REPORT DIGEST CHICAGO STATE UNIVERSITY FINANCIAL AUDIT, SINGLE AUDIT, AND COMPLIANCE EXAMINATION FOR THE YEAR ENDED JUNE 30, 2016 Release Date: March 29, 2017 FINDINGS THIS AUDIT: 15 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 0 -- 0 Category 2: 5 -- 10 -- 15 Category 3: 0 -- 0 -- 0 TOTAL: 5 -- 10 -- 15 FINDINGS LAST AUDIT: 15 Category 1: Findings that are material weaknesses in internal control and/or a qualification on compliance with State laws and regulations (material noncompliance). Category 2: Findings that are significant deficiencies in internal control and noncompliance with State laws and regulations. Category 3: Findings that have no internal control issues but are in noncompliance with State laws and regulations. State of Illinois, Office of the Auditor General FRANK J. MAUTINO, AUDITOR GENERAL To obtain a copy of the Report contact: Office of the Auditor General, Iles Park Plaza, 740 E. Ash Street, Springfield, IL 62703 (217) 782-6046 or TTY (888) 261-2887 This Report Digest and Full Report are also available on the worldwide web at www.auditor.illinois.gov INTRODUCTION This digest covers our Financial Audit, Single Audit and Compliance Examination of Chicago State University (University) for the year ended June 30, 2016. In total, this report contains 15 findings. SYNOPSIS • (16-01) The University did not properly account for accrued compensated absences. • (16-02) The University did not properly account for its unearned revenue and grant receivables. • (16-03) The University’s Federal Perkins Loan cohort default rate is in excess of the threshold for administrative capability stipulated by the U.S. Department of Education. • (16-04) The University did not prepare an accurate Schedule of Expenditures of Federal Awards and related notes. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS NEED TO IMPROVE ACCOUNTING OF ACCRUED COMPENSATED ABSENCES The University did not properly account for accrued compensated absences. We obtained the University’s schedule of accrued compensated absences and selected a sample of 40 employees in order to test the accuracy of the accrual. Our testing noted 6 of 40 (15%) employees (1 coach and 5 grant funded employees) were not eligible for vested accrued leave but were included on the accrued leave schedule. Further testing revealed that an additional 5 coaches and 18 grant employees were included in the list. Total accrued compensated absences reported on the University’s financial statements for all of the employees improperly included in the accrued compensated absences schedule totaled $150,759. A proposed adjustment for this amount was not recorded by the University. (Finding 1, pages 17-18) This finding has been repeated since 2011. We recommended the University improve its process to account for accrued leave to ensure records and reporting are accurate. University officials agreed with the finding. (For the previous University response, see Digest Footnote #1.) NEED TO IMPROVE ACCOUNTING OF UNEARNED REVENUE AND GRANT RECEIVABLES The University did not properly account for its unearned revenue and grant receivables. During our review of the University’s financial statements as of June 30, 2016, we noted the following: • The balance of unearned revenue and grant receivables in relation to the Douglas Hall renovation project from the Capital Development Board was overstated by $727,134. It was also noted during the audit that other smaller grants had unearned revenue and grant receivable balances that were overstated by $101,279. A proposed adjustment for these errors was not recorded by the University. • Federal, state and private grants and contracts receivable details included credit balances totaling $196,270 that should have been adjusted or reclassified to other accounts such as unearned revenue for advance payments from both federal and private grants ($154,044); prepaid expenses ($3,955); accounts payable ($8,929); grant revenue or expenses ($29,323); and, allowance for doubtful accounts ($19). A proposed adjustment for these errors was not recorded by the University. (Finding 2, pages 19-20) We recommended the University ensure all transactions are properly accounted for and recorded in the financial statements in accordance with generally accepted accounting principles. University officials agreed with the finding. FEDERAL PERKINS LOAN COHORT DEFAULT RATE TOO HIGH The University’s Federal Perkins Loan cohort default rate is in excess of the threshold for administrative capability stipulated by the U.S. Department of Education. The Federal Perkins Loan cohort default rate as of June 30, 2016 was 45.24% and was obtained from the University’s Federal Perkins loan servicer. The Code of Federal Regulations (34 CFR 668.16) states “To begin and to continue to participate in any Title IV, HEA program, an institution shall demonstrate to the Secretary that the institution is capable of adequately administering that program under each of the standards established in this section. The Secretary considers an institution to have that administrative capability if the institution – (m)(l) Has a cohort default rate – (iii) as defined in 34 CFR 674.5, on loans made under the Federal Perkins Loan Program to student for attendance at the institution that does not exceed 15 percent”. (Finding 3, pages 21-22) We recommended the University improve procedures to collect its Federal Perkins Loans made to students in order to continue participation in this program. University officials agreed with the finding. NEED TO IMPROVE THE CONTROLS OVER THE PREPARATION OF THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS The University did not prepare an accurate Schedule of Expenditures of Federal Awards (SEFA) and related notes. The University provided the auditors its “Final” SEFA on October 26, 2016. We tested the accuracy and completeness of the SEFA and related notes provided, and noted the following: • Federal awards amount expended totaling $51,731,277 during the fiscal year for two loan programs from the Department of Education were not reported on the face of the SEFA, as required. • Two awards from the Department of Health and Human Services related to a program for providing education and training to eligible individuals on identified health care related professions were improperly classified under the Student Financial Assistance Cluster. • Notes to the SEFA did not include a disclosure on whether or not the University elected to use the 10% de minimis cost rate during the fiscal year, as required. (Finding 4, pages 23-24) We recommended the University improve its controls over federal awards to ensure preparation of an accurate SEFA and related notes. University officials agreed with the finding. OTHER FINDINGS The remaining findings are reportedly being given attention by University officials. We will review the University’s progress towards the implementation of our recommendations in the next financial audit, Single Audit, and compliance examination. AUDITOR’S OPINIONS The auditors stated the financial statements of the University as of and for the year ended June 30, 2016 are fairly stated in all material respects. The auditors also conducted a Single Audit of the University as required by the Uniform Guidance. The auditors stated the University complied, in all material respects, with the types of compliance requirements that could have a direct and material effect on the University’s major federal programs for the year ended June 30, 2016. ACCOUNTANT’S OPINION The accountants conducted a compliance examination of the University for the year ended June 30, 2016, as required by the Illinois State Auditing Act. The accountants stated the University complied, in all material respects, with the requirements described in the report. This financial audit, Single Audit and compliance examination was conducted by E.C. Ortiz & Co., LLP. BRUCE L. BULLARD Division Director This report is transmitted in accordance with Section 3-14 of the Illinois State Auditing Act. FRANK J. MAUTINO Auditor General FJM:TLK DIGEST FOOTNOTES #1 – Inaccurate Accounting of Accrued Compensated Absences: The University agrees with the recommendation and will improve its process between the Office of Human Resources and Finance/Administration to ensure that the appropriate accrued leave is captured on the general ledger. We will further continue our practice to recoup any overpayment.