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Reconciliations not
timely Checks outstanding
more than 6 months Late reporting of
financial aid payments
Incorrect
enrollment status Reconciliations not
performed
No documentation of
contacts made
Federal regulations
require contacts
Noncompliance with
State Officials and Employees Ethics Act Use of negative
time keeping system used by salaried employees
Inadequate basis
for allocating expenditures between University and University Related
Organizations Percentage of time
not supported University
officials do not concur
Auditor comment State law requires
employees to submit time sheets documenting time spent on official State
business Auditors believe
positive time keeping system required by law Bookstore inventory
adjustments not adequately explained or recorded
Written policy
needed for Bookstore donations and price reductions
Late deposits Lack of
documentation
No receipts log
maintained No internal audits
of grants
No internal audits
of Banner System after implementation
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FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS
INADEQUATE CONTROLS OVER BANK RECONCILIATIONS The University did not have adequate
controls over bank reconciliations.
Each month, the University is reconciling four separate bank
accounts: the General Fund, the
Foundation account, the Payroll disbursements account, and the Athletics
account, therefore a total of 48 reconciliations are to be performed each
year. During our review, we noted
reconciliations were not timely completed.
The June 2007 reconciliation for the General Fund was completed 83
days after the month ended. No
reconciliations were prepared for the Payroll bank account from February
through June 2007. We also noted long
outstanding checks were not promptly investigated and disposed. As of the June 30, 2007 bank account
reconciliations, 38 outstanding checks totaling $12,823 were more than 6
months from issuance date, some dating as far back as July 2006. Effective internal control
policies require all transactions be recorded in the accounting system and
bank reconciliations be performed and reviewed in a timely manner. Reconciling items should be investigated
and disposed of promptly. (Finding 1,
pages 61-62 in Financial Audit Report)
This finding was first
reported in 2005. University officials agreed
and stated they had some difficulty in this area due to retirements and the
training of new personnel. They
stated the situation will be corrected.
(For the previous University response, see Digest Footnote #1.) INADEQUATE CONTROL OVER REPORTING AND RECONCILIATION OF FINANCIAL AID
INFORMATION The University did not ensure timely and
accurate reporting of information as required in the administration of the
Federal Title IV programs. In
addition, the University did not ensure that direct loan information is
reconciled on a monthly basis. During
our testing, we noted the following: ♦
In Fall 2006,
49 of 60 Pell disbursements to students tested were reported to the Department
of Education 1 to 50 days late.
♦
The
University reports changes in student status to the National Student
Clearinghouse three times per semester.
The National Student Clearinghouse in turn reports student information
to the National Student Loan Data System (NSLDS). During our review, the University’s records of withdrawal dates
of 2 of 40 students tested did not agree with the withdrawal dates per NSLDS
records. In addition, 4 of 40
students tested who were determined as withdrawn per University records were
not reported as such per NSLDS records. ♦
Monitoring
procedures were not performed to ensure that the direct loan reconciliation
against the loan records of the Department of Education is made by a
responsible employee for all months as required by federal regulations. No reconciliation was performed for the
months of August, September, and December 2006 and January 2007. Late reporting of Pell disbursements may
result in the delay of funds available to the University for drawdown. In addition, because a student’s
enrollment status determines eligibility for in-school status, deferment,
grace periods, and repayments, as well as the governments’ payment of
interest subsidies, accurate information provided to NSLDS is critical for
effective administration of the Title IV student loan programs. Failure to perform a reconciliation of
direct loan information on a monthly basis may result in unreconciled
balances not timely investigated for proper disposition. (Finding 2, pages 18-19 in Compliance
Examination Report) We recommended the University establish
procedures to ensure that reports are accurately and timely reported as
required by the Federal Financial Aid Program. We also recommended that the University establish monitoring
procedures to ensure that the direct loan reconciliation is performed on a
monthly basis. University officials concurred with our
recommendation. They stated a delay
in receiving regulations for two new Federal programs caused a delay in
changes to the University’s software in the Fall of 2006. Once the software was updated, the
required reporting was done. They
said they have modified procedures and developed additional reports to insure
accurate and timely reporting and reconciling. NONCOMPLIANCE WITH FEDERAL PERKINS LOAN PROGRAM REQUIREMENT The University did not have
documentation to prove that students with Perkins loans were contacted during
the grace period. During our review
of 25 students’ files with Perkins loans under grace period, we noted that no
documentation was maintained to prove that the students were contacted during
the grace period. As such, we cannot
determine whether the University is in compliance with the requirements of
the Code of Federal Regulations. The Code of Federal
Regulations requires institutions to contact the borrower during the initial
and post deferment grace periods as follows: (1)(i) For loans with a
nine-month initial grace period, the institution shall contact the borrower
three times within the initial grace period. (2)(i) The institution shall
contact the borrower for the first time 90 days after the commencement of any
grace period. The institution shall
at this time remind the borrower of his or her responsibility to comply with
the terms of the loan and shall send the borrower the following
information: (a) the total amount
remaining outstanding on the loan account, including principal and interest
accruing over the remaining life of the loan; and (b) the date and amount of
the next required payment. (ii) The institution
shall contact the borrower the second time 150 days after the commencement of
any grace period. The institution
shall at this time notify the borrower of the date and amount of the first
required payment. (iii) The
institution shall contact a borrower with a nine-month initial grace period a
third time 240 days after the commencement of the grace period, and shall
then inform the borrower of the date and amount of the first required
payment. According to University
personnel, contacts are made to student borrowers but they are not aware of
any specific requirement by the Federal Regulation to maintain documentation
of contacts. (Finding 3, pages 20-21
in Compliance Examination report) We recommended the
University establish a policy to keep a record of contacts with borrowers
during the grace period. Although the
Code of Federal Regulation does not specify the method of documentation, it
is the responsibility of the University to provide proof of compliance. This information gathered during the
contacts with the Perkins borrower will also be useful if the borrower
defaults and the loans are submitted for litigation. University officials agreed
and stated they believed that they have been in compliance with the Federal
regulations for notification of borrowers within the grace period. In the future, they will maintain
documentation to support the specific contacts made with the borrowers during
the grace period. TIME SHEETS NOT REQUIRED The University did not require all employees to submit time sheets as required by the State Officials and Employees Ethics Act. The
Act required the Illinois Board of Higher Education (IBHE), with respect to
State employees of public universities, to adopt and implement personnel
policies. The Act (5 ILCS 430/5-5(c)
states, “The policies shall require State employees to periodically submit
time sheets documenting the time spent each day on official State business to
the nearest quarter hour.” The IBHE
adopted personnel policies for public universities on February 3, 2004 in
accordance with the Act. The
University has not incorporated these policies into the University’s
policies. We noted that the University’s salaried employees did not maintain timesheets in compliance with the Act. Employees’ time is tracked using time rosters, which are filled out by each employee or each department’s Account Managers. The time rosters used are effectively a “negative” timekeeping system whereby the employee is assumed to be working unless noted otherwise. The employees documenting time to the nearest quarter hour were only Civil Service biweekly-paid and student employees, who record time on time sheets to the nearest quarter hour. Since timesheets are not maintained for all employees, there was no adequate basis for allocating expenditures between the University and the University Related Organizations (URO). The UROs are the Foundation and the Alumni Association. All URO personnel are University employees whose salaries are allocated between the University and the UROs at the end of each fiscal year. Expenses such as rent, utilities and maintenance are also allocated in addition to salaries. The allocation is based on an estimated percentage of time spent by these employees performing functions for both the University and UROs. The percentage of time is not supported by a documented basis such as timesheets to identify the time spent by employees for URO related functions. The master contracts between the University and the UROs state that the UROs shall maintain sufficient records, including cost allocation detail, time records, and records of supplies and material consumed, to enable a post audit review of the contracts. For the fiscal year ended June 30, 2007, the University allocated expenses totaling $194,245 to the Foundation and $29,092 to the Alumni Association. (Finding 4, pages 22-24 in Compliance Examination report) This finding was first reported in 2005.
We recommended the University amend its policies to require all employees to submit time sheets in compliance with the Act. University officials did not concur with this finding. The University assumed compliance with the statute based upon guidance from the Executive Inspector General. The University received a memo from the Executive Inspector General that stated that absence reporting would be an appropriate method of time keeping under the Ethics Act. Under this system, an employee would only report time during their normal work schedule that was not spent at work and provide the category of leave taken for that time away. In an auditor comment we noted that the State Officials and Employees Ethics Act defines “State Agency” to include “public institutions of higher learning…” 5 ILCS 430/1-5. Eastern Illinois University is defined as a “public institution of higher learning” in Section 2 of the Higher Education Cooperation Act… 110 ILCS 220/2. Further, the State Officials and Employees Ethics Act defines “State employee” to be “any employee of a State agency.” 5 ILCS 430/1-5. As noted in the finding, the State
Officials and Employees Ethics Act requires “State employees to periodically
submit time sheets documenting the time spent each day on official State
business to the nearest quarter hour…” 5 ILCS 430/5-5 (c). This timekeeping requirement went into
effect March 1, 2004. The negative
timekeeping system used for several categories of University employees
requires those employees to report only time away from State business, not the time spent
each day on State business. Further, it is logical to assume that, by
adopting this language, the legislature meant to effect a change in the
method used by State employees to record their time – that is, to adopt a
positive timekeeping system. Finally,
the May 24, 2004, memorandum from the Office of Executive Inspector General
upon which the University relied in maintaining its customary negative
timekeeping system for several categories of its employees clearly states
that it “is not a legal opinion.” Timesheets
are also needed as a documented basis for allocating expenditures between the
University and the University Related Organizations (UROs). The master contracts between the
University and the UROs state that the UROs shall maintain sufficient
records, including cost allocation detail, time records, and records of
supplies and materials consumed, to enable a post audit review of the
contracts. The
auditors continue to believe that a positive timekeeping system for State
employees is required by the State Officials and Employees Ethics Act and
necessary to provide a basis for allocating expenditures between the
University and the UROs. If the
University disagrees with the application of the Act, we further recommend
that it seek a formal, written opinion from the Attorney General’s Office on
the requirements of this statutory provision. (For the previous University response, see Digest Footnote #2) INADEQUATE CONTROL OVER UNION BOOKSTORE
INVENTORY TRANSACTIONS The University did not have adequate
controls over donations and price reductions of Union bookstore (Bookstore)
inventories. Bookstore inventory
items are regularly donated to University-sponsored campus events, partly as
an advertising and marketing strategy of the Bookstore. In addition, the Bookstore offers discounted
sales prices for nonmoving inventory to clear these items. The Bookstore Manager decides the
discounted price structure, which is based on the nature of the
merchandise. Clothing and novelty
items are first reduced by 25% then it goes to 50% and further down to 75% if
items remain unsold. Books are
reduced by 25% and then the Bookstore would try to return the inventory or
mark them down further to 50%. During
our testing, we noted the following:
·
For fiscal
year 2007, inventory adjustments for markups/markdowns totaling $73,982 could
not be adequately explained and a shortage totaling $150,263 could not be
accounted for because the University did not maintain adequate records of
donated items and analyses of items sold at reduced prices.
·
The University
has no written policy relating to selling inventory at reduced prices. The price structure and timing established
by the Bookstore Manager for selling inventory at reduced prices were not
reviewed and approved by the appropriate department head. Good business practice requires that
internal controls be established to ensure that inventory adjustments such as
donations and discount sales are properly approved, documented, monitored and
accounted for. Moreover, periodic
analysis of inventory adjustments would assist in measuring the financial
performance of the department.
(Finding 6, pages 26-27 in Compliance Examination report) We
recommended the University establish a written policy relating to donations
and selling bookstore inventory at reduced prices. The University should maintain adequate records of donated
items and analyses of items sold at reduced prices. University
officials stated they have implemented this recommendation. They said a system to track donations of
merchandise has been developed. In addition, the supervisor will initial the
gross margin analysis that is produced by the system after all sales price
adjustments are made to indicate her approval. INADEQUATE CONTROL OVER RECEIPTS AND
REFUNDS The University did not have adequate
control over receipts and refunds. During
our testing of receipts from 7 departments and refunds received by the
University, we noted the following: ♦
Twelve of 30
receipts tested totaling $528,310 were deposited 2 to 32 days late. ♦
Thirteen of
30 refunds tested totaling $7,426 were deposited 2 to 21 days late. ♦
Supporting
documents of 2 of 30 receipts tested totaling $33,813 could not be found. ♦
Seven of 30
refunds tested totaling $1,457 had no documentation as to when the checks
were received. ♦
One of the 7
departments tested with total receipts of $451,216 did not maintain a
receipts log to account for its collections. Failure to deposit collections
in a timely manner may result in interest lost to the University. Not properly maintaining supporting
documents does not provide a good audit trail and without a receipts log
there is a risk that collections are not properly accounted. (Finding 7, pages 28-29 in Compliance
Examination report) University officials agreed
with our recommendation and stated they will inform all departments that
receipts over $50 must be transmitted to the Cashier’s Office by the next
business day and that exceptions must be pre-approved by the Treasurer. NONCOMPLIANCE WITH THE FISCAL CONTROL AND
INTERNAL AUDITING ACT The
University’s Internal Auditing Department did not ensure that its internal
auditing program complies with the Fiscal Control and Internal Auditing Act
(Act). We
noted no audits were completed during the last two years relating to internal
and administrative controls for grants received or made by the
University. We also noted a new
Enterprise Resource Planning (ERP) System was implemented during fiscal year
2007 called the Banner System.
Internal Audit was part of the Banner Steering Committee and was
involved in the design of controls during the planning phase of the
project. Subsequent to
implementation, there was no review performed to ensure that controls were
operating as designed. The
Act (30 ILCS 10/2003) requires that the internal auditing program includes
audits of major systems of internal and administrative control conducted on a
periodic basis so that all major systems are reviewed at least once every two
years. The audits must include grants
received or made by the agency to determine that the grants are monitored,
administered, and accounted for in accordance with applicable laws and
regulations. Good internal control
requires review of the design of the controls after systems have been put
into production to ensure controls are operating as designed and the systems
objectives and requirements were achieved.
(Finding 9, pages 32-33 in Compliance Examination report) University
officials concurred. They stated the
internal audit staff was reduced to one person when the Director of Internal
Auditing resigned in March, 2007.
Prior to leaving, the Department had been actively involved in the
implementation of the new Banner system.
Involvement with Banner and the reduced staff size caused the grant
audit not to get completed. The
University is currently searching for a new Director of Internal Auditing. OTHER FINDINGS The remaining findings
are reportedly being given attention by the University. We will review the University’s progress
toward the implementation of our recommendations in our next examination. AUDITORS' OPINION Our auditors stated the University's financial statements as of and for the year ended June 30, 2007 are fairly presented in all material respects. ____________________________________ WILLIAM G. HOLLAND, Auditor General WGH:KMA:pp SPECIAL ASSISTANT AUDITORS
E.C. Ortiz & Co. LLP were our special assistant auditors on this engagement. DIGEST FOOTNOTES
#1:
INADEQUATE CONTROLS OVER BANK RECONCILIATIONS – Previous University
Response
We agree that the bank reconciliation process is
an important element of the University’s system of internal controls. We have had some difficulty in this area
due to retirements and the training of new personnel. With new personnel in place and trained,
we believe that this situation will be remedied. #2:
TIMESHEETS NOT REQUIRED – Previous University Response
The University assumed its procedures were in
compliance with the time reporting requirements of the State Officials and
Employees Ethics Act (the “Ethics Act”) based on guidance received from the
Executive Inspector General. The
University received a memo from the Office of the Inspector General that
states: “it appears that a system of
‘absence reporting’ would be an appropriate method of time keeping under the
Ethics Act. Under this system, an
employee would only report time during their normal work schedule that was
not spent at work and provide the category of leave taken for that time
away.” |
