REPORT DIGEST

STATE OF ILLINOIS
STATEWIDE SINGLE AUDIT REPORT
(excluding Component Units)

(Performed in Accordance with the Single Audit Act and OMB Circular - A-133)

For the One Year Ended:
June 30, 2001

Summary of Findings:

Total this audit 50
Total last audit 36
Repeated from last audit 13

Release Date:
June 27, 2002

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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
Attn: Records Manager
Iles Park Plaza
740 E. Ash Street
Springfield, IL 62703

(217)782-6046 or TDD (217) 524-4646

This Report Digest is also available on
the worldwide web at
http://www.state.il.us/auditor

SYNOPSIS

Background

  • The State expended $12.2 billion from federal awards in FY 01.
  • The State participated in 304 different federal programs. Ten (10) of these programs or program clusters accounted for 80% of the federal award expenditures.
  • A total of 42 federal programs were classified and audited as major programs. These programs constituted approximately 91% of all federal spending or about $11.1 billion.
  • Overall, 39 State agencies expended federal financial assistance in FY 01. Nine (9) State agencies accounted for about 97% of federal dollars spent.

Significant Findings

  • The Department of Children and Family Services has an Audit Scope Limitation1 on the Adoption Assistance and Foster Care Programs because adjustments were not properly accounted for.
  • The Department of Children and Family Services has a material reportable condition2 on Foster Care and Adoption Assistance Programs because of inadequacies in monitoring and communicating subrecipient activities.
  • The Illinois Student Assistance Commission has an Audit Scope Limitation1 on the Federal Family Education Loans Program because auditors were unable to verify that loan information received from lenders, schools, borrowers, and others has been updated in data files within required timeframes.
  • The Illinois Criminal Justice Information Authority has a material reportable condition2 on the several federal programs due to lack of documentation to substantiate payroll costs allocated to and among the federal programs.
  • The Department of Human Services has a noncompliance condition on the Special Supplemental Nutrition for Women Infants and Children program due to providing federal funds in excess of immediate cash needs.
  • The Department of Public Aid has a material weakness3 in controls related to the draw down of federal cash pursuant to the Treasury State Agreement. Specifically, their federal cash draw down requests are based on expenditures recorded rather than when warrants are issued by the State Comptroller.
  • The Department of Public Aid has a material reportable condition2 on the Child Enforcement Program due to a lack of on-site monitoring and other subrecipient monitoring requirements not evidenced in the files.
  • The State Board of Education has a material reportable condition2 on subrecipient monitoring because it is not adequately reviewing OMB Circular A-133 audit reports that are required to be submitted by subrecipients of Federal Funds.

Notes: Summary definitions of key terms used in the findings.

1Scope Limitation: A condition occurring in the audit where the auditor was unable to obtain sufficient evidential matter. This condition resulted in an inability to audit the program as required by federal regulations.
2Reportable Condition: A significant deficiency in internal controls discovered by the auditor in the course of the audit.
3Material weakness: A significant deficiency in internal controls discovered by the auditor which raises the risk that noncompliance could occur and be material.

{Expenditures and Activity Measures are summarized on the next page.}

 

STATE OF ILLINOIS
STATEWIDE SINGLE AUDIT
For the Year Ended June 30, 2001 (in thousands)

FINANCIAL ACTIVITIES

FY 2001

EXPENDITURES BY PROGRAM

Amount

Percent

Major Programs
Medicaid Cluster
Unemployment Insurance
Highway Planning and Construction
Food Stamp Cluster
Temporary Assistance for Needy Families
Title I Grants to Local Educational Agencies
Foster Care - Title IV-E
Child Nutrition Cluster
Child Care Cluster
Special Education Cluster
Social Services Block Grant
Special Supplemental Nutrition Program for Women, Infants & Children
Federal Family Education Loans
Child Support Enforcement
Capitalization Grants for State Revolving Funds
Workforce Investment Act
Child and Adult Care Food Program
Adoption Assistance
Social Security - Disability Insurance
Class Size Reduction
Employment Services Cluster
Vocational Education - Basic Grants to States
Goals 2000 - State and Local Education Systemic Improvement Grants
State Children's Insurance Program
Food Donation
Capitalization Grants for Drinking Water State Revolving Funds
Public Assistance Grants
Byrne Formula Grant Program
Violent Offender Incarceration and Truth in Sentencing Incentive Grants
Child Welfare Services - State Grants
Fish and Wildlife Cluster
Total Major Programs
Non-Major Programs
TOTAL EXPENDITURES


$4,497,067
1,579,305
923,464
881,918
506,901
322,627
318,768
293,526
257,666
229,476
151,788
150,475
181,462
97,921
80,622
76,466
76,048
65,197
57,331
52,417
47,502
40,368
37,503
32,878
25,695
23,895
19,871
14,196
12,360
11,025
7,449
$11,073,187
1,099,250
$12,172,437


36.9%
13.0%
7.6%
7.2%
4.2%
2.7%
2.6%
2.4%
2.1%
1.9%
1.3%
1.2%
1.5%
0.8%
0.7%
0.6%
0.6%
0.5%
0.5%
0.4%
0.4%
0.3%
0.3%
0.3%
0.2%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
91.0%
9.0%
100.0%

Federal Agencies Providing Funding:

Total

Major Program Expenditures

U.S. Department of Health and Human Services
U.S. Department of Labor
U.S. Department of Agriculture
U.S. Department of Education
U.S. Department of Transportation
U.S. Environment Protection Agency
Social Security Administration
U.S. Department of Justice
Federal Emergency Management Agency
U.S. Department of Interior
All other federal agencies

$6,376,920
1,769,444
1,460,692
1,094,463
1,042,291
136,928
58,043
79,563
28,774
20,331
104,988
$12,172,437

$5,939,211
1,703,273
1,427,662
863,853
923,464
104,517
57,331
26,556
19,871
7,449
0
$11,073,187

STATISTICAL INFORMATION

FY 2001

Total Number of Federal Programs in the Schedule of Expenditures of Federal  Awards
Number of Federal Programs Audited
Total Number of State Agencies Spending Federal Funds
Number of State Agencies Audited for Single Audit Requirements

304

42
39
13

 

INTRODUCTION

The Illinois Office of the Auditor General conducted a Statewide Single Audit of the FY 01 federal grant programs. The audit was conducted in accordance with the federal Single Audit Act and Office of Management and Budget (OMB) Circular A-133.

The Statewide Single Audit includes all State agencies that are a part of the primary government and expend federal awards. In total, 39 State agencies expended federal financial assistance in FY 01. A separate supplemental report has been prepared by the Illinois Office of the Auditor General. This report provides summary information on federal spending by State agency. The Statewide Single Audit does not include those agencies that are defined as component units such as the State universities and finance authorities. Consequently, the supplemental report does not include information on component units. The component units continue to have separate OMB Circular A-133 audits.

The Schedule of Expenditures of Federal Awards (SEFA) reflects total expenditures of $12.2 billion for the year ended June 30, 2001. Overall, the State participated in 304 different federal programs, however, 10 of these programs or program clusters accounted for approximately 80.6% of the total federal award expenditures. (See Exhibit I)

 

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The funding for the 304 programs were provided by 20 different federal agencies. Exhibit II shows that five federal agencies provided Illinois with the vast majority of federal funding in FY 01.

 

sin02ex2.gif (20485 bytes)

 

A total of 42 federal programs were identified as major programs in FY 01. A major program was defined in accordance with Circular A-133 as any program with federal awards expended that meets certain criteria when applying the risk-based approach. Overall, 28 of the 42 major programs involved federal award expenditures exceeding $30 million. Exhibit III provides a brief summary of the number of programs classified as "major" and "non-major" and related federal award expenditures.

 

EXHIBIT III
Classification of Federal Programs
"Major vs. Non-Major"
and Related Federal Award Expenditures
for the year ended June 30, 2001

Audit Coverage

No.

Expenditures (in millions)

%

Major Programs

42

$11,073.2

91.0%

Non-Major Programs

262

1,099.2

9.0%

Total

304

$12,172.4

100.0%

 

Nine State agencies accounted for approximately 97.4% of all federal dollars spent during FY 01 as depicted in Exhibit IV.

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AUDITORS' REPORT
ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO
EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE

The auditors' report contained a scope limitation and qualifications on compliance as summarized below. The complete text of Auditors' Report may be found on pages 18-20 of the audit.

Scope Limitation

The auditors were unable to obtain sufficient documentation supporting the compliance with allowability and period of availability requirements for the Adoption Assistance and Foster Care Programs administered by the Illinois Department of Children and Family Services (DCFS). The DCFS grant accounting system does not adequately identify the period in which claims were made. Also, the Illinois Student Assistance Commission (ISAC) was not able to provide documentation that loan records were updated within 10 business days of receiving information related to loans under the Federal Family Education Loans Program. Consequently, the auditors were unable to perform required tests with this special provision. These deficiencies resulted in the inability to audit the Programs as required by OMB Circular A-133.

State Administering Agency Federal Program Compliance Requirement Finding Number

Page Numbers

IL Department of Children and Family Services Adoption Assistance Allowability and period of availability

01-17

59-60

IL Department of Children and Family Services Foster Care-Title IV-E Allowability and period of availability

01-17

59-60

IL Student Assistance Commission Federal Family Education Loans Special tests and provision

01-36

97-98

Qualifications

The auditors qualified their report on major programs for the following noncompliance findings:

 

State Administering Agency

Federal Program Compliance Requirement Finding Number

Page

Numbers

IL Department of Children and Family Services Foster Care-Title IV-E Subrecipient monitoring

01-18

61-62

IL Department of Children and Family Services Adoption Assistance Subrecipient monitoring

01-18

61-62

IL Criminal Justice Information Authority Byrne Formula Grant Program Allowability

01-47

118-120

 

As identified above and described in the report's schedule of findings and questioned costs, the State did not comply with certain compliance requirements that are applicable to certain of its major federal programs.

Internal Control Over Compliance

We noted certain matters involving internal control over compliance that were considered to be reportable conditions. Reportable conditions involve matters coming to the auditors' attention relating to significant deficiencies in the design or operation of internal control over compliance that, in the auditors' judgement, could adversely affect the State's ability to administer a major federal program in accordance with the applicable requirements. Overall, 28 of the 50 findings reported in the single audit were classified as reportable conditions.

Material weaknesses were also disclosed in our report. In general, a material weakness is a condition in which the design or operation of internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts, and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Overall, 9 of the 50 findings reported in the single audit were classified as both a material weakness and a reportable condition.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

Exhibit V summarizes the number of report findings by State agency, identifies the number of repeat findings, and references the findings to specific pages in the report.

EXHIBIT V
Summary Schedule of Findings By Agency

State Agency

Number of Findings

Number of Repeat Findings

Report Page References to Findings

Public Aid
Human Services
Children & Family Services
State Board of Education
Student Assistance Commission
Transportation
Emergency Management Agency
Natural Resources
Commerce and Community Affairs
Employment Security
Criminal Justice Information Authority
Corrections
Totals

10
6
10
6
4
1
1
6
1
1
3
1
50

1
1
3
2
3
0
0
1
0
0
1
1
13

27-47
48-58
59-78
79-91
92-98
99
100-101
102-113
114-115
116-117
118-124
125-126

 

 

 

 

 

Auditor Scope Limitation Pertaining to Allowability and Period of Availability

 

 

 

 

Claimed Expenditure Adjustments Not Identifiable in Accounting Records

 

 

 

 

 

 

 

 

 

 

 

 

 

Multiple subrecipient monitoring deficiencies were noted

 

 

 

 

 

 

 

 

 

 

 

Auditor qualification pertaining to subrecipient monitoring

 

 

 

 

 

 

 

 

 

 

 

 

Audit scope limitation pertaining to special tests and provisions

 

 

 

Failure to document when loan information received

 

 

 

 

 

 

 

 

 

Questioned payroll costs of $2.2 million

 

 

 

Auditor qualification pertaining to inadequate supporting payroll allocation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advance payments of $2,427,284 to subrecipients in excess of immediate needs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Failure to follow clearance patterns

 

 

 

 

 

 

IDPA drew down federal funds prior to actual issuance of warrants

 

 

 

 

 

Noncompliance with Treasury State Agreement

 

 

 

 

 

 

 

 

 

 

 

 

 

Inadequate monitoring of subrecipients receiving federal awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IDPA's monitoring of subrecipient's not in compliance with federal requirements

 

 

 

 

 

 

 

 

 

 

 

 

Inadequate documentation pertaining to audit report review

 

 

 

 

 

 

 

ISBE monitoring of subrecipients not in compliance with federal requirements

 

 

 

 

ADJUSTMENTS FOR FEDERAL REIMBURSEMENT NOT PROPERLY

ACCOUNTED FOR AT DCFS

The auditors were unable to obtain sufficient documentation from the Department of Children and Family Services (DCFS) supporting compliance regarding allowability and period of availability for all adjustments made on the Adoption Assistance and Foster Care programs. This condition resulted in an audit scope limitation. Total FY 01 federal program expenditures from the Adoption Assistance and Foster Care programs were $65,197,000 and $318,768,000, respectively. Questioned costs could not be determined.

The grant accounting system maintained by DCFS was not able to adequately match the expenditures paid prior to July 1, 2000 to the period in which federal claims were being made. Similarly, adjustments were often recorded to reduce amounts previously claimed for beneficiaries who were later determined to be ineligible. As a result, DCFS could not provide a list of expenditure adjustments that related to claims filed in FY 01 but incurred in FY 00 (and prior).

The "period of availability of federal funds" is limited to within 2 years after the calendar quarter in which the State made the expenditures.

DCFS officials stated they have begun to retain the required documentation and will be able to provide a complete listing of adjustments beginning in fiscal year 2002. (Finding 01-17, pages 59-60)

We recommended DCFS continue maintaining supporting documentation for all expenditure adjustments included on the quarterly claim.

DCFS officials agreed with the recommendation, and stated they will continue to maintain the data to support a claimed expenditure (and any subsequent adjustment).

INADEQUATE AND UNTIMELY MONITORING OF SUBRECIPIENTS IN THE FOSTER CARE AND ADOPTION ASSISTANCE PROGRAMS AT DCFS

The Department of Children and Family Services (DCFS) does not adequately monitor or have an adequate system in place to report federal funding to the Foster Care and Adoption Assistance programs for subrecipients.

In our subrecipient monitoring sample of 50 subrecipients out of a total of 110 subrecipients (totaling $111,261,910 of $125,653,176 in total federal expenditures), we noted certain items of noncompliance. Some of the conditions noted in our sample results showed DCFS did not always:

  1. receive subrecipient audit reports timely;
  2. review audit reports received;
  3. take appropriate follow-up action when subrecipients failed to submit a corrective action plan or auditor management letter.

Additionally, DCFS is not performing on-site monitoring visits to review internal controls or the fiscal and administrative capabilities of its subrecipients. We noted that none of the 50 subrecipients selected for test work had been subject to an on-site review within the last three years.

Subrecipient monitoring procedures applicable to a pass-through entity requires monitoring subrecipients activities to provide reasonable assurance that the subrecipient is administering federal awards in compliance with federal requirements and that prompt corrective action is taken on any audit finding. DCFS will then have information to assess any impact in its ability to comply with applicable federal regulations.

As a result of the conditions noted pertaining to subrecipient monitoring, the auditors qualified their report on two major programs - Foster Care and Adoption Assistance programs. (Finding 01-18, pages 61 and 62)

We recommended DCFS implement procedures to ensure: (1) OMB Circular A-133 audit reports are received within the 180 days as required; (2) desk reviews are performed timely, including review of reports, follow-up on subrecipient findings and implementation of Corrective Action Plans, receipt and review of applicable management letters, and documentation of such review; (3) the reconciliation of the OMB Circular A-133 audit report to financial information in subrecipient files; and (4) an evaluation of the current staffing of the monitoring department to ensure resources are adequate. We also recommended DCFS consider revising its on-site monitoring policy to include a risk based approach for selecting subrecipients for on-site visits.

DCFS officials agreed with the recommendation and stated they are reviewing current procedures and practices to strengthen the monitoring function and will be implementing on-site visits where needed to resolve pending issues.

NEED TO IMPROVE COLLECTION RECORD DOCUMENTATION AT ISAC

The auditors were unable to determine whether the Illinois Student Assistance Commission's (ISAC) loan records were updated within 10 business days of receiving the information supporting compliance of special tests and provisions. This condition resulted in an audit scope limitation. Total FY 01 federal program expenditures from the Federal Family Education Loans program was $181,462,000.

The Commission's procedures do not include documenting the date loan information is received from lenders, schools, borrowers, and others. Without the date of receipt of information, ISAC cannot demonstrate that they complied with the provisions of this program.

The program requires the Commission to maintain a complete record for each loan it holds and must provide ready identification of each loan's current status, updated at least once every 10 business days. (Finding 01-36, pages 97 and 98)

We recommended ISAC date stamp all source information that is received from lenders, schools, borrowers, and others.

ISAC officials agreed with our recommendation and state they are modifying their existing procedures to include date stamping all source information.

INADEQUATE SUPPORTING DOCUMENTATIONFOR PAYROLL COSTS AT ICJIA

The Illinois Criminal Justice Information Authority's (ICJIA) documentation to substantiate payroll costs claimed for federal reimbursement does not exist. This condition resulted in a qualification of the Byrne Formula Grant Program. Total FY 01 federal program expenditures from the several federal programs was $2,201,986. This total amount is being reported as the amount of questioned costs.

ICJIA estimates the percentage of time employees will spend on each program and uses this percentage throughout the year to allocate to payroll and fringe benefit expenditures among federal programs. However, ICJIA does not require employees to document and certify the actual time spent on each federal program.

Federal cost principles require the ICJIA to maintain personnel activity reports that distributes their payroll and fringe benefits if they work on multiple activities. The reports must reflect an after-the-fact distribution of the actual activity of each employee. Also, where an employee works 100% on a single federal program, the ICJIA is required to obtain a certification from the employee or their supervisor. (Finding 01-47, pages 118 through 120)

We recommended ICJIA continue their work with the U.S. Department of Justice in developing a methodology to track time spent on each program to include a procedure to adjust budgeted time to actual time spent.

ICJIA officials accepted our recommendation and state they are continuing to work with the U.S. Department of Justice and have reached an agreement on a time documentation system for the federal payroll expenditures. Complete implementation of the new process is expected to begin with the 2003 fiscal year.

IDHS NEEDS TO IMPROVE CASH MANAGEMENT AND ADVANCE ONLY THE IMMEDIATE CASH NEEDS TO WIC SUBRECIPIENTS

The Department of Human Services (IDHS) provided funds in excess of their immediate cash needs to subrecipients of the Special Supplemental Nutrition for Women, Infants and Children (WIC) program.

We reviewed 25 payments to subrecipients totaling $18,390,623. We noted 13 of the payments totaling $2,427,284 resulted in advances to subrecipients of more than 30 days of funding needs. The number of days advanced ranged from 36 to 53 days. Total payments to subrecipients of the WIC program were $31,748,000 for the year ended June 30, 2001.

The WIC program requires IDHS to monitor cash advances to subrecipients to ensure those advances are for immediate cash needs only. Based on discussions with federal agencies, "immediate cash needs" has been interpreted as being 30 days or less. As a result of the conditions noted related to monitoring the cash management of subrecipients, the auditors determined the IDHS was not in compliance with federal requirements. (Finding 01-12, page 50)

We recommended IDHS review its advance funding policies and techniques for subrecipients to ensure subrecipients receive no more than 30 days of funding on an advance basis.

IDHS officials accepted the recommendation and state they have implemented a procedure to provide only 30 days of funding to WIC subrecipients.

IDPA FAILS TO FOLLOW TREASURY/STATE AGREEMENT (TSA)

The Department of Public Aid (IDPA) did not follow the clearance pattern specified in the TSA related to the administrative and benefit payment cash draws for the Medicaid program. Not following the agreed clearance pattern results in the State paying the federal government an interest cost for the use of cash in excess of the agreed average days a warrant takes to clear the State Treasurer's account.

The auditors noted that IDPA drew down federal cash (similar to prior years) based upon the date the Comptroller's Office (IOC) charged the appropriation. The IOC's Statewide Accounting Management Systems (SAMS) is designed to recognize an expenditure when processing the invoice voucher (an approved payment) which usually correlates to the date the warrant was issued by the IOC. However, when cash management practices are invoked by the IOC, as was done during December, 2000 through April, 2001, the warrant issuance is held awaiting adequate cash availability prior to release by the IOC. The period of the delay from posting of the invoice voucher (expenditure posting to SAMS) to the actual date of warrant issuance was up to two weeks. As such, IDPA drew down funds prior to the actual issuance of warrants during this period which was not in compliance with the prescribed funding technique. Additionally, IDPA did not calculate an interest liability which is owed to the federal government for the delay in the disbursement of funds.

The State annually negotiates an agreement with the U.S. Department of the Treasury which details the funding technique to be used for the draw down of federal funds. The FY 2001 funding technique required the use of the average clearance pattern for both administrative and benefit payments. The average days of clearance agreed to was 6.2 after the warrant is issued. (Finding 01-01, pages 27 and 28)

As a result of the conditions noted, the auditors (based on invoice voucher posting) determined the Medicaid program cash draws were in excess of amounts disbursed (warrants issued); and thus, was not in compliance with the TSA. This internal control deficiency is a material weakness.

We recommended IDPA work with the IOC to establish procedures to ensure federal cash draws are based upon the date the warrant is issued by the IOC.

Agency officials accepted our recommendation and indicate they will be working with the IOC to acquire financial information based upon the date that warrants are actually issued.

IDPA NEEDS TO IMPROVE MONITORING OF CHILD SUPPORT ENFORCEMENT SUBRECIPIENTS RECEIVING FEDERAL AWARDS

The Illinois Department of Public Aid's on-site monitoring and other subrecipient monitoring requirements was not evident on all Child Support Enforcement Program files resulting in an inadequate monitoring process.

In a review of 8 subrecipients of the Child Support Enforcement Program, the auditors noted no on-site monitoring procedures has been performed on 4 of the subrecipients during the past 5 years. The on-site monitoring procedures would include a review of the financial and programmatic records, an observation of subrecipient operations and/or process for determining allowability and recipient eligibility. These 4 subrecipients had expenditures of $1,165,583.

Additionally, 3 of the 8 recipients had not submitted the required A-133 audit report and no follow-up by IDPA had been made for the current year. Total subrecipient expenditures for the Child Support Enforcement Program were $27,278,000 for FY 2001.

Other problems noted were: (1) no formal procedures for tracking and performing desk reviews of A-133 audit reports; (2) no process to identify those subrecipients required to file A-133 audit reports but who have failed to do so; and (3) no formal documentation process of performing (or the results thereof) A-133 desk reviews of audits.

The monitoring of the activities of a subrecipient is necessary to ensure that federal awards are used for authorized purposes in compliance with laws, regulations, and the provisions of contract agreements and that performance goals are achieved.

As a result of the conditions noted related to subrecipient monitoring, the auditors determined the Child Support Enforcement Program not to be in compliance with federal requirements. This internal control deficiency is a reportable condition. (Finding 01-05, pages 36 and 37)

We recommended IDPA perform timely on-site monitoring visits which include reviewing financial and programmatic records, observation of operations and/or processes for determining expenditure allowability or recipient eligibility. Also, IDPA should establish a uniform desk review performance process of OMB Circular A-133 audit reports and document the results. Finally, IDPA should implement a process for tracking the submission of subrecipient A-133 audit reports to ensure all reports are received in a timely manner.

IDPA officials state they have: (1) taken corrective action to insure all A-133 audit reports are reviewed, and (2) initiated an on-site monitoring process using a risk-based approach.

ISBE NEEDS TO IMPROVE MONITORING OF SUBRECIPIENT AUDIT REPORTS

The Illinois State Board of Education (ISBE) is not adequately reviewing OMB Circular A-133 audit reports that are required to be received from subrecipients.

In the review of 240 subrecipient files for the various federal programs operated by ISBE, the auditors noted A-133 audit reports were received and reviewed for findings which were then conveyed to ISBE fiscal consulting staff for follow up. However, the desk review process was not documented in the files which would indicate the procedures employed during the desk review. Additionally, we noted there was no information in the files indicating what procedures were performed during the desk review. FY 2001 subrecipient expenditures for the 8 federal programs having subrecipient activities ranged from $25,695,000 to $319,300,000.

ISBE is required to monitor the activities of subrecipients, as necessary, to ensure that federal awards are used for authorized purposes. Further, ISBE should have an effective internal control structure in place to ensure proper monitoring of subrecipients and retain supporting documentation for a minimum of 3 years.

As a result of the conditions noted, the auditors determined the various federal programs subrecipient monitoring activities was not in compliance. This internal control weakness is a reportable condition. (Finding 01-28, pages 81 through 83)

We recommended ISBE implement the use of a desk review checklist and other procedures to document and ensure that a sufficient review is performed.

ISBE officials state they have developed a formal desk review checklist which they began using in FY 2002.

OTHER FINDINGS

The remaining findings pertain to other compliance and internal control matters. We will follow up on the status of corrective action on all findings in our next Statewide Single Audit for the year ended June 30, 2002.

AUDITORS' OPINION

The auditors state the Schedule of Expenditures of Federal Awards for the State of Illinois as of and for the year ended June 30, 2001 is presented fairly in all material respects.

____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:SES:pp

SPECIAL ASSISTANT AUDITORS
KPMG LLP were our special assistant auditors for this audit.