Accounts receivable restated by $19.8 million

Revenue restated by $14.3 million

Revenue adjusted by $15.6 million

INTRODUCTION

        This report covers our audit of the financial statements of the Office of the Secretary of State for the year ended June 30, 2008.  A compliance examination for the two years ended June 30, 2009 will be performed next year.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

FINANCIAL REPORTING WEAKNESSES

        The Office of the Secretary of State (Office) did not have adequate controls in place to ensure the Office’s annual financial statements were prepared in accordance with generally accepted accounting principles (GAAP).

        The Office’s financial statements were adjusted for the following reporting errors:

¨      An adjustment identified by management was made to restate accounts receivable as of July 1, 2007 to eliminate the prior year accrual of license fees revenue totaling $19.813 million for license renewals for which payment had not been received by June 30, 2007.

¨      An adjustment identified by our audit was made to restate prior year receipts totaling $14.25 million for license renewal fees received prior to June 30, 2007 for renewal periods beginning on or after July 1, 2007.  These receipts were originally reported as revenue for FY 07 but should have been reported as a deferred revenue liability, as the revenue had not yet been earned.  Also, an auditor adjustment of $15.634 million was required as of June 30, 2008 to adjust revenues and report the deferred revenue liability for license renewal fees received but not yet earned.

        Failure to implement appropriate internal control procedures over financial reporting could lead to future misstatements of the Office’s financial statements.  Because the information reported in the Office’s financial statements is also reported in the comprehensive annual financial report (CAFR) of the State of Illinois, errors in the Office’s financial information could also lead to misstatements in the State’s CAFR.  (Finding 1, page 49)

        We recommended the Office continue in its efforts to implement internal control procedures to assess the risk of material misstatements of the Office’s financial statements and to identify such misstatements during the financial statement preparation process.

        Office officials agreed and stated they will continue to review internal controls over financial reporting to identify ways to strengthen controls.

AUDITORS’ OPINION

      Our special assistant auditors stated the June 30, 2008 financial statements of the Office of the Secretary of State are fairly presented in all material respects.

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WILLIAM G. HOLLAND, Auditor General

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SPECIAL ASSISTANT AUDITORS

      Sleeper, Disbrow, Morrison, Tarro & Lively, LLC were our special assistant auditors for this audit.