REPORT DIGEST

DEPARTMENT OF EMPLOYMENT SECURITY

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2019

Release Date:  March 3, 2020

FINDINGS THIS AUDIT:  5

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  2 -- 1 -- 3
Category 2:  0 -- 2 -- 2
Category 3:  0 -- 0 -- 0
TOTAL:  2 -- 3 -- 5

FINDINGS LAST AUDIT: 8

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

INTRODUCTION

This digest covers the Department of
Employment Security’s (Department) Financial
Audit of the Unemployment Compensation Trust
Fund for the year ended June 30, 2019.  The
Department’s Compliance Examination covering
the two years ended June 30, 2019 will be
issued at a later date.

SYNOPSIS

• (19-01) The Department did not have
sufficient internal control over the
estimation of the allowance for doubtful
accounts recorded in its financial statements.
• (19-02) The Department did not have
sufficient internal control over the
determination of refunds payable.
• (19-03) The Department did not have adequate
controls over the penalty and interest
receivable balance.
• (19-04) The Department conducted write offs
prior to obtaining the required Attorney
General approval.
• (19-05) The Department did not ensure
adequate security over the enterprise-wide tax
system (GenTax).

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INADEQUATE CONTROLS OVER RECEIVABLE ALLOWANCE

The Department did not have sufficient
internal control over the estimation of the
allowance for doubtful accounts recorded in
its financial statements.

During our testing of accounts receivable and
the allowance for doubtful accounts, we noted
the allowance for the penalties and interest
portion of the receivable was greater than the
related receivable balance.  We determined the
overstatement of the allowance was caused by
clerical errors in the calculation along with
assumptions used in the calculation that were
not reflective of the current economy.  The
Department ultimately revised and updated its
methodology to determine a more accurate
allowance which resulted in an adjustment to
reduce the allowance by approximately $99
million.  (Finding 1, page 18).

We recommended the Department implement
controls to more closely review the allowance
calculation, including all significant
assumptions used in the calculation

The Department accepted the finding and stated
it will re-examine its assumptions, estimates,
and process to calculate a reasonable
allowance for bad debts for financial
reporting purposes.

INACCURATE REFUNDS PAYABLE

The Department did not have sufficient
internal control over the determination of
refunds payable.  The refunds payable account
contained amounts that were already paid
resulting in the Department’s draft financial
statements being misstated.  As a result,
refunds payable was adjusted by $18.172
million.

During testing, we determined the Department’s
refunds payable account contained refunds for
which the Department had already paid the
employers.  The Department included these
amounts in the refunds payable account
erroneously due to the employer not cashing
the refund.  (Finding 2, page 19)

We recommended the Department implement
controls to ensure that uncashed checks are
not included in refunds payable.

The Department accepted the finding and stated
it will continue to work on moving the
remaining uncashed refunds back to the
employer accounts for completion before Fiscal
Year 2020 year end and to implement controls
to ensure that uncashed checks are not
included in refunds payable in the future.

INADEQUATE CONTROLS OVER PENALTY AND INTEREST
RECEIVABLES

The Department did not have adequate controls
over the penalty and interest receivable
balance, which caused an overstatement in the
Department’s draft financial statements of
$17.333 million.

During testing, we noted the query that was
run to record the estimated fourth quarter
penalty and interest amount was extracting
incorrect data and included additional
interest that was not part of the quarter.
(Finding 3, page 20)

We recommended the Department implement
controls to ensure the reports used to prepare
estimates are accurate and are properly
reviewed prior to recording the related
entries.

The Department accepted the finding and stated
it will implement controls to ensure reports
are reviewed for accuracy, provide additional
training in GAAP preparation, and continue to
request the filling of vacancies.

INADEQUATE CONTROLS OVER WRITE OFFS

The Department conducted write offs prior to
obtaining the required Attorney General
approval.

During the audit period, the Department wrote
off $14,936,755 prior to receiving approval
from the Attorney General to do so.  An
adjustment was made to reverse this write off
as the approval was not obtained until after
year end. (Finding 4, page 21)

We recommended the Department obtain Attorney
General approval prior to conducting any write
offs which require such approval.

The Department accepted the finding and stated
it will only write off uncollectible taxes
receivable with the Attorney General’s
approval.

INADEQUATE CONTROLS OVER GENTAX ACCESS

The Department did not ensure adequate
security over the enterprise-wide tax system
(GenTax).

During our review of GenTax security, we noted
for the 18 terminated employees:

• 3 (17%) individuals continued to have access
to GenTax after their termination from the
Department.

• 5 (28%) terminated individuals did not have
their GenTax access timely de-activated.
Their access was terminated 11 to 22 days
after their termination.

Furthermore, the Department’s GenTax Security
Procedures did not require the Department to
conduct a review of GenTax access; thus no
such review was completed during the audit
period.  (Finding 5, page 22)

We recommended the Department implement
controls over GenTax security, including those
over terminated employees.  We also
recommended the Department periodically
conduct a review of all users and their
associated access rights.

The Department accepted the finding and stated
it is in the process of developing a security
case to better track, control and monitor
GenTax access and termination of access, and
the Department will be scheduling periodic
review of all users and their associated
access rights.

AUDITOR’S OPINION

The auditors stated the financial statements
of the Unemployment Compensation Trust Fund of
the Department as of and for the year ended
June 30, 2019 are fairly stated in all
material respects.

This financial audit was conducted by RSM US
LLP.

JANE CLARK
Division Director

This report is transmitted in accordance with
Section 3-14 of the Illinois State Auditing
Act.

FRANK J. MAUTINO
Auditor General

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