REPORT DIGEST

Total this audit 5
Total last audit 2
Repeated from last audit 0

COMMISSIONER OF SAVINGS AND RESIDENTIAL FINANCE

Total this audit 13
Total last audit 10
Repeated from last audit 7

Release Date:

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

INTRODUCTION

This Digest covers the audit of the Office of Banks and Real Estate for the twenty-four month period ended June 30, 1996. The Office of Banks and Real Estate was formerly called the Commissioner of Banks and Trust Companies.

This Digest also covers the audit of the Commissioner of Savings and Residential Finance for the twenty-three months ended May 31, 1996. Effective June 1, 1996, pursuant to Executive Order Number 1 (1996), the Commissioner of Savings and Residential Finance was abolished and all of its powers and duties were transferred to the Office of Banks and Real Estate.

SYNOPSIS

OFFICE OF BANKS AND REAL ESTATE

• Several State-mandated duties and responsibilities were not performed by the Agency as required by law.
• The Agency's internal mileage reimbursement policy is not in compliance with the policies established by the Governors Travel Control Board.

COMMISSIONER OF SAVINGS AND RESIDENTIAL FINANCE

• The Agency did not have adequate controls in place over billings, and drafts from the Treasurer's Office were not transmitted to the Comptroller's Office to be ordered in to the appropriate fund in a timely manner.
• The Agency did not comply with various provisions of the Residential Mortgage License Act of 1987.
• The Agency did not have adequate controls over accounts receivable and associated reporting. This was identified as a material weakness in the Agency's internal control structure.
• Agency personnel could not provide information requested relating to the Real Estate Licensing Division.
• Agency personnel did not consistently prepare reconciliations of Agency records to the Comptroller's reports on a monthly basis.

{Expenditures and Activity Measures are summarized on the following two page.}

FY 1996

FY 1995

FY 1994

OPERATIONS TOTAL
% of Total Expenditures

Personal Services
% of Operations Expenditures
Average No. of Employees

Other Payroll Costs (FICA, Retirement)
% of Operations Expenditures

Contractual Services
% of Operations Expenditures

Travel
% of Operations Expenditures

Electronic Data Processing
% of Operations Expenditures

All Other Operations Items
% of Operations Expenditures

Cost of Property and Equipment

$14,806,235

$14,806,235
100%

$ 9,673,652
65%
212

$ 2,476,303
17%

$ 924,887
6%

$ 980,420
7%

$ 464,005
3%

$ 286,968
2%

$1,813,938

$15,319,875

$15,319,875
100%

$9,902,823
65%
226

$2,640,172
17%

$1,114,779
7%

$1,043,796
7%

$ 303,118
2%

$ 315,187
2%

$2,201,448

$15,719,580

$15,719,580
100%

$10,097,218
64%
249

$2,673,672
17%

$1,290,748
8%

$1,015,795
6%

$ 0
0%

$ 642,147
4%

$1,793,561

FY 1996 *

FY 1995

FY 1994

OPERATIONS TOTAL
% of Total Expenditures

Personal Services
% of Operations Expenditures
Average No. of Employees

Other Payroll Costs (FICA, Retirement)
% of Operations Expenditures

Contractual Services
% of Operations Expenditures

Electronic Data Processing
% of Operations Expenditures

Travel Services
% of Operations Expenditures

Transfer Costs
% of Operations Expenditures

All Other Operations Items
% of Operations Expenditures

Cost of Property and Equipment

$5,928,600

$5,928,600
100.00%

$3,055,601
51.54%
71

$779,554
13.15%

$758,128
12.79%

$563,535
9.51%

$184,973
3.12%

$163,813
2.76%

$422,996
7.13%

$1,142,791

$2,620,799

$2,620,799
100.00%

$1,511,064
57.66%
34

$381,386
14.55%

$281,210
10.73%

$227,695
8.69%

$114,761
4.38%

$0
0%

$104,683
3.99%

$673,081

$2,636,932

$2,636,932
100.00%

$1,454,532
55.16%
34

$366,673
13.91%

$313,418
11.89%

$118,191
4.48%

$134,452
5.10%

$0
0%

$249,666
9.46%

$656,233

• Fiscal year 1996 includes expenditures associated with administering the Real Estate License Act of 1983, the Land Sales Registration Act of 1989, and the Illinois Real Estate Time-Share Act. The Agency began administering these programs July 1, 1995.

FY 1996

FY 1995

FY 1994

64
957
370
36

66
809
430
30

66
724
285
54

During Audit Period: Mr. Jack Schaffer

Currently: Mr. Jack Schaffer

Reconciliations were not prepared on a consistent monthly basis.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

OFFICE OF BANKS AND REAL ESTATE

NONCOMPLIANCE WITH STATE MANDATES

Various State mandates have not been fully addressed by the Agency, causing noncompliance with State laws and reporting requirements. We selected a sample of the State mandated duties and responsibilities applicable to the Agency to test for compliance. Although in certain instances the Agency had made efforts to implement some of the statutory requirements, the Agency had not complied with several of its State mandates.

We noted compliance deficiencies in each of the following mandates:

• The Illinois Electronic Funds Transfer Advisory Committee is mandated to hold at least one meeting annually. The Committee has not met since October 27, 1994. According to Agency personnel meetings have not been held due to numerous vacancies on the Committee.
• The Illinois Bank Examiners' Education Foundation Board of Trustees is mandated to hold at least one meeting each calendar quarter. The Board of Trustees did not meet during 3 out of 8 quarters during fiscal years 1995 and 1996. According to Agency personnel, their was not sufficient business to hold the quarterly meetings.
• Nonresident financial institutions that carry on the business of a financial institution within the State are required to file an annual Financial Institution Activity Report. Only 5 reports have been collected since the statute became effective. The statute does not provide an enforcement mechanism as a means of requiring the financial institutions to file the informational reports.
• The Illinois Bank Examiners' Education Foundation Board of Trustees is required to submit an annual report to the Governor, General Assembly and all state chartered banks concerning the Foundation's activities for the past year. The report for fiscal year 1995 was never completed. Agency personnel indicated the report was not completed as they were attempting to change the format.
• Applications for permits to organize a state bank are to be acknowledged before an officer authorized by law to acknowledge deeds. Our testing of 10 applications for permits to organize a state bank identified that none of the applications had been acknowledged. Agency personnel indicated they did not have a policy in place to evaluate this statutory requirement.

We recommended the Agency allocate staff and resources necessary to ensure the mandates applicable to the Agency are complied with or pursue legislation to have the mandates rescinded. (Finding 2, page 11)

The Agency concurred with the finding.

 

MILEAGE REIMBURSEMENT POLICY

The Agency's internal travel policy in effect during the audit period allowed reimbursement for mileage from an employee's designated headquarters to the work site regardless of the employee's actual mileage or whether they traveled through their designated headquarters. The Governor's Travel Control Board rules provide that an employee whose travel does not include travel through the headquarters may be reimbursed for all mileage; however, if the employee must travel through the headquarters to reach a destination, reimbursement is for mileage in excess of commuting mileage.

According to Agency personnel, this condition is the result of the Agency's oversight of the policies established by the Governor's Travel Control Board. Failure to establish internal travel policies in accordance with guidelines established by the Governor's Travel Control Board, creates inconsistencies in reimbursement for travel expenses which could result in the Agency and the State making unnecessary reimbursements for travel expenditures.

We recommended the Agency revise its internal travel policy to bring it in line with guidelines established by the Governor's Travel Control Board. (Finding 4, page 14)

The Agency concurred with the finding, and adopted a revised policy effective May 6, 1996.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

COMMISSIONER OF SAVINGS AND RESIDENTIAL FINANCE

INADEQUATE CONTROLS OVER RECEIPTS PROCESSING

The Agency did not have adequate controls in place to ensure fees are billed timely and for the correct amount, and drafts from the Treasurer's Office are transmitted to the Comptroller's Office to be ordered into the appropriate funds in a timely manner. During our testing we noted the following:

• Supervisory fees for savings and loans totaling $225,338 which should have been billed June 30, 1995 were not billed until September 28, 1995.
• Treasurer's drafts for 2 of 20 (10%) miscellaneous receipts and 4 of 20 (20%) mortgage banking receipts tested were not transmitted to the Comptroller's Office to be ordered into the appropriate funds in a timely manner. The drafts were transmitted to the Comptroller's Office as many as 120 days after they had been received by the Agency. In addition, it was determined drafts totaling $884,513 were not transmitted to the Comptroller's Office to be ordered into the Savings and Residential Finance Regulatory fund in a timely manner. The drafts were transmitted to the Comptroller's Office as many as 186 days after being received by the Agency.
• One of 20 (5%) receipts tested was billed for the wrong amount.

  Agency personnel indicated this condition was the result of a change in staffing which created a backlog of information to be processed. Good internal controls require receipts to be ordered into the appropriate funds in a timely manner so they are available to pay operating expenditures.

  We recommended the successor Agency establish adequate controls to ensure fees are billed timely and for the correct amounts, and that deposits are ordered into the appropriate funds in a timely manner. (Finding 1, page 10)

  Office of Banks and Real Estate officials concurred with our finding and indicated all funds are now being billed, collected, and allocated to the appropriate fund in a timely fashion.

  NONCOMPLIANCE WITH THE RESIDENTIAL MORTGAGE LICENSE ACT OF 1987

  The Agency did not comply with various provisions of the Residential Mortgage License Act of 1987. We noted the following exceptions:

• 205 ILCS 635/1-5, requires board members to file an annual statement of their business transactions or affiliations with licensees. The Agency could not provide these statements. According to Agency personnel, this condition is the result of an oversight.
• 205 ILCS 635/3-2(d)-(i), requires each residential mortgage licensee to submit an annual audit report or acceptable substitute within 90 days of its fiscal year end. We noted in 4 out of 25 (16%) mortgage banking licensee files tested, an annual audit report or acceptable substitute was not submitted within the required time frame, and a late fee was not assessed. In another instance a late fee was assessed, but it could not be determined if the fee was ever collected. According to Agency personnel this condition was the result of an oversight.
• 205 ILCS 635/4-9, requires licensees to file an "Annual Report of Mortgage Activity, Annual Report of Servicing Activity, and/or an Annual Report of Brokerage Activity". Out of 25 mortgage banking files tested, we identified 6 (24%) did not submit an annual filing, 1 ( 4%) submitted an incomplete filing, and 5 (20%) were filed late. The Agency did not have adequate policies and procedures in place to ensure annual reports are collected timely and to follow-up on reports that are not received.
• 205 ILCS 635/4-8(a-h), requires the Agency to determine each licensee's delinquency rate annually and conduct examinations of those licensees having gross delinquency rates in excess of statutory requirements. During our testing, the annual delinquency rate for 1 of 10 (10%) licensees could not be provided. According to agency personnel this was an oversight.

  Nonperformance of these mandated requirements puts the Agency in violation of State laws and regulations.

  We recommended the successor Agency consistently enforce the provisions of the Residential Mortgage Licensing Act of 1987. (Finding 2, page 11)

  Officials of the Office of Banks and Real Estate concurred with the finding.

  LACK OF CONTROLS OVER ACCOUNTS RECEIVABLE

  The Agency did not maintain adequate controls over its accounts receivable. This was identified as a material weakness in the Agency's internal control structure. We noted the following control deficiencies:

• Agency personnel were unable to provide a detailed listing of accounts receivable.
• Quarterly accounts receivable reports that are required to be filed with the Comptroller's Office were inaccurate and in some instances could not be provided.
• The Agency did not have any procedures in place to handle uncollectible accounts receivable.
• The Agency did not reconcile cash receipts to licensee accounts.

According to Agency personnel, this condition is the result of inadequate staffing. Good internal controls require maintaining detailed accounts receivable information and written procedures for writing off uncollectible accounts receivable.

We recommended the successor Agency review the accounts receivable system and develop written procedures implementing strong internal controls such as reconciling collections on accounts to cash receipts. We also recommended the successor Agency allocate sufficient staff and resources to accounts receivable processing to allow implementation of these procedures. (Finding 4, page 13) This finding has been repeated since 1992.

Officials of the Office of Banks and Real Estate concurred with the finding. They indicated each of the Agency's operations divisions is working to correctly identify outstanding accounts receivable, establish written procedures to maintain accurate records in this area, and to determine uncollectible accounts. (For previous Agency responses, see digest footnote #1).

AGENCY COULD NOT PROVIDE REQUESTED INFORMATION ASSOCIATED WITH THE REAL ESTATE LICENSING DIVISION

During testing, various reports were requested from the Real Estate Licensing Division which could not be produced or the information available was only for the period after the implementation of a new data base system in April 1996. Reports requested which have not been produced by the current Real Estate Licensing Division are listings of all new and renewal real estate licenses granted during fiscal year 1996.

The transition of the Real Estate Licensing Division from the Department of Professional Regulation to the Office of the Commissioner of Savings and Residential finance has resulted in the misplacement of records, inability to compile data, and the inability to produce reports. Strong internal controls and good business practices require sufficient records be maintained to support the activities of the Agency.

We recommended the successor agency review the database system to ensure it is capable of producing all necessary reports for both management purposes and verification of activities. In addition, all files supporting licensing functions should be maintained and organized in a manner that allow the location of specific information in a timely, efficient manner. (Finding 6, page 15)

Officials of the Office of Banks and Real Estate concurred with the finding, and indicated the Agency was unable to get all the reports and information from the agency that used to administer the program, the Department of Professional Regulation, as requested. In addition, producing timely reports from the new data base will not be a problem in the future.

AGENCY RECORDS NOT RECONCILED TO COMPTROLLER'S REPORTS ON A MONTHLY BASIS

The Agency did not consistently prepare reconciliations of Agency records to the reports provided by the Comptroller's Office on a monthly basis. Based on our testing, we identified the following:

• 25 of 30 (83%) of the required reconciliations of Agency records to the Comptroller's Monthly Appropriation Ledger (336) were not performed.
• 23 of 24 (96%) of the required reconciliations of Agency records to the Comptroller's Monthly Fund Ledger (633) were not prepared.
• 24 of 24 (100%) of the required monthly reconciliations of Agency records to the comptroller's Monthly Receipts Ledger (630) were not prepared.

  Sound internal control policies and CUSAS procedures require monthly reconciliations of the Agency records to the Comptroller's reports.

  We recommended the successor Agency take steps to ensure the reconciliations are performed on a monthly basis as required by CUSAS and sound internal control policies. (Finding 11, page 22)

  Officials of the Office of Banks and Real Estate concurred with the finding and indicated steps are in process to "catch-up" on past reconciliations, and an individual has been assigned the responsibility for performing future reconciliations in a timely manner.

  OTHER FINDINGS

  The remaining findings were less significant and are being given appropriate attention by Agency management. We will review progress toward implementation of our recommendations during our next audit.

  Mr. Robert C. Thompson, Assistant Commissioner, Office of Banks and Real Estate, provided responses to our recommendations.

  AUDITORS' OPINION

  Our auditors stated the financial statements of the Office of Banks and Real Estate and Commissioner of Savings and Residential Finance as of and for the years ended June 30, 1996 and 1995 are fairly presented in all material respects.

  
  
  ___________________________________
  WILLIAM G. HOLLAND, Auditor General

  WGH:RPU:pp

  SPECIAL ASSISTANT AUDITORS

  Clifton Gunderson L.L.C. were our special assistant auditors on these audits.

DIGEST FOOTNOTE

#1 LACK OF CONTROLS OVER ACCOUNTS RECEIVABLE - Previous Agency responses.

1992: "The Office of the Commissioner of Savings and Residential Finance accepts these recommendations. During this period, key staff did turnover in our Office. The early retirement program of 1992 together with funding reductions caused annual administrative staff hours to shrink from 15,600 to 9,750, a reduction of 5,850 hours per year. Additionally the loss of essential staff underscores the necessity of having well defined written procedures available. Staff resources are being directed to this effort and we hope to have the new procedures in place by January 31, 1994." (Response continues with explanations concerning the Agency's accounts receivables.)

1994: "The Office concurs with this finding. The staffing structure of the fiscal operations area has been reviewed and an additional staff person, an Account Technician I, will begin work in the last half of March, 1995. This person will assist in the reporting of accounts receivable and the monitoring and write-off of uncollectible accounts. Accounts receivable procedures will be documented."