The Department did not ensure development standards included provisions for contractual system developments and did not ensure all systems were consistently developed, thoroughly tested, and adequately documented.

During the audit period, the Department had contracted for $362,500 for the development of the Non-Fair Event System and the State Fair System. We noted that these systems were not documented adequately and were developed in a software language that is not currently supported by the Department.

During a review of the Department’s development standards and methodology, we noted the Department did not include procedures for contractual system developments. The Department allowed non-IS Bureaus to hire programming personnel and contract systems development without communicating these developments to the Bureau of Computer Services. The lack of communications with and monitoring by the Bureau of Computer Services make it difficult to assure that system developments adhere to Department information systems development standards and that IS staffing resources are used efficiently. (Finding 1, pages 12-13)

Department officials concurred with our recommendation to update their Systems Development Methodology to include procedures related to new system developments and modifications to existing systems by external developers.

The Department did not adequately monitor grants to a fish cooperative made pursuant to the Illinois Aquaculture Development Act.

The Department disbursed a total of $2,000,000 in grants during fiscal years 2002 and 2003 to an Illinois aquaculture cooperative. The grants were made by the Department under the authority and direction of the Aquaculture Development Act (Act) (20 ILCS 215/5.5).

Both the Act and the grant agreement entered into by the Department and the Cooperative require the Department to review and comment on the Cooperative’s proposed annual budget prior to the disbursement of grant funds. However, there was no documentation of such a review by the Department. Also, there was minimal documentation of any routine monitoring activity performed by the Department. Further, no documentation of site visits was found, and only one instance of follow-up of financial information was noted. Although the Department did receive annual financial statements, no interim financial information was requested. The grant agreements did not establish any performance measures or quantifiable goods. The Department has not written any formal procedures or rules for the grant program and has relied only on the program framework established by the Act.

Establishing adequate procedures and rules with which to monitor grants is essential to ensuring State resources are expended for the purpose intended and that adequate accountability exists. (Finding 4, pages 17-18)

We recommended that the Department continue its effort to establish adequate procedures to administer and monitor its grants to aquaculture cooperatives and that the Department document its monitoring efforts.

Department officials disagreed with the finding and stated they believe that they have adequately monitored the disbursement of grant money. They also stated there is only one aquaculture cooperative that meets the specific requirements of the Act, and they do not feel that rules concerning the grant or performance measures are needed.

We noted in our auditors’ comment that there was no documentation to support the Department’s grant monitoring activities, such as budget reviews and site visits. We continue to recommend the Department adopt rules and establish adequate procedures as required by the Act to monitor grants to ensure that State resources are expended for the purposes intended and that accountability exist.

The Department commingled $20,000 of trust funds maintained within the Grain Indemnity Trust Fund.

During the year ended June 30, 2003, the Department transferred $20,000 from a trust account, established to account for the liquidation activity and payment of claims related to an elevator failure, to another similar trust account established in connection with an unrelated elevator failure. Both of these trust accounts are maintained, along with several other such trust accounts, within the Grain Indemnity Trust Fund. The transfer was made to enable the receiving trust account to pay expenditures to preserve an asset of that trust account. The Grain Code does not provide for such a transfer.

The Grain Code (240 ILCS 40/25-20(d)(1)) requires that "proceeds realized from liquidation of and collection upon the grain assets, equity assets, collateral, and guarantees relating to the failed licensee or any other assets relating to the failed licensee that are received by the Department, to the extent not already paid to claimants, shall be first used to repay the [Illinois Grain Insurance] Fund for moneys transferred to the Trust Account."

The commingling of individual trust accounts affects the Department’s ability to determine the appropriate amounts to pay to the claimants, the Illinois Grain Insurance Fund, and how much to return to the failed licensee as prescribed in the Grain Code. (Finding 6, pages 21-24)

We recommended the Department return the transferred funds to the appropriate trust account and that there be no further commingling of trust accounts. Further, the Department should pursue other sources for funding expenditures necessary for the preservation of assets in trust accounts with insufficient funds.

Department officials disagreed with our finding and believe that the Grain Code allows for the transfer of moneys between sub-accounts within the Grain Indemnity Trust Fund to pay liquidating expenditures. They state that the Illinois Grain Insurance Corporation Board directed the Department to make the transfer. Further, they will seek the Attorney General’s opinion on the matter.

In our Auditors’ Comment we noted that if the trust accounts are commingled as contemplated by the Department, the repayments required by Section 40/25-20(d)-(g) of the Grain Code could be delayed in perpetuity.

From our review of Board minutes we also disputed the Department's assertion that the Illinois Grain Insurance Board directed the Department to make the $20,000 transfer. In fact, the Illinois Grain Insurance Board does not have jurisdiction over the Grain Indemnity Trust Fund. According to statute, this fund is under the direction of the Director of the Department of Agriculture. We continued to recommend the Department return the transferred funds to the appropriate trust account and discontinue the practice of commingling trust account funds.

The Department did not have an adequate segregation of duties over the cash (checks and currency) receipts of the Illinois Colt Stakes/Championship Purse Fund (Purse Fund).

The Department collected $2,734,000 and $2,882,000 in fiscal years 2003 and 2002 in the Purse Fund, respectively. Department officials indicated that approximately 97% of the collections were in the form of checks and 3% were in the form of currency. The person responsible for preparation of the deposit slips for the Purse Fund also delivered the deposits to the bank, received the monthly bank statements, performed the monthly bank reconciliations, and prepared the locally held funds quarterly report of receipts and disbursements submitted to the Comptroller. Management personnel did not perform a supervisory review of the Purse Fund deposits, reconciliations or reports. (Finding 7, page 25)

We recommended the Department either implement compensating management controls or segregate duties over the fiscal operations of the Purse Fund.

Department officials accepted our recommendation and indicated that they would implement compensating management controls over the Purse Fund.

The Department's internal auditing section did not perform audits of all major systems of internal accounting and administrative control.

The Fiscal Control and Internal Auditing Act requires the internal auditing program include audits of major systems of internal accounting and administrative control be conducted on a periodic basis so that all major systems are reviewed at least once every two years. Major systems, which were included in the two year audit plan but not performed, included: 1) budget, 2) revenues and receivables, and 3) personnel.

We recommended the Department comply with the Fiscal Control and Internal Auditing Act.

Department officials stated that as of October 1, 2003 the internal audit function was consolidated in the Illinois Office of Internal Audit (IOIA). Further, it is the Department's understanding that the IOIA is now responsible to review all major systems of internal accounting and administrative controls.

The remaining findings are reportedly being given attention by the Department. We will review progress toward implementing our recommendations in our next audit.

Mr. Thomas Jennings, Chief of Staff, provided the responses to our findings and recommendations.

We conducted a compliance audit of the Department of Agriculture for the two years ended June 30, 2003 as required by the Illinois State Auditing Act. We have not audited any financial statements of the Department for the purpose of expressing an opinion because the agency does not, nor is it required to, prepare financial statements.

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WILLIAM G. HOLLAND, Auditor General

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