REPORT DIGEST DEPARTMENT OF COMMERCE AND ECONOMIC OPPORTUNITY COMPLIANCE EXAMINATION FOR THE TWO YEARS ENDED JUNE 30, 2016 Release Date: April 27, 2017 FINDINGS THIS AUDIT: 12 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 0 -- 0 Category 2: 3 -- 9 --12 Category 3: 0 -- 0 -- 0 TOTAL: 3 -- 9 -- 12 FINDINGS LAST AUDIT: 11 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 SYNOPSIS • (16-1) The Department did not ensure adequate controls were established in the administration of grant programs. • (16-2) The Department’s internal auditing program did not fully comply with the Fiscal Control and Internal Auditing Act. • (16-3) The Department did not submit or timely submit required reports in accordance with the mandates set forth in the State Law. • (16-5) The Department did not comply with various statutory mandates. • (16-6) The Department did not fully comply with the Employment and Economic Opportunity for Persons with Disabilities Task Force Act and the Illinois Employment First Act. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS WEAKNESSES IN CONTROLS OVER GRANT ADMINISTRATION The Department of Commerce and Economic Opportunity (Department) did not ensure adequate controls were established in the administration of grant programs. The Department expended $1,305,778,270 for awards and grants during the examination period. Expenditures for awards and grants accounted for 87% of the Department’s total expenditures of $1,507,773,053. We tested 60 grant agreements spread across the various bureaus within the Department. During the examination of 60 awards and grants, the following issues were noted: • Seven (12%) awards tested disclosed the Department did not ensure payments to grantees were only made after required reports were received and approved by the Department as required in the grant agreement. The Department disbursed funds totaling $31,247,325 of these awards prior to approving required reports that would allow for the disbursement of funds. • Four (7%) awards tested disclosed certain grant records were not properly maintained. The grant application evaluations completed by the Department for 3 awards tested were not found on file. One award had incomplete grantee application evaluation documentation. • Two (3%) awards tested disclosed grantees were not adequately monitored during the audit period. The Department did not perform the required onsite review/visits on 2 awards with funds disbursed totaling $12.5 million during Fiscal Years 2015 and 2016. • The Department did not return 1 of 8 (13%) refund vouchers tested totaling $24,606 to the contractor timely. The refund was returned to the contractor 316 days after the date the unspent funds were required to be returned to the contractor. (Finding 1, pages 12-13) This finding has been repeated since 2008. We recommended the Department strengthen its controls over the grant administration process including controls over disbursement of grant funds, maintaining grant documentation, grant monitoring and returning of unspent funds to grantors/contractors. Department officials accepted our recommendation and stated they continue to assess the efficiency and effectiveness of their current controls over the grant administration process, and have already implemented new controls to ensure payments to grantees are only made after required reports are received and approved by the Department as required in the grant agreement. In addition, they indicated the Department’s Office of Accountability will ensure that grant monitoring will occur per the conditions of the grant agreements for those programs that lack monitors. (For the previous Department response, see Digest Footnote #1.) NONCOMPLIANCE WITH THE FISCAL CONTROL AND INTERNAL AUDITING ACT The Department’s internal auditing program did not fully comply with the Fiscal Control and Internal Auditing Act. The Department’s Office of Internal Audit (OIA) did not conduct audits of the Department’s major systems of internal accounting and administrative control to ensure major systems are reviewed at least once every two years. During Fiscal Year 2015, the OIA did not conduct and complete any audits. During Fiscal Year 2016, the OIA completed two audits. In addition, the Department installed a new electronic data processing system during Fiscal Year 2015; however, no internal audit review of the system design and controls was conducted prior to installation. (Finding 2, pages 14-15) This finding has been repeated since 2012. We recommended the OIA conduct internal audits of major systems and administrative controls at least once every two years in compliance with the Fiscal Control and Internal Auditing Act. OIA should include review of the Department’s internal control over its administration of Federal and State grants and also include review of major electronic systems installed or review of major modifications to the existing electronic systems. Department officials accepted our recommendation and stated they continue to establish processes that will help ensure adherence to all requirements of the Fiscal Control and Internal Auditing Act. The Department is pursuing filling internal auditor positions which are essential to operate a fully functioning Office of Internal Audit. (For the previous Department response, see Digest Footnote #2.) FAILURE TO SUBMIT OR TIMELY SUBMIT REQUIRED REPORTS The Department did not submit or timely submit required reports in accordance with the mandates set forth in the State Law. During testing of statutes applicable to the Department, auditors noted the following: • The Department did not submit a report on its evaluation of the effectiveness of the tax credit program to the Governor and the General Assembly as required by the Economic Development for a Growing Economy (EDGE) Tax Credit Act. The last evaluation report submitted by the Department was on November 1, 2005. • The Department did not timely submit the reports evaluating the effectiveness of the River Edge Redevelopment Zone Act to the Governor and General Assembly during Fiscal Years 2015 and 2016. The reports were submitted 16 and 209 days after they were due. (Finding 3, pages 16-17) This finding has been repeated since 2010. We recommended the Department revisit the statute that requires an evaluation of the EDGE Tax Credit Program to determine its effectiveness in creating new jobs and revenue impact to the State or seek legislative remedy as appropriate. In addition, we recommended the Department allocate sufficient resources to ensure necessary information is collected and required reports are timely submitted to the Governor and General Assembly. Department officials accepted our recommendation and stated they will continue to strive for timely submission of all required reports or, when appropriate, seek statutory changes. (For the previous Department response, see Digest Footnote #3.) NONCOMPLIANCE WITH STATUTORY MANDATES The Department did not comply with various statutory mandates. During testing, auditors noted the following: • The Department did not establish a comprehensive community economic development project to provide technical assistance to communities for purposes specified in the Build Illinois Act. • The Department’s Film Production Services Tax Credit annual report for both Fiscal Year 2015 and 2016 did not include all the required vendor information as enumerated in subsection (c) of the Film Production Services Tax Credit Act of 2008. • The Department did not administer the Illinois Industrial Coal Utilization Program and operate a revolving loan program aimed to partially finance new coal burning facilities or convert existing boilers to use coal located in Illinois. • The Department developed the State strategic economic development plan (plan) which was submitted to the Governor and the General Assembly on July 1, 2014 in accordance with the statute. However, the Department did not complete and submit annual modifications to the plan which were due on July 1, 2015 and July 1, 2016. In addition, the Department did not submit necessary legislation to implement the Plan. • The Department’s designee did not regularly participate as a member on the Business Enterprise Council for Minorities, Females, and Persons with Disabilities (Council). During review of the meeting minutes of the Council, auditors noted the designee of the Department did not attend 11 of the 19 (58%) meetings of the Council held during Fiscal Years 2015 and 2016. (Finding 5, pages 22-25) This finding has been repeated since 2012. We recommended the Department allocate resources to comply with the statutory requirements or seek a legislative remedy as appropriate. Department officials accepted our recommendation and stated they are taking steps to ensure compliance with these requirements; or, where appropriate, they were seeking statutory changes. (For the previous Department response, see Digest Footnote #4.) NONCOMPLIANCE WITH THE EMPLOYMENT AND ECONOMIC OPPORTUNITY WITH DISABILITIES TASK FORCE ACT AND ILLINOIS EMPLOYMENT FIRST ACT The Department did not fully comply with the Employment and Economic Opportunity for Persons with Disabilities Task Force Act and the Illinois Employment First Act. During testing of the Department’s compliance with the Economic Opportunity for Persons with Disabilities Task Force Act and the Illinois Employment First Act, auditors noted the following: • The Economic Opportunity for Persons with Disabilities Task Force (Task Force) did not produce an annual report of its activities and recommendations that should be issued no later than May 1st of each year. • The Task Force had not finalized the measurable goals and objectives for the State to ensure implementation and monitor measured progress towards implementation of the Illinois Employment First Act. • The Task Force did not submit the final five-year strategic report due on June 30, 2015 to the Governor. As of September 2016, the final strategic plan has not yet been submitted by the Task Force. (Finding 6, pages 26-27) We recommended the Department together with other member State agencies of the Task Force comply with the requirements of the Economic Opportunity for Persons with Disabilities Task Force Act, the Illinois Employment First Act, and the Executive Order implementing the Illinois Employment First Act. Department officials accepted our recommendation and stated that in December of 2014, the Economic Opportunity for Persons with Disabilities Task Force created workgroups charged with development of the strategic plan. From that time, through July of 2016 when a draft plan was posted for public comment, Department staff participated on the workgroups and submitted feedback related to workforce development. Once the Economic Opportunity for Persons with Disabilities Task Force becomes active again, the Department will continue to contribute. OTHER FINDINGS The remaining findings pertain to not fully staffing boards, and commissions, noncompliance with the Retailers’ Occupation Tax Act and the Public Utilities Act, failure to complete performance evaluations timely, exceptions identified with interagency agreements, and weaknesses in controls over State property and with employee time reporting. We will review the Department’s progress towards the implementation of our recommendations in our next compliance examination. ACCOUNTANT’S OPINION The accountants conducted a compliance examination of the Department for the two years ended June 30, 2016, as required by the Illinois State Auditing Act. The accountants stated the Department complied, in all material respects, with the requirements described in the report. This 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:JAF DIGEST FOOTNOTES #1 – WEAKNESSES IN CONTROLS OVER GRANT ADMINISTRATION DCEO accepts the recommendation and will work with grant program offices to ensure adequate training is available to grant management staff. Accessible information should include proper adherence to grant agreement provisions and requirements, procedures for the review and approval of grantee reports, and basic grant monitoring techniques specific to the grant program. Additionally, the Department will ensure any subsequent refunds received from grantees on expired grant programs are submitted back to the grantor timely. #2 – NONCOMPLIANCE WITH THE FISCAL CONTROL AND INTERNAL AUDITING ACT DCEO accepts the recommendation and will seek to fill the now-vacant Chief Internal Auditor position, as well as the Deputy Chief Internal Auditor position, to help ensure future compliance with the Act. #3 – FAILURE TO SUBMIT, OR TIMELY SUBMIT REQUIRED REPORTS DCEO accepts the recommendation and will re-emphasize the importance of required reporting to the Governor and General Assembly. Additionally, the Department will periodically test the tracking system to ensure its functionality and ability to remind staff of upcoming report preparation and submittal dates. #4 – NONCOMPLIANCE WITH STATUTORY MANDATES The Department accepts the recommendation and acknowledges certain statutes require action by the Department to address mandates that are no longer relevant, were never funded, or for which we are implementing controls to ensure compliance. The Department utilizes a mandate database to assist in identifying and prioritizing corrective actions needed to ensure compliance with the requirements of the statutes. The Department will take necessary actions for the mandates identified in this finding or will seek legislative action if necessary.