REPORT DIGEST

CHICAGO STATE
UNIVERSITY

FINANCIAL AND
COMPLIANCE AUDIT
(In Accordance with the
Single Audit Act
and OMB Circular A-133)
For the Year Ended:
June 30, 1998


Summary of Findings:

Total this audit 28
Total last audit 22
Repeated from last audit 15


Release Date:
May 20, 1999




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

  • The University failed to perform timely bank reconciliations or to provide evidence of the dates bank reconciliations were completed and reviewed. This condition has existed since 1994.
  • The University failed to record cash receipts timely and maintain adequate supporting documentation as required by law.
  • We noted deficiencies relating to the University’s administration and collection of loans made under the Perkins Loan program as follows:

    The University did not maintain adequate skiptracing procedures and did not track the enrollment status of all borrowers under the Perkins Loan Program.

    The University did not make timely collection attempts after students had separated from the University.

    The University did not turn over past due Perkins Loans eligible for default to a collection agency.

    The University violated federal regulations by not pursing collection of defaulted Perkins Loans through litigation procedures once other means of collection had been exhausted.

  • The University did not have an effective planning framework in place to direct and assist the University through a major computer system development project, such as the implementation of a new administrative software package, or the solution of the critical year 2000 problem.
  • The University failed to respond to audit requests from the Department of Employment Security and increased the risk that State funds were used to pay unallowable unemployment benefits.
  • The University failed to develop adequate controls over unemployment benefit claims and payments which resulted in benefits being paid to employees who were still receiving a paycheck from the University.

 

{Financial Information is summarized on the reverse page.}



CHICAGO STATE UNIVERSITY
FINANCIAL AND COMPLIANCE AUDIT
For The Year Ended June 30, 1998

 

FINANCIAL OPERATIONS (CURRENT FUNDS)

FY 1998

FY 1997

REVENUES
State Appropriations
State Fringe Benefits
Student Tuition
Grants and Contracts (principally Federal)
Sales and Auxiliary Enterprises
Other sources
   Total  Revenues
EXPENDITURES AND MANDATORY TRANSFERS
Instruction
Research
Public Service
Academic Support
Student services
Institutional support
Operation and maintenance of plant
Scholarships and Fellowships
Auxiliary enterprises
Net mandatory transfers
    Total


$34,105,265
7,538,839
19,209,062
16,873,966
3,197,610
1,801,700
$82,726,442

$31,482,641
2,159,844
3,556,658
4,840,608
7,124,711
10,909,450
7,037,307
11,054,230
3,664,768
1,452,000
$83,282,217


$30,299,195
6,593,072
16,714,087
16,072,151
3,595,274
444,104
$73,717,883

$30,536,551
1,228,845
3,157,901
4,173,007
5,099,228
8,848,327
6,302,771
10,337,450
3,635,606
1,965,285
$75,284,971

SELECTED ACCOUNT BALANCES (ALL FUNDS)

JUNE 30, 1998

JUNE 30, 1997

Cash and short-term investments
Revenue Bonds Payable
Buildings, Land, and Equipment
Accrued compensated absences
Fund balances (deficit):
  Unrestricted
  Restricted
Net investment in plant

$4,162,982
23,010,000
109,949,210
10,119,358

(8,594,322)
2,376,217
$84,403,836

$3,372,860
23,385,000
107,904,628
9,121,544

(8,031,747)
2,621,106
$81,395,182

SUPPLEMENTARY INFORMATION

FY 1998

FY 1997

Employment Statistics
  Faculty/Administrative/Civil Service
   Students
    Total Employees
Selected Activity Measures
Spring semester head count - Undergraduate
Spring semester head count - Graduate
Full-time equivalent cost per student


956
433
1,389

6,336
2,080
$6,760


1,074
468
1,542

6,668
2,275
$6,250

UNIVERSITY PRESIDENT
During Audit Period: Dr. Avan Billimoria (Acting President)
Currently: Dr. Elnora Daniel


















Untimely bank reconciliations and lack of evidence
































Some cash receipts and disbursements recorded at year end instead of monthly
































Collection procedures were not performed for student loans





































Year 2000 issues had not been adequately addressed
































Weak planning resulted in cost overruns and delays


























Failure to respond to IDES audit requests






























































Unemployment benefits were paid to employees still on the payroll

 

 

 

 

 

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

FAILURE TO PERFORM BANK RECONCILIATIONS TIMELY

The University failed to perform timely bank reconciliations or to provide evidence of the dates bank reconciliations were completed and reviewed. Several reconciling items from the previous year’s bank reconciliations were not adjusted or removed from the records. During the review of the reconciliations, we noted there were several reconciling items representing unrecorded receipts and disbursement transactions as well as $454,167 of items dated one year ago or more. (Finding 98-1, page 20) This finding has been repeated since 1994.

We recommended the University assign sufficient personnel resources to perform bank reconciliations and perform such reconciliations in a timely manner. In addition, the reconciliations should be made available to a supervisor for review and approval.

The University officials agreed with our recommendation and stated it had hired an assistant controller to review all bank reconciliations and dispose of reconciling items. (For previous University responses, see Digest footnote #1.)

FAILURE TO TIMELY DEPOSIT AND RECORD CASH RECEIPTS

The University did not record cash receipts timely, nor is there evidence of adequate supporting documentation as required by law. The State Officers and Employees Money Disposition Act (30 ILCS 230/2) requires State Agencies to maintain records of cash receipts including the amount, date, payor, and purpose of the receipts. The Act also requires the University to deposit cash receipts within 24 hours for cash accumulations of $10,000 or more.

We noted the following deficiencies:

For $1.7 million of the $2.9 million of cash receipts tested, the University did not maintain required documented evidence indicating the date of receipt, payor, and the purpose and amount of the receipt.

The University did not timely record into its accounting records the receipt of $1.9 million of the $2.9 million of receipts we tested.

The University did not timely deposit $.5 million of the $2.9 million in cash receipts we tested.

Failure to maintain a complete accurate record of cash receipts constitutes a serious internal control weakness and a clear violation of the State Officers and Employees Money Disposition Act. (Finding 98-20, page 43)

We recommended that the University establish a system that ensures the timely deposit of cash receipts and that the University maintain adequate supporting documentation of cash receipts and promptly record the receipts into the general ledger.

University officials agreed with the finding and recommendation.

PERKINS LOAN ADMINISTRATION PROBLEMS

We noted deficiencies relating to the University’s administration and collection of loans made under the Perkins Loan program as follows:

The University did not maintain adequate skiptracing procedures and did not track the enrollment status of all borrowers under the Perkins Loan Program. The term "skiptracing" refers to the process of locating the address of a debtor who has defaulted on a debt and has moved to an undisclosed address. The University did not perform required skiptracing procedures until the accounts were referred to a collection agency. (Finding 98-24, pages 47-48)

The University did not make collection attempts during the period shortly after students had separated from the University. This period is known as the "grace period" under federal regulations. The University is required to make three collection attempts during this grace period. (Finding 98-25, pages 49-50)

The University failed to adequately send "Intent to Accelerate" letters and turn over past due Perkins Loans eligible for the default stage to a collection agency. (Finding 98-26, pages 51-52)

The University violated federal regulations by not pursuing collection of defaulted Perkins Loans through litigation procedures once other means of collections had been exhausted. (Finding 98-27, page 53)

We recommended corrective action in each case. Also in each case, the University officials either agreed with our finding and recommendation or described appropriate corrective action it intended to take.

 

INEFFECTIVE EDP PLANNING FRAMEWORK

The University did not have an effective planning framework in place to direct and assist the University through a major computer system development project, such as the implementation of a new administrative software package, or the solution of the critical year 2000 problem.

The University’s planning was ineffective as a management tool due to the following:

Management did not have a risk assessment framework to identify relevant information risks. For example, the University failed to draft a comprehensive plan to assess the upcoming year 2000 problem.

Management did not have standardized policies, procedures, and benchmarks for managing and monitoring Information Systems.

Responsibilities had not been properly delegated or recognized for security development and implementation or for quality assurance.

Backup strategies and contingency plans were not required by the existing framework. As projects failed to adhere to implementation plans due to funding and personnel constraints, the University had no choice but to extend the time frames.

Based on the review of status reports regarding the implementation of the new administrative software package, the University failed to adhere to its original project timetable.

Our review of the budget for fiscal year 98 and correspondence showed an estimated direct cost overrun of the new administrative software system of $680,000. This amount consisted of additional costs of outsourcing for the payroll and the accounting system, lost training costs due to staff turnover, and excess consulting costs not previously budgeted. This estimation did not include any personal service costs incurred since the passing of the original deadlines.

A sound planning framework is essential when instituting new procedures and addressing complex technical issues. The lack of this framework at the University was affecting the successful implementation of software critical to the University’s mission. The University also risked vulnerability to the year 2000 problem, as it had not made a comprehensive analysis of this issue. (Finding 98-7, pages 26-27)

We recommended the University develop and adopt an effective planning framework for all critical projects.

University officials stated they will continue to develop the computer system planning framework.

FAILURE TO PROVIDE INFORMATION TO ASSURE PROPER UNEMPLOYMENT BENEFIT PAYMENTS

The University failed to comply with the Unemployment Insurance Act by not responding to audit requests from the Illinois Department of Employment Security (IDES). This failure resulted in situations where unemployment benefits charged to State taxpayers for University employees were not investigated by IDES when some of the individuals were earning wages from the University during the same weeks.

In response to an Auditor General finding in 1995, IDES started investigating all State employee matches. The University has failed to return the IDES wage inquiry requests in all 143 instances for the IDES quarterly audits performed through April 2, 1998. Failure to provide IDES with this information increases the risk that State assets are used to pay unallowable unemployment benefits.

We tested 36 wage requests from the audits for the first and second calendar quarters of 1997 performed by IDES at the University and found that:

61 percent (22 of 36) were benefit recipients charged to the University. In 6 of the 22 cases the recipient earned wages from the University during the same weeks they received unemployment benefits.

39 percent (14 of 36) were benefit recipients charged to an employer other than the University. In 3 of those cases the documentation shows the individual worked 12 weeks during the quarter of the audit at the University. It appears that the benefit recipient did not report that they were working at the University and another employer was charged the unemployment benefits. (Finding 98-15, page 36)

We recommended the University develop the necessary controls within the Payroll Department to ensure compliance with the Unemployment Insurance Act. We further recommended the University respond to IDES requests for information and work with IDES on the sample cases to facilitate recovery of funds. The University responded that prompt completion of the "wage inquiry" requests from IDES will be performed by the Payroll Office.

LACK OF CONTROLS IN MONITORING UNEMPLOYMENT COMPENSATION

The University’ failure to develop adequate controls over the review of unemployment benefit claims and payments has resulted in several problems, including unemployment benefits being paid by the State to employees who were still receiving a paycheck from the University.

During the audit period, the State of Illinois paid unemployment benefits of $139,675 to 62 former/current employees of the University. We tested for documentation of the unemployment benefits paid, as well as the appropriateness of the benefit payments for 30 of the 62 and found that:

In 23 percent (7 of 30) of the cases reviewed, benefit recipients were working at the University while they were also receiving unemployment benefits paid by the State. The University failed to protest the charges listed on the quarterly activity statement. The wages earned by these individuals may have been enough to eliminate or reduce the weekly benefits they received from the Illinois Department of Employment Security (IDES).

In 33 percent (10 of 30) of the cases reviewed, we found that the University failed to protest potentially ineligible unemployment claims for such causes as resignations or discharges. Prudent business practices would indicate that protesting questionable claims is appropriate to permit IDES to find cause to deny ineligible claims.

In 1 of the 30 cases (3 percent) reviewed, the University failed to report a $11,279 vacation payment to an individual after that individual left the University. This individual received $5,111 in unemployment benefits subsequent to their last day of work. Failure to report the vacation payments could result in State monies being expended inappropriately.

In 53 percent of the cases reviewed (16 of 30), the University lacked some documentation relative to the unemployment activity. The missing documentation included IDES claim notices and/or decisions to protest and internal documentation that shows the layoff date and reason. Absence of this documentation limits oversight efforts to ensure that State resources were adequately protected.

Staff in the University’s Department of Human Resources responsible for the review of unemployment claims and charges on the quarterly statements received from IDES did not have a complete understanding of the necessity of reviewing the claim notices and quarterly charge statements. Additionally, they lacked an understanding of the Illinois Unemployment Insurance Act from the perspective of whether an individual is eligible for benefits. (Finding 98-16, page 38)

We recommended the University develop adequate policies and procedures for the review of unemployment benefit claims and charges that include appropriate training and cross training of individuals responsible for these reviews. Further, we recommended the University investigate the cases where questionable benefits were paid and work with the Illinois Department of Employment Security to see if funds should be recovered. The University stated its Human Resources staff will be provided with training and that the recommended policies and procedures would be prepared by 4/30/99.

OTHER FINDINGS

The remaining findings are being given attention by the University. We will review progress toward implementation of our recommendations in our next audit. Responses to the findings were provided by John Meehan, Controller.

AUDITORS’ OPINION

Our auditors state the June 30, 1998 financial statements of Chicago State University and the University Auxiliary Facilities System Revenue Bond Fund are fairly presented except for the effects of the adjustments, if any, that might be necessary as a result of uncertainties resulting from the year 2000 computer problems.

 

___________________________________
WILLIAM G. HOLLAND, Auditor General

WGH:JTD:pp

SPECIAL ASSISTANT AUDITORS

Washington Pittman & McKeever, LLC were our special assistant auditors for this audit.

DIGEST FOOTNOTES

#1 FAILURE TO PERFORM BANK RECONCILIATIONS TIMELY - Previous Agency Responses

1997 "We agree. The University is in the process of hiring an accountant with information system and bank reconciliation experience. "

1996: "We agree. Staff turnovers led to delays in the bank reconciliation process. Contractual services were acquired for bank reconciliation work from a CPA firm prior to FY 96 year end.

1995: "We agree. Several staff accountant personnel changes resulted in the aforementioned bank reconciliation problems. Corrective action has occurred and this will not be a repeat finding."

1994: "We agree. A monthly reconciliation of all bank and cashier funds will be prepared on a monthly basis. Also, the supervisory review process will be completed and documented on a timely basis."