REPORT DIGEST
OFFICE OF THE STATE COMPTROLLER
STATEWIDE
FINANCIAL STATEMENT AUDIT
For the Year Ended: June 30, 2008
Summary of Findings:
Total this audit 3
Total last audit 2
Repeated from last
audit 2
Release Date: July
30, 2009
State of Illinois
Office of the
Auditor General
WILLIAM G. HOLLAND
AUDITOR GENERAL
This Report Digest
is also available on the worldwide web at www.auditor.illinois.gov
The CAFR is
available on the worldwide web at http://www.ioc.state.il.us
Our Report on
Internal Control over Financial Reporting and on Compliance is also available
on the worldwide web at www.auditor.illinois.gov
The June 30, 2008 financial
statements of the State of Illinois are fairly presented in all material
respects.
The financial statements
reflect a continuing financial deficit.
At June 30, 2008:
·
The net
assets of governmental activities continued to deteriorate and the deficit
increased by $3.6 billion from FY07 to FY08.
Overall, net assets of governmental activities are reported as a deficit
of $24.4 billion. (Exhibit 1)
Over time, increases and decreases in net assets measure whether the
State’s financial position is improving or deteriorating. A comparison of Illinois’ financial position
to other states is contained in Exhibit 3.
·
The
General Revenue Fund’s deficit at June 30, 2008 was $3.9 billion. (Exhibit 2)
REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING AND ON COMPLIANCE
In accordance with Government Auditing Standards, a report
on our consideration of the State of Illinois’ internal control over financial
reporting and our tests of its compliance is also issued as part of our financial
statement audit. This report is a
separate document and is summarized in this document.
COMPTROLLER
Currently &
During the Audit Period: Honorable
Daniel W. Hynes
The net assets of the State’s governmental activities declined $3.577 billion. The following condensed financial information was derived from the government-wide Statement of Net Assets and reflects the State’s governmental activities financial position as of June 30 for fiscal years 2002 through 2008. (See Exhibit 1)
Exhibit 1
State of Illinois Deficits
for Net Assets of Governmental Activities
FY02-FY08
(In billions)
FY02: -$8.7
FY03: -$12.8
FY04: -$15.4
FY05: -$17.6
FY06:
-$18.7
FY07:
-$20.8
FY08:
-$24.4
Source: Illinois’
Comprehensive Annual Financial Report (2008).
Numbers reflect
restatements.
The deficits reflected in Exhibit 1 are
presented on an accrual basis and represent the excess of total liabilities
over total assets at a given point in time.
These deficits represent the deferral of current and prior year costs to
future periods.
Over time, increases and
decreases in net assets measure whether the State’s financial position is
improving or deteriorating.
GENERAL
REVENUE FUND
Many programs are accounted for in the General Fund. The GAAP basis financial position of the General Fund deficit improved slightly at June 30, 2008 from June 30, 2007. The fund balance deficit in the State’s General Fund decreased by $237 million on a GAAP basis (from a deficit of $4.171 billion, as restated, to a deficit of $3.934 billion). Exhibit 2 reflects the General Fund deficit for fiscal years 2002 through 2008.
Exhibit 2
State of Illinois
General Revenue Fund Deficits,
FY02-FY08
(In billions)
FY02: -$2.9
FY03: -$4.2
FY04: -$2.5
FY05: -$3.3
FY06:
-$3.0
FY07:
-$4.2
FY08:
-$3.9
Source: Illinois’
Comprehensive Annual Financial Report (2008).
Numbers reflect
restatements.
STATE COMPARISON
Exhibit 3 of this digest provides an analysis of
FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS
FINANCIAL REPORTING WEAKNESSES
The State of
· The beginning balances in the financial statements were restated to correct prior reporting errors related to unearned income tax revenues, unearned driver’s license and fee revenue, lack of allocation of motor fuel tax revenues, and an understatement of shared motor fuel tax liabilities.
· Material misstatements were identified by the auditors. The errors related to accounting for revenues, securities lending transactions, net assets and inventories.
We also reported the State’s decentralized reporting system and related decentralized internal control system is not adequate to reduce the likelihood that a material misstatement of the State’s financial statements could occur and not be detected during the normal course of business. We noted significant financial reporting deficiencies for the following agencies:
Department of Revenue
Department of Central Management Services
Department of Human Services
Department of Healthcare and Family Services
Department of Corrections
In discussing these conditions with the Office of the Governor’s officials, they stated that the weakness is due to separation in the responsibility for the State’s internal control procedures among agencies and component units. The IOC has the statutory authority to develop and prescribe accounting policy for the State but there is no centralized statewide accounting system to capture all items necessary to provide underlying support to review agency financial transactions. In addition, there is an overall lack of qualified individuals in the State to ensure that all transactions are recorded in accordance with government accounting standards.
IOC personnel
indicated the misstatements were caused by a separation in the responsibility
for the State’s internal control. The
IOC has the statutory authority to develop and prescribe accounting policy for
the State but does not have statutory authority to monitor adherence to these
policies as performed by State agencies at the transactional level. (Finding 1, pages 4 -8)
We recommended the State implement additional internal control procedures in order to assess the risk of material misstatements to the financial statements and to identify such misstatements during the financial statement preparation process.
Officials of the Governor’s Office responded that they will work together with the Office of the State Comptroller to convince the Illinois Legislature of the necessity to include capital funding for the purpose of procuring and implementing a statewide accounting system with all necessary components including general ledger, procurement, inventory, grants management, payroll and timekeeping information systems. Officials further stated they will work together to enhance internal controls over the year-end financial reporting process.
IOC officials responded that they will continue to provide consultation and technical advice to State agencies in relation to identification and establishment of adequate internal control with respect to financial reporting.
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 (SEFA) in a timely manner.
Reporting issues at various individual agencies caused delays in finalizing the financial statements which did not occur until June of the subsequent year for the past two fiscal years.
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. (Finding 2, pages 9-11)
We recommended the Office of the Governor and
the Office of the State Comptroller 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 Office of the State
Comptroller as it relates to year end preparation of the CAFR and SEFA.
The Office of the Governor’s response noted
that they will continue to work with the Office of the State Comptroller to
implement additional procedures to assist in preparing the complex SCO forms currently used in the preparation of the
Comprehensive Annual Financial Report and the Schedule of Expenditures of
Federal Awards.
The IOC’s response indicated it will continue to provide consultation and technical advice to State agencies in relation to financial reporting in order to increase the likelihood that State agencies will report financial information in a timely manner. The IOC also stated it will also seek legislation that provides it with enforcement tools to compel State agencies to comply with necessary reporting deadlines.
The remaining finding reported compliance
issues with the annual financial reporting requirements set forth by continuing
disclosure undertakings. We will review
the State’s progress towards the implementation of our recommendations in our
next audit.
NEW STANDARDS
Effective for the year ending June 30, 2008, the State adopted GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. To implement the Standard, the State performed an actuarial valuation of the health, dental, vision, and life insurance benefits promised to retirees. The valuation reported a $23.9 billion actuarial liability with no assets currently set aside to fund the liability as the State uses a “pay-as-you-go” method to make payments for retirees.
The liability amount recorded in the financial statements based upon the accounting criteria set forth in GASB Statement No. 45 was $1,238,131,000 at June 30, 2008.
WILLIAM G. HOLLAND, Auditor General
WGH:pp
Exhibit 3
State Comparison of Net Assets of
Governmental Activities for FY08
(In billions)
Alabama: $22.0
Alaska: $55.9
Arizona: $18.4
Arkansas: $11.4
California: $25.1
Colorado: $15.8
Connecticut: –$6.9
Delaware: $2.6
D.C.: $2.5
Florida: $50.3
Georgia: $15.0
Hawaii: $5.0
Idaho: $7.5
Illinois: –$24.4
Indiana: $18.9
Iowa: $7.8
Kansas: $10.0
Kentucky: $16.2
Louisiana: $18.7
Maine: $3.7
Maryland: $12.1
Massachusetts: –$9.2
Michigan: $15.7
Minnesota: $11.0
Mississippi: $11.4
Missouri: $29.0
Montana: $6.5
Nebraska: $10.5
Nevada: $4.5
New Hampshire: $2.3
New Jersey: –$14.0
New Mexico: $14.4
New York: $43.5
North Carolina: $30.0
North Dakota: $4.0
Oklahoma: $12.8
Oregon: $10.5
Pennsylvania: $25.6
Rhode Island: $
.83
South Carolina: $13.4
South Dakota: $4.2
Tennessee: $25.3
Texas: $100.7
Utah: $14.2
Vermont: $1.3
Virginia: $17.4
Washington: $26.1
West Virginia: $9.6
Wisconsin: $5.9
Wyoming: $10.9
Source: Compiled by Illinois Auditor
General’s Office from Comprehensive Annual Financial Reports (CAFR) for each
state, excluding Ohio’s, which is currently not available.