REPORT DIGEST

DEPARTMENT OF NATURAL RESOURCES

FINANCIAL AUDIT OF CAPITAL ASSET ACCOUNT

For the Year Ended:

June 30, 2005

Summary of Findings:

Total this audit*                        1

Total last audit**                    29

Repeated from last audit           1

*Financial Audit of Capital Asset Account only for year ended 6/30/05

**Compliance Examination for two years ending 6/30/04

Release Date:

May 18, 2006 

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

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 the Full Report are also available on the worldwide web at http://www.state.il.us/auditor

SYNOPSIS

• The Department’s preparation and submission of year end accounting reports to the Office of the State Comptroller related to the capital asset account were not performed accurately, causing significant financial reporting delays.  Some problems included:

-         Department has not agreed ending recalculations with its Common Inventory System

-         Extensive reconciliation and testing procedures were performed to verify ending balances

-         Depreciation was calculated incorrectly

-         Adequate documentation was not maintained for additions, deletions and transfers

-         Inconsistent recording of historical treasures

-         $26 million related to bikeways were not included on Department records

-         $39 million related to Office of Water Resources sites were not included on Department records

-         Accounts payable were not properly calculated

-         Capital assets amounts and accumulated depreciation were not available until 9 months after end of fiscal year

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

SCHEDULE OF CAPITAL ASSETS (Expressed in thousands)

June 30, 2005

..... Capital Assets not being depreciated:

........... Land and land improvements......................................................

..... Total Capital Assets not being depreciated:................................

Capital Assets being depreciated:

........... Site improvements......................................................................

........... Building and building improvements.............................................

........... Infrastructure..............................................................................

........... Equipment..................................................................................

Total Capital Assets being depreciated:.......................................

..... Less Accumulated Depreciation for:

........... Site improvements......................................................................

........... Buildings and building improvements...........................................

........... Infrastructure..............................................................................

........... Equipment..................................................................................

..... Total Accumulated Depreciation..................................................

..... Total Capital Assets, being depreciated, net...............................

..... Total Capital Assets, net...............................................................

$309,170

  309,170

321,109

285,939

39,591

   71,697

  718,336

139,180

102,952

  21,677

  57,070

320,879

397,457

$706,627

AGENCY DIRECTOR

During Audit Period:  Joel Brunsvold

Currently:  Sam Flood, Acting (effective January 1, 2006)

Inaccurate accounting reports result in significant reporting delays

Department has not agreed ending recalculations with its Common Inventory System

Extensive reconciliation and testing procedures were performed to verify ending balances

Depreciation calculated incorrectly

Adequate documentation not maintained for additions, deletions and transfers

Inconsistent recording

$26 million related to bikeways not included on Department records

$39 million related to Office of Water Resources sites not included on Department records

Accounts payable were not properly calculated

Capital assets amounts and accumulated depreciation not available until 9 months after end of fiscal year

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INADEQUATE CONTROLS OVER THE CALCULATION AND SUBMISSION OF CAPITAL ASSET INFORMATION FOR GAAP REPORTING PURPOSES

      The Department’s preparation and submission of year end accounting reports (GAAP Package Forms) to the Office of the State Comptroller related to the capital asset account were not prepared accurately, causing significant financial reporting delays.  We noted the following problems with the Department’s fiscal year 2005 Statewide Accounting Management System to GAAP Reconciliation – Capital Assets (SCO 537) and the Capital Asset Summary (SCO 538) submission to the State Comptroller:

·        Previous audits noted numerous errors regarding the SCO-537 and 538 at June 30, 2002, 2003 and 2004 in order to meet reporting requirements under GASB 34.  As of June 30, 2005, the Department still had not agreed the ending recalculations with the Department’s Common Inventory System (CIS), including asset categorization and related accumulated depreciation amounts. 

·        Due to the incompleteness of CIS records, the Department could not obtain ending balances for each capitalization category from property control records.  Without these amounts, it cannot be determined if ending balances are reasonably stated.  Extensive reconciliation and testing procedures were performed to verify ending balances.

·        Accumulated depreciation was calculated incorrectly and individual transaction amounts were not substantiated. 

·        The Department was unable to provide adequate documentation of actual additions, deletions and transfers.  The Department was also unable to provide a complete listing of all consolidations and other adjustments.  

·        The Department did not consistently record historical treasures, works of art and other collections in their records.   

·        The Department still has not included Department of Transportation managed projects, totaling approximately $26 million, related to bikeways on its property control records. 

·        The Department still has not included Office of Water Resources sites, totaling approximately $39 million, on its property control records. 

·        The Department was unable to properly calculate capital asset accounts payable.  The Department materially overstated payables related to equipment and infrastructure, but failed to properly calculate any payables related to multi-year construction projects, resulting in significant audit adjustments.

·        Due to the complexity of the above issues, revised amounts related to capital assets and accumulated depreciation were not available until April 6, 2006, more than seven months after the initial due date and more than nine months after the end of the fiscal year.  (Finding 1, pages 13-16)  This finding has been repeated since 2002.

      We recommended the Department implement procedures to ensure capital assets are reported in an accurate and complete manner and reconcile the Common Inventory System to capital asset reporting amounts to ensure the property control system can be utilized for capital asset reporting.  We further recommended the Department review and revise, as necessary, its current system of gathering property control information to improve the accuracy of the Common Inventory System records and devote necessary personnel to these tasks.  (For the previous Department responses see Digest Footnote #1.)

      Department officials agreed with our finding and stated they have initiated corrective action. 

AUDITORS’ OPINION

      We conducted a financial audit of the Department’s Capital Asset Account for the year ended June 30, 2005.  Our special assistant auditors stated that the Department’s capital asset account as of June 30, 2005 is presented fairly in all material respects.  

___________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:JSC:pp

AUDITORS ASSIGNED

Our special assistant auditors for this engagement were Sikich LLP.

DIGEST FOOTNOTE

#1 – INADEQUATE CONTROLS OVER THE CALCULATION AND SUBMISSION OF CAPITAL ASSET INFORMATION FOR GAAP REPORTING PURPOSES

2004:  We agree.  The Department will continue to pursue solutions to the 30-odd years of previous management staff’s questionable practices for capital asset recording, the Capital Development Board’s misclassification of capital assets in its transfer reports and the Common Inventory System’s inability to provide reports on capital assets that do not require further substantial amounts of analysis by Department staff. 

In an auditor comment we stated the Department did not devote sufficient time and resources to properly address GASB 34 when it first became effective in fiscal year 2002.  This exacerbated the capital asset issues on a go forward basis.  The Department is ultimately responsible for reviewing the information obtained from other State agencies and ensuring the information is properly classified and reported.