Our audit of the financial statements of the Department of Children and Family Services for the year ended June 30, 1999 resulted in a qualified opinion. The Department did not maintain adequate control over its property and equipment, leases and installment purchases, or the Children’s Trust Agency Fund. As a result of these weaknesses, certain amounts reported in the financial statements and accompanying notes are management's estimates and were not audited. These amounts could be materially misstated as follows:

Annual property inventories were not performed for Fiscal Years 1999, 1998 or 1997. In addition, the Department did not maintain a property control log or an Additions and Deletions Register for Fiscal Years 1999 or 1998. Our tests revealed items on the inventory listing that could not be located, and located items that were not included on the Department’s inventory listing. The Department’s financial statements reported approximately $34 million in property, plant and equipment at June 30, 1999, $9 million in property additions and $7 million in property deletions for Fiscal Year 1999. (Finding 1, pages 23-24)

Information concerning new leases and multi-year installment purchases and the related acquired equipment was not accumulated or reported properly. Original contracts were not properly processed within the Department making it impossible for the Department or the State Comptroller to timely record, report and classify the transactions. Due to the lack of sufficient evidence as to the existence or amounts of such transactions, the General Long-Term Debt Account Group (other than vested vacation and sick pay), the General Fixed Assets Account Group and the related notes were not audited. (Finding 2, pages 25-26)

Cash reported in the locally held Children’s Trust Fund clearing account had not been reconciled beyond November 30, 1998 as of October 31, 1999 when we completed our audit fieldwork. This clearing account processes approximately $25 million in checks annually which are held in a fiduciary capacity for wards of the Department. Cash balances in the approximately 7,000 children’s savings accounts have numerous transactions related to the check clearing account. Until the check clearing account has been reconciled, we are unable to verify that inter-account transactions are accurately recorded. (Finding 4, pages 28-29)

Department officials agreed with each of these findings and stated they are drafting new procedures and reassigning responsibilities as necessary to correct the weaknesses noted. Department officials also noted they will complete discussions with their current commercial bank provider for the Children’s Trust Fund regarding unexplained account debits and credits and if necessary they will seek approval to change the bank service provider.

The Department did not initiate an investigation of some child abuse and neglect cases within 24 hours of receipt of the reports as required by the Abused and Neglected Child Reporting Act. Department statistics indicate the following noncompliance:

Failure to respond to a report of abuse or neglect within 24 hours is a violation of the Act and could result in further endangerment of the child. (Finding 10, pages 41-42)

We recommended the Department initiate investigations of all child abuse and neglect reports within 24 hours of receiving the report as mandated by State law.

Department officials agreed and responded they will continue efforts to try to achieve 100% compliance in the future.

Reports of child abuse and neglect were not always determined within 60 days as required by the Abused and Neglected Child Reporting Act. The Act states the Department shall determine, within 60 days, whether a report is "unfounded" or "indicated" and provides that the Department may extend the period up to an additional 30 days for good cause. Department statistics indicate the following noncompliance:

Failure to make a determination of a report within 60 days is a violation of the Act, could delay the implementation of a service plan, and could result in further endangerment of the child. (Finding 11, pages 43-45)

We recommended the Department determine reports of child abuse or neglect within 60 days as mandated by State law.

Department officials agreed and stated their goal is to eliminate overdue reports. They said they are working aggressively to comply by redesigning procedures to more closely monitor investigations to assure timely completion.

During our review of Child Welfare files, we noted that initial service plans for each child were not always prepared timely. An initial service plan must be developed within 60 days of placement to meet the Code of Federal Regulations requirement, par. 1356.21(d)(2) and within 30 days to meet Department Procedure 305.50 and State law (325 ILCS 5/8.2, Abused and Neglected Child Reporting Act).

Our sample of 40 initial case plans noted that 18 did not meet the State requirement, ranging from 5 days to 3,355 days late. Of this sample, 14 did not meet the federal requirement, ranging from 3 days to 3,325 days late.

Fiscal Year 1999 federal expenditures under this program totaled approximately $11.6 million and noncompliance with federal requirements could affect federal funding. In addition, the failure to follow Department procedures and State law or maintain documentation of such is not in the best interest of the children being served. (Finding 5, pages 30-31)

Department officials agreed with our recommendation to stress the importance of preparing initial service plans timely to all caseworkers. Department officials also stated they prefer to believe the documentation was prepared but misplaced during a transfer of files in the first half of the 1990’s. Further, the Department plans to conduct additional reviews of files to provide additional assurance of file completion.

The Department had not performed timely desk reviews of subrecipient audit reports and, therefore, had not evaluated all of its subrecipients’ audit findings or monitored the required corrective actions. During our analysis of the desk review status of 94 providers, we noted:

Desk reviews of subrecipient audit reports are required procedures performed by Department personnel to identify any deficiencies or instances of noncompliance or questioned costs. Department statistics reflect that out of 412 desk reviews required, only 70 were completed as of June 30, 1999. Of the 342 desk reviews not completed, 239 were in progress.

In order to be effective, desk reviews should be completed within 12 months of the subrecipient’s year-end or prior to the renewal of the provider contracts. Without timely and proper evaluation of subrecipient audit reports, the Department is unable to ensure the correction of deficiencies by providers participating in the Department’s programs. (Finding 6, pages 32-34)

Department officials agreed with the finding and recommendation and stated the Office of Field Audits is working with the Department’s provider contracting and payment units to develop policies that will create increased incentives for providers to submit their audit reports timely. Further, the Department has issued an RFP soliciting contractor interest in supplementing the desk review staff during peak periods.

The Department did not have adequate procedures for monitoring those subrecipients it determined to have excess revenues, which are required to be returned to the Department. The desk review process performed by the Department on subrecipient audit reports includes the determination of unallowable costs and revenues in excess of the total allowable expenses. Contracts with providers state that, if there are excess revenues remaining after all expenses have been satisfied, the provider shall return those funds. To settle the excess revenues identified, providers may issue a check payable to the State or offset the amount against subsequent payments due to them.

Excess revenues identified in the desk reviews performed from fiscal years 1995-1997 totaled $6,761,059 and the status of the recovery of these amounts was not formally monitored by the Department. Of this amount, $588,778 relates to amounts due from subrecipients that went out of business. In addition, $1,449,214 relates to the federal portion of questioned costs which may have to be refunded to the federal funding agency. (Finding 9, pages 39-40)

We recommended the Department develop a formal monitoring and follow-up process on the resolution or settlement of the excess revenues identified in the desk review process.

Department officials agreed with our recommendation and responded they have established a multi-division working group to make recommendations to the Director regarding improving the timeliness and effectiveness of resolution/settlement policies. They are revising procedures for analysis of federal claiming and necessary adjustments.

The Department did not have procedures in place to ensure the timely deposit of all cash receipts and cash refunds.

We noted that checks were received in one area and then sent to another area of the Department where they were held for as long as 202 days before being deposited into the proper local bank. Of 53 receipts selected for testing, only 10 were deposited on a timely basis (within one week). The remaining 43 checks were held from 8 to 202 days and amounted to approximately $53,000. These funds were not earning interest and there was risk of potential loss due to theft or misplacement. (Finding 3, page 27)

Of the 235 cash receipts and cash refunds examined in Fiscal Year 1999, 7 refunds, ranging from $274 to $116,106 were not deposited into the State Treasury within the time periods required. Untimely deposits increased the chances that funds could be misplaced or misappropriated. (Finding 13, pages 48-49)

Department officials agreed that deposits must be made more timely. They stated they will review the entire receipts and depositing process to identify opportunities for improved timeliness and efficiency.

The Office of Internal Audits did not audit all of the Department’s major systems of internal administrative and accounting controls during Fiscal Years 1999, 1998 and 1997 as required by the Fiscal Control and Internal Auditing Act. Of the twenty-one internal audits planned for 1999, only four were completed. According to Department personnel, the Office of Internal Audits was unable to perform most of the planned audits due to staffing deficiencies and being assigned special projects by management. The completion of internal audits could provide recommendations which could result in cost savings, improved internal controls, increased operating efficiency and increased program effectiveness. (Finding 14, page 50) This finding has been repeated since 1986.

We recommended the Department comply with all provisions of the Fiscal Control and Internal Auditing Act.

Department officials agreed with the finding and recommendation and stated they have approved a new Office of Internal Audits mission and charter consistent with the requirements of the Act. Inappropriate operating duties have been reassigned. The Office is almost fully staffed, and they expect to be in full compliance with the Act for FY 2000. (For previous Agency responses, see Digest Footnote #1.)

The remaining findings are being addressed by the Department. We will review progress toward the implementation of our recommendations in our next audit.

Mr. Jess McDonald, Director of the Department, provided the agency’s responses.

Our auditors expressed a qualified opinion on the Department’s June 30, 1999 financial statements because the Department did not maintain adequate control over its property and equipment, leases and installment purchases, and the Children’s Trust Agency Fund.

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WILLIAM G. HOLLAND, Auditor General

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Our special assistant auditors on this audit were Friedman Eisenstein Raemer and Schwartz, LLP.