REPORT DIGEST

UNIVERSITY OF ILLINOIS

Single Audit and State Compliance
Examination
For the Year Ended June 30, 2015

Release Date:  March 24, 2016

FINDINGS THIS AUDIT:  30

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  1 -- 6 -- 7
Category 2:  11 -- 12 -- 23
Category 3:  0 -- 0 -- 0
TOTAL:  12 -- 18 -- 30

FINDINGS LAST AUDIT: 39

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 our federal Single
Audit and Compliance Examination of the
University of Illinois for the year ended
June 30, 2015. A separate Financial Audit
as of and for the year ended June 30,
2015, was previously released on January
21, 2016. In total, this report contains
30 findings, three of which were reported
in the Financial Audit.

SYNOPSIS

• (15-5) The University lacked adequate
procedures to ensure federal projects were
closed in a timely manner.
• (15-6) The University failed to
adequately document cost transfers for the
Research and Development agricultural
grant and Cooperative Extension Services
programs.
• (15-7) The University’s performance of
supervisory reviews of financial reports
submitted for its federal programs were
not adequately documented.
• (15-20) The University lacked adequate
internal controls over contracts and
leases.
• (15-25) The University did not comply
with the requirements of the Pension Code.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INADEQUATE PROCEDURES FOR CLOSING OUT
FEDERAL PROJECTS

The University does not have adequate
procedures in place to ensure federal
projects are closed in a timely manner.

The University administers thousands of
individual federal projects from several
federal agencies and pass-through entities
which have varying project periods. The
University has formally documented
policies and procedures for closing out
federally funded projects which generally
require projects to be closed within 90
days after the project end date.

Procedures have been established to send a
notice of terminating accounts to the
principal investigator or program
coordinator 90 days prior to the project
end date. The notice provides information
about the process for closing projects and
includes an information request for any
extensions granted and other project
information necessary to complete the
project close out.

Personnel in the Grants and Contracts
Office are responsible for ensuring the
University has met its obligations under
the project, closing the general ledger
accounts, and returning any unexpended
grants funds to the federal agency or
pass-through entity.

During our review of the University’s
schedule of expenditures of federal awards
for the year ended June 30, 2015, we noted
expenditures (or negative expenditures)
were reported for several projects with
end dates of greater than the 90 day close
out period. Specifically, we noted the
following: (Please see PDF digest for
chart.)

Upon review of the transactions recorded
in the projects above, we noted that
transactions included a number of transfer
expenditures and corrections. Periodic
financial reports previously submitted for
several of the University’s federally
funded projects inaccurately included or
excluded project expenditures which have
later been corrected. (Finding 5, Pages
27-29) This finding was first reported in
2009.

We recommended the University review its
current close out procedures and implement
additional procedures to monitor the
timeliness of federal account close outs.

The University agreed with our
recommendation and indicated that on-going
efforts are underway to improve the
closeout process. (For the previous
University response, see Digest Footnote
#1.)

INCOMPLETE COST TRANSFER INFORMATION

The University does not adequately
document cost transfers for the Research
and Development agricultural grant (Hatch
Grant) and Cooperative Extension Services
programs.

The University lacks formal policies and
procedures for the Federal Agriculture
Funds and does not prepare cost transfer
forms for any appropriations received
under the Research and Development Cluster
(Hatch Grant) and Cooperative Extension
Services programs.

During our testing of 60 Research and
Development cost transfers totaling
$441,476 (all positive), we noted a cost
transfer under the Hatch Grant where cost
transfer forms were not prepared.
During our testing of 60 Cooperative
Extension Services cost transfers totaling
$100,697 positive cost transfers and
$(13,645) negative cost transfers, we
noted five cost transfers where cost
transfer forms were not prepared. (Finding
6, Pages 30-31) This finding was first
reported in 2013.

We recommended the University review its
policies related to documentation and
approval of cost transfers and implement
procedures to ensure the University cost
transfer policies are being adequately
followed for all federal funds including
agricultural grant funds (Hatch grant) and
Cooperative Extension Services grant
funds.

The University agreed with the finding and
stated they will review its policies
related to documentation and approval of
cost transfers and implement procedures to
ensure that cost transfers are being
adequately documented. (For the previous
University response, see Digest Footnote
#2.)

INADEQUATE APPROVAL CONTROLS OVER
FINANCIAL REPORTING

The University does not adequately
document the performance of supervisory
reviews of financial reports submitted for
its federal programs.

During our test work of 40 Research and
Development Cluster SF-425 reports (12
quarterly reports, 14 annual reports, and
one final report), 1 annual SF-424 report,
8 monthly reports and 4 ACM$ reports we
noted the following:

•Four annual Federal Financial Reports
were submitted without evidence of a
review of the report. In two of these
instances, the report was completed and
reconciled to the Banner Financial System
as required by the Circulars by the NIH
Assistant Director, and submitted through
the NIH Commons online system for CFDA No.
93.859.

In the other two instances, we were unable
to determine whether an individual other
than the preparer reviewed the report for
CFDA Nos. 16.560 and 17.720.

•Two Federal Financial Reports, one SF424
report, and one monthly financial status
report were submitted after the required
filing dates. These related to CFDA Nos.
14.906; 17.720; 84.305; 77.000,
respectively. (Finding 7, Pages 32-33)
This finding was first reported in 2011.

We recommended the University implement
procedures to ensure financial reports are
reviewed and approved by someone other
than the preparer and the reports are
filed in a timely manner.

The University partially accepted our
recommendation. University officials
stated that in three of the four reports
listed under the first bullet, an
Assistant Director (i.e. supervisor)
prepared and submitted the reports. The
University does not agree that an
Assistant Director preparing a report
requires an additional reviewer and that
no errors were noted on the reports. The
University agreed that the reports
mentioned in this finding were submitted
late. (For the previous University
response, see Digest Footnote #3.)

In an auditors’ comment we noted OMB
Circular A-133 requires the auditors to
identify and test controls to obtain a low
level of control risk. We believe
effective internal control should include
a documented review and approval of
required financial reports and we were
unable to obtain evidence that the
financial reports had been reviewed and
approved by an individual other than the
preparer. We also note there were several
reporting errors identified in our testing
as reported in finding 2015-009.

CONTRACTS AND REAL ESTATE LEASES NOT
PROPERLY EXECUTED
The University has not established
adequate internal controls over contracts
and leases to ensure all necessary
approvals are received and the agreements
are executed prior to the performance and
filed with the State of Illinois Office of
the Comptroller on a timely basis.

Some of the conditions noted during our
review of 70 contracts, including purchase
orders, executed during the year ended
June 30, 2015 follow:

•Ten contracts did not contain the
signature of the employee signing on
behalf of the University Comptroller.
•Four contracts were not signed by the
University’s Chief Executive Officer or
Chief Legal Counsel out of 60 contracts
sampled requiring this level of approval.
•Two contracts were executed subsequent to
the start date of the contracts. The
contract execution dates were 28 and 100
days from the commencement of service.
•Three contracts were not approved by the
University’s Board of Trustees, as
required. Two of three contracts were
approved 35 and 72 days after the contract
execution date and one contract was not
approved at all.
•Five contracts did not contain disclosure
of financial interest statements as
required. One of the five was submitted
394 days late and the remaining four
contracts did not have the disclosure of
financial interest statements.
• Two procurements reviewed had errors on
evaluation scores. The errors noted did
not affect results of the procurement
process.
• One procurement did not have all
completed score sheets for each individual
evaluator in the procurement file. The
score sheets of two of three evaluators
were missing.
• Sixteen contracts were not submitted to
the State Comptroller’s Office, as
required. Five of the 16 contracts were
filed four to 204 days late and 11
contracts were not submitted at all.
Some of the conditions noted during our
review of 25 real estate leases follow:
• Five lease agreements did not contain
the signature of the employee signing on
behalf of the University Comptroller.
• Five leases were executed after the
lease term began. The lease execution
dates ranged from 16 to 66 days after the
beginning of the lease.
• Three leases were not paid in accordance
with lease terms resulting in underpayment
of $6,043.
• One lease agreement was not signed by
the University’s Chief Executive Officer
and Chief Legal Counsel out of two lease
agreements sampled requiring this level of
approval.
• Five Real Estate Disclosure forms were
not properly and timely completed, as
required. Of the five Real Estate
Disclosure forms, one was not notarized,
two were signed 14 and 105 days after the
beginning of the lease term, and two were
not completed at all.
• Four lease agreements were not timely
submitted to the State Comptroller’s
Office. The lease agreements were filed 18
to 327 days late.

Some of the conditions noted during our
review of 21 emergency purchases follow:

• One contract was procured as an
emergency when none of the emergency
purchase conditions were met.
• Ten emergency purchases were not filed
with the Office of the Auditor General, as
required. Six out of the 10 emergency
purchases were filed one to 106 days late
and four emergency purchases were not
filed at all. (Finding 20, Pages 56-58)
This finding was first reported in 2003.

We recommended the University establish
appropriate procedures to ensure that all
contracts and leases are completed,
approved, and properly executed prior to
the start of the services and lease term,
and to ensure that evaluation scores are
accurate. We also recommended the
University review their procedures to
ensure all appropriate signatures, clauses
and certifications are obtained prior to
execution for all contracts and lease
agreements and that all applicable
contracts, real estate leases, and
emergency purchases are filed with the
Office of the Comptroller and the Auditor
General of the State of Illinois in
accordance with the State statutes and
related guidelines.

University officials accepted the
recommendations in this finding and stated
they recognize the importance of process
controls, training, and transaction
monitoring in these areas and has already
taken corrective action to address some of
the recommendations in this finding. (For
the previous University response, see
Digest Footnote #4.)

NONCOMPLIANCE WITH THE PENSION CODE

The University did not comply with the
requirements of the Pension Code (Code) on
the employment and re-employment of State
University Retirement System (SURS)
annuitants.

The Illinois Pension Code (40 ILCS
5/15-139.5(a)) states that “An employer
who employs or re-employs a person
receiving a retirement annuity from the
System in an academic year beginning on or
after August 1, 2013 must notify the
System of that employment within 60 days
after employing the annuitant. The notice
must include a summary of the contract of
employment or specify the rate of
compensation and the anticipated length of
employment of that annuitant. The notice
must specify whether the annuitant will be
compensated from federal, corporate,
foundation, or trust funds or grants of
State funds that identify the principal
investigator by name. The notice must
include the employer's determination of
whether or not the annuitant is an
"affected annuitant."

During our test work over 25 employees
receiving retirement annuity from SURS, we
noted the University did not timely notify
SURS of its employment or re-employment of
four SURS annuitants (one from the Urbana-
Champaign campus and three from the
Chicago campus). Delays in notification
ranged from 34 to 332 days late. (Finding
25, Page 65)

We recommended the University ensure
notification of employment or re-
employment of a person receiving a
retirement annuity from SURS is in
compliance with the Code.

University officials accepted the finding
and stated they have developed processes
and procedures regarding Retiree Rehires.

OTHER FINDINGS

The remaining findings are reportedly
being given attention by the University.
We will review the University’s progress
towards the implementation of our
recommendations in our next engagement.

AUDITOR’S OPINION

The financial audit report was previously
released. The auditors stated the
financial statements of the University of
Illinois as of and for the year ended June
30, 2015, are fairly stated in all
material respects.

The auditors also conducted a Single Audit
of the University as required by OMB
Circular A-133. Our auditors stated the
University complied, in all material
respects, with the types of compliance
requirements that could have a direct and
material effect on each of the
University’s major federal programs for
the year ended June 30, 2015.

ACCOUNTANT’S OPINION

The accountants conducted a compliance
examination of the University for the year
ended June 30, 2015, as required by the
Illinois State Auditing Act. The auditors
stated the University complied, in all
material respects, with the requirements
described in the report.

FRANK J. MAUTINO
Auditor General

FJM:TLK

SPECIAL ASSISTANT AUDITORS

CliftonLarsonAllen LLP were our Special
Assistant Auditors.

DIGEST FOOTNOTES

#1 –Inadequate Procedures for Closing out
Federal Projects

2014: Accepted
While the University believes adequate
controls are in place, and the majority of
awards are closed in a timely manner, it
will continue to monitor the timeliness of
closeouts. There are instances of late
award close-out with a variety of reasons
for delays in the grant close-outs. The
causes of a late close-out vary depending
on the award and the situation.
Incremental funding on multi-year awards
may be delayed, causing valid and
allowable expenditures to post during the
wait period. Difficulties in collecting
delinquent Accounts Receivable balances or
Completion of project deliverables have
also contributed to delays in the closeout
of awards.

As an example, the large award listed as
an exception for the year ended 2006, was
a subaward from a private company
identified as federal pass-thru. The
University in good faith reported the
federal expenditures in the years the
expenditures were incurred. The private
company defaulted and did not reimburse
the University for work completed on the
award. After lengthy, extensive collection
processes were unsuccessful, the
University was forced remove the charges.

Of the 87 projects noted, 39 of 43
projects at the Urbana Campus have
subsequently been closed (termed) and 34
of 44 at the Chicago Campus have been
closed (termed). The University continues
to make progress in the close out process.

#2 –Incomplete Cost Transfer Information

2014: Not Accepted.
This is a repeat finding. Prior year
findings (12-05 and 2013-006) related to
cost transfer documentation were not
sustained in Management Decision Letters
from the Department of Education (09/18/13
and 09/30/14).

As noted in prior years, cost transfers
are primarily completed to correct errors.
This is specifically stated in OBFS Policy
Section 16.1.2., which includes an example
of a Cost Transfer Type “Clerical error or
data input error (transposition or other
inadvertent error of the fund,
organization, account or program code, or
the dollar amount of the transaction”. The
exception states “Reasons documented for
these transfers included transfer
expenses, move to correct fund, incorrect
project, fund, account, etc., and
correction of error”. Per the Policy,
these are acceptable and sufficient
reasons for making a cost transfer. To the
University staff trained in making
determinations in approval, this provides
sufficient description when used along
with the Journal Voucher (JV) and
supporting documentation to determine the
appropriateness of the transaction. To
clarify, Grants and Contracts Office (GCO)
staff make the final determination based
on all information provided and additional
follow-up when needed.
The sufficiency of the required
information for each JV awaiting approval
or denial in the electronic Approval Queue
must be first ascertained by GCO staff
performing a combination of steps. The
electronic JV is first opened to view the
details; it contains the JV document code,
fund code and the name of the preparer
(auto populated). These fields must be
populated for the JV to correctly route to
the Approval Queue. The additional
information supplied by the preparer and
included in the JV FOATEXT is also
reviewed by the approver. The contents of
the FOATEXT guide the reviewer to the
source of any other required information
or secondary forms required by policy.

An additional secondary form is the GC-81.
It also supports the determination of
allowability. It is retained in the
department as a resource for later needs.
Again, the JV related to the form has the
JV document code, fund codes and the name
of the preparer. Additional backup
documentation is requested for any
transaction when deemed necessary by the
staff member reviewing and approving the
transaction. Additional follow-up is
performed by the reviewer for any
transaction in which allowability
questions are not satisfied by secondary
forms.

Until all steps of the review are
complete, the transaction remains in the
electronic Approval Queue. Once the review
is complete and the JV is determined to be
allowable, it is approved, and the
transaction expense will then post to the
award. If it is not deemed allowable, it
is denied and does not post to the award.

As noted in previous years, a completed
GC-81 form is not required for
administrative transactions performed by
GCO and other University Administration
departments. Federal Agriculture Funds do
not complete the form as they do not fall
under the policy requiring completion.

Additionally, original allocation
transactions post with a JV prefix code
document reference, but transaction of
this type are not cost transfers or
subject to the cost transfer policy.
Transactions from recharge or revolving
funds are examples of original allocation
charges.

#3 –Inadequate Approval Controls Over
Financial Reporting

2014: Not Accepted.
The signature required on the report is
the signature of the Authorized Certifying
Official. The Certifying Official is the
individual who has the knowledge and
authority to certify that the figures
reported on the SF-425 are accurate and
complete. The employees who prepare and
review are determining that the reports
are accurate and complete, but do not have
the authority to certify them as required,
nor is their signature required. A
supervisory review is done prior to the
submission of financial status reports.
OMB Circular A-133 requires the University
to establish and maintain internal control
designed to provide reasonable assurance
that Federal awards are managed in
compliance with federal laws, regulations,
and program compliance requirements. There
is no specific requirement for
documentation of a supervisory review.

NSF allows the preparer to also certify
the report. At the UIUC campus, the
Assistant Director, who serves as the NSF
Section Head, has both preparer and
certifier roles. The Section staff only
have the preparer roles and the Section
Head is the certifier. At the Chicago
campus, an Assistant Director has both
preparer and certifier roles. There is no
requirement from NSF that these are two
different individuals. There are
additional controls within the cash draw
process that require the involvement of
other individuals for appropriate review
and oversight.

#4 – Contracts and Real Estate Leases Not
Properly Executed

2014: Accepted.
The University will continue to review
requirements related to contractual
services, establish any new procedures
that may be required, and continue to
enforce current policies and practices.