REPORT DIGEST

CHICAGO STATE UNIVERSITY

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

(In accordance with the
Single Audit Act and OMB Circular A-133)

For the Year Ended:

June 30, 2004

Summary of Findings:

Total this audit                          5

Total last audit                          3

Repeated from last audit           2

Release Date:

March 31, 2005 

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 is also available on

the worldwide web at

http://www.state.il.us/auditor

SYNOPSIS

¨      The University did not have supporting documentation and proper approvals for expenditures charged to federal programs and charged lodging and airfare costs in excess of customary standard travel costs to the program.

¨      The University did not properly apply the appropriate generally accepted accounting principles.

¨      The University had instances of inadequate controls over its property and equipment and related records.

{Financial Information is summarized on the reverse page.}

STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

FY 2004

FY 2003

OPERATING REVENUES

      Student tuition and fees (net of scholarship allowances of $6,853,040 and $5,971,628) Auxiliary enterprises (net of scholarship allowances of $85,163 and $199,996).............

      Grants and contracts...............................................................................................................

      Other..........................................................................................................................................

            Total Operating Revenues..............................................................................................

OPERATING EXPENSES

      Instruction...........................................................................................................................

      Research..............................................................................................................................

      Public services.........................................................................................................................

      Academic support...................................................................................................................

      Student services.................................................................................................................

      Institutional support..........................................................................................................

      Operation and maintenance of plant...............................................................................

      Scholarships and fellowships..........................................................................................

      On-behalf State fringe benefits........................................................................................

      Auxiliary enterprises..........................................................................................................

      Depreciation........................................................................................................................

            Total Operating Expenses..............................................................................................

Operating Loss.............................................................................................................................

NONOPERATING REVENUES (EXPENSES)

      State appropriations................................................................................................................

      State fringe benefits................................................................................................................

      Interest on capital asset – related debt................................................................................

      Other nonoperating revenues................................................................................................

            Total Nonoperating Revenues........................................................................................

Income Before Other Revenues, Expenses, Gains or Losses...............................................

Capital appropriations and grants..............................................................................................

Loss on disposal of capital assets.............................................................................................

INCREASE IN NET ASSETS.....................................................................................................

Net assets, beginning of the year...............................................................................................

Net assets, end of the year..........................................................................................................

$17,281,547

4,178,436

23,094,855

    1,963,385

$46,518,223

$35,018,616

1,857,403

6,126,927

6,762,531

8,261,910

8,239,050

4,526,624

5,155,230

35,524,783

3,569,613

      2,809,722

  $117,852,409

$(71,334,186)

$39,624,015

35,524,783

(1,342,043)

         38,554

 $73,845,309

$2,511,123

18,140,013 

      (50,073)

$20,601,063

$40,756,707

$61,357,770

$15,294,179

3,645,783

21,487,785

    1,657,675

$42,085,422

$32,958,008

1,588,218

5,992,477

6,326,912

7,430,324

6,461,122

7,270,825

5,964,207

11,456,880

3,437,436

      3,125,331

  $92,011,740

$(49,926,318)

$40,393,020

11,456,880

(1,397,519)

         54,699

 $50,507,080

$580,762

9,344,010 

      (38,716)

$9,886,056

$30,870,651

$40,756,707

SELECTED ACCOUNT BALANCES

JUNE 30, 2004

JUNE 30, 2003

Cash and cash equivalents..........................................................................................................

Capital assets, net of accumulated depreciation......................................................................

Revenue bonds payable...............................................................................................................

Accrued compensated absences ...............................................................................................

$4,483,323

$87,395,902

$23,125,000

$7,397,137

$4,483,224

$77,170,200

$23,825,000

$8,302,265

SUPPLEMENTARY INFORMATION (Unaudited)

FY 2004

FY 2003

Employment Statistics

      Faculty/administrative............................................................................................................

      Student employees..................................................................................................................

            Total Employees................................................................................................................

Selected Activity Measures

Students (Spring Term)

     Undergraduate..........................................................................................................................

     Graduate.....................................................................................................................................

     Total Students..........................................................................................................................

Full-time equivalent cost per student........................................................................................

1,047

158

1,205

4,563

2,074

6,637

$5,543

1,089

283

1,372

4,635

2,170

6,805

$5,313

UNIVERSITY PRESIDENT

During Audit Period and Current: Dr. Elnora Daniel

Total questioned costs of $6,743

Failure to apply the appropriate accounting principles resulted in an audit adjustment in the amount of $7,813,801

Records did not accurately reflect property and equipment

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

NEED TO IMPROVE CONTROLS RELATED TO FEDERAL PROGRAM EXPENDITURES

      The University did not have supporting documentation and proper approvals for expenditures charged to federal programs and charged lodging and airfare costs in excess of customary standard travel costs to the program.

      During our testing of vendor invoices for two different federal programs we noted that 3 out of 80 invoices and supporting documents could not be located by the University for testing.  This resulted in total questioned costs of $6,743.  Additionally, 3 expenditures did not have the approval of the fiscal officer on nine of the invoices included in the expenditures.

      During our review of another federal program, we noted the following:

·        Four of forty expenditures totaling $56,523 were for prepayments of hotel and conference room accommodations, however the University did not reconcile the prepaid costs and actual invoice that was subsequently received.

·        Three of forty expenditures totaling $10,824 were for travel advances to University personnel, however the University never followed up on the funds advanced nor obtained receipts from the traveler.

·        There were seven instances noted of employees flying business class instead of flying coach without proper documentation at the time of travel.

·        There were four invoices where suites were rented instead of single rooms. (Finding 1, Pages 16-17) This finding was first reported in 2003.

      We recommended the University improve control procedures to ensure that payments are only made once a proper invoice with appropriate documentation and approval is received.  The University should maintain a filing system that allows them to locate supporting documentation, including documentation of the necessity for any non-standard travel costs, for all invoices paid.  Additionally, we recommended the University timely reconcile travel advances with actual invoices submitted by travelers.

      University officials agreed with our recommendation and stated that they will strengthen compliance with its established policies and procedures related to documentation, filing, approvals and appropriate documentation for non-standard travel costs. (For the previous University response, see Digest footnote #1.)

FAILURE TO APPLY APPROPRIATE ACCOUNTING PRINCIPLES

      The University did not properly apply Government Accounting Standards Board (GASB) Statement No. 33 and as a result did not properly apply the appropriate generally accepted accounting principles (GAAP).

      During our audit, we requested documentation to support the revenue deferrals included in the University’s financial statements.  Upon review of the grant agreements provided by the University, we noted that the grant agreements did not stipulate that the University must first incur allowable costs in order to qualify for the resources (an eligibility requirement). Therefore, upon award of the grant, the University had met the eligibility requirements for these voluntary nonexchange transactions.

      After we brought this issue to the attention of University management, University officials concurred with our interpretation and recorded an audit adjustment in the amount of $7,813,801. (Finding 3, Page 20)

      We recommended the University improve its system for identifying eligibility requirements for voluntary nonexchange transactions and properly account for such transactions in accordance with GAAP.    

      University Officials agreed with our recommendation.

NEED TO IMPROVE EQUIPMENT AND PROPERTY CONTROLS AND RECORDS

      The University’s property control records did not accurately reflect property and equipment at the University.

      Several different types of exceptions were noted during our testing of property and equipment.  The exceptions that occurred were in the recording, safeguarding and in locating items of property and equipment.

Strong internal controls dictate that the University update and maintain a permanent and accurate record of property and equipment.  Failure to maintain control over equipment could result in theft or misuse of equipment.  (Finding 4, pages 22-23).  This finding has been repeated since 1997.

We recommended the University adhere to its procedures to ensure that the property and equipment records are properly maintained and that equipment be adequately safeguarded.

University officials responded that they agree with the recommendation and stated they will ensure its policies and procedures related to property equipment records are observed and that University assets are safeguarded. (For the previous agency response, see Digest footnote #2.)

OTHER FINDINGS

      The remaining findings are less significant and are reportedly being given attention by University officials.  We will review progress toward implementation of our recommendations in our next audit.

      University responses to the findings were provided by the President, Dr. Elnora D. Daniel, in a letter dated January 28, 2005.

AUDITORS’ OPINION

      Our auditors state the financial statements of Chicago State University as of June 30, 2004 and for the year then ended are fairly presented in all material respects.

___________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:TLK:pp

SPECIAL ASSISTANT AUDITORS

      Our special assistant auditors for this audit were Nykiel Carlin & Co., LTD.

DIGEST FOOTNOTE

#1 INADEQUATE SUPPORTING DOCUMENTATION FOR FEDERAL EXPENDITURES - Previous University Response

The University agrees with the recommendation.  The University will ensure compliance with its established policies and procedures.  The University has located all of the vendor invoices missing during the audit fieldwork, one vendor invoice in the amount of $453 for Welfare to Work program is still outstanding.

#2 FIXED ASSET REPORTING – Previous University Response    

The University agrees with the recommendation.  The University plans to conduct semi-annual inventories of departments with a high degree of inaccuracy in their inventory records.  The University will also conduct training sessions for the University staff responsible for property.  These sessions will focus on issues such as safeguarding of assets, reporting, interim physical verification of property assignments, disposition and transfers.  The University believes these measures will improve its efforts to maintain accurate records of equipment and eliminate this finding in the coming year.