Audit of the inmate trust fund, 2020

CCRA: Corrections and Conditional Release Act

CCRR: Corrections and Conditional Release Regulations

CD: Commissioner’s Directive

IASR: Inmate Accounting System Replacement

IFMMS: Integrated Financial and Material Management System

The Internal Audit Sector conducted the Audit of the Inmate Trust Fund as part of Correctional Service Canada’s (CSC) 2018–2020 Risk-Based Audit Plan. This audit is linked to CSC’s corporate priority of “efficient and effective management practices that reflect values-based leadership” and to the corporate risk that “CSC will not be able to implement legislative changes and fiscal constraint measures.”

The Inmate Trust Fund acts as the inmate’s bank account and serves to manage the inmate’s money while incarcerated. CSC’s primary responsibility related to the Inmate Trust Fund is to safeguard the funds of individual inmates and process the inmate’s transactions. Within the trust fund, two main inmate accounts exist; a savings account, which is intended to encourage inmates to save for their release, and a current account, which is used to pay for purchases, such as canteen, personal property and hobby crafts. Additionally, the Inmate Trust Fund includes group accounts such as the inmate welfare committee account and inmate canteen account. As per the information within the Inmate Accounting System Replacement (IASR), the total value of the Inmate Trust Fund as of March 2019 was approximately $16 million^{Footnote 1} of which approximately $12 million was held in individual inmate accounts and, in strict accounting terms, is represented as a liability to the Government of Canada. Between April and December 2018, a total of $80 million of transactions flowed through the Inmate Trust Fund. While the total value of the Inmate Trust Fund is not material to CSC or to the financial statements, a small amount of money can have a large impact for an incarcerated inmate.

Deposits into and withdrawals out of the Inmate Trust Fund originate from a number of sources. The deposits can include: inmate pay, profits from hobby crafts, funds received from family members and Canadian Pension Plan payments. The withdrawals can include: inmate purchases, inmate canteen, telephone calls, legal fees, family support and various deductions including those for food and accommodations, the administrative costs for the inmate telephone system and the inmate welfare fund.

The Inmate Trust Fund uses the IASR to record the daily transactions of the trust fund. On a daily basis, an upload of the transactions into CSC’s main financial system, the Integrated Financial and Material Management System (IFMMS), takes place.

The Corrections and Conditional Release Act (CCRA) and the Corrections and Conditional Release Regulations (CCRR) contain the legislative requirements for the Inmate Trust Fund. Additionally, the Financial Administration Act also includes clauses which apply to the administration of the Inmate Trust Fund.

Requirements within the CCRA and CCRR relevant to the Inmate Trust Fund state that:

• CSC is to hold offenders’ money in a trust fund;
• The Inmate Trust Fund is to include both savings and current accounts and all money in the inmates possession when they arrive at the institution and any money given to an inmate is to be deposited into the appropriate account;
• When an inmate is released, they are to receive all money held in their trust account;
• CSC can deduct funds from an inmate’s account to cover costs incurred by the Crown for food and accommodations and the administrative costs associated with the inmate telephone system; and
• Once CSC has recovered all debt, a deceased inmate’s next of kin is to receive any money held within the inmates’ accounts.

The Directive on Accounting Standards: GC 4100 Specified Purpose Accounts requires that all non-consolidated specified purpose accounts, which includes the Inmate Trust Fund, be recorded as a liability to the Government of Canada.

Commissioner’s Directive (CD) 860 Offender’s Money is the primary directive that governs the Inmate Trust Fund. As such, those requirements impose on CSC a strong fiduciary responsibility for inmates’ funds.

National Headquarters (NHQ)

Together, the Correctional Operations and Programs Sector and the Corporate Services Sector are the policy holders for CD 860. Furthermore, the Corporate Services Sector is responsible for overseeing and controlling access to the IASR.

Regional Headquarters (RHQ)

The Regional Comptrollers group at Regional Headquarters act as the liaison between the institutions and NHQ for the Inmate Trust Fund and provides guidance to the institutional financial staff as required.

The Institutional Head approves any food and accommodation and inmate telephone system waivers^{Footnote 2}, additional withdrawals from an inmate’s savings account, inmate to inmate transfers, and certain disbursements from the Inmate Welfare Fund.

Financial specialists, who are located at the institutions, are responsible for entering inmate related financial transactions into the trust fund; this includes: inmate pay, inmate purchases, money received from outside sources, as well as inmate debts. Financial specialists also produce and distribute biweekly individual inmate account statements. Upon an inmate’s release, financial specialists are responsible for closing out the inmate’s account and providing the inmate with the balance of funds. Monthly, CSC finance staff completes an IFMMS to Inmate Trust Fund reconciliation and the Chief of Finance reconciles and certifies the Inmate Trust Fund balance and IFMMS balance at year-end.

Visits and Correspondence officers are responsible for processing and issuing receipts for funds received from outside sources.

The audit team completed a risk assessment based on a review of past audits, audits completed by other jurisdictions and interviews with key stakeholders. The team also considered applicable policy documents and user manuals.

At the commencement of the audit, the audit team considered the following main risks based on a preliminary assessment:

• Lack of oversight of the Inmate Trust Fund and associated activities;
• Controls not functioning as intended;
• Inaccurate balances in the Inmate Trust Fund; and
• Data integrity being compromised when information is transferred between IASR and IFMMS.

The audit team identified the following fraud risks based on a preliminary assessment:

• Inappropriate withdrawals by staff;
• Funds not being deposited into the inmate’s account; and
• Funds not being deposited during the transfer from the institutions to the bank.

These risks were considered in the development of the audit criteria and testing tools.

The overall objectives of this audit were:

• To provide reasonable assurance that a management framework was in place and supported the effective and efficient management of the Inmate Trust Fund; and
• To assess the adequacy and effectiveness of the internal controls related to the Inmate Trust Fund.

Specific audit criteria are included in Annex A.

The audit was national in scope. The audit team visited institutions in all five regions. The auditors interviewed staff at institutions, Regional and National Headquarters. They also tested a sample of transactions occurring between April 2017 and March 2019 to assess compliance with policy and whether CSC was appropriately safeguarding inmates’ monies.

The audit focused on assessing the management framework, the controls in place to safeguard the assets within the Inmate Trust Fund and the accuracy of the recorded information. Although the audit examined transactions related to inmate pay, inmate purchasing and the recording of any waivers for food and accommodations in terms of their accurate entry into the inmate’s accounts, it did not assess the decisions made to approve these transactions.

The audit did not assess the transactions processed through group accounts within the Inmate Trust Fund, which includes the inmate welfare fund and the inmate canteen as these are processed automatically

Overall, the audit team found no significant areas of concern related to the management of inmate monies. Although some compliance issues were noted, these were deemed to have a minimal impact on the Inmate Trust Fund. Furthermore, the audit team believes that the compliance issues raised will be rectified once the management framework issues are addressed.

The audit found that some elements of a management framework were in place. A Commissioner’s Directive and a user guide existed and identified how to complete transactions within the Inmate Trust Fund. In addition, reconciliations were being completed and reviewed at a site and regional level.

Still, the management framework requires further improvements. More specifically, the audit found that:

• Policy documents and guidance materials require additional clarification and direction;
• The roles and responsibilities for the individuals validating source of monies received needs to be clearly defined; and
• Monitoring, reporting and oversight of the activities within the Inmate Trust Fund need to be strengthened.

With respect to overall compliance, the audit found that CSC had established system controls, was generally compliant with policies related to transaction controls, and relevant transactions were generally accurate and complete.

Audit evidence was gathered through a number of methods:

Interviews were conducted with senior management and staff at the national, regional and institutional level. At the national level, interviews were conducted with policy holders and staff working directly with NHQ’s financial systems. At the regional level, interviews were conducted with the regional comptrollers and finance supervisors. In addition, various staff were interviewed at the institutional level such as the institutional heads, chief of finance, inmate accountants, visits and correspondence, admissions and discharge and Assistant Warden Management Services. Where possible, the audit team also interviewed members of the inmate committee to gather additional insight.

Relevant documentation including legislation, corporate documents, reconciliations and procedural documents such as post orders and other relevant corporate documentation were reviewed.

The audit reviewed transactions such as withdrawals, deposits, and disbursements to determine whether they were supported, appropriate and accurate. In addition, the audit team analyzed and assessed the controls in place to safeguard the assets within the Inmate Trust Fund.

The audit team focused on selecting sites that would provide a mixture of security levels as well as clustered and stand-alone sites. A healing lodge as well as a women’s institution was also selected.

Annex B identifies the sites visited.

The audit found there to be limited monitoring taking place over inmates pay and related financial transactions and clarification was required related to Warden’s exemptions and when current and savings accounts should be used to pay for expenses. Lastly, there were inconsistency in how much cash an inmate was given upon their release as some were given $200 and the rest was in the form of a cheque, while others were given the full amount in cash.

At the time, specific recommendations were made that relate to the current audit. These include the following:

• The Assistant Commissioner, Correctional Operations and Programs and Assistant Commissioner, Corporate Services should clarify and update the policies were needed and enhance performance monitoring mechanisms; and
• Assistant Commissioner, Correctional Operations and Programs and Assistant Commissioner, Corporate Services should provide additional guidance for cash disbursements upon release.

In my professional judgment as Chief Audit Executive, sufficient and appropriate audit procedures have been conducted and evidence gathered to support the accuracy of the opinion provided and contained in this report. The opinion is based on a comparison of the conditions, as they existed at the time, against pre-established audit criteria that were agreed on with management. The opinion is applicable only to the area examined.

The audit conforms to the Internal Auditing Standards for Government of Canada, as supported by the results of the quality assurance and improvement program. The evidence gathered was sufficient to provide senior management with roof of the opinion derived from the internal audit.

Christian D’Auray, CPA, CA
Chief Audit Executive

The following table outlines the audit criteria developed to meet the stated audit objective and audit scope: