REPORT DIGEST

ILLINOIS POWER AGENCY - NONSHARED
GOVERNMENTAL FUNDS

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2018

Release Date:  September 11, 2019

FINDINGS THIS AUDIT:  2

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

FINDINGS LAST AUDIT: 1

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

The Agency’s mission is (1) to oversee the
electricity planning and procurement
processes to ensure adequate, reliable,
affordable, efficient, and environmentally
sustainable electric service at the lowest
cost over time for the residential and
small commercial customers of Commonwealth
Edison, the Ameren Illinois Company, and
the MidAmerican Energy Company and (2) to
procure renewable energy using the
resources of the Illinois Power Agency
Renewable Energy Resources Fund.

This digest covers the financial audit of
the Agency’s nonshared governmental funds
as of and for the year ended June 30, 2018.
A State Compliance Examination of the
entire Agency for the two years ending June
30, 2018, will be released at a later date.

SYNOPSIS

• (18-01) The Agency did not exercise
adequate control over preparing and
accounting for its financial transactions
or preparing its financial statements.
• (18-02) The Agency did not comply with
statutory provisions governing transfers
from the Illinois Power Agency Trust Fund
to the Illinois Power Agency Operations
Fund.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INADEQUATE CONTROL OVER FINANCIAL REPORTING

The Illinois Power Agency (Agency) did not
exercise adequate control over preparing
and accounting for its financial
transactions or preparing its financial
statements.  The Agency reports
transactions in the Illinois Power Agency
Trust Fund (Fund 424), the Illinois Power
Agency Operations Fund (Fund 425), and the
Illinois Power Agency Renewable Energy
Resources Fund (Fund 836).

During testing, we noted some of the more
significant financial reporting problems as
follows:

• During our review of the financial
statements and the Agency’s general ledger,
we noted the Agency did not properly record
all of its Fiscal Year 2018 transactions.
In January 2019, we had the Agency review
its financial transactions and post
adjusting journal entries and the Agency
posted the following corrections:

– The Agency did not accrue payables or
recognize expenditures for invoices
processed during the Fiscal Year 2018 Lapse
Period, as the Agency had recorded this
activity within its accounting system as
Fiscal Year 2019 transactions.  After its
review, the Agency posted adjusting entries
of $199,619 and $1,332,515 in Fund 425 and
Fund 836, respectively.

– The Agency did not accrue accounts
receivable or recognize revenues for
utility invoices processed during the
Fiscal Year 2018 Lapse Period, as the
Agency had recorded this activity within
its accounting system as Fiscal Year 2019
receipts.  After its review, the Agency
posted an adjusting entry of $168,866 in
Fund 425.

– The Agency did not record an interfund
transfer and the related cash of
$1,125,223.  After its review, the Agency
posted an adjusting entry in Fund 425.

• The Agency did not completely record all
investment activity performed on its behalf
by the Illinois State Board of Investment
in Fund 424.  We proposed, and the Agency
recorded in its final financial statements,
a net adjusting entry of $717,637 to
correct this error.

• The Agency did not recognize the
committed portion of Fund 424’s fund
balance. We proposed, and the Agency
recorded in its final financial statements,
an adjusting entry of $1,594,731 to correct
this error at June 30, 2018.

• During testing of receipts subsequent to
June 30, 2018, we identified a receipt from
the State Employees’ Retirement System of
Illinois (SERS) that was a refund of a
portion of the Agency’s Fiscal Year 2018
employer contributions paid from Fund 425.
We proposed, and the Agency recorded in its
final financial statements, an adjusting
entry to reduce expenditures and record the
due from other State funds of $19,199.

• During our review of the Agency’s draft
notes to the financial statements, we noted
the Interfund Balances and Activity
footnote did not disclose the activity
associated with a $1.125 million transfer
from Fund 424 to Fund 425 (see Finding
2018-002) or an interfund loan of $150
million from Fund 836 to the State’s
General Fund not expected to be completely
repaid until August 8, 2019.

Additionally, during testing, we noted,
some of the more significant internal
control problems impacting the Agency’s
transactions and internal accounting
records as follows:

• While re-performing reconciliations
between the Agency’s receipt records and
the State Comptroller’s Monthly Revenue
Status report (SB04), we noted
discrepancies between the amount of
procurement fees and supplier fees.  In
following up on this matter, we identified
two receipts, totaling $240,000, were
misclassified within the Agency’s internal
accounting records for Fund 425.  This
error should have been identified during
the Agency’s monthly reconciliations.

• The Agency did not document a supervisory
review of its contract and obligation
activity reconciliations to the State
Comptroller’s records for 3 of 15 (20%)
months during Fiscal Year 2018 for Fund 425
and Fund 836.  In addition, we noted 2 of
the 15 (13%) reconciliations were prepared
between 23 and 26 days late.

• The Agency did not always recognize
revenue from forfeitures which occurred
when certain renewable energy suppliers
failed to timely energize their system.  We
proposed, and the Agency recorded in its
final financial statements, an adjusting
entry to reduce bid deposits payable and
recognize revenue of $13,776 in Fund 836.
(Finding 1, pages 24-28)

We recommended the Agency review its
internal controls over its financial
reporting process and implement procedures
to ensure:
1) transactions are appropriately recorded
and reflected within its financial
statements and accounting records;
2) its notes to the financial statements
conform with GASB requirements and are
accurate;
3) payroll tax withholding and insurance
deductions are accurate; and,
4) reconciliations to the State
Comptroller’s records are timely prepared
and reviewed by an independent person.

Agency officials agreed with our
recommendation.

NONCOMPLIANCE WITH THE STATE FINANCE ACT

The Agency did not comply with statutory
provisions governing transfers from the
Illinois Power Agency Trust Fund (Trust
Fund) to the Illinois Power Agency
Operations Fund (Operations Fund).

During testing, we noted the process to
transfer the prior year’s investment income
from the Trust Fund to the Operations Fund
under the State Finance Act and the
Statewide Accounting Management System
requires 13 steps.

During testing of this fiscal year’s
transfer of $1,125,223, we noted the
following problems:

• The Agency, when it obtained the first
Treasurer’s Draft to deposit its cash
receipt from the Illinois State Board of
Investment (Board) into the Trust Fund,
erroneously deposited the $1,125,223 into
the Operations Fund.  The Agency
subsequently identified this error and
submitted a Receipt Transfer Request Form
(Form SCO-102) to the State Comptroller to
correct the error and deposit the amount
into the Trust Fund.

• The Agency, once the cash was on deposit
in the Trust Fund, erroneously did not
charge the total transfer amount against
its Trust Fund appropriation for
transferring the cash into the Operations
Fund on an invoice voucher (Form C-13).
Instead, the Agency submitted a Form
SCO-102 to complete the transfer, which
reversed the correcting entry previously
made by the Agency.

• The Agency, after the State Treasurer had
deposited interest income into the Trust
Fund now owed to the Board, erroneously
charged its $823 of interest earned in the
Trust Fund against its Fiscal Year 2019
appropriation for the transfer of cash from
the Trust Fund to the Operations Fund.  The
Agency should have performed this transfer
using a Form C-13 charged against a
nonappropriated account within the Trust
Fund to disburse the interest income earned
to the Board.  As of the end of fieldwork,
this error had not been corrected.
(Finding 2, pages 29-30)

We recommended the Agency comply with the
statutory transfer provisions, or seek a
legislative remedy to simplify the process.

Agency officials agreed with our
recommendation.

We will review the Agency’s progress
towards the implementation of our
recommendations in our next financial
audit.

AUDITOR’S OPINIONS

The auditors stated the financial
statements of the Illinois Power Agency
Operations Fund, the Illinois Power Agency
Renewable Energy Resources Fund, and the
Illinois Power Agency Trust Fund as of and
for the year ended June 30, 2018, are
fairly stated in all material respects.

This financial audit was conducted by the
Office of the Auditor General’s staff.

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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