REPORT DIGEST

CHICAGO STATE UNIVERSITY

FINANCIAL AND COMPLIANCE AUDIT
(In accordance with the Single Audit Act and OMB Circular A-133)
For the Year Ended:
June 30, 1997

Summary of Findings:

Release Date:
April 23, 1998

State of Illinois
Office of the Auditor General

WILLIAM G. HOLLAND
AUDITOR GENERAL

Iles Park Plaza
740 E. Ash Street
Springfield, IL 62703
(217) 782-6046

SYNOPSIS

• The University failed to perform timely bank reconciliations or to provide evidence of the date bank reconciliations were completed and reviewed.

• The University did not timely record cash receipts and disbursements in the general ledger.

• The University had instances of weak collection practices and controls related to Perkins loans.

• The University violated federal regulations by maintaining excess cash balances in several federally funded programs.

• The University did not have an effective plan to assist it through a major system development project.

{Financial Information is summarized on the reverse page.}

FY 1997

FY 1996

$ 30,299,195
6,593,072
16,714,087
16,072,151
3,595,274
444,104
$ 73,717,883

$ 30,536,551
1,228,845
3,157,901
4,173,007
5,099,228
8,848,327
6,302,771
10,337,450
3,635,606
1,965,284
$ 75,284,971

$ 28,458,926
5,811,882
16,392,677
16,009,082
3,562,986
166,059
$ 70,401,612

$ 28,246,270
1,744,397
3,364,683
4,122,188
5,138,147
8,852,193
6,491,143
9,483,981
3,235,110
415,565
$ 71,093,677

JUNE 30, 1997

JUNE 30, 1996

$ 3,372,860
23,385,000
107,904,628
9,121,544

(8,031,747)
2,621,106
$ 81,395,182

$ 4,834,049
23,740,000
100,412,308
8,655,600

(6,492,766)
3,261,827
$ 75,651,565

FY 1997

FY 1996

1,074
468
1,542

6,668
2,275
$6,250

906
628
1,534

6,437
2,359
$6,375

Untimely bank reconciliations and lack of evidence

Some cash receipts and disbursements recorded at year end instead of monthly

Collection procedures were not performed for student loans

Cash was drawn far in advance of disbursement

Weak planning resulted in cost overruns and delays

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

FAILURE TO PERFORM BANK RECONCILIATIONS TIMELY

The University failed to perform timely bank reconciliations or to provide evidence of the dates bank reconciliations were completed and received. Several reconciling items from previous year's bank reconciliations were not adjusted or removed from the records. Also, the University failed to record two bank accounts on its general ledger or to include them in the reconciliation process. During the review of the reconciliations, we noted there were several reconciling items representing unrecorded receipts and disbursement transactions as well as $191,217 of items dated one year ago or more. Further, we noted that the University failed to record on the general ledger two bank accounts with balances of $1 and $3,560 that would have been noted with proper bank reconciliation procedures. (Finding 2, page 19) This finding has been repeated since 1994.

We recommended the University assign competent personnel to perform bank reconciliations and perform such reconciliations in a timely manner.

The University officials agreed with our recommendations and stated it is in the process of hiring an experienced accountant. (For previous University responses, see Digest footnote #1.)

FAILURE TO RECORD CASH RECEIPTS AND DISBURSEMENTS

The University failed to record cash receipts and disbursements in the general ledger. During our review of bank reconcilations, we noted certain deposits and checks that had cleared the bank remained either unrecorded or inaccurately recorded until year end. Financial transactions generally should be recorded promptly to minimize errors and omissions. (Finding 8, page 25)

University personnel attribute part of the problem to the installation of a new computer system which was only partially implemented during the year.

University officials agreed with our recommendations to: 1) review the new computer system and determine the procedures necessary to interface all ledgers, and 2) perform bank reconciliations consistently to detect and correct errors.

PERKINS LOAN ADMINISTRATION PROBLEMS

We noted eight deficiencies relating to the University's administration and collection of loans made under the Perkins Loan program as follows:

• Skiptracing procedures did not meet federal collection standards. Skiptracing refers to the process of locating the address of a debtor who has defaulted on a debt and has moved to an undisclosed address. The University did not perform required skiptracing procedures until the accounts were referred to a collection agency. (Finding 14, page 37)

• A loan was not canceled as required when the University received notification of the death of a debtor. (Finding 15, page 38)

• The University did not make collection attempts during the period shortly after students had separated from the University. This period is known as the "grace period" under federal regulations. The University is required to make three collection attempts during this grace period. (Finding 16, page 39)

• Accounts were not returned to the University from private collection agencies timely as required by federal regulations. Such regulations require that accounts that have not been placed into a repayment status be returned to the University after 12 months. (Finding 17, page 40)

• A past due loan account was not placed in default status nor was the account issued an "intent to accelerate" letter as required by federal regulations. (Finding 18, page 41)

• Litigation was not pursued by the University in loan accounts where other means of collection had been exhausted. (Finding 19, page 43)

• Loan proceeds were disbursed in one case without a signed promissory note on file. (Finding 20, page 44)

• The University did not adequately monitor the enrollment status of students with active Perkins loans. We noted nine students out of twelve were no longer enrolled at the University and the loan files did not correctly reflect the student's status. (Finding 21, page 45)

We recommended corrective action in each case. Also in each case, the University agreed with our finding and recommendation , or described appropriate corrective action it intended to take.

VIOLATIONS OF FEDERAL CASH MANAGEMENT REGULATIONS

Excess cash balances were drawn down and maintained by the University in two programs funded by federal grants. A cash balance of $63,487 was drawn down from the National Science Foundation in excess of immediate needs due to an error in the general ledger.

Also, the monthly Federal Cash Transaction Report for U.S. Department of Education grants showed excess cash balances of up to $149,274. Reports for periods ending in December 1996 indicated draw downs of $400,000 and $115,271 which were not recorded on the University's general ledger system. The transactions were recorded when brought to the University's attention in May of 1997. (Finding 22, page 46)

We recommended that the University establish procedures to ensure that all cash draw downs are properly recorded and all federal reports are reviewed prior to requesting funds from the federal government. The University responded that it agreed with our recommendation and that it will facilitate prompt repayment as necessary.

INEFFECTIVE EDP PLANNING FRAMEWORK

The University does not have an effective planning framework in place to direct and assist the University through a major computer system development project, such as the implementation of a new administrative software package, or the solution of the critical year 2000 problem.

The University's planning is ineffective as a management tool due to the following:

• Management does not have a risk assessment framework to identify relevant information risks. For example, the University failed to draft a comprehensive plan to assess the upcoming year 2000 problem.

• Management does not have standardized policies, procedures and benchmarks for managing and monitoring Information Systems.

• Responsibilities have not been properly delegated or recognized for security development and implementation or quality assurance.

• Backup strategies and contingency plans are not required by the existing framework. As projects fail to adhere to implementation plans due to funding and personnel constraints, the University has no choice but to extend the time frames.

Based on the review of status reports regarding the implementation of the new administrative software package, the University failed to adhere to its original project timetable.

Based on the review of the budget for fiscal year 97/98 and IS correspondence, it is estimated that the direct cost overrun of the new administrative software system is $680,000. This amount consists of additional costs of outsourcing for the payroll and the accounting system, lost training costs due to staff turnover, and excess consulting costs not previously budgeted. This estimation does not include any personal service costs incurred since the passing of the original deadlines.

A sound planning framework is essential when instituting new procedures and addressing complex technical issues. The lack of this framework at the University is currently affecting the successful implementation of software critical to the University's mission. The University risks vulnerability to the Year 2000 problem, as it has not made a comprehensive analysis of this issue. (Finding 11, page 29)

We recommended the University develop and adopt an effective planning framework for all critical projects.

The University responded that it will adopt an effective planning framework to assist with its administrative system development. The University also responded that it will develop a plan to assess the year 2000 compliance process.

OTHER FINDINGS

The remaining findings are less significant and are being given attention by the University. We will review progress toward implementation of our recommendations in our next audit. Responses to the findings were provided by John Meehan, Controller.

AUDITORS' OPINION

Our auditors state the June 30, 1997 financial statements of Chicago State University and the University Auxiliary Facilities System Revenue Bond Fund are fairly presented.

___________________________________
WILLIAM G. HOLLAND, Auditor General

WGH:JTD:pp

SPECIAL ASSISTANT AUDITORS

Pandolfi, Topolski, Weiss & Co., Ltd. were our special assistant auditors for this audit.

DIGEST FOOTNOTES

#1 FAILURE TO PERFORM BANK RECONCILIATIONS TIMELY - Previous Agency Responses

1996: "We agree. Staff turnovers led to delays in the bank reconciliation process. Contractual services were acquired for bank reconciliation work from a CPA firm prior to FY 96 year end.

1995: "We agree. Several staff accountant personnel changes resulted in the aforementioned bank reconciliation problems. Corrective action has occurred and this will not be a repeat finding."

1994: "We agree. A monthly reconciliation of all bank and cashier funds will be prepared on a monthly basis. Also, the supervisory review process will be completed and documented on a timely basis."