REPORT DIGEST

MEDICAL DISTRICT COMMISSION

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

For The Year Ended June 30, 2008

STATEMENT OF REVENUES, EXPENSES,

AND CHANGES IN NET ASSETS

FY 2008

OPERATING REVENUES

Grants ......................................................................................................................

Rental and Service Income....................................................................................

Other Operating Revenues...................................................................................

Total Operating Revenues............................................................................

OPERATING EXPENSES

Property Management and Development.........................................................

Grant Programs......................................................................................................

Depreciation and Amortization...........................................................................

Total Operating Expenses.............................................................................

OPERATING (L0SS) INCOME............................................................................

NONOPERATING, REVENUES (EXPENSES)

State Appropriations............................................................................................

Interest Income.....................................................................................................

Interest Expense....................................................................................................

Total Nonoperating Revenues (Expenses).................................................

Capital Transfers (Net gain/loss)

CHANGES IN NET ASSETS

$ 3,447,193

3,143,975

91,348

$ 6,682,516

$ 5,461,990

3,273,622

1,351,979

$10,087,591

$(3,405,075)

$ 37,032

1,635,159

(2,794,007)

$(1,121,816)

$ 28,879

$ (4,498,012)

STATEMENT OF NET ASSETS

FY 2008

ASSETS

Cash and Cash Equivalents...............................................................................

Accounts and Other Receivables......................................................................

Notes Receivable..................................................................................................

Investments...........................................................................................................

Debt Issuance Costs............................................................................................

Capital Assets, Other Assets (net)....................................................................

Total Assets....................................................................................................

LIABILITIES

Accounts Payable and Accrued Expenses.......................................................

Interest Payable....................................................................................................

Line of Credit.........................................................................................................

Certificates of Participation.................................................................................

Due to other State Agencies...............................................................................

Other.......................................................................................................................

Total Liabilities................................................................................................

NET ASSETS

Invested in Capital Assets (net).........................................................................

Restricted for Grants and Capital Projects........................................................

Unrestricted...........................................................................................................

Total Net Assets...........................................................................................

TOTAL LIABILITIES AND NET ASSETS

$ 1,402,666

486,086

34,935,115

3,034,801

738,798

57,083,180

$97,680,646

$ 1,588,607

787,926

2,592,506

27,970,000

23,529,761

495,971

$56,964,771

$ 28,266,807

2,373,757

10,075,311

$40,715,875

$97,680,646

EXECUTIVE DIRECTOR

During Audit Period: Samuel Pruett

Currently: Samuel Pruett

The Commission did not comply with certain contracting procedures

Ten contracts totaling $372,500 did not disclose financial interest statements

Three contracts totaling $53,000 did not include statements with regard to conflicts of interest

Thirteen contracts totaling $2,186,182 did not comply with the competitive procurement requirements of the Illinois Procurement Code

Commission officials agreed with our recommendation

Unexpended proceeds of $8,152,049 were not remitted to the State Treasury

As of June 30, 2006 the unexpended portion of these proceeds totaled $7,877,969 and the Commission had not yet remitted any excess funds to the State Treasury

As of June 30, 2007 $4,000,000 was pledged as collateral for a bond offering and $4,000,000 as collateral for a bank line of credit - no changes were noted in fiscal year 2008

Commission officials disagree

Auditor Comment

The Attorney General agreed with the Auditor General’s position

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

NONCOMPLIANCE WITH REQUIRED CONTRACTING PROCEDURES

The Illinois Medical District Commission did not comply with certain contracting procedures. During our testing of 50 contracts, we noted the following:

- Six (12%) contracts totaling $593,040 did not state whether a subcontractor would be used.

- Ten (20%) contracts totaling $372,500 did not disclose financial interest statements and did not include individual statements of owners over 5%.

- One (2%) contract totaling $40,000 did not indicate the contractor’s federal employer identification number and legal status disclosure statements.

- Three (6%) contracts totaling $53,000 did not include statements or provisions with regard to conflicts of interest.

- Twelve (24%) contracts totaling $391,487 did not
include the agency representative signature, name and title printed under the signature, or the dates of contracts or modifications.

- One (2%) contract for on-site stationary, operating engineering and facilities management services, totaling $315,957 did not have the signatures of the chief fiscal officer and chief legal counsel.

- Six (12%) contracts totaling $522,947 were multi-year contracts with missing Contractual Obligation Documents noting future years’ information.

- Thirteen (26%) contracts totaling $2,186,182 did not comply with the competitive procurement requirements of the Illinois Procurement Code. These contracts were professional and artistic contracts greater than $20,000.

None of the 13 contracts were published in the Illinois Procurement Bulletin as sole source. (Finding 1, pages 11-13) This issue was first reported in 2005.

Commission Officials agreed with our recommendation that the Commission adhere to contract requirements, obtain signatures and disclosure statements, and publish sole source justification as required. (For previous Commission response, see Digest Footnote #1)

FAILURE TO REMIT UNEXPENDED PROCEEDS FROM THE SALE OF COMMISSION PROPERTY INTO THE INCOME FUND HELD IN THE STATE TREASURY

The Illinois Medical District Commission did not remit unexpended proceeds from the sale of Commission property to the State Treasury for deposit into the Medical Center Commission Income Fund.

The Illinois Medical District Act requires the Commission to remit to the State Treasury all moneys on hand (originating from the sale of Commission property) as of June 30 in excess of $350,000.

During Fiscal Year 2004, the Commission sold real property to the Federal Bureau of Investigation. The proceeds from the sale totaled $10,688,767. As of June 30, 2005, an estimated $8,152,049 of those proceeds has not been expended or obligated and the Commission did not remit these excess funds to the State Treasury. As of June 30, 2006, the unexpended portion of these proceeds totaled $7,877,969, and the Commission had not yet remitted any excess funds to the State Treasury. As of June 30, 2007, funds in the amount of $4,000,000 were pledged as collateral for a $40 million bond offering and pursuant to a Commission Resolution dated May 23, 2006, the remainder of the funds were pledged as collateral for a $4,000,000 line of credit with a bank. There were no changes noted to the status of these funds in fiscal year 2008. (Finding 3, pages 15-16) This finding was first reported in 2005.

We recommended the Commission remit the excess moneys to the State Treasury for deposit into the Income Fund.

Commission officials continue to disagree with this finding and maintain their actions are consistent with the Illinois Medical District Act. They stated the matter is pending before the Illinois Attorney General and this should no longer be a finding as there were no funds in excess of $350,000 at the close of fiscal year 2008 that were either unexpended or not under contractual obligation. (For previous Commission responses, see Digest Footnote #2)

In an Auditor Comment, we stated that the auditors continue to stand by the finding based on the same criteria that was cited in the prior three audits. We noted that under the statute, by October 10^th of each year money is either expended or it is on hand. Under common everyday

usage, the term “expended” means paid out. This definition is also consistent with usage in State government. Under the plain meaning of the law, money on hand in excess of $350,000 must be remitted to the State Treasury in the time frame set forth in Section 10. The auditors do not believe the statute allows the Commission to hold for an indefinite period of time an unlimited accumulation of money that has been “set aside” or “pledged as collateral” or “committed” but not paid out.

Further, on December 31, 2008 the Office of the Attorney General issued a Formal Opinion (No. 08-004) that agreed with the Auditor General’s position and concluded by stating that “If the Commission is interested in expanding its authority to lawfully retain monies in excess of the current statutory limitations, then it must address this issue with the General Assembly.”

OTHER FINDINGS

Other findings dealt with fiscal control and internal auditing and inaccurate reporting of receipts and disbursements. We will review the Commission’s progress toward implementation of all our recommendations in our next audit.

AUDITORS' OPINION

Our auditors stated that the financial statements present fairly, in all material respects, the respective financial position of the business-type activities of the Commission, as of June 30, 2008, and the respective changes in net assets and cash flows, 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

E. C. Ortiz & Co., LLP.

DIGEST FOOTNOTES

#1 – NONCOMPLIANCE WITH REQUIRED CONTRACTING PROCEDURES – Previous Agency Response

2007: The Commission agrees with this recommendation

#2 – FAILURE TO REMIT UNEXPENDED PROCEEDS FROM THE SALE OF COMMISSION PROPERTY INTO THE INCOME FUND HELD IN THE STATE TREASURY – Previous Agency Responses

2007: The Commission continues to disagree with this finding and maintains the IMD Act intent to be consistent with this position. As previously reported, this matter is pending before the Illinois Attorney General. The Commission further maintains that this should no longer be a finding as there were not funds in excess of $350,000 at the close of fiscal year 2007 that were either unexpended or not under contractual obligation.