REPORT DIGEST
CAPITAL DEVELOPMENT BOARD
Financial Audit For The Year Ended June 30, 2010; and
Compliance Examination For the Two Years Ended: June 30, 2010
Summary of Findings:
Total this audit: 7
Total last audit: 6
Repeated from last audit: 3
Release Date: March 17, 2011
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 and Full Report are also available on the worldwide web at www.auditor.illinois.gov
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INTRODUCTION
The Capital Development Board (Board) serves as the
non-road, construction management agency of the State of Illinois. The auditor performed a financial audit of
the Board for the year ended June 30, 2010 and a compliance examination for the
two years ended June 30, 2010.
SYNOPSIS
• The Capital Development Board’s process for the estimation
of reappropriated projects’ accounts payable underestimated the amounts to be
reported in their June 30, 2010 and 2009 financial statements.
• The Board did not complete performance evaluations as
required.
• The Board failed to file the required affidavits with the
Auditor General.
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
REAPPROPRIATED PROJECTS’ ACCOUNTS PAYABLE UNDERSTATED
The Board’s process for the estimation of reappropriated
projects’ accounts payable underestimated the amounts to be reported in their
June 30, 2010 and 2009 financial statements.
The Board records reappropriated projects accounts payable
in its financial statements based on estimates derived from methodologies and
historical analyses. Based upon a review
of subsequent payments for expenditures incurred for fiscal year 2010 through
October 2010, and using a multiplier for future payments to be made applicable
to fiscal year 2010 liabilities, the auditors projected the reappropriated
projects accounts payable was understated by $3.076 million.
In addition, based upon a review of subsequent payments for
expenditures incurred for fiscal year 2009, the reappropriated projects
accounts payable were also determined to be understated by $1.738 million.
The misstatements in estimating accounts payable balances
for both June 30, 2010 and 2009 necessitated the auditor to propose adjustments
to the Board’s June 30, 2010 financial statements.
We recommended the Board evaluate the effectiveness of its
internal control related to accounting estimates on reappropriated projects’
accounts payable by:
• Reviewing relevant factors that may be unique to the
accounting period and considering the changes in a previously established
method to arrive at reasonable estimates.
• Comparing prior year accounting estimates with subsequent
results to assess the reliability of the process used in developing estimates.
The Board officials disagreed with the finding and the
proposed auditor adjustments to the financial statements. The Board stated the auditors had the
advantage of reviewing actual expenditures for a longer period than CDB
analysts. The Board further stated the
Board is required to submit final financial statements (including all
estimates) to the IOC by August 31, 2010 and once these statements are submitted
cannot be changed. (Finding 10-1, pages
11-16)
In an auditor’s comment, we noted because of the nature of
CDB’s operations they do not have final data available to record the actual
balance for reappropriated projects’ accounts payable. It is acceptable in the preparation of an
entity’s financial statements to report amounts derived through an estimation
process.
In addition, as set forth in the AICPA Statements on
Auditing Standards, section AU 342.11 “…auditors assess the reasonableness of
an accounting estimate by performing procedures to test the process used by
management to make the estimate.” One
procedure of testing management’s estimation process is to test amounts
reported in prior year financial statements based on estimates to actual (subsequent)
information to determine if the estimation process used by management is
generating data that is not materially different from actual amounts.
In performing testing at CDB for amounts reported at June
30, 2008 it was determined CDB under reported the liability related to
reappropriated accounts payable by $1.082 million. In addition, the auditors estimated the June
30, 2009 amount was understated by $1.755 million. The June 30, 2008 and 2009 misstatements were
considered material to CDB’s financial statements by the auditors and the auditors
proposed adjusting entries, which were made by CDB.
In performing the current audit, the auditors determined the
amount for fiscal year 2009 was actually understated by an additional $1.738
million. This demonstrates the
unpredictability in trying to arrive at a reasonable amount. In addition, the auditors determined the FY10
reappropriated accounts payable were understated by $3.076 million, again the
misstatements were determined by the auditors to be material to CDB’s financial
statements.
The auditors proposed adjusting entries to CDB’s management
to address the differences between what was reported by CDB and what was
computed by the auditors during the fiscal year 2010 engagement. CDB management declined to record the
proposed adjustments. The auditors noted
in their opinion on the financial statements that the financial statements as
presented do not present fairly, in all material aspects, the respective
financial position of the governmental activities and the aggregate remaining
fund information of the State of Illinois Capital Development Board, as of June
30, 2010.
In performing an audit, auditors are tasked with testing
information as reported by the auditee.
In such a situation, auditors do have the benefit of subsequent
information to test reported information thus the benefit of the audit process
in determining that the information presented is not materially misstated.
PERFORMANCE EVALUATIONS NOT COMPLETED
The Board did not timely complete performance
evaluations. During our review of 40
employee personnel files, we noted 26 (65%) performance evaluations were not
current or timely, as follows:
• Four of 40 (10%) employees tested for FY 2009 and 21 of 40
(53%) employees tested for FY 2010 did not have a performance evaluation.
• One of 40 (2%) employees tested did not have a performance
evaluation at the end of the probationary period nor within the previous twelve
months.
In addition, performance evaluation forms for 10 of 40 (25%)
employees were not signed by the required level of approvers. (Finding 10-3, pages 19-20)
The Board agreed with the finding.
FAILURE TO FILE REQUIRED AFFIDAVITS WITH THE AUDITOR GENERAL
The Board did not comply with the Illinois Procurement
Code. The Board failed to provide the
Auditor General affidavits that the waiver of the application of the
requirements of Section 30-30 of the Illinois Procurement Code for two FY 2010
construction projects totaling $103 million, is in the best interest of the
State. Also, affidavits for 5 of 25
(20%) emergency purchases tested were not filed with the Auditor General within
10 days of awarding the contracts. These
emergency purchases consisted of 4 projects for the Department of Central
Management Services (DCMS) and 1 project for the Illinois Secretary of State
(ISOS), totaling $2.3 million. (Finding
10-4, pages 21-22)
We recommended the Board implement controls to ensure
compliance with the Code requirements to file necessary affidavits with the
Auditor General.
The Board officials disagreed with our finding and
recommendation and stated that the provisions of 30 ILCS 500/20-30(c) require
that affidavits be filed by the Chief Procurement Officer (CPO) for fiscal year
2011 forward. CDB management will
provide all relevant documents so that the CPO may file timely and accurate
affidavits.
In an auditor’s comment, we noted the Illinois Procurement
Code (30 ILCS 500/20-30) requires that a purchasing agency file affidavits with
the chief procurement officer and the Auditor General within 10 days after the
emergency procurement. This requirement
has been in effect since July 1, 1998 and applied during the period under
audit.
OTHER FINDINGS
The remaining
findings are reportedly being given attention by the Board. We will review the Board’s progress towards
the implementation of our recommendations in our next engagement.
AUDITORS’ OPINION
The auditors expressed a qualified opinion on the Board’s
financial statements for the year ended June 30, 2010. The auditor’s qualified their opinion on the
financial statements due to the Board declining to make the proposed
adjustments for the underestimation of the reappropriated projects’ accounts
payable reported in their June 30, 2010 and 2009 financial statements.
WILLIAM G. HOLLAND
Auditor General
WGH:JAC
SPECIAL ASSISTANT AUDITORS
E.C. Ortiz and Co., LLP were our special assistant auditors
on this engagement.