REPORT DIGEST

DEPARTMENT OF THE LOTTERY - STATE LOTTERY
FUND

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2020

Release Date:  June 23, 2021

FINDINGS THIS AUDIT:  5

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  1 -- 1 -- 2
Category 2:  2 -- 1 -- 3
Category 3:  0 -- 0 -- 0
TOTAL:  3 -- 2 -- 5

FINDINGS LAST AUDIT: 4

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

This digest covers the financial audit of
the State Lottery Fund (Fund) as of and
for the year ended June 30, 2020.  The
next compliance examination of the entire
Department of the Lottery (Department)
will be performed for the two years
ending June 30, 2021.

SYNOPSIS

• (20-01) The Department has not yet
resolved prior period excess cash
transfers from the Fund to the Common
School Fund or performed all transfers to
the Capital Projects Fund from the Fund.
• (20-02) The Department did not develop
or retain adequate supporting
documentation for its personnel
transactions and did not have a
reconciliation process to provide
assurance census data submitted to its
pension and other postemployment benefits
(OPEB) plans was complete and accurate
for the Fund.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

NONCOMPLIANCE WITH FUND TRANSFER
PROVISIONS

The Department of the Lottery
(Department) has not yet resolved prior
period excess cash transfers from the
State Lottery Fund (Fund 711) to the
Common School Fund (Fund 412) or
performed all transfers to the Capital
Projects Fund (Fund 694) from Fund 711.

During testing, we noted the following:

• The Department has been unable to
resolve excess transfers to Fund 412 from
Fund 711, totaling $133.966 million. This
amount consists of $64.124 million in
excess transfers which occurred in Fiscal
Year 2018 and $69.842 million in excess
transfers which occurred in periods prior
to Fiscal Year 2010.

During discussions with Department
officials regarding the $69.842 million,
they indicated Fund 711 annually
transferred more cash into Fund 412 than
required on an accrual basis during
periods prior to Fiscal Year 2010. To
account for the accumulation of excess
transfers, the Department’s predecessor
agency booked a due from Fund 412
(accounts receivable) for the amount of
excess cash transferred from Fund 711.
During the Department’s Fiscal Year 2012
financial audit, it was determined this
due from no longer met the criteria
established by the Governmental
Accounting Standards Board to be reported
and the Department cured the issue by
reclassifying the balance as a transfer.

This remedy, however, created a cash
deficit within Fund 711, as Fund 412 now
had the cash that otherwise should have
been deposited into Fund 694 under the
waterfall calculation set forth in the
Illinois Lottery Law (Law).

Further, during discussions with
Department officials regarding the
$64.124 million, they indicated this was
due to the Department previously
interpreting the amount to transfer to
Fund 412 as an absolutely mandatory
monthly amount, regardless of the amount
of actual proceeds remaining on an
accrual basis under the waterfall
calculation set forth in the Law.

• The Department has been unable to
transfer $89.045 million from Fund 711 to
Fund 694. This amount consists of $69.842
million in excess transfers which
occurred in periods prior to Fiscal Year
2010 as discussed above and $19.203
million in unperformed prior period
transfers not performed in periods prior
to Fiscal Year 2019.

During discussions with Department
officials regarding the $19.203 million,
they indicated that prior to Public Act
100-0587’s enactment in June 2018, the
Department was required to annually
transfer cash from Fund 711 to Fund 694
on June 30. Due to both timing issues
arising from the conversion of accounts
receivable into cash and difficulties
determining the exact amount to transfer,
the Department was not able to timely
transfer this balance into Fund 694.
(Finding 1, pages 50-52)  This finding
has been repeated since 2017.

We recommended the Department work with
the General Assembly and the Governor to
resolve the $133.966 million due from
Fund 412 to Fund 711 and the $89.045
million due from Fund 711 to Fund 694.

Department officials concurred with our
recommendation.

INADEQUATE INTERNAL CONTROLS OVER CENSUS
DATA

The Department did not develop or retain
adequate supporting documentation for its
personnel transactions and did not have a
reconciliation process to provide
assurance census data submitted to its
pension and other postemployment benefits
(OPEB) plans was complete and accurate
for the State Lottery Fund (Fund).

During testing, some of the more
significant issues we noted included the
following:

• The Department had not performed an
initial complete reconciliation of its
census data recorded by the State
Employees' Retirement System of Illinois
(SERS) and the State Employees Group
Insurance Program sponsored by the State
of Illinois, Department of Central
Management Services (CMS) to its internal
records to establish a base year of
complete and accurate census data.

• Two of 80 (3%) employees tested did not
have documentation supporting the
employee's total compensation as
determined under the Illinois Pension
Code (40 ILCS 5/14-133(a)), as
adjustments were posted for longevity pay
which the Department could not
substantiate from its own records. We
considered the impact of the portion of
these employees' total compensation that
was unsupported and determined these
amounts did not materially impact the
Department's financial statements.

• One of 80 (1%) employees tested had a
discrepancy between the employee's
compensation where the Department's
records reflected wages of $3,327 per
month as opposed to SRS' records of
$3,127 per month. We considered the
impact of this discrepancy and determined
it did not materially impact the
Department's financial statements.
(Finding 2, pages 53-55)

We recommended the Department implement
controls to ensure total compensation
paid to each employee is fully documented
and supported within the Department’s
records.

Further, we recommended the Department
work with SERS and CMS to develop an
annual reconciliation process of its
active members’ census data from its
underlying records to a report from each
plan of census data submitted to the
plan’s actuary. After completing an
initial full reconciliation, the
Department may limit the annual
reconciliations to focus on the
incremental changes to the census data
file from the prior actuarial valuation,
provided no risks are identified that
incomplete or inaccurate reporting of
census data may have occurred during
prior periods.

Department officials concurred with our
recommendation.

OTHER FINDINGS

The remaining findings pertain to
inadequate controls over specialty
tickets, an untimely review of credit
card security, and system access
weaknesses.  We will review the
Department’s progress towards the
implementation of our recommendations in
our next financial audit.

AUDITOR’S OPINION(S)

The auditors stated the financial
statements of the State Lottery Fund as
of and for the year ended June 30, 2020,
are fairly stated in all material
respects.

This financial audit was conducted by
Sikich, LLP.

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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