REPORT DIGEST DEPARTMENT OF NATURAL RESOURCES Financial Audit of Capital Asset Account for the Year Ended June 30, 2014 Compliance Examination for the Two Years Ended June 30, 2014 Release Date: June 30, 2015 FINDINGS THIS AUDIT: 16 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 1 -- 0 -- 1 Category 2: 9 -- 6 -- 15 Category 3: 0 -- 0 -- 0 TOTAL: 10 -- 6 -- 16 FINDINGS LAST AUDIT: 13 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 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 Full Report are also available on the worldwide web at www.auditor.illinois.gov SYNOPSIS • (14-1) The Department did not ensure adequate controls were in place over operations of its World Shooting and Recreation Complex. • (14-2) The Department failed to assess and collect fees for certain environmental consultations performed, resulting in over $500,000 in lost revenues. • (14-3) The Department did not issue Off- Highway Vehicle Usage Stamps and collect related fees as required. • (14-4) The Department did not monitor and enforce concessionaire lease agreements. • (14-5) Bank reconciliations at Department sites were not properly prepared and reviewed. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS INADEQUATE CONTROLS OVER WORLD SHOOTING AND RECREATION COMPLEX OPERATIONS The Department did not exercise adequate controls over operations of its World Shooting and Recreation Complex (WSRC) in Sparta, Illinois. The Department opened the WSRC in 2006, and it consists of over 1,500 acres of land devoted to shooting and outdoor recreation, including 1,000 camp sites, areas for trap, skeet, and sporting clay shooting, a cowboy action/pistol berm, a vendor mall, and an event center. Some of the conditions we noted follow: • The Department has not established an operations manual, administrative rules, or procedures to govern operations of the WSRC. While certain Department-wide procedures and rules guide some of the WSRC’s operations and functions, such as camping and equipment, the Department has not established guidance for the operational areas that are specific to the WSRC, such as event rentals, operations of the various shooting areas, handling of Department-owned firearms, and responsibility and recordkeeping for sponsorships and in-kind items received. • The WSRC receives a number of in-kind items, such as certificates for firearms and ammunition, from sponsors for events. These items are then distributed as prizes for participants in certain shooting events. However, there are no records maintained for items received and/or distributed. As such, we could not determine to whom those items were distributed and if any items were lost or stolen. • The Department did not exercise appropriate control over contractual employees. Two contractual employees who also operate a shooting event promotion company were permitted to work 112 hours on State time while setting up and conducting a shooting event held at the WSRC that also benefitted their private business. (Finding 1, pages 14-21) We recommended the Department establish an operations manual for the specific operations of the WSRC. The handbook should specifically address the terms of the Facility Use Agreements, event rentals, operations of the various shooting areas, handling of Department-owned firearms, and responsibility and recordkeeping for sponsorships and in-kind items received. In addition, we recommended the Department strengthen controls over contractual employees and ensure they only work time scheduled or approved by their immediate supervisor. We also recommended the Department ensure campground hosts are performing their duties as agreed upon with the Department and adequately display signage near campground hosts’ campers. The Department agreed with the issues noted in the finding and reported they have undertaken efforts to improve the WSRC’s management and operations. FAILURE TO COLLECT ENVIRONMENTAL CONSULTATION FEES The Department did not assess and collect fees for certain environmental consultations performed as required. The Department of Natural Resources (Conservation) Law (20 ILCS 805/805-555(b)) requires the Department to assess a $500 fee for consultations conducted pursuant to the Illinois Endangered Species Protection Act (520 ILCS 10/11) and the Illinois Natural Areas Preservation Act (525 ILCS 30/17), effective January 1, 2013. We noted the Department did not collect the $500 fee for consultations of this type performed during the examination period. Between July 5, 2013 and March 17, 2014, the Department performed 1,019 consultations of this type. As a result, the Department did not bill for or collect over $500,000 in revenue to which it was entitled. (Finding 2, page 22) We recommended the Department proceed with assessing and collecting fees for environmental consultations as required, or seek legislative remedy. The Department agreed with the condition noted and reported they began collecting the consultation fees in October 2014. FAILURE TO ISSUE OFF-HIGHWAY VEHICLE USAGE STAMPS The Department failed to issue Off-Highway Vehicle Usage Stamps and collect related monies as required by the Recreational Trails of Illinois Act (Act). The Act (20 ILCS 862/26) states no person shall, on or after July 1, 2013, operate any off-highway vehicle within the State unless the off-highway vehicle has attached an Off- Highway Vehicle Usage Stamp purchased and displayed in accordance with the provisions of this Act. The Act further states the Department shall charge a fee per stamp and the proceeds from stamp sales shall be deposited into the Conservation Police Operations Assistance Fund and the Park and Conservation Fund. During testing, we noted the Department failed to begin selling Off- Highway Vehicle Usage Stamps and collecting related monies. (Finding 3, page 23) We recommended the Department issue Off- Highway Vehicle Usage Stamps and collect the related fee as required by State statute or seek legislative remedy. The Department agreed with the condition noted and reported they are working on a State recreation venue for off-highway vehicle usage but they have agreed to not issue Off-Highway Vehicle Usage Stamps until the State provides an off-road park for such vehicles to use. FAILURE TO ENFORCE CONCESSIONAIRE LEASE AGREEMENTS The Department failed to monitor and enforce concessionaire lease agreements regarding rental and reserve payments. During the examination period, the Department had approximately 70 concessionaires located at State parks throughout Illinois. The Department’s concession coordinators are responsible for negotiating and enforcing lease terms, overseeing the site, approving rates charged, and collecting rental payments. The Department received rental fees from concessionaires totaling $795,525 and $799,913 during Fiscal Years 2014 and 2013, respectively. During our sample testing of 10 concession and lease agreements, we noted 20 (54%) rental payments were remitted to the Department in an untimely manner, ranging from 1 to 145 days late. In addition, for the largest four concessionaires as measured by rental payments/deposits, we noted all four did not properly adhere to the terms and conditions stated in their lease agreement. Some of the noncompliance issues we noted follow: • Three of the four concessionaires did not submit reserve deposit slips in a timely manner, ranging from 1 to 211 days late. • Three of the four concessionaires’ reserve deposit slips did not have a date stamp. As a result, we were unable to determine if the reserve deposit slips were remitted timely. • One concessionaire’s file was missing various deliverables required to be submitted to the Department, such as schedules of gross revenue and reconciliations of gross revenues to revenue reports. In addition, this concessionaire submitted other deliverables, such as profit and loss statements, budgeting documents, marketing plans, and cash flow analysis, untimely. (Finding 4, pages 24-26) This finding has been repeated since 2006. We recommended the Department ensure adequate controls are in place to ensure concessionaires are in compliance with contracts and lease agreements. The Department agreed with the finding and reported they are implementing follow up procedures to ensure lessees provide all required information. (For the previous Department response, see Digest Footnote #1.) INADEQUATE CONTROLS OVER BANK RECONCILIATIONS The Department did not properly prepare and review bank reconciliations at Department sites selected for testing. Some of the issues we noted follow: • 36 of 169 (21%) monthly bank reconciliations were not performed. • 24 of 169 (14%) monthly bank reconciliations did not include a signature indicating review and approval by a second individual. • One of eight (13%) sites tested did not maintain a check register for its local revenue account; therefore, we could not trace the book balance used on the reconciliation to any supporting documentation. • Bank statements could not be located for 7 of 169 (4%) monthly bank reconciliations; therefore, accuracy of the bank reconciliations could not be verified. (Finding 5, pages 27-29) This finding has been repeated since 2008. We recommended the Department review its existing policies and procedures to ensure all reconciliations are performed timely and properly while maintaining an adequate segregation of duties. Further, we recommended the Department ensure sites are following Department policy and remitting revenue to Central Office on a timely basis. The Department agreed with the finding and reported they have issued updated procedures addressing local revenue and petty cash accounts, as well as revenue transmittal and deposits, including their timing. (For the previous Department response, see Digest Footnote #2.) OTHER FINDINGS We noted other findings during our examination pertaining to 1) inadequate controls over equipment and fuel reconciliations, 2) internal audit deficiencies, 3) inadequate controls over the purchase, recording and reporting of State property, 4) weaknesses in accounts receivable and related reporting, 5) untimely voucher approvals, 6) noncompliance with mandated duties, 7) inadequate control over employee attendance records and personnel functions, 8) inadequate control over employees’ accrual and use of overtime, 9) lack of contingency planning or testing to ensure recovery of computer systems, 10) weaknesses regarding the security and control of confidential information, and 11) inaccurate GAAP reporting. We will review the Department’s progress toward implementation of our recommendations during our next regularly scheduled compliance examination. AUDITOR’S OPINION Our auditors stated at June 30, 2014, the Department of Natural Resources’ Schedule of Capital Assets was fairly presented. ACCOUNTANT’S OPINION The auditors conducted a State compliance examination of the Department for the two years ended June 30, 2014, as required by the Illinois State Auditing Act. The accountant’s report does not contain any scope limitations or disclaimers, but does contain a qualified opinion on compliance and material weaknesses over internal control WILLIAM G. HOLLAND Auditor General WGH:cmd AUDITORS ASSIGNED This audit was performed by the Office of the Auditor General’s staff. DIGEST FOOTNOTES #1 – Failure to enforce concessionaire lease agreements – Previous Agency Response 2012 – The Agency agrees that Concession practices can be tightened. The Agency is taking administrative steps toward a more focused response to late payments by concessionaires and other lessees. A revised policy will simplify and increase the efficiency of the process for collection of outstanding payments and other deliverables by establishing clear threshold time frames for a several step process designed to subject non-paying lessees to legal processes for collection and eviction. The Agency will also review boilerplate lease agreement language for revisions requiring additional penalties if payments are late. However, the decision whether to seek termination remains with the Agency as it balances the need to provide uninterrupted services to the public and ensure reliable entities are lessees of Agency property and facilities. #2 – Inadequate controls over bank reconciliations – Previous Agency Response 2012 – The Agency agrees that bank reconciliation for State Park accounts have inadequate controls. The Office of Land Management is in the process of employing an account technician for the purpose of maintaining all aspects of the camping program including reconciliations of revenue and petty cash accounts, deposits and permits; as well as monitoring completion of sold permit forms.