REPORT DIGEST OFFICE OF THE TREASURER, NONFISCAL OFFICER RESPONSIBILITIES Compliance Examination For the Two Years Ended: June 30, 2011 Release Date: May 2, 2012 Summary of Findings: Total this audit: 3 Total last audit: 2 Repeated from last audit: 1 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 and Full Report are also available on the worldwide web at www.auditor.illinois.gov SYNOPSIS • The State of Illinois Office of the Treasurer (Office) has not established adequate policies and procedures related to certain operations within the unclaimed property division. • The Office did not document or support changes made to the initial payroll allocation which is used to determine the operating budgets for specific functional areas. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS UNCLAIMED PROPERY POLICIES AND PROCEDUES During testing the auditors inquired of Office staff about various policies and procedures associated with the unclaimed property function. Auditors noted a lack of detailed policies and procedures in the following areas: • The Office does not have sufficiently detailed documented policies and procedures addressing the selection of unclaimed property items to be sold or the timeframe in which to transfer firearms received as unclaimed property to the State Police. During testing auditors observed 1 of the 4 firearms in the vault had been there for 554 days. • There are insufficient policies and procedures regarding the disposal, (items to be discarded), of unclaimed property. The Unclaimed Property Act allows the Office to dispose of items that have no value, or are of less value than what it would cost to sell the item. Currently, the decision to dispose of items is made by employees responsible for opening and storing the items as they are received. These employees use only their own judgment in determining what items lack value, and are to be thrown away. •There are no documented policies or procedures addressing which items are stored in the inner vault, as opposed to the outer vault. Current practice is to use space that is available regardless of location or value of the unclaimed property. Additionally, during a surprise observation of the unclaimed property secured storage areas auditors found 28 of the 42 (67%) safes were unlocked. Office personnel indicated they were in the process of viewing all individual safes to determine availability of storage for current and future inventory when the auditors noted the open safes. The Office has a fiduciary responsibility to safeguard unclaimed property. All safes and file cabinets should be locked unless Office staff are filing, storing or retrieving unclaimed property items. (Finding Code No. 11-1, pages 9-11) We recommended the Office adopt formal documented policies and procedures and enhance its controls over the safeguarding of unclaimed property. The Treasurer agreed with the finding and recommendation. CHANGES TO PAYROLL ALLOCATION NOT SUPPORTED OR DOCUMENTED During testing auditors noted there was no documentation available to support why adjustments (increases or decreases) were made to the initial payroll allocation to certain functional areas. In order to substantiate the true cost of providing services and/or activities, to the functional areas, all costs associated with those services and activities need to be properly documented, supported and ultimately measured and reported in the appropriate fund. Adequate internal controls would be to maintain support or documentation for the changes to the initial payroll allocation including specific reasoning for any changes. Because administrative expenses of some of the functional areas are required to be paid from their specific earnings (College Savings Program and Illinois Funds), support and documentation should be maintained for any changes related to expenditures from those areas. Under the present system, there is the risk that one fund may be subsidizing one or more other fund’s payroll costs or using General Revenue funds to pay costs that could be paid from other funds. Office management stated that adjustments and approvals were documented; however detailed documentation of conversations and conclusions were not maintained. (Finding Code No. 11-3, page 14) We recommended the Office maintain support and documentation for any changes (increases or decreases) to the initial payroll allocation. The Treasurer agreed with the finding and recommendation. OTHER FINDING The remaining finding pertains to conducting employee performance appraisals and compliance with ethics policies and procedures. We will review the Office’s progress toward the implementation of our recommendation in our next examination. AUDITORS’ OPINION Our special assistant auditors conducted a compliance examination of the Treasurer’s Nonfiscal Officer Responsibilities as required by the Illinois State Auditing Act. The accountant’s report does not contain any scope limitations, disclosures or other significant non-standard language. WILLIAM G. HOLLAND Auditor General WGH:RPU:rt SPECIAL ASSISTANT AUDITORS McGladrey & Pullen LLP were our special assistant auditors for this engagement.