Note:

This report of the Illinois Workers’ Compensation Commissions’ Self-Insurers Security Fund (Fund) should be read in conjunction with the FY16 financial statements of the Fund and the auditor’s report dated January 4, 2018. 

In FY16, the auditors issued an adverse opinion on the Fund’s financial statements due to the Commission having an inadequate process to determine the claims liabilities of the Fund, and because the proper accounting treatment for the insolvent self-insurer security collected by the State of Illinois is not determinable due to two different irreconcilable interpretations of the Worker’s Compensation Act.  Because of the adverse auditor opinion of the Fund’s financial statements for the year ended June 30, 2016, the audit reports for the year ended prior to June 30, 2016 should not be relied upon without considering the auditor’s report dated January 4, 2018.   

REPORT DIGEST ILLINOIS INDUSTRIAL COMMISSION FINANCIAL AND COMPLIANCE AUDIT For the Two Years Ended: June 30, 2003 Summary of Findings: Total this audit       10 Total last audit            7 Repeated from last audit       5 Release Date: April 6, 2004 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 TDD (217) 524-4646 This Report Digest is also available on the worldwide web at http://www.state.il.us/auditor

SYNOPSIS The Commission did not determine that employer contributions made to various funds were in accordance with statutory requirements. The Commission was not collecting statutorily required payments from out-of-state insured employers. The Commission’s vouchers were lacking the required approvals. Property and equipment was not adequately reported in the Commission’s records. The Commission had not established adequate computer security controls. The Rate Adjustment Fund had a deficit of $12,950,021 for the year ended June 30, 2003. {Expenditures and Activity Measures are summarized on the reverse page.}

ILLINOIS INDUSTRIAL COMMISSION

FINANCIAL AND COMPLIANCE AUDIT

For The Two Years Ended June 30, 2003

EXPENDITURE STATISTICS	FY 2003	FY 2002	FY 2001
• Total General Revenue Fund Expenditures (All Appropriated Funds)	$10,265,726	$10,610,509	$10,772,885
OPERATIONS TOTAL	$10,265,726	$10,610,509	$10,772,885
% of Total Expenditures	100%	100%	100%
Personal Services	$7,475,498	$7,766,493	$7,584,562
% of Operations Expenditures	72.8%	73.2%	70.4%
Average No. of Employees	160	169	181
Other Payroll Costs (FICA,             Retirement)	$1,596,678	$1,630,471	$1,584,989
% of Operations Expenditures	15.6%	15.4%	14.7%
Contractual Services	$457,267	$501,908	$460,828
% of Operations Expenditures	4.4%	4.7%	4.3%
All Other Operations Items	$736,283	$711,637	$1,142,506
% of Operations Expenditures	7.2%	6.7%	10.6%
• Cost of Property and Equipment	$1,475,205	$1,481,696	$1,735,442
SELECTED ACTIVITY MEASURES	FY 2003	FY 2002	FY 2001
Workers’ Compensation Case Load Volume:
· Cases Pending at Beginning of Year	118,651	119,893	118,464
· Add: New Cases (+ reinstated)	68,000	70,776	73,094
· Total Cases to be Processed	186,651	190,669	191,558
· Less: Cases Closed	(70,400)	(72,018)	(71,665)
· Cases Pending at Year End	116,251	118,651	119,893

AGENCY DIRECTOR

            During Audit Period: John W. Hallock, Jr. (July 1, 2001 thru February 21, 2003) Dennis R. Ruth (February 22, 2003 thru June 30, 2003)

            Currently: Dennis R. Ruth

The statute does not permit the Commission to perform field audits to verify employers are paying the statutory amounts The Commission was not collecting statutorily required payments from out-of-state insured employers Invoice-vouchers were missing the signature and date of the receiving officer The Commission had not performed a complete physical inventory of its property and equipment since June 2001 Equipment items could not be located The Commission had not established adequate computer security controls The Rate Adjustment Fund had a deficit of $12,950,021 for the year ended June 30, 2003

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS NO DETERMINATION THAT EMPLOYER CONTRIBUTIONS WERE IN COMPLIANCE WITH STATUTES The Commission did not determine that employer contributions made to various funds as required by the Workers’ Compensation Act were in accordance with statutory requirements. This finding has been repeated since 1987. Employers are required to make contributions to the Secondary Injury Fund, the Rate Adjustment Fund, the Group Self-Insurers Insolvency Fund, and the Self Insurers’ Security Fund. The statute does not permit the Commis-sion to perform field audits to verify employers are paying the statutory amounts. Without better procedures to ascertain the accuracy of the amounts paid, there is no certainty that employers are paying the correct amounts. Revenues to these funds were possibly lost in the past and could be lost in future periods. (Finding 2, pages 13-14)             Commission officials concurred with our recommendation to continue to perform secondary procedures such as cross checks with the Department of Insurance to ensure that payments in accordance with statutory requirement are made to the Funds. Commission officials also will consider pursuing legislation to perform more direct verifications, such as field audits. (For previous agency responses, see Digest Footnote.) NONCOMPLIANCE WITH WORKERS’ COMPENSATION ACT REGARDING OUT-OF-STATE CONTRACTORS PAYING ILLINOIS INSURANCE PREMIUMS             The Commission was not collecting statutorily required payments from out-of-state insured employers.             The Workers’ Compensation Act requires out-of-state insured employers, primarily those engaged in the building and construction industry, to make payments based on the insurance premiums for the location in Illinois where the work is being performed. The Commission is responsible for imposing a penalty upon an employer who does not make the proper payment.             Commission personnel stated they have no way of inquiring about out-of-state rates. Without knowing the out-of-state rate, they cannot compare it to the in-state rate and require the employer to pay the difference. (Finding 4, page 17)             Commission officials concurred with our recommendation to pursue legislation that would enable them to comply with this subsection of the Workers’ Compensation Act or pursue other statutory remedies. VOUCHERS LACKING REQUIRED APPROVALS             The Commission’s vouchers were lacking the required approvals.             Invoice-vouchers were missing the signature and date of the receiving officer. Of 147 invoice-vouchers examined, 43 (29%) were lacking the signature and date of the receiving officer. (Finding 6, page 20)             Commission officials concurred with our recommendation to ensure all invoice-vouchers are signed and dated by the receiving officer. INADEQUATE PROPERTY CONTROL RECORDS             Property and equipment was not adequately reported in the Commission’s records. The Commission’s property and equipment balance was $1,475,205 as of June 30, 2003.             We noted the following:             - The Commission had not performed a complete             physical inventory of its property and equipment since June 2001.             - Property records lacked information as to the location of property and equipment within the Commission. - Five of 12 equipment items purchased prior to the audit period could not be traced to property control records. Either the tag number did not appear on the inventory listing or the item was not tagged at all. In addition, none of the 3 fiscal year 2002 and 2003 equipment purchases examined had been tagged or could be traced to the property control records. - Seven of 13 equipment items (54%), totaling $14,709, selected for testing could not be located. - Two of 10 equipment items examined had both Commission tags and Department of Central Management Services tags. - Twenty three of 24 equipment deletions (96%), totaling $50,310, were not properly approved by the either the Property Control Coordinator or the Fiscal Officer. (Finding 7, pages 21-22)             Commission officials concurred with our recommendation to implement procedures to strengthen the accounting for property and equipment. COMPUTER SECURITY DEFICIENCIES             The Commission had not established adequate security control over its Local Area Network (LAN) or Internet environments.             Our review of the Commission’s LAN and Internet security controls showed, among other things, that: 1) the LAN Policy does not include key provisions regarding acceptable use, backup, and security; 2) The Commission does not have a Security Policy; 3) days between forced password changes exceeded the Commission’s policy of 30 days and some users had no interval set at all; 4) the Administrator account password never has to be changed; 5) passwords were not required on all user accounts; 6) some user accounts were generically assigned and shared by employees; and 7) 68% of workstations were not protected with AntiVirus software. (Finding 9, pages 25 – 26)             Commission officials concurred with our recommendation to establish comprehensive policies and procedures that outline general security provisions, appropriate use of computer resources, backup and care of date, and other appropriate policies to help ensure that effective security controls exist. OTHER FINDINGS AND ISSUES             The remaining findings are less significant and are reportedly being given attention by Commission management. We will review the progress toward implementation of our recommendations during our next audit.             In addition to findings, we noted that the Rate Adjustment Fund had a deficit of $12,950,021 for the year ended June 30, 2003. Assessments for this fund have been at the maximum for the 18 years ending June 30, 2003 and the fund has had to borrow money in order to meet its obligations. The net deficits in the Rate Adjustment Fund for the fiscal years ended June 30, 2001, 2002 and 2003 are reflected below. (See page 64 of this report for more information). June 30, 2003 June 30, 2002 June 30, 2001 $12,950,021                            $10,301,516               $ 8,811,884 AUDITORS’ OPINION             Our auditors state the financial statements present fairly, in all material respects, the respective financial position of the Self-Insurers’ Security Fund of the State of Illinois Industrial Commission, as of June 30, 2003, and the changes in financial position and cash flows, where applicable, thereof for the year then ended. ___________________________________ WILLIAM G. HOLLAND, Auditor General WGH:KMC:drh SPECIAL ASSISTANT AUDITORS             Our special assistant auditors for this audit were Martin & Shadid, P.C. DIGEST FOOTNOTES NO DETERMINATION THAT EMPLOYER CONTRIBUTIONS ARE IN COMPLIANCE WITH STATUTES - Previous Agency Responses (Since 1987) 1999:        "The Agency agrees with this recommendation. We will continue to seek ways to improve our ability to verify the accuracy of assessment payments. We will continue to support legislation which would give the agency the authority to audit insurance carriers and employers to verify benefits payments." 1997:        "The Agency agrees with this recommendation. We will continue to seek ways to improve our ability to verify the accuracy of assessment payments. We will continue to support legislation which would give the agency the authority to audit insurance carriers and employers to verify benefit payments." 1995:        "The Commission agrees. We will propose to the Workers’ Compensation Advisory Board that legislation be pursued to give us the authority and the funds to perform audits to verify the accuracy of employer contributions. We will continue to perform such cross-matches as are available and will attempt to determine additional administrative procedures as may be useful in making such determination." 1993:        "The Commission agrees. The new automated systems will provide the required information to insure accurate payments into the funds. Appropriate procedures will be established to permit staff to monitor the compliance of employer contributions." 1991:        "The Commission agrees. The Agency’s new computer system will provide the required information to assure accurate payments into the various funds." 1989:        "The Agency agrees with this recommendation. New legislation, signed by the Governor on December 18, 1989, imposes penalties on employers who do not pay (or underpay) the assessments into the Rate Adjustment Fund and the Second Injury Fund. In addition, it requires the Department of Insurance to verify the accuracy of the amounts paid by the insurance companies into the Funds. The additional staff and resources referred to in our response to recommendations 1 through 5, will permit the Commission to perform both computer verifications and some limited auditing of self-insured employers’ records for assessment verification purposes." 1987:        "The Commission will require all future assessment payments to be accompanied by an affidavit signed by an officer of the company affirming the accuracy of the information in the transmitted form and the amount tendered."