ILLINOIS DEPARTMENT OF LABOR

COMPLIANCE EXAMINATION

For The Two Years Ended June 30, 2005

EXPENDITURE STATISTICS

FY 2005

FY 2004

FY 2003

Total Expenditures (All Appropriated Funds)......

$5,782,316

$5,706,737

$6,413,725

OPERATIONS TOTAL.........................

% of Total Expenditures...................

$5,165,422

89%

$5,059,973

89%

$5,625,471

88%

Personal Services...........................

% of Operations Expenditures........

Average No. of Employees.........................

$3,425,871

66%

$3,368,677

67%

$3,781,652

67%

Other Payroll Costs (FICA, Retirement).........

% of Operations Expenditures........

$793,893

15%

$668,174

13%

$816,098

14%

Contractual Services........................

% of Operations Expenditures........

$184,069

$259,965

$260,436

All Other Operations Items................

% of Operations Expenditures........

$761,589

15%

$763,157

15%

$767,285

14%

GRANTS TOTAL..................................

% of Total Expenditures...................

$616,894

11%

$646,764

11%

$788,254

12%

Cost of Property and Equipment..................

$687,092

$698,664

$694,372

SELECTED ACTIVITY MEASURES (Not Examined)	FY 2005	FY 2004	FY 2003
... Complaints Received Due to Safety Problems Noted in Public Buildings.............................	91	88	79
... Carnival Rides Inspected..............................	1,874	1,971	2,032
... Prevailing Wage Complaints Completed...........	1,201	1,346	1,079
... Arbitration Hearings...................................	47	35	40
... Minimum Wage Investigations Completed.........	887	1,189	1,090
... Number of Participants in Displaced Homemaker Program.................................................	1,373	1,490	1,726

AGENCY DIRECTOR

During Examination Period: Michael J. Fenger (7/1/03 to 10/31/03), Esther R. Lopez (Acting 11/1/03

to 6/30/04), Arthur Ludwig (effective 7/5/04)

Currently: Arthur Ludwig

Auditor Disclaimer

Insufficient Support – Department Records

Department staff states they received no guidance from CMS detailing where savings were to occur

Efficiency initiative payments totaled $61,649 during FY04 and FY05

Estimated amounts were materially different from actual amounts

Complete support not provided timely

Receipt amounts did not trace to Department supporting documentation

No support for reconciling amounts provided

Unexplained and unsupported adjustments made

No support for deposit-in-transit amounts

Differences of $5,394 and $101,580 noted between Department records and Comptroller records

Receivable information not recorded or reported properly

Errors, totaling $26,672 resulted in overstatement of equipment as of June 30, 2005

Prior period errors not properly corrected

Inadequate segregation of duties

Equipment totaling $11,649 not tagged or recorded on inventory records

Time sheets did not document time spent on official State business

Department officials disagree

Auditor Comment

INTRODUCTION

The Independent Accountant’s report on State Compliance, on Internal Control over Compliance and on Supplementary Information for State Compliance Purposes contained certain disclaimer language regarding material findings of noncompliance that were disclosed by the special State compliance examination tests.

Cash receipts information in the Fiscal Schedules and Analysis section for FY04 and FY05 for the General Revenue Fund, the Special State Trust Fund and the Child Labor Enforcement Fund is considered not examined and the information cannot be relied upon because sufficient support was not available from Department records.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

EFFICIENCY INITIATIVE PAYMENTS

The Department made payments for efficiency initiative billings from improper line item appropriations. Public Act 93-0025, in part, outlines a program for efficiency initiatives to reorganize, restructure, and reengineer the business processes of the State. The State Finance Act details that the amount designated as savings from efficiency initiatives implemented by the Department of Central Management Services (CMS) shall be paid into the Efficiency Initiatives Revolving Fund. The Act further requires State agencies to pay these amounts from line item appropriations where cost savings are anticipated to occur.

According to Department staff, they received no guidance or documentation from CMS detailing where savings were to occur nor did CMS provide evidence of savings for the amounts billed. Additionally, staff reported that the Department does not do any major purchasing and has not seen or experienced any savings from the efficiency initiatives. The Department used $34,057 from its travel, commodities, printing, and telecommunications line item appropriations to pay for the Procurement Efficiency billing in FY04. The Department used $18,409 and $9,183 from its Electronic Data Processing line item appropriation to pay for the Information Technology billing in FY04 and FY05 respectively.

The Department paid a total of $61,649 from the General Revenue Fund for the efficiency initiatives in FY04 and FY05. (Finding 1, pages 10-11)

We recommended the Department only make payments for efficiency initiative billings from line item appropriations where savings would be anticipated to occur. Further, we recommended the Board seek an explanation from the Department of Central Management Services as to how savings levels were calculated, or otherwise determined, and how savings achieved or anticipated impact the Department’s budget.

Department officials agreed with our recommendation.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) REPORTING WEAKNESSES

The Department lacked adequate documentation for amounts reported in the Department’s Fiscal Year 2005 GAAP packages submitted to the Office of the Comptroller and some of the estimated amounts reported by the Department differed materially from the actual amounts. We noted the following:

· The Department underestimated their August expenditures from the General Revenue Fund by $172,313 and overestimated their August expenditure activity for the Special State Trust Fund by $4,000.

· The Department did not provide complete support for a $23,000 cash adjustment posted to their General Revenue Fund GAAP package in a timely manner. The complete support was provided on February 9, 2006. (Finding 2, page 12-13)

We recommended the Department implement procedures to ensure complete and accurate reporting of year-end accounting reports (GAAP package forms).

Department officials agreed with our recommendation.

INADEQUATE CONTROL OVER REVENUES

The Department did not exercise adequate control over revenues in its General Revenue Fund (Fund 001), Special State Trust Fund (Fund 251) and Child Labor Law Enforcement Fund (357). We noted the following:

· 3 of 20 (15%) cash receipts amounts on a summary receipts scheduled prepared by the Department did not trace to the Department’s supporting documentation. Differences for Fund 001 totaled $9,514 and $2,606, for Fiscal Years 2005 and 2004, respectively and a difference of $617,986 for Fund 251 was noted in Fiscal Year 2005.

· The Department did not have adequate support for reconciling amounts presented in a summary receipts scheduled prepared by the Department for Fund 001. Unexplained adjustments of $11,995 and $2,567 were noted in the Department’s reconciliation.

· The Department did not have adequate support for reconciling amounts for Fund 251. We noted unexplained and unsupported adjustment amounts of $3,408 and $2,903 for Fiscal Years 2005 and 2004, respectively. In addition, an adjustment for $4,703 did not trace to records produced by the State Comptroller and a difference of $329 between Department records and State Comptroller records was not adequately explained or supported.

· The Department did not have adequate support for deposits-in-transit amounts as of June 30, 2005 and June 30, 2004 for Fund 001, Fund 357 and Fund 251. Handwritten records were provided by the Department but did not include any underlying support and could not be verified.

· The Agency Fee Imposition Report prepared by the Department for Fiscal Years 2004 and 2005 could not be reconciled to State Comptroller records. We noted differences between Department and Comptroller records of $5,394 and $101,580 for Fiscal Years 2005 and 2004, respectively.

· The Department inappropriately used $708 of revenues from Fund 251 for office and library supplies and printing items. The purpose of the Fund 251 is to collect unpaid wages from employers and hold the funds until the employees can be located and properly paid.

· The Department incorrectly deposited a $13 receipt into Fund 251 which should have been deposited into the Fund 001. (Finding 3, pages 14-16)

We recommended the Department maintain detailed, verifiable records for all revenue transactions and ensure receipts are deposited into the proper fund and that revenues are appropriately used. We also recommended the Department investigate all differences noted in their reconciliation process and document the results of these investigations and make necessary updates to their cash receipts system to facilitate accurate reporting for the annual fee imposition report.

Department officials agreed with our recommendation.

INACCURATE ACCOUNTS RECEIVABLE RECORDS AND REPORTING

The Department did not accurately record and report accounts receivable. As of June 30, 2003, the Department had gross receivables balances totaling $280,000 recorded in 3 funds: General Revenue Fund (001) - $94,000, Special State Trust Fund (251) - $174,000, and Child Labor Law Fund (357) - $12,000. However, the Department did not have documentation to support the transactions reported on the 24 quarterly accounts receivable reports submitted to the Comptroller’s Office during Fiscal Years 2004 and 2005. In addition, the Department did not have an adequate method of tracking and monitoring complaints related to billings, or receivables, as the Department did not record them. (Finding 4, page 17)

We recommended the Department establish and implement formal policies and procedures to ensure accounts receivable are reported in accordance with the Statewide Accounting Management System procedures. We further recommended the Department keep detailed records of all billings and the corresponding collections to facilitate proper reporting of accounts receivable activity.

Department officials agreed with our recommendation.

PROPERTY CONTROL WEAKNESSES

The Department did not exercise adequate controls over recording and reporting of State Property. We noted the following:

· Seven of eight (88%) Quarterly Reports of State Property (C-15’s) submitted to the State Comptroller’s Office did not accurately reflect Department equipment transactions. The net effect of all C-15 errors noted is a $26,672 overstatement of equipment as of June 30, 2005.

· The Department did not properly correct errors noted during the previous period. The Department reported an adjustment of $2,753 on the C-15 but did not make a corresponding adjustment to their inventory records.

· An adequate segregation of duties was not maintained with respect to property control. The same employee maintained property records and performed the physical property inventory for the Department’s Chicago location.

· Equipment items purchased through the Federal Indoor Air Tools for Schools grant, totaling $11,649 were not tagged or recorded on the Department’s property inventory records and were not included on the C-15’s submitted to the State Comptroller’s Office. (Finding 7, pages 21-22)

We recommended the Department ensure all equipment is accurately and timely recorded on the Department’s property records and properly tagged. In addition, we recommended the Department thoroughly review all reports prepared from internal records for accuracy before submission to the State Comptroller and establish a proper segregation of duties for property control functions.

Department officials agreed with our recommendation.

TIME SHEETS NOT MAINTAINED IN COMPLIANCE WITH THE STATE OFFICIALS AND EMPLOYEES ETHICS ACT

The Department did not maintain time sheets in compliance with the State Official and Employees Ethics Act (Act). We noted employees are required to sign in upon arriving at work and sign out upon leaving work. However, the time sheets do not document the time spent each day on official State business to the nearest quarter hour. (Finding 13, pages 29-30)

We recommended the Department amend its policy to require all employees maintain time sheets in compliance with the Act.

Department officials disagreed with our recommendation and stated a memo received from the Governor’s Office stated the Department was in compliance with the timesheet policy because the Department uses the CMS’ Payroll System.

In an auditor’s comment we noted the Act requires “State employees to periodically submit time sheets documenting the time spent each day on official State business to the nearest quarter hour….” In addition, the CMS payroll system does not track time for salaried workers and, therefore, does not constitute a timekeeping system for all Department employees. Finally, the memorandum from the Governor’s Office upon which the Department relies, states that it “is not a formal legal opinion….” The auditors continue to believe that the current procedures followed by the Department do not meet the timesheet requirements of the Act.

OTHER FINDINGS

The remaining findings pertain to 1) untimely deposit of receipts, 2) inadequate controls over contractual agreements, 3) improper use of appropriated funds, 4) voucher processing weaknesses, 5) noncompliance with Illinois Procurement Code, 6) voucher approval weaknesses, and 7) performance evaluations. We will follow up on these findings during our next examination of the Department.

AUDITORS' OPINION

We conducted a compliance examination of the Illinois Department of Labor as required by the Illinois State Auditing Act. We have not audited any financial statements of the Illinois Department of Labor for the purpose of expressing an opinion because the Illinois Department of Labor does not, nor is it required to, prepare financial statements.

___________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:JSC:pp

AUDITORS ASSIGNED

The compliance examination was conducted by the Auditor General’s staff.