REPORT DIGEST

DEPARTMENT OF LABOR

COMPLIANCE EXAMINATION
FOR THE YEAR ENDED JUNE 30, 2018

Release Date:  February 14, 2018

FINDINGS THIS AUDIT:  14

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  0 -- 6 -- 6
Category 2:  2 -- 6 -- 8
Category 3:  0 -- 0 -- 0
TOTAL:  2 -- 12 -- 14

FINDINGS LAST AUDIT: 14

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

SYNOPSIS

• (17-01) The Department did not exercise
adequate control over its cash receipts and
related reporting.
• (17-02) The Department did not exercise
adequate control over its accounts
receivable and related reporting.
• (17-03) The Department failed to
establish and maintain adequate control
over its Special State Trust Fund, which
holds unpaid wages due to employees.
• (17-04) The Department did not perform
adequate and accurate reconciliations
during the examination period.
• (17-05) The Department did not exercise
adequate control over the accuracy,
completeness, and timeliness of its State
property records and related reporting.
• (17-06) The Department failed to maintain
proper controls over its personal services
functions.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INADEQUATE CONTROL OVER RECEIPTS

The Department did not exercise adequate
control over its cash receipts and related
reporting.  According to the State
Comptroller’s records, the Department
remitted $9,836,323 to the State Treasury
during the examination period.

Some of the conditions we noted follow:
• The Department was unable to provide
individual receipt records for the General
Revenue Fund, Amusement Ride and Patron
Safety Fund, Department of Labor Special
State Trust Fund, Child Labor and Day and
Temporary Labor Services Enforcement Fund,
Employee Classification Fund, and Wage
Theft Enforcement Fund which reconciled to
the Monthly Revenue Status Report from the
Office of the State Comptroller.  We noted
this condition was primarily due to the
computer program used by the Department to
process receipts, which was outdated and
not fully functional.  As such, it is
difficult for Department staff to track
receipts after entry, produce reports of
receipts collected, or sort data stored
within the system.
• While the Department’s monthly
reconciliations of the SB04 reports agreed
between the Department’s Receipt Deposit
Transmittal (Form C-64) reports and the
Comptroller’s records, we noted the Form
C-64s did not reconcile with the
Department’s individual receipt records.
• Fourteen of 60 (23%) receipts tested,
totaling $19,965, were deposited between 3
to 198 days late, even after allowing for
the Department’s 10-day deposit extension
granted by the State Comptroller and State
Treasurer.
• The Department omitted fees related to
private employment counseling from its
Fiscal Year 2016 Agency Fee Imposition
Report (Report).  The required fees are set
forth in the Private Employment Agency Act
(225 ILCS 515/1.5(a)(3) and 225 ILCS
515/4), as well as the Illinois
Administrative Code (68 Ill. Admin. Code
680.1000(b)).  It appears, based off our
calculations, $17,345 should have been
reported by the Department for this fee.
(Finding 1, pages 11-15)  This finding has
been repeated since 2005.

We recommended the Department develop and
maintain internal controls over its
receipts to ensure the timely collection of
revenues and adequate documentation is
maintained and readily available for all
transactions.  In addition, we recommended
the Department ensure its accounting
records reside within a system capable of
generating reports, providing detailed
records and balances, and producing
transaction listings, which are timely
reconciled to the State Comptroller’s
records and as a part of this
reconciliation, any discrepancies should be
investigated.  Further, we recommended the
Department timely establish receivables and
initiate collection for NSF checks and
ensure its annual Report is complete and
accurate and filed timely with the State
Comptroller.

Department personnel accepted our
recommendations.  (For the previous
Department response, see Digest Footnote
#1.)

INADEQUATE CONTROL OVER ACCOUNTS RECEIVABLE

The Department did not exercise adequate
control over its accounts receivable and
related reporting.  At June 30, 2017, the
Department’s Aging of Total Gross
Receivables (Form C-98) reported $2.158
million in total gross receivables.

Some of the conditions we noted follow:
• The Department was unable to provide
detailed individual accounts receivable
records for the General Revenue Fund, Child
Labor and Day and Temporary Labor Services
Enforcement Fund, Employee Classification
Fund, and Wage Theft Enforcement Fund.
• During analytical reviews, we noted the
Department reported the same outstanding
accounts receivable balance throughout
Fiscal Year 2016, with no adjustments,
additions, or collections.  In following up
on this matter with Department officials,
they indicated a former employee carried
over the prior year’s accounts receivable
amount for all funds and all quarters
during Fiscal Year 2016 because the
Department did not have any reports
available to produce accurate additions and
collections amounts.
• The Department was unable to provide an
aging schedule to support its Form C-98s.
(Finding 2, pages 16-20)  This finding has
been repeated since 2005.

We recommended the Department take action
to ensure its accounts receivable are
properly recorded, collection efforts are
made, and accounts receivable reports are
properly prepared in accordance with all
applicable laws, rules, and regulations.

Department personnel accepted our
recommendation.  (For the previous
Department response, see Digest Footnote
#2.)

FAILURE TO ESTABLISH AND MAINTAIN ADEQUATE
INTERNAL CONTROL OVER THE SPECIAL STATE
TRUST FUND

The Department failed to establish and
maintain adequate control over its Special
State Trust Fund (Fund 251), which holds
unpaid wages due to employees.  As of June
30, 2017, Fund 251 had $1,402,480 in cash.

Pursuant to the Illinois Wage Payment and
Collection Act (WPCA) (820 ILCS
115/11.5(a)), the Department collects, when
necessary, an employee’s wages or final
compensation due and holds these moneys
until the employee (now, claimant) can be
located by the Department and properly
paid.  Additionally, pursuant to the
Minimum Wage Law (MWL) (820 ILCS
105/12(b)), the Department collects, when
necessary, unpaid minimum wages and
overtime due to employees and holds these
moneys until the employee (now, claimant)
can be located by the Department and
properly paid.  Finally, the Statewide
Accounting Management System (SAMS)
(Procedure 05.50.01) notes fiduciary funds
account for assets held by a governmental
unit in a trustee capacity or as an agent
for individuals and SAMS (Exhibit 27.50.10-
A) notes Fund 251 is an agency type of
fiduciary fund.

During testing, we noted the following:
• 32 of 60 (53%) claimant payment requests
tested, totaling $127,119, were approved
for payment between 14 and 334 days after
the claimant filed their claim with the
Department.
• We were unable to reconcile the
Department’s ledger of claimants to the
Fund 251’s cash balance from the Monthly
Cash Report (SB05) prepared by the Office
of the State Comptroller.  We noted
unreconciled differences of $73,346 and
$75,377 at June 30, 2016, and June 30,
2017, respectively.
• At June 30, 2017, the Department is
holding claimant balances related to as far
back as Calendar Year 2003 activity.  Each
of these balances require a proper
disposition by the Department.  (Finding 3,
pages 21-24)  This finding has been
repeated since 2007.

We recommended the Department take action
to ensure:
• supporting documentation is obtained and
preserved, along with the posting of proper
accounting entries, when receipts for
unclaimed wages are collected and remitted
into Fund 251;
• a notation within the Department’s
records is made to indicate amounts
collected pursuant to the WPCA or the MWL
when receipts are collected and remitted
into Fund 251;
•	claimant claims are promptly
processed and paid, along with the posting
of proper accounting entries, when
distributed from Fund 251;
• reconciliations of the total amount due
to claimants at the end of each month to
the SB05 report are performed and any
unreconciled discrepancies are investigated
and properly resolved;
• amounts due to claimants older than one
year under the MWL are promptly transferred
to the General Revenue Fund, with the
timely posting of proper accounting
entries; and,
• amounts due to claimants under the WPCA
are properly handled under the relevant
provisions of the Revised Uniform Unclaimed
Property Act (RUUPA), with the timely
posting of proper accounting entries.

Department personnel accepted our
recommendations.  (For the previous
Department response, see Digest Footnote
#3.)

INADEQUATE AND INACCURATE RECONCILIATIONS

The Department did not perform adequate and
accurate reconciliations during the
examination period.  We noted discrepancies
with the Department’s reconciliations of
its activity against the Monthly
Appropriations Status Report (SB01), the
Non-Shared Funds Monthly Cash Report
(SB05), the Agency Contract Report (SC14),
and the Obligation Activity Report (SC15).

Some of the conditions we noted follow:
• The Department did not prepare any
reconciliations of its records to the SB01
prepared by the Office of the State
Comptroller during Fiscal Year 2017.
• During our comparison of the
Comptroller’s expenditure records to the
Department’s expenditure records, we noted
1) eight vouchers, totaling $123,028, were
reversed or voided within the Comptroller’s
records, but were not reversed or voided in
the Department’s records, 2) four vouchers,
totaling $7,928, were reversed or voided
within the Department’s records, but were
not reversed or voided in the Comptroller’s
records, 3) twelve vouchers, totaling
$170,250, were included within the
Comptroller’s records, but did not appear
within the Department’s records, and 4)
twenty-two vouchers, totaling $35,821, were
included within the Department’s records,
but did not appear within the Comptroller’s
records.
• The Department did not prepare 120 of 168
(71%) SB05 reconciliations for the
Amusement Ride and Patron Safety Fund,
Department of Labor Special State Trust
Fund, Child Labor and Day and Temporary
Labor Services Enforcement Fund, Employee
Classification Fund, and Wage Theft
Enforcement.  The combined cash balance of
those funds, according to the Comptroller’s
records, was $3,266,697 and $3,022,922 at
June 30, 2016, and June 30, 2017,
respectively.  (Finding 4, pages 25-28)
This finding has been repeated since 2007.

We recommended the Department take action
to ensure it timely prepares adequate and
accurate reconciliations of its accounting
records to the Comptroller’s records each
month and investigates and resolves all
discrepancies.

Department personnel indicated our
recommendation was implemented.  (For the
previous Department response, see Digest
Footnote #4.)

STATE PROPERTY CONTROL WEAKNESSES

The Department did not exercise adequate
control over the accuracy, completeness,
and timeliness of its State property
records and related reporting.

During testing, we noted the Department did
not maintain detailed documentation
supporting its quarterly Agency Report of
State Property reports (Form C-15) filed
with the Office of the State Comptroller.
As of June 30, 2016, and June 30, 2017, the
Department reported total property balances
of $1,214,870 and $1,257,540, respectively.

Some of the conditions we noted follow:
• We could not agree the addition and
deletion reports provided to us by the
Department to activity reported on the
Department’s Form C-15s, as we noted an
unreconciled difference of $11,285.
• The Department’s ending property balance
reported on its fourth quarter Form C-15
for Fiscal Year 2015 did not agree with the
beginning balance reported on its first
quarter Form C-15 for Fiscal Year 2016, as
we noted an unreconciled difference of
$692.
• We were unable to reconcile the
Department’s Form C-15s to the State
Comptroller’s Object Expense/Expenditures
Report (SA02), as personnel at the
Department were unable to provide any
documentation to support amounts reported
on its Form C-15s.  We noted unreconciled
differences between the Form C-15s and the
SA02s of $35,752 and $20,757 during Fiscal
Year 2016 and Fiscal Year 2017,
respectively.
• The Department could not provide its
Fiscal Year 2016 Certification of Inventory
and Discrepancy Report which should have
been filed with the Department of Central
Management Services.  As such, we were
unable to determine if any discrepancies
were noted during the annual inventory
count and the risk of data exposure from
missing or stolen data stored on items like
computers, servers, and laptops.
• The Department’s property listing was
incomplete.  For the 1,279 items on the
listing we noted the purchase date was not
reported for 994 (78%) items, a voucher
number was not reported for 961 (75%)
items, the purchase prices was not reported
for 835 (65%) items, and the listing
included 16 (1%) items which appeared to be
missing, or were not tagged with an
equipment number.  (Finding 5, pages 29-34)
This finding has been repeated since 2003.

We recommended the Department strengthen
its controls over the recording and
reporting of State property by reviewing
its inventory and recordkeeping practices
to ensure compliance with State law.  In
addition, we recommended the Department
ensure all equipment is tagged as State
property and accurately and timely recorded
on the Department’s property records and
maintain documentation of any equipment
additions, deletions, and transfers.
Finally, we recommended the Department
thoroughly review all reports prepared from
its records for accuracy and completeness
prior to submitting the reports to external
parties.

Department personnel indicated our
recommendations were implemented.  (For the
previous Department response, see Digest
Footnote #5.)

INADEQUATE CONTROL OVER PERSONAL SERVICES

The Department failed to maintain proper
controls over its personal services
functions.  Some of the conditions we noted
follow:
• We tested performance evaluations for 18
employees and noted six (33%) employees did
not have annual performance evaluations
during Fiscal Year 2016 and/or Fiscal Year
2017; three (17%) employees requiring
probationary performance evaluations did
not have these evaluations performed during
the examination period, as these employees
were missing five total probationary
evaluations; and six (33%) employees’
annual performance evaluations during
Fiscal Year 2016 and/or Fiscal Year 2017
were completed between 67 and 621 days
late.
• Leave requests for 12 of 18 (67%)
employees tested were not properly approved
in advance of the requested day off.  We
noted 42 instances when leave time was
approved between 1 and 40 days after the
leave had occurred.  These leave requests
included vacation time, personal time,
compensatory time, equivalent earned time,
holiday time, and other authorized
absences.
• The use of sick time was not post-
approved within a reasonable amount of time
for 11 of 18 (61%) employees tested, as
requests were approved between 2 and 20
days after the sick leave occurred.
(Finding 6, pages 35-39).  This finding has
been repeated since 2013.

We recommended the Department establish and
maintain fiscal and administrative internal
controls over its personal services
functions, including:
• timely performing performance evaluations
in accordance with the Illinois Department
of Labor Policy Manual and the Illinois
Administrative Code;
• ensuring employees submit leave
documentation in a timely manner;
• ensuring employees obtain approval prior
to working overtime;
• maintaining complete and accurate
personnel files, including correct Form
C-25s and authorizations for deductions;
• ensuring all employees timely complete
ethics training and complete the associated
attendance verification for retention by
the Department;
• ensuring payroll vouchers are prepared
from and agree with all source
documentation; and,
• ensuring all payroll vouchers are signed
by an authorized person.

Department personnel accepted our
recommendations and/or indicated the
recommendations have been implemented.
(For the previous Department response, see
Digest Footnote #6.)

OTHER FINDINGS

The remaining findings pertain to
noncompliance with the Employee
Classification Act and the Fiscal Control
and Internal Auditing Act, inadequate
control over travel expenditures and
voucher processing, inaccurate financial
reporting of federal grant activity, lack
of disaster contingency planning or testing
to ensure the recovery of computer systems,
improper disposal of State records and
noncompliance with the Private Employment
Agency Act, and reporting procedural
deficiencies.  We will review the
Department’s progress towards the
implementation of our recommendations in
our next compliance examination.

ACCOUNTANT’S OPINION

The accountants conducted a compliance
examination of the Department for the two
years ended June 30, 2017, as required by
the Illinois State Auditing Act.  The
accountants qualified their report on State
compliance for findings 2017-001 through
2017-006.  Except for the noncompliance
described in these findings, the
accountants stated the Department complied,
in all material respects, with the
requirements described in the report.

This compliance examination 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

FJM:cmd

DIGEST FOOTNOTES

#1 – Inadequate Control over Receipts –
Previous Department Response

2015:  The Department accepts the
recommendations.  Many of the issues noted
in the finding either occurred during the
prior administration or were due to a lack
of internal controls and proper
recordkeeping in place under the prior
administration.  When the Department's
current leadership learned of the
underlying causes and conditions, it took
remedial actions.  The Department has
undertaken a review of all internal fiscal
controls and is working closely with the
State’s Chief Information Officer in
establishing the necessary platform for a
new case management and receipts processing
and reporting system.  During development,
the Department will continue to use, to the
best of its ability, the current set up for
tracking cases, revenues, and payments.
The Department intends to make every effort
to correct all deficiencies and
streamlining all processes that it has the
capability and resources to accomplish.

#2 – Inadequate Control over Accounts
Receivable – Previous Department Response

2015:  The Department accepts the
recommendations.  Many of the issues noted
in the finding either occurred during the
prior administration or were due to a lack
of internal controls and proper
recordkeeping in place under the prior
administration.  Under the current
administration, the Department’s leadership
has taken steps to implement proper
internal controls.  The Department is
reviewing the basis of receivables reported
under the previous administration.  The
Department intends to identify all forms of
debt to the State under our programs and
will make every effort to develop a formal
billing, collections, and reporting process
in accordance with the State Finance Act,
the Fiscal Control and Internal Auditing
Act, and all relevant SAMS procedures.

#3 – Failure to Establish and Maintain
Adequate Internal Control over the Special
State Trust Fund – Previous Department
Response

2015:  The Department accepts the
recommendations.  The issues noted in the
finding were due to a lack of internal
controls and proper oversight of Fund 251
by the Department under prior
administrations.  The Department’s current
leadership discovered the inherited issues
with the management of Fund 251 and took
remedial actions during calendar year 2015
to rectify such issues.

In CY 2015, the Department experienced
complete turnover at the executive level
and complete turnover at every level of the
fiscal section, including the resignation
of the Department’s Chief Fiscal Officer
(CFO) in late February 2015.  When the
current administration learned of the
conditions it inherited, it took immediate
steps to address the problem.  Although
unable to locate any documentation of
reconciliations of the Department’s general
ledger and Fund 251 balances against the
Comptroller reports from prior
administrations, the current CFO and fiscal
staff implemented policies and procedures
to ensure that such documentation is
maintained and that the general ledger and
funds are reconciled.  The Department also
implemented changes to its check-processing
procedures to make sure that adequate
controls are in place to ensure proper
transfers from Fund 251 to the General
Revenue Fund in compliance with the Minimum
Wage Law (820 ILCS 105/12(b)) and maintain
adequate documentation.  The Department
also retained an independent accounting
firm to conduct an audit, which confirmed
that all funds were properly placed into
and transferred out of Fund 251 during CY
2015.

The Department intends to maintain adequate
controls and documentation and to continue
these new policies and procedures to comply
with the Minimum Wage Law (820 ILCS
105/12(b)) by transferring the required
amounts from Fund 251 to the General
Revenue Fund with documentation of these
future transfers.

Under previous administrations, numerous
audits found repeated reconciliation and
documentation problems with Fund 251.  In
the spirit of good government and
transparency, the current administration is
committed to restoring the public’s
confidence in the Department’s management
of this special trust fund.

#4 – Inadequate and Inaccurate
Reconciliations – Previous Department
Response

2015:  The issues noted in the finding were
due to a lack of internal controls and
proper oversight of by the Department under
the prior administration.  The Department’s
current leadership discovered the inherited
issues and is continuing its efforts to
remedy the deficiencies identified in the
findings.  The Department has been involved
in reconciling expenditures and cash
receipts from prior years since the change
in administration and fiscal positions
during the 3rd and 4th quarters of Fiscal
Year 2015.  For the current transactions,
the Department has implemented
reconciliations of the expenditure data
from the Accounting Information System
(AIS) to the Comptroller’s SB01
appropriation status report for all
payables.  On the receipts side, the
Department has implemented reconciliations
of Department transmittals to the
Treasurer’s deposit record and the
Comptroller’s monthly SB04 and SB05
reports.

#5 – State Property Control Weaknesses –
Previous Department Response

2015:  The Department accepts the
recommendations.  Current administration
staff is unable to comment on the root
cause of deficiencies under the prior
administration and is making every effort
to remedy the deficiencies identified in
the findings.  The Department has made, and
will continue to make, a concerted effort
to improve controls over the recording and
reporting of State property.  The
Department performed a complete inventory
of its offices, including properly tagging
all items and marking their correct
location on inventory records.  Fiscal
staff also will charge all expenditures to
the proper detail object codes going
forward.

#6 – Inadequate Control over Personal
Services – Previous Department Response

2015:  The Department accepts the
recommendations. Many of the issues noted
in the finding either occurred during the
prior administration or were due to a lack
of internal controls and proper
recordkeeping in place under the prior
administration.  When the Department’s
current administration learned of these
inherited conditions, it took steps to
remedy deficiencies. The current Chief of
Staff and HR Manager have made a concerted
effort to make sure all senior staff
understands the importance of completing
evaluations in a timely manner and
approving time requests pursuant to the
Illinois Administrative Code, Department
policies, and any applicable collective
bargaining agreements. The Department will
continue to make every effort to ensure
compliance.