REPORT DIGEST WESTERN ILLINOIS UNIVERSITY FINANCIAL AUDIT, SINGLE AUDIT AND STATE COMPLIANCE EXAMINATION For the One Year Ended: June 30, 2012 Release Date: March 28, 2013 Summary of Findings: Total this audit: 9 Total last audit: 7 Repeated from last audit: 4 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 University needs to enhance internal controls over property records to ensure proper calculation and recording of depreciation expense. • The University’s internal controls over contracts should be enhanced to ensure the agreements contain all necessary provisions and were timely filed. • The University subsidized operations of University activities between accounting entities. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS INADEQUATE CONTROLS OVER UNIVERSITY PROPERTY AND EQUIPMENT The University had not established adequate internal controls over property records to ensure proper calculation and recording of depreciation expense and accountability for property. The auditors noted: • Nine of 25 (36%) assets examined were not accurately depreciated during Fiscal Year 2012. Further, examination of all capital assets identified a net overstatement of depreciation expense and accumulated depreciation by approximately $76,675 for the fiscal year. • Donated equipment was incorrectly recorded, resulting in a $348,000 overstatement of depreciation expense and accumulated depreciation. • Equipment totaling $1,724,308 was not timely reported on the quarterly property report. • Furniture purchases totaling $69,943 were not supported by required affidavits stating why surplus property could not be used. (Finding 1, pages 16-19) We recommended the University make the necessary adjustments to correct its capital asset and depreciation records. In addition, the University should update values in the fixed assets inventory system to prevent future miscalculations. Further, the University should seek necessary reporting guidance and strengthen controls to ensure equipment is timely and accurately recorded and reported. We also recommended internal controls be implemented to ensure affidavits are filed and approval is obtained prior to purchasing new furniture exceeding $500. University officials agreed with the finding and stated corrective action has been or will be taken to address each of our recommendations. NEED TO IMPROVE COMPLIANCE WITH CONTRACTING PROCEDURES The University had not established adequate internal controls over contracts to ensure they contained all necessary provisions and were timely filed. We noted: • The University did not ensure that contractors selected for 6 of 9 (67%) construction contracts tested adequately complied with bidder requirements in the Illinois Procurement Code regarding training and primary office of employment. • Twenty of 25 (80%) large contracts tested were not approved by all three required top administrators. • Two of 21 (10%) contracts tested were filed with the State Comptroller 6 to 106 days prior to full management approval. • One contract for $1.25 million was filed 24 days late. (Finding 7, pages 33-35) This finding was first reported in 2010. We recommended the University establish appropriate procedures to ensure all contracts and related forms are properly completed, approved, and timely filed. Further, the University should obtain satisfactory evidence from bidders to ensure only qualified contractors are awarded construction contracts. University officials agreed with the finding and stated corrective action will be taken. (For the previous University response, see Digest footnote #1.) SUBSIDIES BETWEEN ACCOUNTING ENTITIES The University subsidized operations of University activities between accounting entities. The University Stores and Service Centers accounting entity had negative cash balances at the beginning and the end of the fiscal year totaling $1.5 million and $1.7 million, respectively. A negative cash balance is, in effect, an unrecorded interfund payable/receivable, thereby causing a subsidy between funds to occur. (Finding 9, page 38) We recommended the University annually review the activities of each accounting entity and ensure that fees charged for services are sufficient to cover expenditures and prevent subsidies. University officials agreed with the finding and stated a review of accounting entity activities, chargeback processes, and pricing levels is in process. 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 audit. AUDITORS' OPINION The auditors stated the financial statements of Western Illinois University as of and for the year ended June 30, 2012 are fairly stated in all material respects. WILLIAM G. HOLLAND Auditor General WGH:lkw:rt AUDITORS ASSIGNED Our special assistant auditors for this examination were E. C. Ortiz & Co., LLP. DIGEST FOOTNOTES #1 NONCOMPLIANCE WITH REQUIRED CONTRACTING PROCEDURES - Previous University Response The University agrees with the finding. The University will take the necessary corrective action to address the recommendation in the finding.