REPORT DIGEST

DEPARTMENT OF COMMERCE AND COMMUNITY AFFAIRS

FINANCIAL AND COMPLIANCE AUDIT
(In accordance with the Federal Single Audit Act of 1984 and OMB Circular
A-128)
For the Two Years Ended:
June 30, 1996

Summary of Findings:

Release Date:
May 21, 1997

State of Illinois
Office of the Auditor General

WILLIAM G. HOLLAND
AUDITOR GENERAL

Iles Park Plaza
740 E. Ash Street
Springfield, IL 62703
(217) 782-6046

SYNOPSIS

• Several State-mandated duties and responsibilities were not performed by the Department as required by law. Mandates not performed included those to award grants to certain economic regions designated as Corridors of Opportunity; to provide assistance to local governments in areas related to bond issues; to create awareness of the best techniques for business ownership succession; to support superconductivity research and disseminate information being conducted in the State; to deposit property sale proceeds in the Small Business Surety Bond Guaranty Fund; and to conduct an economic and educational feasibility study for the development of Parks College.

• The Department did not adequately monitor activities of a Community Service Block Grant (CSBG) subgrantee. The subgrantee was awarded federal funds from the Department to make loans to companies to stimulate new job growth and retain existing jobs. However, at June 30, 1996 the subgrantee had approximately $140,000 in unpaid loans which were in default.

{Expenditures and Cash Receipts are summarized on the reverse page.}

FY 1996

FY 1995

FY 1994

• Total Expenditures (All Funds)

OPERATIONS TOTAL
% of Total Expenditures
Personal Services
% of Operations Expenditures
Average No. of Employees
Other Payroll Costs (FICA,
Retirement, Group Insurance)
% of Operations Expenditures
Contractual Services
% of Operations Expenditures
All Other Operations Items
% of Operations Expenditures
AWARDS AND GRANTS TOTAL
% of Total Expenditures
DEBT SERVICE TOTAL
% of Total Expenditures
REFUNDS TOTAL
% of Total Expenditures

• Cost of Property and Equipment

$417,083,494

$ 79,131,156
19.0%
$ 17,063,302
21.6%
504

$ 3,763,956
4.8%
$ 6,161,662
7.8%
$ 52,142,236
65.9%
$324,286,728
77.68%
$ 13,583,692
3.3%
$ 81,918
.02%

$ 10,250,000

$426,786,629

$ 53,949,327
12.6%
$ 16,292,971
30.2%
429

$ 3,690,731
6.8%
$ 6,524,246
12.1%
$ 27,441,379
50.9%
$358,957,960
84.1%
$ 13,628,909
3.2%
$ 250,433
.1%

$ 9,023,000

$438,688,109

$ 47,622,020
10.9%
$ 15,590,884
32.7%
424

$ 3,409,965
7.2%
$ 6,088,618
12.8%
$ 22,532,553
47.3%
$377,170,948
86.0%
$ 13,811,094
3.1%
$ 84,047
.02%

$ 7,580,000

FY 1996

FY 1995

FY 1994

$326,421,816
48,397,766
9,497,054
3,762,989
$388,079,625

$322,110,798
47,980,356
9,168,807
3,025,857
$382,285,818

$328,401,151
59,362,206
12,173,786
1,802,848
$401,739,991

FY 1996

FY 1995

FY 1994

30,588
7,643
1,300

8,526

23,339
6,992
740

3,255

19,861
6,511
666

3,179

Currently: E. Norman Sims, Acting Director

The Department has not complied with several of its mandated duties and responsibilities.

Six instances of non-compliance with State mandated duties and responsibilities were identified.

The Department did not adequately monitor a subgrantee's activities.

$140,000 in unpaid loans are in default giving the subgrantee one of the highest delinquency rates in the State for this program.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

NONCOMPLIANCE WITH STATE MANDATES

Various State mandates have not been fully addressed by the Department, causing noncompliance with State laws and reporting requirements. We selected a sample of the State mandated duties and responsibilities applicable to the Department to test for compliance. Although in certain instances the Department had made efforts to implement some of the statutory requirements, the Department had not complied with several of its State mandates.

We noted compliance deficiencies in each of the following mandates:

• The Department's responsibility to award grants to certain economic regions of the State designated as Corridors of Opportunity and to monitor and report on the status of those grants.

• The requirement for the Department to provide assistance to local governments in preparing bond issues, reviewing bond proposals and assisting in the marketing of bonds.

• The requirement for the Department to create greater awareness of the best techniques for business ownership succession and employee ownership, emphasizing job retention and creation.

• The duty for the Department to support superconductivity research projects in areas with commercial applications and to establish a database and disseminate information on superconductivity research being conducted in the State.

• The Department's mandate to deposit property sale proceeds in the Small Business Surety Bond Guaranty Fund, for all property acquired under the Small Business Surety Bond Guaranty Act that is not held as collateral.

• The Departments requirement to conduct an economic and educational feasibility study for the future development of Parks College in coordination with the Board of Higher Education.

We recommended the Department take the necessary steps, such as reallocating resources, to comply with these statutory mandates or request that the mandates be rescinded. (Finding 1, page 8) This finding has been repeated since 1990.

Department officials agreed with our finding and stated they will pursue legislation to have these statutes rescinded or amended to more accurately reflect the Department's current activities under the statutes, and, in one case, to seek funding to comply with the statutory requirements.

Our 1994 audit also contained a finding on noncompliance with State mandates wherein we described five mandates with which the Department had not complied. The first of the six mandates listed above (Corridors of Opportunity) is repeated from our 1994 audit. (For previous Department responses, see Digest footnote #1)

INADEQUATE MONITORING OF SUBGRANTEE

During our testing we identified a subgrantee that the Department had designated as the Community Action Agency (CAA) recipient of Community Service Block Grant (CSBG) funds. CSBG funds are used to make loans to companies to stimulate new job growth and retain existing jobs. This subgrantee had been a designated Community Action Agency recipient of CSBG funds since 1986 even though it had no employees or assets. Federal guidelines require the Department to adequately monitor subgrantees to ensure funds are being managed in accordance with program rules and regulations. Failure to properly monitor subgrantees could result in a loss of federal funding for this program which totaled $18 million for fiscal year 1996.

Without any assets or employees, it was extremely difficult for DCCA to adequately monitor the subgrantee's activities. Federal guidelines for Community Action Agencies are designed to create an entity that has substance and can be monitored. This subgrantee had no substance and its activities were very difficult to track.

The subgrantee had received approximately $800,000 in Department grants over the past several years to fund a revolving loan program. The subgrantee awarded these funds on a sole-source basis to a not-for-profit organization which administered the revolving loan program. The Illinois Administrative Code (47 IL Admin. Code Ch. I Sec 120.115) indicates a loan is in default when arrearage reaches 90 days. As of June 30, 1996 approximately $140,000 in unpaid loans were in default giving the subgrantee one of the highest delinquency rates in the State for this program. This high delinquency rate was the result of the Department's inability to effectively monitor the activities of the subgrantee.

We recommended the Department require the subgrantee to develop clear criteria for making and evaluating loans and require the subgrantee to meet criteria which is consistent with other Community Action Agencies in the State. (Finding #11, page 183)

Department officials agreed with our finding and indicated the subgrantee has hired staff to administer this grant program. In addition, Department officials stated they have been working with the subgrantee to establish clear criteria for evaluating loans in accordance with CSBG guidelines and will continue to more closely monitor the subgrantee's performance.

OTHER FINDINGS

The remaining findings are less significant and have been given appropriate attention by the Department. We will review progress towards the implementation of our recommendations in our next audit.

Ms. Nancy Hilger, Chief Internal Auditor, provided the Department's responses.

AUDITORS' OPINION

Our auditors state the Department's financial statements as of June 30, 1996 and 1995 are fairly presented.

____________________________________
WILLIAM G. HOLLAND, Auditor General

WGH:RPU:pp

SPECIAL ASSISTANT AUDITORS

Friedman, Eisenstein, Raemer and Schwartz, LLP were our special assistant auditors for this audit.

DIGEST FOOTNOTE

#1 NONCOMPLIANCE WITH STATE MANDATES - Previous Agency Responses.

1990: "We concur with the finding and recommendation only to the extent that the Department has on several occasions tried to recommend legislation to rescind various of the cited provisions, and in at least one example, has almost been successful in securing funding for the requirement."" (Response continues with explanations of past efforts and efforts to be undertaken.)

1992: "Partially Agree. We concur with the finding and recommendation only to the extent that the Department has on several occasions tried to recommend legislation to either fund or rescind various cited provisions." (Response continues with explanations of past efforts and efforts to be undertaken.)

1994 The Department "Agreed" to the recommendation to pursue legislation to have three of the five identified mandates rescinded. They "Partially Agreed" to the recommendation for the other two mandates, indicating they would attempt to amend the statute to more accurately reflect the Department's approach and resources for one of the mandates. In the case of the other mandate they indicated there was no funding currently available, but thought the program may be revised in future years and therefore would not take any action to rescind the statute.