REPORT DIGEST

DEPARTMENT OF COMMERCE AND ECONOMIC OPPORTUNITY

COMPLIANCE EXAMINATION

For the Two Years Ended:

June 30, 2008

Summary of Findings:

Total this report:                     10

Total last report:                     14

Repeated from last report:        4

Release Date:

May 28, 2009

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

AUDITOR GENERAL

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740 E. Ash Street

Springfield, IL 62703

(217) 782-6046 or TTY (888) 261-2887

This Report Digest is also available on

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SYNOPSIS

¨      The Department did not adequately monitor its grantees.

¨      The Department did not maintain adequate documentation of the methodology for determining the allocation of shared legal services paid during the examination period. 

¨      The Department’s Illinois Bureau of Tourism 2007 and 2008 Travel Guide contract violates the State Officers and Employee Money Disposition Act and circumvents the appropriations process.

¨      The Department failed to document that out-of-country travel expenses reimbursed to employees were reasonable. 

{Expenditures and Activity Measurers are summarized on the reverse page.}

EXPENDITURE STATISTICS

FY 2008

FY 2007

FY 2006

     Total Expenditures (All Funds)..

$440,791,592

$603,698,147

$606,160,291

     OPERATIONS TOTAL................

         % of Total Expenditures............

$60,626,751

13.8%

$62,920,691

10.4%

$68,908,261

11.4%

         Personal Services......................

           % of Operations Expenditures.

           Average No. of Employees.....

           Average Salary per Employee

$15,780,484

26.0%

420

$37,573

$17,224,712

27.4%

427

$40,339

$16,533,302

24.0%

444

$37,170

         Other Payroll Costs (FICA, Retirement, Group Insurance).....

           % of Operations Expenditures.

$5,188,681

8.5%

$4,925,397

7.8%

$4,111,768

6.0%

         Contractual Services..................

           % of Operations Expenditures.

$10,220,884

16.9%

$10,387,435

16.5%

$8,354,506

12.1%

         Lump Sum Expenditures...........

           % of Operations Expenditures.

$25,813,428

42.6%

$23,881,670

38.0%

$25,415,910

36.9%

         Interfund Transfers.............

           % of Operations Expenditures..

          -

 0.0%

$3,000,000

4.8%

$10,980,000

15.9%

         All Other Operations Items........

           % of Operations Expenditures

$3,623,274

6.0%

$3,501,477

5.5%

$3,512,775

5.1%

     AWARDS AND GRANTS TOTAL...

         % of Total Expenditures........

     PERMANENT IMPROVEMENTS...

         % of Total Expenditures...............

     REFUNDS TOTAL........................

         % of Total Expenditures   

$380,152,764

86.2%

       -

0.0%

$12,077

0.0%

$540,764,773

89.6%

       -

0.0%

$12,683

0.0%

$536,825,779

88.5%

$395,000

0.1%

$31,251

0.0%

     Cost of Capital Assets..............

$10,126,152

$10,055,923

$11,102,291

CASH RECEIPTS

FY 2008

FY 2007

FY 2006

Federal Grants...................................................

License and Fees...............................................

Prior Year Refunds...........................................

Sale of Investments and Interest Income.............

Loan Repayments..............................................

State Grants......................................................

Private Donor....................................................

Interfund Transfers............................................

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

         Total........................................................

$230,779,259

       9,303,362

7,154,872

4,070,013

1,365,289

1,266,502

720,539

-

    2,818,952

$257,478,788

$235,584,598

7,376,901

6,396,138

4,474,816

1,420,306

45,683

191,147

3,000,000

       756,809

$259,246,398

$250,544,413

7,584,976

5,988,746

4,241,715

1,882,613

3,508,326

683,679

10,980,000 

     1,054,290

$286,468,758

AGENCY DIRECTOR

     During Examination Period:  Mr. Jack Lavin

            Currently:  Mr. Warren Ribley

Inadequate grant monitoring

$920,917,537 spent on grants

Failure to follow-up on

reports

Some reports were as late as 701 and 731 days

Some reports had not been submitted

Some grants were executed after the beginning of the grant term

Reports received after deadline

Department agrees with auditors

No supporting documentation

The Department paid $510,089 in legal fees without support for its allocated share of these costs

Contract violates State Officers and Money Disposition Act

Vendor was allowed to retain revenue to offset costs

$843,155 was retained by the vendor

Department to seek legislative remedy

Documentation lacking

Reimbursements over approved rates totaled $2,729

Auditors were unable to determine that sufficient efforts were made to obtain the lowest rate available

Department officials agree with auditors

4 of 12 recommendations implemented

eGrants system created

Trainees no longer reported as jobs created and retained

Office of Accountability established

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

NEED TO IMPROVE GRANT MONITORING

      The Department did not adequately monitor its grantees.

      The Department expended $920,917,537, or 88.2%, of its $1,044,489,739 total expenditures in awards and grants during the examination period.  We tested 220 grant agreements totaling $88,416,646, or 9.6%, of the awards and grants expenditures for the examination period for eight program areas. 

      We noted the Department failed to follow-up on the untimely submission of programmatic and financial reports of its grantees, thus hindering its ability to monitor the grantees’ activities in a judicious manner.  Additionally, the Department’s internal procedures permit the execution of grant agreements at dates any time throughout the fiscal year and the establishment of a grant term beginning several months prior to executing the contract.  This practice allows the Department to reimburse costs incurred by the grantee retroactively between the beginning of the grant term and the execution date of the agreement.  As a result, the Department is unable to monitor the grantee in a contemporaneous manner and the Department becomes vulnerable to reimbursing costs which may not be the most efficient or effective use of the grant funds.

      The following are examples of specific delinquent report weaknesses were noted in the program areas tested, each having varying report deadlines:

·        Workforce Development:  Two required reports were not received and were 701 and 731 days late as of our testing.  The Department could not provide evidence to support its follow-up on the delinquent reports.   

·        Recycling and Energy: Sixty-seven required reports were submitted late or not at all, ranging from 2 to 780 days delinquent as of our testing, and the Department could not demonstrate that it followed-up with the grantee to inquire of the delinquencies. 

      Additionally, we noted 36 (16.4%) grant agreements in our sample of 220 which were executed 5 to 363 days after the beginning of the grant term.  As a result of the late execution, seventy-three programmatic and financial reports which should have been received in accordance with the terms of the grant agreements were not received by the stated deadline because the Department cannot require a grantee to submit a grant report until after the execution of the grant agreement.   At the time of the grant execution, the Department reimbursed for costs incurred between the beginning of the grant term and the execution date. 

      Management stated that in many cases employees communicate and follow-up with grantees regarding their reporting requirements through individual emails or phone calls.  Documentation of these efforts were not saved and placed in the file at the time they were initiated and the Department does not have the staff capacity to research individual email files for these records.  (Finding 1, pages 12-15)

      We recommended the Department strengthen its controls of monitoring the activities of its grantees by performing the necessary follow-up on delinquent programmatic and financial reports and adequately documenting the dates the reports were received, the follow-up action taken, and the reasons for any delinquencies.

      Department officials agreed with our recommendation and stated that they would continue to strengthen controls governing the monitoring of grants through the ongoing development and phased implementation approach of the Monitoring and Reporting Standardization (MaRS) project.    

LACK OF DOCUMENTATION FOR SHARED EXPENSE METHODOLOGY

      The Department did not maintain adequate documentation of the methodology for determining the allocation of shared legal services paid by the Department during the examination period. 

      The Office of the Governor entered into contracts for legal services during the examination period for advice and representation of litigation related to issues involving the video-game lawsuit and other matters.  The Department entered into interagency agreements with the Office of the Governor, as described below, for payment of an allocable share of the legal fees incurred. 

      Additionally, the Department was instructed by the Office of the Governor to pay $150,000 as a portion of the plaintiff’s attorney fees related to the State’s video-game lawsuit.  An interagency agreement was not required for this payment as it was a court-determined settlement.  However, supporting documentation detailing the methodology used for determining the percent allocated to the Department did not exist. 

      Department management stated the common practice for interagency agreements for legal services, which are initiated external to the Department, has been not to include the methodology for determining the allocable share to be paid by the agency.  (Finding 2, pages 16-17)

      Department officials accepted our recommendation to require adequate methodology supporting its allocable portion of shared expenses affecting multiple State agencies.  

CONTRACT PROVISIONS VIOLATE STATE STATUTE AND CIRCUMVENT APPROPRIATIONS PROCESS

      The Department’s Illinois Bureau of Tourism’s (IBOT) 2007 and 2008 Travel Guide contract violates the State Officers and Employees Money Disposition Act (30 ILCS 230) and circumvents the appropriation process by not requiring the vendor to submit gross advertising revenues it collects for deposit into the State Treasury.

      The IBOT entered into a contract with a vendor to assist the Department in the ongoing development, production, and advertising sales of the State’s 2007 and 2008 Travel Guide.  The vendor was responsible for selling advertising and collecting revenue on behalf of the State.  The contract obligated the Department to pay the vendor $200,000 and allowed the vendor to retain the first $200,000 in advertising sales to offset the overall cost of producing the Travel Guide.  The contract also permitted the vendor to retain any sales over $300,000 minus a percentage of royalties paid to the Department. 

      In fiscal years 2007 and 2008, the vendor earned the following revenue pursuant to the terms of the contract:

      We noted $379,389 and $463,766 of advertising revenue (shown above as advertising sales less uncollectible receivables) was not deposited into the State Treasury in fiscal year 2007 and 2008, respectively.  This condition is attributed to a provision in the contract permitting the vendor to retain the revenue to offset the costs of producing the Travel Guide.  The Department has no statutory authority to allow a vendor to withhold any funds collected on its behalf. 

      Department management stated that while the Department has a review and approval process for executing contracts, the provision of the contract permitting the vendor to retain a portion of the advertising sales rather than submitting the gross amount of receipts to the Department was not given consideration during the contract review process.  (Finding 3, pages 18-19)

      We recommended the Department amend it contractual agreement to comply with the State Officers and Employees Money Disposition Act (the Act) or seek legislative remedy to enable them to operate in accordance with their contractual agreement. 

      Department officials agreed with our recommendation and indicated that they would seek legislative remedy to exempt the tourism travel guide revenue from the Act.

FAILURE TO DOCUMENT REASONABLE REIMBURSEMENT OF OUT-OF-COUNTRY TRAVEL

      The Department failed to document that out-of-country travel expenses reimbursed to employees were reasonable.

      Six of the 25 (24%) travel vouchers tested included reimbursements to employees for out-of-country travel.  In those 6 vouchers, we noted reimbursement for lodging rates on 3 vouchers (50%) that exceeded the estimated rates submitted to and approved by the Governor’s Travel Control Board (GTCB) by $2,729 as detailed below: 

*    The formula utilized to calculate these totals:

      (Number of Nights x Actual Rate Reimbursed) – (Number of Nights x Estimated Rate Approved by GTCB) = Excess Reimbursement Over Approved Rate

      Although the Department appears to have been submitting requests for approval of out-of-country travel in a timely manner, due to the significance of some of the discrepancies between the lodging rates approved by the GTCB and the actual rates incurred as well as a lack of documentation, we are unable to determine that sufficient effort was made in obtaining the lowest rate available.  Further, we cannot presume whether the actual rates incurred would have been considered “excessive” by the GTCB.

      Department management stated that they assumed the detailed documentation was unnecessary as they follow the Travel Guide’s “actual reasonable” policy for lodging rates.  The international traveler’s rates were “reasonable” as they were within the allowable rates published by the General Services Administration (GSA) and their corresponding Federal Travel Regulations which complies with the State Finance Act’s (30 ILCS 105/12-2(c)) travel reimbursement rate requirements.  (Finding 4, pages 20-21)

      We recommended the Department adequately document its efforts in obtaining the lowest rate available as well as justification for selecting accommodations which exceed established maximums or other approved rates.  

      Department officials agreed with our recommendation and indicated that they would seek revisions to the agency’s travel policy to improve traveler’s documentation efforts when obtaining the lowest hotel rate available. 

STATUS OF MANAGEMENT AUDIT

      In February 2006, the Office of the Auditor General released its report Management and Program Audit of the Illinois Department of Commerce and Economic Opportunity – Administration of its Economic and Development Programs (Economic and Development Programs audit).  The audit included 14 recommendations for improvement, 9 of which we followed up on during the two years ended June 30, 2008. 

      In August 2007, the Office of the Auditor General released two reports, Program Audit of Funding Provided by or through the State of Illinois to the Chicago Project for Violence Prevention for the CeaseFire program (CeaseFire audit) and Performance Audit of Payments to the Illinois Hispanic Chamber of Commerce by State Agencies (Hispanic Chambers audit).  The CeaseFire audit contained one recommendation that pertained to the Department and the Hispanic Chamber audit contained two findings that pertained to the Department.

      During fiscal year 2007 and 2008, we noted the Department implemented 4 of the 9 recommendations in the Economic and Development programs audit and 0 of the 3 recommendations in the CeaseFire and Hispanic Chambers audits.  The remaining recommendations were only partially implemented and will require follow-up during our next State compliance examination. 

A summary of the Department’s corrective actions follows:

Economic and Development Program Audit

·         The Department had created the eGrants system to replace its previous computer application.  Implementation is ongoing.  (Recommendation 1)

·         The Department no longer reports trainees in its calculation of jobs created and retained and separated the creation and retained job figures to projected and actual.  In order to address these issues the Department is adding an element to its eGrant application.  (Recommendations 2 and 4)

  CeaseFire and Hispanic Chamber

·         The Department was able to provide documentation showing that steps have been taken, such as developing the Monitoring and Reporting Standardization (MaRS) Project and establishing the Office of Accountability to address the auditor’s recommendations. 

OTHER FINDINGS

      Other findings are reportedly being given attention by Department management.  We will review progress toward implementation of our recommendations in our next State compliance examination.   

      ___________________________________

                  WILLIAM G. HOLLAND, Auditor General

WGH:JAF:pp

AUDITORS ASSIGNED

      Sikich LLP were our special assistant auditors for this engagement.