Illinois auditor general says state financial records a mess

[July 30, 2011]  SPRINGFIELD -- The Illinois auditor general's report dated July 28 showed many glaring weaknesses in the state's abilities to track and accurately maintain records. The following is a section of the auditor general's report in regard to failures with federal awards to the state and various agencies. The entire report is available at http://www.auditor.illinois.gov/.

(Copy)

The State of Illinois' current financial reporting process does not allow the State to prepare a complete and accurate Comprehensive Annual Financial Report (CAFR) or the Schedule of Expenditures of Federal Awards in a timely manner.

Accurate and timely financial reporting problems continue to exist even though the auditors have: 1) continuously reported numerous findings on the internal controls (material weaknesses and significant deficiencies), 2) commented on the inadequacy of the financial reporting process of the State, and 3) regularly proposed adjustments to financial statements year after year. These findings have been directed primarily toward the Office of the State Comptroller (IOC) and major state agencies under the organizational structure of the Office of the Governor.

The State has not solved these problems or made substantive changes to the system to effectively remediate these financial reporting weaknesses. The process is overly dependent on the post audit program being a part of the internal control for financial reporting even though the Illinois Office of the Auditor General has repeatedly informed state agency officials that the post audit function is not and should not be an internal control mechanism for any operational activity related to financial reporting.

The State of Illinois has a highly decentralized financial reporting process. The system requires State agencies to prepare a series of complicated financial reporting forms (SCO forms) designed by the IOC to prepare the CAFR. These SCO forms are completed by accounting personnel within each State agency who have varying levels of knowledge, experience, and understanding of generally accepted accounting principles and of IOC accounting policies and procedures. Agency personnel involved with this process are not under the organizational control or jurisdiction of the IOC. Further, these agency personnel may lack the qualifications, time, support, and training necessary to timely and accurately report year end accounting information to assist the Comptroller in his preparation of statewide financial statements in accordance with generally accepted accounting principles (GAAP).

Although these SCO forms are subject to the review by the IOC financial reporting staff during the CAFR preparation process, the current process has resulted in several restatements relative to the financial statement reporting over the past several years.

Examples include the following: 1) expenditures for the Medicaid Cluster were understated in 2010, 2) expenditures for the Homeland Security Cluster were not appropriately clustered and were overstated in 2009, 3) expenditures for the Highway Planning and Construction Cluster were overstated in 2009, 4) expenditures for the Airport Improvement Program were improperly identified as being funded by the American Recovery and Reinvestment Act and expenditures for the Foster Care and Adoption Assistance programs were not identified as being funded by the American Recovery and Reinvestment Act in 2009, 5) expenditures for the Public Assistance Grants (2006 and 2007), the Early Intervention Program (2003, 2004 and 2005), and the Highway Planning and Construction Cluster program (2004 and 2005) were not reported in the appropriate fiscal year, 6) correcting entries and/or restatements were required to accurately state the financial information, 7) major programs were not identified until six or more months subsequent to the end of the year by several agencies, and 8) preparation of the SEFA has not been completed by the State prior to March 31st in the past eight years.

Federal regulations require that a recipient of federal awards prepare appropriate financial statements, including the SEFA, and ensure the required audits are properly performed and submitted when due. Also, the federal regulations require recipients of federal awards to establish and maintain internal controls designed to reasonably ensure compliance with Federal laws, regulations, and program compliance requirements.

Agencies having problems in one or more of the above noted areas during the past eight years were:

Agency

(1) Healthcare and Family Services

(2) Children and Family Services

(3) Public Health

(4) State Board of Education

(5) IL Student Assistance Commission

(6) Employment Security

(7) IL Community College Board

(8) Commerce and Economic Opportunity

(9) Natural Resources

(10) IL Environmental Protection Agency

(11) Corrections

(12) IL Criminal Justice Information Authority

(13) Emergency Management Agency

(14) Human Services

(15) Transportation

Although the deficiencies relative to the CAFR and SEFA financial reporting processes have been reported by the auditors for a number of years, problems continue with the State's ability to provide accurate and timely external financial reporting. Corrective action necessary to remediate these deficiencies continues to be problematic.

As a result of the errors, deficiencies and omissions noted throughout the process used by the State in its financial reporting process, along with the inability to meet the required filing deadline of March 31, 2011, the auditors identified the inadequacies as a material weakness for all federal programs administered by the State. This finding was first reported in the Statewide Single Audit in 2002.

We recommended the Office of the Governor and the IOC work together with the state agencies to establish a corrective action plan to address the quality and timeliness of accounting information provided to and maintained by the IOC as it relates to year end preparation of the CAFR and the SEFA.

The State Comptroller's Office response states it will assist the Governor's Office in their efforts to increase the quality of the GAAP packages by providing training and technical assistance to State agencies

The Office of the Governor's response states it has been working to solve some of these problems. The Governor's Office of Management and Budget (GOMB) and the Office of the Comptroller have developed a timeline for short term, mid-term and long range plans. However, the total implementation is expected to take several years and the Office of the Governor will continue working with the agencies to provide as complete of information as is possible given the State's current capabilities.

--Copied from the findings, conclusions and recommendations in the report digest

[Text from Illinois auditor general's office]