SEPARATE FINANCIAL STATEMENTS FOR THE HOSPITAL AND THE ANNEX PROVIDE FIGURES ON ALLOCATIONS OF STATE FUNDS, CASH RECEIPTS, AND DISBURSEMENTS FOR THE YEARS ENDING JUNE 30, 1977 AND 1978. AN EXAMINATION OF THE WORK ACTIVITIES CENTER'S RECORDS THAT THE FINANCIAL STATEMENTS WERE ERRONEOUS BECAUSE OF FAILURE TO FOLLOW ACCOUNTING PRINCIPLES AND CARELESS POSTING PROCEDURES. COPIES OF A PATIENT'S PROPERTY REPORT WERE NOT ALWAYS RECEIPTED AND FILED WHEN A PATIENT LEFT THE HOSPITAL, LEAVING THE INSTITUTION LIABLE. THE AUDIT CONCLUDED THAT THE STATE HOSPITAL HAD NO EFFECTIVE INTERNAL CONTROLS OVER FIXED ASSETS. RECORDS WERE NOT UPDATED FOR EQUIPMENT RETIREMENT AND TRANSFERS, EQUIPMENT LOCATIONS WERE NOT RECORDED, AND PERIODIC INVENTORIES WERE NOT TAKEN. FINDINGS FROM THE PREVIOUS YEAR'S AUDIT ARE SUMMARIZED WITH THE COMMENTS THAT ALL RECOMMENDATIONS HAD BEEN FOLLOWED. THE HISTORY AND ORGANIZATION OF THE HOSPITAL AND ITS ANNEX ARE DESCRIBED BRIEFLY. THE AUDIT OF THE ANNEX PRODUCED NO SUGGESTIONS FOR IMPROVEMENTS. THE BALANCE SHEETS FOR THE CANTEEN FUND OF THE STATE HOSPITAL WERE ALSO EXAMINED. THESE ACCOUNTS ARE MAINTAINED ON AN ACCRUAL BASIS AND MANAGED BY A COMMITTEE OF HOSPITAL EMPLOYEES. THE AUDIT WAS UNABLE TO ASSESS THE ACCURACY OF THE STATED VALUE OF THE CANTEEN FUND'S INVENTORY. (MJM)