REPORT DIGEST

NORTHEASTERN ILLINOIS UNIVERSITY

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

(In accordance with the
Single Audit Act and OMB Circular A-133)

For the Year Ended:

June 30, 2004

Summary of Findings:

Total this audit 2

Total last audit 2

Repeated from last audit 0

Release Date:

February 17, 2005

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 TTY (888) 261-2887

This Report Digest is also available on

the worldwide web at

http://www.state.il.us/auditor

SYNOPSIS

¨ The University did not properly record several transactions and, as a result, did not properly apply the appropriate generally accepted accounting principles.

¨ The University did not have adequate controls over its property and equipment.

{Financial Information is summarized on the reverse page.}

NORTHEASTERN ILLINOIS UNIVERSITY

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

For The Year Ended June 30, 2004

STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS	FY 2004	FY 2003
OPERATING REVENUES Student tuition and fees (net of scholarship allowances)................... Grants and contracts................................................................................. Auxiliary enterprises................................................................................. Payments on behalf of the University.................................................... Other operating revenues........................................................................ Total Operating Revenues............................................................... OPERATING EXPENSES Instruction.................................................................................................. Research..................................................................................................... Public service............................................................................................. Academic support..................................................................................... Student services and programs............................................................... Institutional support................................................................................. Operation and maintenance of plant...................................................... Scholarships and fellowships.................................................................. Auxiliary enterprises................................................................................. Depreciation............................................................................................... Other operating expenses........................................................................ Total Operating Expenses............................................................... Operating loss............................................................................................... NONOPERATING REVENUES (EXPENSES) State Appropriations.............................................................................. Investment income................................................................................. Interest on indebtedness....................................................................... Other nonoperating revenue................................................................. Net nonoperating revenues Income (loss) before other revenues, expenses, gains and losses................................................................................................... Capital additions provided by State of Illinois................................... Loss on disposal of capital assets....................................................... INCREASE IN NET ASSETS...................................................................... Net assets, beginning of year................................................ Net assets, end of year.........................................................	$25,451,906 23,513,373 2,732,849 41,691,093 2,082,350 $95,471,571 $36,277,496 148,649 12,642,553 6,489,656 7,161,374 51,657,053 9,923,853 4,943,364 2,228,268 4,394,294 318,270 $136,184,830 ($40,713,259) $38,362,319 20,117 (466,101) 73,000 $37,989,335 ($2,723,924) 5,525,577 (179,993) $2,621,660 85,437,115 $88,058,775	$21,758,716 23,207,802 2,577,555 13,190,418 1,831,718 $62,566,209 $34,092,827 125,797 12,052,847 6,569,509 6,720,382 24,283,640 9,422,621 4,510,231 2,119,574 4,132,106 776,561 $104,806,095 ($42,239,886) $42,610,724 226,799 (377,666) 72,602 $42,532,459 $292,573 4,213,536 (173,389) $4,332,720 81,104,395 $85,437,115
SELECTED ACCOUNT BALANCES	JUNE 30, 2004	JUNE 30, 2003
Cash and short-term investments................................................................ Capital Assets, including construction in progress................................. Accrued compensated absences................................................................. Revenue Bonds Payable...............................................................................	$24,268,829 87,361,124 11,131,044 22,020,000	$20,162,985 78,474,140 10,986,855 5,325,000
SUPPLEMENTARY INFORMATION (UNAUDITED)	FY 2004	FY 2003
Employment Statistics Administration........................................................................................ Faculty...................................................................................................... Civil Service............................................................................................. Students................................................................................................... Total Employees.............................................................................. Selected Activity Measures Annual full-time equivalent students.......................................................... Full-time equivalent cost per student – Undergraduate........................... Full-time equivalent cost per student – Graduate.....................................	263 419 474 397 1,553 8,451 $6,997 $9,736	262 403 486 389 1,540 8,234 $6,831 $9,502
UNIVERSITY PRESIDENT
During Audit Period: Dr. Salme H. Steinberg
Currently: Dr. Salme H. Steinberg

Failure to apply the appropriate accounting principles resulted in inaccurate and incomplete financial statements

Equipment purchases were not recorded on University property listing or reported to CMS

All 27 off-campus equipment forms were not properly completed

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

FAILURE TO APPLY APPROPRIATE ACCOUNTING PRINCIPLES

The University did not properly record several transactions and, as a result, did not properly apply the appropriate generally accepted accounting principles (GAAP).

We noted the following in our audit of the financial statements:

· Cash equivalents inappropriately included investments maturing beyond three months from the date of purchase totaling $8,695,344. Additionally, investments included U.S. Treasury time deposits totaling $181,314 should have been reported as restricted cash and cash equivalents.

· Certain investment securities were reported at acquisition costs and not marked-to-market. The unrealized loss on market value of $189,890 was not recognized.

· The University issued 2004 Series Revenue Bonds on April 8, 2004 to finance a new parking facility. Bond issuance costs of $588,387 were recorded as construction in progress instead of deferred charges.

· Bonds payable were reported in the financial statements, net of principal amounts totaling $290,000. These principal amounts were recorded as accounts payable instead of current portion of long-term debt.

· Net assets invested in capital assets, net of related debt, did not appropriately address certain Revenue Bonds payable and expended for capital assets as of June 30, 2004 totaling $4,967,899.

· Retainage payables relating to construction in progress totaling $339,916 and construction costs for work completed by June 30, 2004 totaling $74,288 were not recorded in the general ledger. Retainage payables pertaining to repair and maintenance projects totaling $42,874 were also not recorded.

The University subsequently revised the financial statements and submitted revised accounting reports to the Office of the Comptroller. (Finding 1, Pages 18-21)

We recommended that the University establish procedures to ensure that transactions, which include special terms and reporting, be carefully reviewed for proper accounting and recognition of related transactions.

University officials agreed with the finding and recommendation and stated that they will strengthen their procedures.

INADEQUATE CONTROLS OVER UNIVERSITY PROPERTY AND EQUIPMENT

The University did not have adequate controls over its property and equipment.

During our testing of equipment vouchers we noted that 17 of 20 vouchers sampled were not found in the University Property Listing. Further, 11 of the 17 vouchers represented purchases costing $500 or more that were not included in the annual report submitted to the Department of Central Management Services (CMS). The University subsequently updated the property records for these items.

We sampled 30 items in the property records to inspect and noted the following:

· A mainframe computer valued at $121,409 was out for repair at the time of our inspection and the supporting documentation for the repair could not be provided. The item was subsequently replaced under warranty and the replacement was physically identified.

· A parking pay lot machine valued at $57,000 had been replaced but had not been deleted from the property records at the time of our inspection. The University subsequently recorded the deletion.

· A projector valued at $5,164 was not located. This item has been subsequently reported as stolen and deleted from the property records.

· An item valued at $9,303 actually represents labor and materials not allocated to the items purchased in the same purchase order. The University has subsequently reallocated the costs to the individual items purchased.

We also traced certain items physically verified to the property listing and noted that 4 of 30 sampled equipment items were not included in the property listing. These items were a printer, a television cart, a projector and a monitor.

Additionally, during our review of University controls over off-campus use of equipment, we noted that all of the 27 off-campus equipment forms were not properly completed. The forms had missing information such as the date of the move, the expected date of return, the tag number, the item description, the serial number, the justification for being off-campus and the Fiscal Agent’s approval.

Inadequate controls over University property and equipment results in inaccurate and incomplete property records. (Finding 2, Pages 22-24)

We recommended the University adhere to its procedures to ensure that the property and equipment records are properly maintained and improve its control over off-campus use of property and equipment. Further, the University should conduct additional periodic physical inventories to reinforce compliance with University policies and procedures.

University officials stated that they have made several changes in their administration of property control and that improvements will be noted during the next audit cycle.

University responses were provided by Mark Wilcockson, Vice President for Finance and Administration.

AUDITORS' OPINION

Our auditors stated the University’s financial statements at June 30, 2004 and for the year then ended are fairly presented in all material respects.

___________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:TLK:pp

SPECIAL ASSISTANT AUDITORS

Our special assistant auditors were E.C. Ortiz & Co., LLP.

WILLIAM G. HOLLAND

FY 2003

OPERATING REVENUES

OPERATING EXPENSES

INCREASE IN NET ASSETS......................................................................

FAILURE TO APPLY APPROPRIATE ACCOUNTING PRINCIPLES