REPORT DIGEST

DEPARTMENT OF CORRECTIONS

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2020

Release Date:  June 23, 2021

FINDINGS THIS AUDIT:  8

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  2 -- 3 -- 5
Category 2:  0 -- 3 -- 3
Category 3:  0 -- 0 -- 0
TOTAL:  2 – 6* -- 8

FINDINGS LAST AUDIT: 7*

* Two prior findings were combined into
one finding in 2020.

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 the Financial
Statement Audit for the Illinois
Department of Corrections (Department)
for the year ended June 30, 2020.  The
Department’s Compliance Examination
covering the two years ended June 30,
2020 will be issued at a later date.

SYNOPSIS

• (20-1) The Department’s year-end
financial reporting contained
inaccuracies due to improper accounting
and inadequate review.
• (20-4) The Department did not ensure
fiscal requirements were controlled and
documented, and did not ensure proper
financial reporting was performed for the
Offender 360 project.
• (20-5) The Department did not timely
report complete and accurate census data
to the Department of Central Management
Services and did not have a
reconciliation process to provide
assurance census data submitted to the
pension and other postemployment benefits
(OPEB) plans was complete and accurate.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

WEAKNESSES IN PREPARATION OF GAAP
REPORTING FORMS SUBMITTED TO THE OFFICE
OF COMPTROLLER AND PREPARATION OF YEAR-
END DEPARTMENT FINANCIAL STATEMENTS AND
SCHEDULES

The Department’s year-end financial
reporting in accordance with generally
accepted accounting principles (GAAP)
submitted to the Office of Comptroller
(Comptroller) contained inaccuracies due
to improper accounting and inadequate
review. These problems, if not detected
by the auditors and corrected by the
Department, could have materially
misstated the Department’s financial
statements, and negatively impacted the
financial statements prepared by the
Comptroller.

Some of the conditions noted include:

• We identified three errors in recording
backpay liabilities and accounts payable
as of June 30, 2019. These errors
resulted in a $93.2 million overstatement
of the Fiscal Year 2020 beginning fund
balance for governmental funds and
beginning net position for governmental
activities.

• The Department did not accrue
liabilities totaling $36 million, which
were identified by the Comptroller.

• Accounts payable totaling $5.6 million
were not accrued as of June 30, 2020.

• Weaknesses in the financial accounting
for, and inaccurate and inadequate
recordkeeping of, capital assets resulted
in financial audit adjustments and note
disclosures. (Finding 1, pages 61-63)
This finding has been repeated since
2008.

We recommended the Department outline,
document, and implement procedures to
ensure GAAP reporting, financial
statements and schedules are prepared
accurately. We also recommended the
Department maintain documentation of the
calculation and basis of liability
estimates. In addition, we recommended
the Department identify the appropriate
reports and timing for complete and
accurate recording of payables.  Lastly,
the auditors recommended proper yearend
cut-off procedures and internal reviews
be included in those procedures as a
method to identify and correct errors
prior to the submission of financial
information to the Comptroller and other
external parties.

The Department accepted the auditor’s
recommendation and stated it will
strengthen its controls and documentation
related to liability estimates used in
the financial statements.

LACK OF FISCAL CONTROLS AND PROPER
FINANCIAL REPORTING OVER OFFENDER 360
PROJECT

The Department did not ensure fiscal
requirements were controlled and
documented, and did not ensure proper
financial reporting was performed for the
Offender 360 project.  Note:  While this
finding has been repeated since 2014,
this is the first year it has been
elevated to a financial reporting
finding.

The auditors identified weaknesses
regarding monitoring, tracking and
financial reporting of software
application development costs and noted
management did not take all reasonable
steps to implement appropriate and
sufficient corrective action.

The Department’s documentation supporting
the cost of the project did not include
the total cost of Department staff and
some hardware and software purchases and
initially had not been updated with all
Fiscal Year 2019 and any Fiscal Year 2020
costs.

Project costs included costs of the Youth
360 system for the Department of Juvenile
Justice, but the Department did not have
adequate information to determine the
amount that should have been excluded
from the Offender 360 costs.  In
addition, we noted:

• In response to the prior finding, the
Department reviewed vendor payments and
determined they had paid in full for
services not yet rendered as of June 30,
2020 totaling $7,359,021. The Department
subsequently entered into a spend-down
agreement to apply the credit balance to
future services, but did not recognize
this prepaid expense in the financial
statements.  The Department subsequently
adjusted its financial statements to
report the prepaid expense.
• The Department had not capitalized the
development costs of Offender 360, and
had not maintained sufficient records to
determine the capitalizable development
costs.
• The Department still had not developed
adequate policies and procedures to
identify projects that are capitalizable,
determine what costs should be included
in the capitalization, and track and
maintain support for the costs to be
capitalized.
• Since the prior audit, the Department
had not taken adequate corrective action
as of June 30, 2020 to strengthen
internal controls over development, fully
complete a central repository of
information, or track and monitor
deliverables and performance for
internally generated software, in order
to accurately identify capitalizable
assets.

Total cumulative costs incurred of
$103,775,797 through Fiscal Year 2020 had
not been analyzed to identify properly
capitalizable amounts related to the
application development phase or to
determine costs incurred related to the
Youth 360 system.

Due to the absence of adequate
information to calculate capitalizable
development costs, the amount by which
this departure would affect the assets,
net position, and expenses of the
governmental activities cannot be
determined.  Accordingly, the auditor’s
opinion on the financial statements of
governmental activities was qualified.
This qualification will continue until
the potential capitalizable costs would
have been fully depreciated or until the
Department is able to provide adequate
substantiation to determine the actual
capitalizable costs. (Finding 4, pages
70-73)

We recommended the Department implement
controls to ensure expenditures are made
in accordance with State statute, terms
of the contract, and are properly
documented and reported in financial
statements. The Department should also
assign responsible staff and implement
internal controls to ensure the costs
related to future internally developed
software are adequately tracked by
development stage and project and
analyzed for accurate calculation of
costs to be capitalized. Specifically,
policies, procedures and records should
be developed in a timely manner to
identify, track, and report capitalizable
software projects and new costs incurred.
In addition, we recommended the
Department establish a central repository
of information related to the project,
track and monitor deliverables and
performance.  Lastly, we recommended the
Department adequately review vendor
billings for accuracy of payments and any
prepayments to ensure they are properly
applied to completed deliverables.

The Department accepted the auditor’s
recommendation and stated it will work to
strengthen internal controls over the
development and support of its
Information Technology environment. The
Department further stated a central
repository of application documentation
has been established, deliverables and
performance will be tracked and
monitored, and an exhaustive review of
all Information Technology expenditures
will be completed with appropriate action
being taken for billing irregularities.

The Department also stated they switched
vendors for the maintenance of the
application in March of 2021.

INADEQUATE INTERNAL CONTROLS OVER CENSUS
DATA

The Department did not timely report
complete and accurate census data to the
Department of Central Management Services
and did not have a reconciliation process
to provide assurance census data
submitted to the pension and other
postemployment benefits (OPEB) plans was
complete and accurate.

During testing, some of the more
significant issues we noted included the
following:

• The Department had not performed an
initial complete reconciliation of its
census data recorded by SERS and CMS to
its internal records to establish a base
year of complete and accurate census
data.
• Six of 120 (5%) employees tested had an
event occur impacting CMS’ census data
records that was not reported until a
subsequent fiscal year. In addition, we
noted it took between 35 and 152 days
from the occurrence of the event and when
this information was entered into CMS’
records. We worked with CMS’ actuary to
project the impact of these errors on
CMS’ valuation and determined these
exceptions did not materially impact the
Department’s financial statements.
• One of 120 (1%) employees tested had a
discrepancy between the change data
recorded within CMS’ records and the
Department’s records. We noted the
reported date within CMS’ census data
records was 202 days after the event
purportedly occurred according to the
Department’s records. We considered the
impact of this discrepancy and determined
this amount did not materially impact the
Department’s financial statements.
(Finding 5, pages 74-76)

We recommended the Department implement
controls to ensure reportable events are
timely and accurately transmitted to CMS.
Further, we recommended the Department
work with SERS and CMS to develop an
annual reconciliation process of its
active members’ census data from its
underlying records to a report from each
plan of census data submitted to the
plan’s actuary.

The Department accepted the auditor’s
recommendation and stated the Department
will use its scarce public resources to
work with SERS to develop and implement a
process to reconcile the census data for
the pension plan to the Department’s
underlying records for active members.

OTHER FINDINGS

The remaining findings pertain to
inadequate controls over capital assets,
computer systems, locally held funds,
service providers, and inventory. We will
review the Agency’s progress towards the
implementation of our recommendations in
our next financial audit.

AUDITOR’S OPINIONS

The auditors qualified their opinion on
the governmental activities for Finding
2020-004.  Except for this matter, the
auditors stated the financial statements
of the Department as of and for the year
ended June 30, 2020 are fairly stated in
all material respects.

This financial audit was conducted by
Adelfia LLC.

JANE CLARK
Division Director

This report is transmitted in accordance
with Section 3-14 of the Illinois State
Auditing Act.

FRANK J. MAUTINO
Auditor General

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