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REPORT DIGEST
ILLINOIS HOUSING
DEVELOPMENT
AUTHORITY
FINANCIAL AUDIT
For the Year Ended:
June 30, 2008 Release Date: November 6, 2008
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 available on the worldwide web at http://www.auditor.illinois.gov
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SYNOPSIS
¨ The Authority does not have an adequate process for reconciling the general ledger with the subsidiary ledger used to account for deposits held in escrow. ¨ The Authority has inconsistencies in the process for monitoring problem loans and in the evaluation of factors used to rate loans for the allowance for loan loss estimate. ¨ The Authority has loan balances recorded in their financial statements that should be removed due to the loans being uncollectible. |
FINANCIAL AUDIT
For The Year Ended June 30, 2008
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FINANCIAL POSITION – ALL
FUNDS |
June 30, 2008 |
June 30, 2007 |
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Assets
Cash and
investments – unrestricted.............
Investments
– restricted..............................
Net program
loans receivable.......................
Other........................................................
Total...................................................
Liabilities
Bonds and
notes payable.............................
Due to State
of Illinois................................
Deposits
held in escrow..............................
Other........................................................
Total...................................................
Net Assets
Invested in
capital assets, net of related debt..
Restricted..................................................
Unrestricted...............................................
Total................................................... |
$153,705,953
630,939,289
1,946,457,448
62,306,925
$2,793,409,615
$1,644,973,679
345,733,700
166,077,785
94,628,944
$2,251,414,108
$(8,726,586)
466,110,554
84,611,539
$541,995,507 |
$157,598,730
635,752,493
1,785,273,986
61,737,230
$2,640,362,439
$1,587,520,899
316,383,098
158,952,248
66,607,837
$2,129,464,082
$203,532
425,135,012
85,559,813
$510,898,357 |
ADMINISTRATIVE FUND OPERATIONS
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FY 2008 |
FY 2007 |
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Revenues Service fees............................................... Interest and investment income.................... Federal assistance programs........................ Other........................................................ Total................................................... Expenses Salaries and benefits................................... Professional fees........................................ Other general and administrative................... Transfers, net............................................ Financing Costs......................................... Federal assistance programs........................ Provision (reversal) for est. loss on loans receivable............................................... Other........................................................ Total................................................... Change in net assets......................................... |
$9,660,338
5,379,394
133,240,360
5,874,344
$154,154,436
$12,583,775
1,065,674
3,344,317
2,607,645
202,516
133,240,360
(540,000)
965,765
$153,470,052
$684,384 |
$9,960,474
5,097,184
147,397,197
5,983,977
$168,438,832
$11,958,570
1,895,699
3,503,945
1,742,737
413,690
147,397,197
(5,998,000)
1,677,866
$162,591,704
$5,847,128 |
EXECUTIVE DIRECTOR
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During Audit Period:
DeShana Forney
Currently: DeShana Forney |
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Ledgers not reconciled resulted in adjustment of $252,963 All loans did not have debt service ratio calculated All loans did not have appraisals
The “watch list” for problem loans was incomplete Awaiting Attorney General approval to write-off
uncollectible loans |
INTRODUCTION
This report covers our financial audit of the Illinois Housing Development Authority, a component unit of the State of Illinois, for the year ended June 30, 2008. Information on the results of testing performed in conjunction with our compliance attestation examination and Single Audit for the year ended June 30, 2008 will be released in a separate report. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
INADEQUATE RECONCILIATION PROCEDURES FOR DEPOSITS HELD IN ESCROW The Authority does not have an adequate process for reconciling the general ledger with the subsidiary ledger used to account for deposits held in escrow. The Authority is holding $166,077,785 in escrow deposit balances as of June 30, 2008 in approximately 1,850 individual accounts. Deposits from developers, which are held in escrow by the Authority, are primarily used to pay tax and insurance payments and capital improvements. Also, the deposits are used to make principal and interest payments and fund construction cost overruns, change orders or operating deficits. The Authority implemented procedures in the current year to reconcile the escrow account detail subsidiary ledger records to the general ledger. However, they were unable to reconcile the escrow accounts resulting in an adjusting entry of $252,963 for unidentified variances. Without adequately reconciling the deposits held in escrow, the Authority may not have adequate funds on hand to satisfy liabilities incurred that are funded with escrow balances. (Finding 1, page 63) Authority officials agreed with our recommendation to reconcile escrow accounts on a regular basis in order to prevent unidentified variances. INCONSISTENCIES IN THE LOAN MONITORING AND LOAN RATING SYSTEM The Authority has inconsistencies in
the process for monitoring problem loans and in the evaluation of factors
used to rate loans for the allowance for loan loss estimate. The Authority’s Assets Management
Services Department performs an annual property inspection and loan review in
order to rate loans for the calculation of the allowance for loan loss
estimate. We tested over 200 loans
for various aspects of compliance with established procedures to rate loans. In one test, we noted that 4 of the 20
loans we tested did not have the debt service coverage ratio calculated,
which evaluates the borrowers ability to repay the debt. In another test, 13 of the 20 loans we
tested did not have the original appraisal or an updated appraisal in order
to calculate the loan to value ratio, which is used to evaluate the market
value of the underlying collateral.
One of our other tests revealed that the documentation for an
individual loan did not contain the correct address. During our audit of the Authority’s
loan receivable balances, we noted the “watch list”, a tool to monitor
problem loans, was incomplete according to the Authority’s rating
policies. In addition, the Authority
does not have a formal policy to stop accruing and recognizing interest
income on delinquent loans. The
calculation of the allowance for loan loss estimate requires various elements
of monitoring and evaluating the collectability of loan receivable
balances. In accordance with
generally accepted accounting principles, the estimate should be supported by
detailed information including that from monitoring tools and consistent loan
rating factors. Authority management stated that the
loan monitoring and rating system, which was implemented in stages beginning
in May 2007, with the adoption of a comprehensive Loan Loss Rating Policy,
includes risk analysis of the entire multi-family portfolio. The Authority recognizes that
inconsistencies have occurred as its staff adjusts to new procedures to
implement the policy. The Authority
stated that they are working to reduce any inconsistencies or weaknesses
noted. The allowance for loan loss estimate as
of June 30, 2008 was $34,185,000.
Without consistent tools to monitor and rate the collectability of the
loans, the estimate could be over or under stated. (Finding 2, page 64) We recommended the Authority develop
policies and procedures to ensure the “watch list” reports are complete and
accurate. In addition, we recommended
the Authority implement procedures to ensure that the Asset Management Services
department receives the necessary documents to accurately perform their
annual loan review. Also, the
Authority should develop a formal policy to suspend recognizing interest
income on delinquent loans. Authority officials concurred with our
recommendation. LOAN RECEIVABLE BALANCE AND ALLOWANCE FOR LOAN LOSS BALANCE OVERSTATED The Authority has loan balances
recorded in their financial statements that should be removed due to the
loans being uncollectible. During our audit of the Authority’s
allowance for loan loss estimate, we noted loans totaling approximately $17.4
million were recorded on the Authority’s financial statements for which a
100% allowance reserve was recorded.
The Authority anticipates that most of these loans will be written
off. In accordance with generally
accepted accounting principles, receivable balances that are uncollectible
should be written off and removed from the financial statements. Authority management stated that
several loan write-offs are pending approval from the Attorney General’s
Office and the Authority is continuing to submit additional requests. (Finding 3, page 65) We recommended the Authority work with
the Attorney General’s Office to get approval to write-off the uncollectible
loan balances. Authority officials concurred with our
recommendation. AUDITORS’ OPINION
Our auditors state the June 30, 2008 financial statements of the Illinois Housing Development Authority are presented fairly in all material respects. ____________________________________ WILLIAM G. HOLLAND, Auditor General WGH:KMA:pp SPECIAL ASSISTANT AUDITORS
McGladrey & Pullen, LLP were our special assistant auditors for the audit. |
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