Chicago State University

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, 1999

Summary of Findings:

Total this audit 19
Total last audit 28
Repeated from last audit 11

Release Date:
April 20, 2000

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 did not deposit $1,566,095 in cash receipts in a timely manner.

The University did not have adequate controls over the review of unemployment benefit claims and payments.

The University did not have an effective planning framework in place to direct and assist them through the implementation of a new administrative software package.

The University needed to improve controls to permit expenditures to be charged to the proper fiscal year.

{Financial Information is summarized on the reverse page.}

CHICAGO STATE UNIVERSITY

FINANCIAL AND COMPLIANCE AUDIT

For The Year Ended June 30, 1999

FINANCIAL OPERATIONS (CURRENT FUNDS)	FY 1999	FY 1998
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 Expenditures	$ 36,990,600 8,538,258 18,516,014 17,250,232 3,345,163 2,625,250 $ 87,265,517 $ 35,680,651 2,019,480 3,864,102 4,661,433 6,889,310 8,093,816 7,394,481 12,627,334 3,677,503 1,693,254 $ 86,601,364	$ 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
SELECTED ACCOUNT BALANCES (ALL FUNDS)	JUNE 30, 1999	JUNE 30, 1998
Cash and investments Campus plant facilities Accrued compensated absences Revenue bonds payable	$ 8,047,609 112,033,218 10,197,394 25,650,000	$ 5,617,963 109,949,210 10,119,358 23,010,000
SUPPLEMENTARY INFORMATION	FY 1999	FY 1998
Employees Faculty and administrative Students Total Employees Students (Fall Term) Undergraduate Graduate Total Students Cost per Student	961 408 1,369 6,336 2,080 8,416 $4,091	956 433 1,389 6,545 2,177 8,172 $3,741
UNIVERSITY PRESIDENT During Audit Period: Dr. Elnora Daniel Currently: Dr. Elnora Daniel

Delays in depositing cash receipts

Problems in reviewing unemployment benefit claims

Weak planning resulted in cost overruns and delays

Expenditures charged to wrong fiscal years

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

FAILURE TO TIMELY DEPOSIT CASH RECEIPTS

The University did not deposit cash receipts in a timely manner as required by law. The State Officers and Employees Money Disposition Act requires the University to deposit cash receipts within 24 hours for cash accumulations of $10,000 or more. The University did not timely deposit $1,566,095 or 67% of the cash receipts we tested. Failure to make timely deposits of cash receipts constitutes a serious internal control weakness that reduces the University's ability to prevent or detect errors or fraud. (Finding 15, page 49)

We recommended the University establish a system that ensures adequate supporting documentation of cash receipts be maintained and that all cash receipts are deposited in a timely manner.

University officials agreed with the recommendation and stated they will record and deposit cash receipts in a timely manner. They stated they have adopted a new policy to ensure that all checks and receipts received are deposited to the Cashier in a timely manner.

LACK OF CONTROLS IN MONITORING UNEMPLOYMENT COMPENSATION

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

During FY 99, 50 former/current employees of the University received $146,574 in unemployment benefits. To test controls over unemployment benefit processing, we selected a sample of 30 of the 50 benefit recipients. We tested for documentation to support the unemployment benefits paid and the appropriateness of the benefit payments.

Failure to Report Simultaneous Work: In 27 percent (8 of 30) of the cases reviewed, benefit recipients were working at the University while they were also receiving unemployment benefits. Questionable unemployment benefit payments made in these cases totaled $8,722 for 52 weeks.

Failure to Protest Questionable Unemployment Claims: In 33 percent (10 of 30) of the cases sampled, the University failed to protest potentially ineligible unemployment claims resulting in questionable benefits being paid.

In two instances, the University failed to protest that the individuals resigned. These individuals were paid $10,526 for 38 weeks of unemployment.

In two instances, the University failed to protest claims of academic personnel with a history of rehire that were filing for benefits between academic terms. The individuals were paid $5,293 for 20 weeks of unemployment. Individuals are ineligible for unemployment benefits on the basis of wages earned in an instructional capacity at an institution of higher education between two successive academic years.

In one instance, the University failed to protest that the individual claiming unemployment benefits had retired from the University. This worker was paid $9,639 for 31 weeks of unemployment. The Illinois Unemployment Insurance Act treats retirement payments as disqualifying income based on the amount of retirement in relation to the individual's weekly benefit amount.

In one instance, documentation showed that the individual was terminated based on inability to maintain satisfactory attendance. The University then failed to protest that the individual was discharged for cause. The individual was paid $462 for 3 weeks of unemployment. An individual is ineligible for unemployment benefits in weeks in which they have been discharged due to misconduct associated with their jobs.

In one instance, the University failed to protest that the individual worked less than 30 days for the University. The individual worked the equivalent of 16.8 days, was paid $1,509 in wages and then received $1,575 for 21 weeks of benefits. Generally, to be considered a chargeable employer, the employee must have worked at least 30 days for the employer.

Vacation Pay: In 20 percent (6 of 30) of the cases reviewed, the University failed to report $36,607 in vacation payments, which are equivalent to wages, while the individuals were also receiving unemployment benefits. These 7 individuals received 145 weeks of unemployment benefits totaling $46,266.

Lack of Documentation: In 17 percent (5 of 30) of the cases sampled, we found that the University lacked some documentation to provide for adequate review of unemployment benefits paid out and charged to the State. (Finding 13, pages 44-46)

We recommended the University develop policies and procedures for the review of unemployment benefit claims and charges that include protesting all cases where potential ineligibility exists so that State resources are adequately protected.

University officials agreed with the recommendation and stated that in June 1999, a staff position was created with the responsibility for all unemployment compensation reporting. Within four weeks of filling the position, a policy statement was developed to implement procedures for managing unemployment claims in accordance with the Illinois Department of Employment Security guidelines.

INEFFECTIVE EDP PLANNING FRAMEWORK

The University did not have an effective planning framework in place to direct and assist the University through the implementation of a new administrative software package.

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.

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

Although Information Security Administrator duties have been delegated, all necessary policies have not been created or implemented.

Management does not have in place a formal plan and procedure regarding security software and information asset protection.

Backup strategies and contingency plans are not required by the existing framework.

As a project fails to adhere to implementation plans due to funding and personnel constraints, the University has no choice but to extend its timeframe. Existing implementation schedules do not include alternate plans. Based on the review of the budget for fiscal years 1997 through 1999 and IS correspondence, it is estimated that the direct cost overrun of the administrative software system project is $816,000.

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. (Finding 10, pages 37-38) This finding has been repeated since 1997.)

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

University officials agreed with the recommendation and stated they have appointed a risk assessment committee to address strategic and contingency planning. All auditor recommendations will be included as top priority tasks. The officials stated a series of measures are being taken to implement the planning framework. The University will begin to address the finding and Senior Management will actively monitor the process to insure that progress is made to implement the recommendations. (For previous Agency responses, see Digest Footnote #1.)

NEED TO IMPROVE THE ALLOCATION OF EXPENDITURES TO PROPER FISCAL YEARS

The University did not record all expenditures in the proper fiscal year. During our search for unrecorded liabilities, we found 3 fiscal year 1999 expenditures totaling $30,181 that were not recorded. These expenditures were part of a total $393,919 of expenditures that were not recorded until they were discovered during our search. We also noted 9 fiscal year 1998 items totaling $13,670 that were recorded as fiscal year 1999 disbursements and other adjustments totaling more than $1 million to reclassify expenditures. Generally accepted accounting principles require expenditures to be properly charged to the period to which the expenditure relates. An adequate internal control system should be designed to prevent or detect incorrect posting of financial transactions. This constitutes a serious internal control weakness. (Finding 12, page 42)

We recommended the University tailor its system to ensure that all transactions are recorded properly and in the proper period.

University officials disagreed with the finding and stated that due to the accounting system conversion, to implement the new Banner Finance Module and General Ledger, the accounting year-end close process did not generate adjustments and reclassifications. The University stated it conducted a systematic review of all lapse period expenditures to insure compliance with generally accepted accounting principles. The University states its accrued expenditures included over 600 disbursements equal to $1.3 million, and the University promptly informed the auditors of these adjustments and provided substantial documentation.

The University's opinion is that no serious internal control weaknesses exist. The University feels its new system, tighter year-end cut-off controls, and account reconciliations will allow more timely accrual calculations and should prevent this issue in Fiscal Year 2000.

In an auditor's comment, we strongly disagree with the University's contention that no serious internal control weaknesses are noted in this finding. Failure to prevent or detect incorrect posting of financial transactions is indicative of a significant flaw in internal control.

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 University President, Dr. Elnora Daniel.

AUDITORS’ OPINION

Our auditors state the financial statements of Chicago State University and its Revenue Bonds as of June 30, 1999 and for the year then ended are fairly presented in all material respects.

___________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:KMM:pp

SPECIAL ASSISTANT AUDITORS

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

DIGEST FOOTNOTE

#1 INEFFECTIVE PLANNING FRAMEWORK - Previous Agency Responses

1998: We agree. The University will continue to develop its computer system planning framework.

1997: The University will adopt an effective planning framework to assist with its Banner system migration.

The University will develop a plan to assess the year 2000 compliance process. (Please see response - Finding 97-12).

The documentation of the Code of Conduct has been re-submitted to the interim President for review and approval. The University will create a security administration position. This position has responsibility for the monitoring and safeguarding of all University information.

The backup strategies will be contained in the disaster recovery contingency plan. This will be completed by the end of the fiscal year. It will adhere to the CobiT documentation that we currently have on order.

The University management agrees with the policy recommendations.