
In addition, although Department Cost Statements contain trend analysis
data, including production, cost, and market value data for the most recent
five years, they do not contain cost-effectiveness analyses for that period. If
the Cost Statements showed this cost-effectiveness data, the Department
could identify products that it had consistently not been producing cost
effectively.
Although the Department did not have a process to consistently document
and address all instances in which producing goods regularly cost the
Department more than purchasing the goods, management created a plan to
address issues with the product with the largest excess costs – cotton.
Cotton and cottonseed cost $5.6 million more to produce from 2014–2018
than to purchase externally. In October 2018, management created a
reallocation plan to implement strategic operational changes designed to
make its cotton crop cost-effective. Management planned to address crop
losses from previous years by increasing cotton yields. It planned to increase
yields by changing the location in which the Department grows some of its
cotton, changing to a cotton variety that ripens earlier, and possibly
upgrading one of the Department’s cotton gins.

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Implement Systematic, Complete Analyses

The Department should add analyses in which it evaluates the costeffectiveness of all of its agricultural products and documents its
assessments of whether it wants to keep growing individual crops. The
Department should document its reasons for continuing to grow crops that
cost more to produce than to purchase. These reasons might include the
need to continue producing certain items to ensure a reliable food supply for
its population of incarcerated offenders.
Recommendations

The Department should improve its operations’ cost-effectiveness by adding
processes that enable it to perform and document comprehensive and
consistent analysis of its agricultural functions, including:


Documenting management’s review of the annual Cost Statement,
including potential opportunities it identifies to improve agricultural
operations and cost-effectiveness.



Adding a five-year cost-effectiveness analysis with the other trend
analysis data in future Cost Statements.



Documenting reasons for continuing to produce items that can be
purchased externally at a lower cost.

Management’s Response

The Texas Department of Criminal Justice agrees with the recommendation
and will continue to use data derived from the Cost Statement to identify
opportunities to improve cost-effectiveness. This will include adding trend
analysis information to the Cost Statement and ensuring that documented
reasons for continuing to produce items that can be purchased externally at a
lower cost such as, items that are: historically challenging to obtain from
vendors, provide fresh produce while considering shelf life, are incorporated
into the planting rotation to ensure soil and crop health, or are projected to
become cost-effective in the future. The target date for implementation is
April 30, 2021.

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Chapter 1-B

The Department Should Produce Agribusiness Cost Data in Time
for Its Use in Planning the Next Fiscal Year’s Food Purchases

□
Chapter 1-B
Rating:
Medium 3

Cost Statement data would be more useful if the Department produced the
Cost Statement in time for Agribusiness and the Laundry, Food and Supply
(Food Service) division to use the data to plan food purchases for the next
fiscal year. The Guidelines list the Cost Statement as a deliverable, but they
do not require Agribusiness to produce the Cost Statement or other cost data
in a timely manner.
Agribusiness and Food Service followed most of the requirements from the
Guidelines that were tested. The Department designed these Guidelines to
help these areas coordinate efforts to maximize resources used to provide
food for offender consumption.
Cost Statement Timeliness and Usefulness

Agribusiness did not complete the 2018 Cost Statement on time. The
Guidelines require Agribusiness to produce the prior calendar year’s Cost
Statement and have it approved by the Department’s Chief Financial Officer
by March 31 annually. Agribusiness did not complete the 2018 Cost
Statement until July 16, 2019, 107 days after it was due. Reasons for the
delay included not assigning sufficient staff to enable the project to meet the
due date.
However, even if Agribusiness had met this deadline for producing the 2018
Cost Statement, the Cost Statement data would not have been available to
help the Department determine the most cost-effective combination of
internal production and external purchases of foods. Food Service is
required to provide the list of foods it plans to purchase externally during the
following fiscal year to the Department’s Budget Department and Contracts
and Procurement Department annually on February 1, which is prior to the
Cost Statement deadline.

3

The risk related to the issues discussed in Chapter 1-B is rated as Medium because they present risks or effects that if not
addressed could moderately affect the audited entity’s ability to effectively administer the program(s)/function(s) audited.
Action is needed to address the noted concern and reduce risks to a more desirable level.

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Agribusiness produces a significant
amount of the food provided to offenders
(see text box). To plan its food purchases,
the Department needs Agribusiness cost
data to determine whether producing a
product or purchasing that product
externally is more cost-effective.

Agribusiness’ Produced Foods
Provided to Offenders
Agribusiness provided a significant portion of
the food that the Department served to
offenders, including almost all meat
products. Most products that Food Service
purchased externally were items that
Agribusiness could not readily produce, such
as sugar and pineapples.
Source: Food Services’ listing of food items
to be procured externally for fiscal years
2019 - 2021.

For example, the 2017 Cost Statement
showed that the Department had paid
$2.7 million more to produce canned
green beans compared with the cost to purchase them externally from 2014–
2017. If this data had been available during the food planning cycle, Food
Service and Agribusiness could have considered the cost-effectiveness of
continuing to produce green beans internally. The Department could have
avoided paying the $473,939 additional cost it paid in calendar year 2018 to
produce green beans by purchasing them instead. Agribusiness records
show that it planted 406 acres of green beans for canning in calendar year
2019.
Food Production and Purchase Planning for Fiscal Year 2020

Food Service and Agribusiness completed required planning and financial
documents other than the Cost Statement within 20 days of their due dates
in fiscal year 2019. The Guidelines require Agribusiness and Food Service to
produce a series of planning and financial documents as part of preparing the
next fiscal year’s menus and external food purchases in addition to the Cost
Statement. Figure 1 on the next page shows the calendar of events for this
process.
During fiscal year 2019, Agribusiness and Food Service met once every two
months to review performance and make any necessary adjustments to the
Department’s current operating year production plan for fiscal year 2019, as
required by the Guidelines. The meetings mainly involved discussions about
current production and inventories of foods.

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Figure 1

Calendar for Planning Fiscal Year 2020 Food Purchases a

a The Department updated its Guidelines in July 2019, but this update did not significantly affect the fiscal year 2020 planning process. Many of
the updated Guidelines’ due dates are approximately one month sooner than the calendar dates shown above for the fiscal year 2021 planning
process.
Source: The Department’s Agribusiness/Food Service Resource Coordination Guidelines, Chapter 1, February 29, 2012.

Recommendation

The Department should determine whether Agribusiness can produce the
Cost Statement or other cost-effectiveness data timely enough to enable
Agribusiness and Food Service to use Cost Statement data to analyze
additional potential financial savings.
Management’s Response

The Texas Department of Criminal Justice agrees with the recommendation.
The Manufacturing, Agribusiness and Logistics Division is initiating a process
whereby enterprises, products, and services are reviewed annually using a
combination of Cost Statement data from the preceding year and other
current relevant information. This will result in a management decision
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regarding the continuation of an enterprise, prior to submitting food
requisitions for the coming year. The target date for implementation is April
30, 2021.

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March 2021
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Chapter 2

Data in the Department’s 2018 Cost Statement Was Generally
Accurate; However, the Department Should Improve the Processes It
Uses to Account for and Report on Its Agricultural Operations
Most of the audited data in the 2018 Cost Statement4 was accurate.
However, to reduce the risk of significant errors in future cost statements,
the Department should improve the design, implementation, and operating
effectiveness of some of the key processes it uses to account for its
agricultural operations and to create its annual Cost Statement.
Chapter 2-A

Most of the 2018 Cost Statement Data Was Accurate
Chapter 2-A
Rating:
Low5

Most of the data in the 2018 Cost
Statement was accurate. Cost
Statement data was generally
consistent with data in the Farm
Business System (FBS), which is the
Department’s cost accounting system.
See Chapter 2-B for additional
information. Table 2 presents a highlevel summary of Cost Statement data.

Table 2

Summary - 2018 Cost Statement
Category

Amount
(in millions)

Sales – all types

$92.6

Cost of Goods Sold

(57.9)

Other Operating Expenses
Gross Margin

(3.5)
$31.2

Source: 2018 Agribusiness, Land and Minerals
Division Cost Statement.

4

The 2018 Cost Statement was the most recent cost statement available at the time of the audit.

5

The risk related to the issues discussed in Chapter 2-A is rated as Low because the audit identified strengths that support the
audited entity’s ability to administer the program(s)/function(s) audited or the issues identified do not present significant
risks or effects that would negatively affect the audited entity’s ability to effectively administer the program(s)/function(s)
audited.

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Sales Revenues

The Department reported $92.6 million in
sales revenues. Most revenues in the 2018
Cost Statement are intra-agency sales
($71.4 million), as shown in Table 3. The
Department accurately reported the
following cash revenues in the Cost
Statement:


$6.6 million from cattle sales.



$1.1 million in outside grain and cotton
sales.



$8.5 million in contract receipts.

Table 3

2018 Cost Statement Sales Revenues
Category

Amount
(in millions)

Total Intra-Agency Sales

$71.4

Outside Sales and Revenue
Cattle Sales

6.6

Grain and Cotton Sales

1.1

Contract Receipts

8.5

Other Outside Sales and Revenue

1.4

Total Outside Sales Revenue

$17.6

Other Internal Revenue
Kitchen Waste Savings

1.6

Additional Other Internal Revenue

2.0

Total Other Internal Revenue

$3.6

The intra-agency sales total was consistent
Total Sales Revenues
$92.6
with the market values used in the Cost
Source: 2018 Agribusiness, Land and Minerals Division
Statement and the amounts of products
Cost Statement.
that the Department reported that it sold.6
However, the Department did not have a policy specifying its criteria for
selecting the sources of Cost Statement market values and describing which
sources it would use.
Cost of Goods Sold and Other Operating Expenditures

As shown in Table 2 on the previous page, the Department reported $57.9
million in cost of goods sold and $3.5 million other operating expenses in the
2018 Cost Statement. Direct materials transactions that were tested
matched with supporting documents and corresponding transactions in the
Advanced Purchasing and Inventory Control System (ADPICS), which is the
Department’s purchasing system.

6

Intra-agency sales are non-cash revenues. Non-cash revenues occur when Agribusiness transfers products (for example,
canned goods) to other Department sections, such as Food Service. Non-cash revenue amounts are calculated by multiplying
the quantity of items transferred by an estimated market value. Non-cash revenues do not represent an actual inflow of
funds to the Department.

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Transfers

The Department also reported transfers
accurately. Table 4 shows the
Department’s $26.0 million in intradivisional transfers out, which matched
intra-divisional transfers in.
Recommendation

Table 4

2018 Cost Statement Transfers Out
Category

Amount
(in millions)

Prior Year Intra-Agency Transfers
Out
Intra-Agency Transfers Out

$22.3

Total Intra-Agency Transfers

$26.0

Source: 2018 Agribusiness, Land and Minerals

Division Cost Statement
The Department should develop policies
and procedures describing its objectives
for selecting market values and its criteria for selecting market values.

Management’s Response

The Texas Department of Criminal Justice agrees with the recommendation.
The Manufacturing, Agribusiness and Logistics Division will document policies
and procedures for compiling the Cost Statement, including a description of
the objectives for selecting market values, and the criteria to be used when
selecting market values. The target date for implementation is May 31, 2021.

Chapter 2-B

The Department Should Strengthen Its Processes to Ensure That
Data Used to Prepare Future Annual Cost Statements is Accurate

□
Chapter 2-B
Rating:
Medium 7

Although the data in the 2018 Cost Statement was generally accurate, the
Department should improve some of its key processes to reduce the risk of
significant errors in future cost statements. The Department should
document policies and procedures describing creation of the Cost Statement,
document the connection between the Cost Statement and its supporting
data, and implement reconciliations that ensure that data in its cost
accounting system (FBS) is consistent with source data.
Develop Policies and Procedures Describing the Process for Producing the Cost
Statement

The Department did not have detailed policies and procedures in place that
provided a complete description of the processes used to prepare the 2018
Cost Statement. The policies and procedures for preparing the Cost
Statement contain a high-level narrative, rather than detailed descriptions, of
7

$3.7

The risk related to the issues discussed in Chapter 2-B is rated as Medium because they present risks or effects that if not
addressed could moderately affect the audited entity’s ability to effectively administer the program(s)/function(s) audited.
Action is needed to address the noted concern and reduce risks to a more desirable level.

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processes for preparing the Cost Statement. In addition, the policies and
procedures are outdated. For example, they include processes performed by
persons holding positions that no longer exist in the Department.
Document the Connection Between Its Annual Cost Statement and Supporting
Data

The informal processes that staff members use do not result in creation of
documentation that provides a clear and consistent connection between
source documentation, including FBS and inventory data, and the Cost
Statement. The lack of a clear link to source data makes supervisory review
of the Cost Statement difficult. Also, only one staff member knows how to
perform certain Cost Statement processes. Documenting and updating all
processes and the connection between the Cost Statement and supporting
data would make it easier to train other staff members to perform these
processes.
Implement Reconciliations to Ensure FBS Data is Consistent with Source Data

The Department’s current reconciliation processes to ensure that FBS data
was consistent with source data could be strengthened. Since FBS is the
main source of Cost Statement data, ensuring that FBS data is accurate is key
to ensuring the Cost Statement’s accuracy:


Cash Revenues and Expenditures.



Inventory Data.



Policies and Procedures.

The Department compares FBS data with
information in the Department’s financial accounting and purchasing
systems periodically to ensure the accuracy of the Cost Statement.
Although the Department maintains this documentation, the information
included in each comparison is overwritten during subsequent periods.
In addition, Department staff asserted that they performed a year-end
reconciliation for 2018 but did not retain this year-end reconciliation.
Preparing, reviewing, documenting, and retaining periodic reconciliations
are essential in detecting and correcting errors.
The monthly inventory reconciliations between FBS and
monthly farm inventory reports do not always result in staff correcting
errors in the inventory reports, which increases the risk of undetected
errors in FBS. Department staff calculated 93 of 118 inventory balances
(79 percent) accurately. However, the remaining inventory reports had
errors, including calculation errors and omissions. In addition, 32 of 103
inventory forms (31 percent) lacked required documentation of manager
review and approval.
The Department also did not have comprehensive
policies and procedures in place to establish and document how
reconciliations of cash revenues, expenditures, and of inventory data

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should be completed. Periodic reconciliations ensure that long-standing
reconciliation items are highlighted for action to correct potential errors.
Recommendation

The Department should improve its current processes to ensure that Cost
Statement data is consistent with source data, including:


Updating and expanding its procedures for developing the Cost
Statement, including procedures to document the connection between
source data and the Cost Statement.



Developing and documenting processes that implement effective
reconciliations, rather than comparisons, between FBS and source data.

Management’s Response

The Texas Department of Criminal Justice agrees with the recommendation.
As noted in chapter 2-A, the recommended action will be incorporated into
documented policies and procedures. The target date for implementation is
May 31, 2021.

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Chapter 3

The Department Should Strengthen Information Technology Controls
over Agribusiness Data
Auditors noted opportunities for the Department to strengthen its
information technology controls, especially those protecting data the
Department uses to prepare the Cost Statement.
Chapter 3-A

Chapter 3-A
Rating:
High

8

The Department Should Improve Certain Controls to Help Ensure
the Reliability of Data Used to Prepare the Cost Statement
Auditors identified weaknesses in the Department’s controls over access to
certain information systems. To minimize security risks, auditors
communicated details about the identified weaknesses related to access
separately to the Department in writing.
Pursuant to Standard 9.61 of the U.S. Government Accountability Office’s
Generally Accepted Government Auditing Standards, certain information was
omitted from this report because that information was deemed to present
potential risks related to public safety, security, or the disclosure of private
or confidential data. Under the provisions of Texas Government Code,
Section 552.139, the omitted information is also exempt from the
requirements of the Texas Public Information Act.
Chapter 3-B

The Department Should Continue Strengthening Information
Technology Controls over Its Financial Data
Chapter 3-B
Rating:
Low

9

The Department implemented controls to address findings from a previous
audit concerning access to its main financial accounting system. The
Department addressed segregation of duties issues noted in the prior audit.
The original findings were in An Audit Report on Financial Processes at the
Department of Criminal Justice (State Auditor’s Office Report No. 18-035,
June 2018).
However, the Department could further strengthen these controls. The
Department should ensure that it consistently monitors access to its financial
accounting system to ensure that only current employees can use the
system. Appropriately managing access to key information systems would

8

The risk related to the issues discussed in Chapter 3-A is rated as High because they present risks or effects that if not
addressed could substantially affect the audited entity’s ability to effectively administer the program(s)/function(s) audited.
Prompt action is essential to address the noted concern and reduce risks to the audited entity.

9

The risk related to the issues discussed in Chapter 3-B is rated as Low because the audit identified strengths that support the
audited entity’s ability to administer the program(s)/function(s) audited or the issues identified do not present significant
risks or effects that would negatively affect the audited entity’s ability to effectively administer the program(s)/function(s)
audited.

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help decrease the risk of inappropriate transactions being processed without
proper review.
Recommendation

The Department should ensure that it appropriately restricts access to its key
information systems.
Management’s Response

The Texas Department of Criminal Justice agrees with the recommendation.
The Manufacturing, Agribusiness and Logistics Division and the Information
Technology Division will coordinate to ensure access to key information
systems is limited to staff who require access. The target date for
implementation is March 31, 2021.

Chapter 3-C

The Department Should Improve Certain Controls to Protect Its
Assets
Chapter 3-C
Rating:
Medium10

The Department’s Advanced Purchasing and Inventory Control System
(ADPICS) has controls in place to ensure that purchases undergo a 3-way
match between the purchase order, receiving report, and invoice before
payment is issued to the vendor. However, the Department allows its
departments to choose not to enforce this 3-way match for certain
transactions.
All 25 purchases tested had all elements of a 3-way match. However, 15 (60
percent) of those purchases were made by an employee who also received
the purchased items.
The 3-way match provides a critical control over expenditures, reducing the
risk that employees could make unauthorized orders or divert items.
Allowing the same person to make a purchase and receive the purchased
item compromises this control.

10

The risk related to the issues discussed in Chapter 3-C is rated as Medium because they present risks or effects that if not
addressed could moderately affect the audited entity’s ability to effectively administer the program(s)/function(s) audited.
Action is needed to address the noted concern and reduce risks to a more desirable level.

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Recommendation

The Department should enforce controls that ensure that persons
authorizing purchases do not receive the items purchased.
Management’s Response

The Texas Department of Criminal Justice (TDCJ) agrees with the
recommendation. Discussions with the auditor revealed the deviations noted
were all situations in which an agribusiness employee drew a quantity of
commodities from an existing blanket purchase order negotiated by the TDCJ
Contracts and Procurement Department. The TDCJ will strengthen controls
by ensuring functions for this type of transaction are segregated. The target
date for implementation is March 31, 2021.

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Appendices
Appendix 1

Objectives, Scope, and Methodology
Objectives
The objectives of this audit were to:


Determine whether the Department of Criminal Justice (Department) has
processes and related controls to help ensure the accuracy and
completeness of the cost-related data that prison units report and that
the Department compiles into an annual Cost Statement.



Determine whether the Department uses Cost Statement data and
related analyses to make decisions for developing and improving
agricultural operations, as required by statute.

Scope
The scope of this audit covered the 2018 Cost Statement, the use of 2018
Cost Statement data, and controls over the Department’s significant
information technology systems. The scope also included a review of
significant internal control components related to the Cost Statement data
(see Appendix 3 for more information about internal control components).
Methodology
The audit methodology included a combination of inquiry, reviewing the
Department’s policies and procedures, access controls testing, examining
evidence of monitoring, tying the Cost Statement to the underlying financial
records, testing reconciliations, examining supporting documentation,
testing allocations of expenses, and comparing valuations used in the Cost
Statement to actual costs paid by the Department for similar items.
Data Reliability and Completeness

Auditors reviewed multiple data sets to assess the reliability of the
Department’s information systems.
For cash revenue and expenditures data, auditors used
data from the Department’s financial system, Lonestars, and performed
procedures to assess the reliability of those data sets including (1) observing
data extracts, (2) reviewing query parameters used to extract the data, and
(3) comparing select data to the Uniform Statewide Accounting System
(USAS) expenditures and revenues.
Lonestars and ADPICS.

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Auditors also relied upon prior State Auditor’s Office audit work that tested
logical access, change management, and certain key application controls
within the Advanced Purchasing and Inventory Control System (ADPICS) and
Lonestars.
Auditors determined that the data from Lonestars and ADPICS was
sufficiently reliable for purposes of this audit.
Farm Business System (FBS), which is the agricultural cost accounting
system used by Agribusiness, is the key system for creating the annual Cost
Statements. The data within FBS was of undetermined reliability for purposes
of this audit. Specifically, the Department 1) did not adequately document
the results of its processes to ensure FBS cash revenues and expenditures
data was consistent with corresponding data in Lonestars, 2) did not ensure
that its reconciliations between FBS and monthly inventory reports were
effective in ensuring that staff corrected errors and omissions in inventory
records, and 3) had other issues related to its automated environment.
However, Agribusiness managers perform an informal analytic review that
has a good likelihood of detecting significant errors. FBS data was the best
available data source for certain analyses.
FBS.

Auditors were not able to test the year-end reconciliation between Lonestars
and FBS because the Department overwrote the comparisons it performed.
Auditors tested inventory controls, which were an important component of
ensuring that noncash revenues and transfers were accurate.
Sampling Methodology

Auditors selected non-statistical samples for 1) direct materials and 2) cattle
sales, primarily through random selection. The sampling design was selected
to provide auditors with sufficient evidence to meet the audit objectives. The
sample items were not necessarily representative of the population;
therefore, it would not be appropriate to project the test results to the
population.
Auditors also chose a nonstatistical sample of crop/item market values by
selecting all 16 crops/items of intra-agency sales with values exceeding $1
million and adding one risk-based sample item (Irish potatoes) to obtain 94
percent coverage of intra-agency sales to Food Services. The sample items
were not necessarily representative of the population; therefore, it would
not be appropriate to project the test results to the population.
In addition, during fieldwork, auditors learned that Food Services and
Agribusiness purchased three other products externally to supplement
Agribusiness production. Auditors added these items for price comparison.

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Information collected and reviewed included the following:


2014–2018 Agribusiness, Land, and Minerals Division Cost Statements.



State of Texas contracts.



United States Department of Agriculture’s Crop Values 2018 Summary.



Supporting documentation for accounts selected, including Cost
Statement values (prices), cattle sales, and inventory adjustments.



List of 2018 Agribusiness contracts.



List of food items that were produced by Agribusiness and items
procured by the Food Services Division through outside vendors.

Procedures and tests conducted included the following:


Interviewed the Department’s management and staff.



Tested the 2018 Cost Statement to ensure it contained the required
elements, including production costs and market values of all items
produced by Agribusiness for the last five years.



Summarized results that the Department reported in its 2014–2018 Cost
Statements.



Tested the pricing used for intra-agency sales, kitchen waste, and items
bartered for cotton ginning services and grain storage to verify that
pricing used by the Department matched the described valuation.



Tested the accuracy of cattle sales revenue in FBS by comparing
transactions with those in Lonestars to prove actual occurrence and
proper valuation of the revenues.



Tested transfers within Agribusiness to ensure that the recorded
quantities transferred out matched the recorded quantities transferred
in.



Tested prior year inventory adjustments/impairments to verify that
changes to the inventory accounts were valued accurately and supported
by documentation.



Extracted FBS data to construct a general ledger and traced the data to
the Cost Statement. Also traced other data added to the Cost Statement
to source reports.

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

Tested automated access controls over Lonestars and active directory
access controls over Microsoft Access files that contained the underlying
data for FBS.

Criteria used included the following:


Texas Government Code, Chapter 497.



Title 1, Texas Administrative Code, Chapter 202.



Department of Information Resources’ Security Controls Standards
Catalog, version 1.3.



The Department’s Agribusiness/Food Service Resource Coordination
Guidelines, revised February 29, 2012.



Agribusiness policies and procedures.



The Department’s FBS Instructional Manual.



The Department’s accounting policies and procedures.

Project Information
Audit fieldwork was conducted from January 2020 through November 2020.
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.
The following members of the State Auditor’s staff performed the audit:


Gregory Scott Adams, MPA, CPA, CFGM (Project Manager)



Michelle Rodriguez, CFE (Assistant Project Manager)



Michael Bennett



Justin Brister



Brandy Corbin



Rachel Lynne Goldman, CPA



Michelle Ann Duncan Feller, CPA, CIA (Quality Control Reviewer)



Michael A. Simon, MBA, CGAP (Audit Manager)
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Appendix 2

Issue Rating Classifications and Descriptions
Auditors used professional judgment and rated the audit findings identified
in this report. Those issue ratings are summarized in the report
chapters/sub-chapters. The issue ratings were determined based on the
degree of risk or effect of the findings in relation to the audit objective(s).
In determining the ratings of audit findings, auditors considered factors such
as financial impact; potential failure to meet program/function objectives;
noncompliance with state statute(s), rules, regulations, and other
requirements or criteria; and the inadequacy of the design and/or operating
effectiveness of internal controls. In addition, evidence of potential fraud,
waste, or abuse; significant control environment issues; and little to no
corrective action for issues previously identified could increase the ratings for
audit findings. Auditors also identified and considered other factors when
appropriate.
Table 5 provides a description of the issue ratings presented in this report.
Table 5

Summary of Issue Ratings
Issue Rating

Description of Rating

Low

The audit identified strengths that support the audited entity’s ability to
administer the program(s)/function(s) audited or the issues identified do
not present significant risks or effects that would negatively affect the
audited entity’s ability to effectively administer the
program(s)/function(s) audited.

Medium

Issues identified present risks or effects that if not addressed could
moderately affect the audited entity’s ability to effectively administer
the program(s)/function(s) audited. Action is needed to address the
noted concern(s) and reduce risks to a more desirable level.

High

Issues identified present risks or effects that if not addressed could
substantially affect the audited entity’s ability to effectively administer
the program(s)/function(s) audited. Prompt action is essential to address
the noted concern(s) and reduce risks to the audited entity.

Priority

Issues identified present risks or effects that if not addressed could
critically affect the audited entity’s ability to effectively administer the
program(s)/function(s) audited. Immediate action is required to address
the noted concern(s) and reduce risks to the audited entity.

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Appendix 3

Internal Control Components
Internal control is a process used by management to help an entity achieve
its objectives. The U.S. Government Accountability Office’s Generally
Accepted Government Auditing Standards require auditors to assess internal
control when internal control is significant to the audit objectives. The
Committee of Sponsoring Organizations of the Treadway Commission (COSO)
established a framework for 5 integrated components and 17 principles of
internal control, which are listed in Table 6.
Table 6

Internal Control Components and Principles
Component
Control Environment

Component Description
The control environment sets the
tone of an organization, influencing
the control consciousness of its
people. It is the foundation for all
other components of internal
control, providing discipline and
structure.

Principles
 The organization demonstrates a commitment to
integrity and ethical values.

 The board of directors demonstrates independence
from management and exercises oversight of the
development and performance of internal control.

 Management establishes, with board oversight,

structures, reporting lines, and appropriate
authorities and responsibilities in the pursuit of
objectives.

 The organization demonstrates a commitment to

attract, develop, and retain competent individuals
in alignment with objectives.

 The organization holds individuals accountable for

their internal control responsibilities in the pursuit
of objectives.

Risk Assessment

Risk assessment is the entity’s
identification and analysis of risks
relevant to achievement of its
objectives, forming a basis for
determining how the risks should be
managed.

 The organization specifies objectives with sufficient
clarity to enable the identification and assessment
of risks relating to objectives.

 The organization identifies risks to the achievement
of its objectives across the entity and analyzes risks
as a basis for determining how the risks should be
managed.

 The organization considers the potential for fraud in
assessing risks to the achievement of objectives.

 The organization identifies and assesses changes

that could significantly impact the system of internal
control.

Control Activities

Control activities are the policies
and procedures that help ensure
that management’s directives are
carried out.

 The organization selects and develops control

activities that contribute to the mitigation of risks to
the achievement of objectives to acceptable levels.

 The organization selects and develops general

control activities over technology to support the
achievement of objectives.

 The organization deploys control activities through
policies that establish what is expected and
procedures that put policies into action.

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Internal Control Components and Principles
Component
Information and
Communication

Component Description
Information and communication are
the identification, capture, and
exchange of information in a form
and time frame that enable people
to carry out their responsibilities.

Principles
 The organization obtains or generates and uses
relevant, quality information to support the
functioning of internal control.

 The organization internally communicates

information, including objectives and responsibilities
for internal control, necessary to support the
functioning of internal control.

 The organization communicates with external

parties regarding matters affecting the functioning
of internal control.

Monitoring Activities

Monitoring is a process that assesses
the quality of internal control
performance over time.

 The organization selects, develops, and performs
ongoing and/or separate evaluations to ascertain
whether the components of internal control are
present and functioning.

 The organization evaluates and communicates

internal control deficiencies in a timely manner to
those parties responsible for taking corrective
action, including senior management and the board
of directors, as appropriate.

Source: Internal Control – Integrated Framework, Committee of Sponsoring Organizations of the Treadway Commission, May
2013.

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Appendix 4

Listing of Cost Savings and Losses by Category: 2014–2018
Table 7 lists the cost savings or losses achieved by producing categories of
food and fiber items compared with purchasing those items externally that
the Department reported in its Cost Statements from 2014 through 2018.
The Cost Statements show that the Department saved $160.3 million during
this five-year period.
Table 7

Cost Savings/(Losses) by Category 2014-2018
Category

2014

2015

2016

2017

2018

Totals

Edible
Crops

$2,263,165

$1,051,101

$1,218,784

$1,345,324

$998,178

$6,876,552

Field Crops

(1,626,109)

(747,840)

(752,859)

(1,708,099)

(1,995,110)

($6,830,017)

7,611,251

6,434,759

89,008

1,759,632

(1,035,045)

$14,859,605

(1,237,941)

(703,641)

(777,454)

(583,493)

(17,987)

($3,320,516)

Beef Plant

9,552,185

18,137,708

26,270,627

23,173,644

23,895,923

$101,030,087

Pork Plant

10,980,666

12,772,913

10,834,507

8,985,770

4,092,320

$47,666,176

$27,543,217

$36,945,000

$36,882,613

$32,972,778

$25,938,279

$160,281,887

Livestock
Canning
Plant

Totals

Source: Manufacturing, Agribusiness, and Logistics Division’s Agribusiness, Land and Minerals Cost Statements for the
years 2014 through 2018.

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Appendix 5

Related State Auditor’s Office Report
Table 8

Related State Auditor’s Office Report
Number

Report Name

Release Date

18-035

An Audit Report on Financial Processes at the Department of Criminal Justice

June 2018

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Copies of this report have been distributed to the following:

Legislative Audit Committee
The Honorable Dan Patrick, Lieutenant Governor, Joint Chair
The Honorable Dade Phelan, Speaker of the House, Joint Chair
The Honorable Jane Nelson, Senate Finance Committee
The Honorable Robert Nichols, Member, Texas Senate
The Honorable Greg Bonnen, House Appropriations Committee
The Honorable Morgan Meyer, House Ways and Means Committee

Office of the Governor
The Honorable Greg Abbott, Governor

Department of Criminal Justice
Members of the Board of Criminal Justice
Mr. Patrick O’Daniel, Chairman
Ms. Derrelynn Perryman, Vice-Chairman
Mr. Larry Miles, Secretary
Dr. Rodney Burrow
Mr. E.F. “Mano” DeAyala
The Honorable Molly Francis
The Honorable Faith Johnson
Mr. Eric Nichols
Mr. Sichan Siv
Mr. Bryan Collier, Executive Director

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