REPORT DIGEST

Failure to document enforcement activities in a timely or sufficient manner

Investigative Report completed 37 to 167 days late

The Chief Prosecutor was late in reviewing and assigning cases

Investigator interviews performed 70 and 142 days late

Files did not include the acknowledgement letter sent to the complainant

Documents not maintained in the files

The Chief of Probation Investigations was late in reviewing and assigning cases

Interagency agreements were not signed before the effective date of the contract

Failure to document allocation methodology

FY 07 monthly receipt reconciliations were not started until FY 08 and were not completed until September and October of 2007

Department officials stated the receipt reconciliations are complicated by several legacy financial systems

Timesheets not maintained for union employees

Social Work Examining and Disciplinary Board

Board of Nursing

State Board of Pharmacy

Board of Orthotics, Prosthetics and Pedorthics

Board of Currency Exchanges

State Banking Board

Public Accountant Registration Committee

Massage Licensing Board

Real Estate Administration and Disciplinary Board

Board of Debt Management Service Advisors

Real Estate Education Advisory Council

Board of Dentistry

Insurance policy forms approved or denied 20 to 281 days late

746 residential mortgage licensees not examined in a timely manner

INTRODUCTION

This report presents our State compliance examination of the Department of Financial and Professional Regulation and our financial audit of the Security Deposit Fund for the year ended June 30, 2007.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

NEED TO IMPROVE TIMELINESS AND DOCUMENTATION OF ENFORCEMENT ACTIVITIES

The Department’s Division of Professional Regulation’s Enforcement Unit did not perform and/or document enforcement activities in a timely or sufficient manner.

The Department has established and implemented guidelines and time frames for significant investigation, prosecution, and probation/compliance activities of the Enforcement Unit. Since the Department did implement guidelines to ensure that the investigation and prosecution activity is initiated and completed within reasonable time parameters, we used their guidelines and time frames as the criteria for our tests.

We reviewed 33 investigation files and noted the following deficiencies:

· In 5 out of 33 (15%) case files reviewed, the Investigative Reports were not generated within 30 days of the investigative activity. The completion of the investigative reports ranged from 37 to 167 days late.

· In 2 out of 33 (6%) case files reviewed, the Chief of Investigations did not review the initial claim and delegate the case to an investigator or supervisor within 10 business days of receipt. The completion of the Chief of Investigations’ review ranged from 41 to 50 days late.

· In 2 out of 33 (6%) case files reviewed, we noted that the Investigator did not interview the complaining witness within 30 calendar days from the date assigned to the case. For both of the cases, the interviews were 70 and 142 days late.

We reviewed 35 prosecution files and noted the following deficiencies:

· In 3 out of 35 (9%) case files reviewed, the acknowledgement letter sent to the complainant was not maintained in the case file. Therefore, we were unable to determine if one was completed or filed within 30 days of initial receipt.

· In 2 out of 35 (6%) case files reviewed, we noted the Consent Order in the case file was not signed by the Director following review by the attorney.

· In 2 out of 35 (6%) case files reviewed, the Notice of Formal Complaint, the Notice of Informal Conference, the Notice of Disciplinary Hearing, an Investigative Report, and an Investigative Summary Report were not maintained in the file.

We reviewed 7 probation files and noted the following deficiencies:

· In 4 out of 7 (57%) case files reviewed, the Chief of Probation Investigations did not review the file and assign the case to a probation investigator within 10 days of the Consent Order. The completion of the Chief of Probation Investigations’ review ranged from 12 to 34 days late. (Finding 1, pages 15-18) This finding was first reported in 2004.

We recommended the Department comply with the State Records Act and maintain the documentation required within its Enforcement Unit files. Further, the Department should allocate the resources necessary to comply with its internal guidelines for the Enforcement Unit to ensure that case files and the Regulatory Administration and Enforcement System reflect necessary and significant investigative, prosecution, and probation/compliance activities within the Department’s established time frames.

The Department concurred with the recommendation in that certain Division of Professional Regulation activities were not performed timely and/or were not appropriately documented. The Department further concurred that Division of Professional Regulation investigators and prosecutors should perform and document their activities within the timeframes and in the manner set forth in the Department’s policy manual.

The Department stated that it is important to note that not all aspects of an investigation or prosecution are within the control of the Division of Professional Regulation. To that end, the Department has, in the exercise of its control of the investigation and prosecution processes, undertaken revision of the Investigation and Probation sections of its Enforcement Policy Manual. The Division is currently in the process of completing similar revisions to the Manual’s Prosecution section. (For previous Department response, see Digest Footnote #1.)

NEED TO IMPROVE CONTROLS OVER INTERAGENCY AGREEMENTS

The Department’s controls over interagency agreements were deficient.

During our examination of three interagency agreements (two between the Department and the Governor’s Office of Management and Budget and one between the Department and the Department of Healthcare and Family Services), the following deficiencies were noted:

· 3 out of 3 (100%) interagency agreements tested, totaling $106,750, were not signed by all necessary parties before the effective date. The agreements were signed 105 to 296 days late.

· 2 out of 3 (67%) interagency agreements tested pertaining to legal services, totaling $74,978, did not include supporting documentation detailing the methodology used for determining the percent allocation to be paid by the Department for billing of shared services. (Finding 2, pages 19-20) This finding was first reported in 2006.

We recommended the Department ensure all interagency agreements are approved by an authorized signer prior to the effective date of the agreement. Further, the Department should require all interagency agreements include methodology supporting the percent allocation and the billing of shared services.

Department officials concurred with our recommendation and stated that the Department has modified its process to ensure that all interagency agreements to which it is a party describe the method of allocating the vendor payment obligation. Further, the Department will endeavor to ensure that all interagency agreements to which it is party are approved prior to the effective date. (For previous Department response, see Digest Footnote #2.)

FAILURE TO TIMELY RECONCILE DEPARTMENT RECEIPT RECORDS TO THE STATE COMPTROLLER RECORDS

The Department did not perform timely reconciliations of Department receipt records to the Illinois Office of the Comptroller records, as required by the Statewide Accounting Management System (SAMS).

During the engagement period, the Department’s receipts totaled $508,122,989. Receipts are collected by the Department through five different cash systems. Our testing of monthly receipt reconciliations of Department records to the Comptroller’s Monthly Revenue Report noted the Department failed to perform timely receipt reconciliations for all twelve months of fiscal year 2007 for Division of Professional Regulation funds. All monthly reconciliations were not started until after the end of fiscal year 2007 (July 2007) and not completed until September 2007. Additionally, reconciliations for the months of January through June 2007 for the Division of Banking’s Savings and Residential Finance Regulatory Fund (0244) were not started until after the end of fiscal year 2007 (July 2007) and not completed until October 2007.

Department personnel stated the timeliness and accuracy of receipt reconciliations are complicated due to the use of several legacy financial systems and the current implementation process of the Integrated Licensing and Enforcement System (ILES) for the Division of Professional Regulation. The implementation of the ILES has been initiated, but was not completed as of June 2007. (Finding 3, pages 21-22) This finding was first reported in 2003.

We recommended the Department ensure monthly reconciliations are performed in accordance with SAMS procedures to ensure accurate financial reporting.

Department officials concurred with our recommendation and stated they will continue to work to consolidate and standardize the reconciliation process to ensure monthly receipt reconciliations are performed in a timely manner. (For previous Department response, see Digest Footnote #3.)

TIMESHEETS NOT MAINTAINED FOR CERTAIN EMPLOYEES

The Department is not maintaining time sheets for union employees in compliance with the State Officials and Employees Ethics Act (Act).

The Department expended $45,454,049 for payroll and had an average of approximately 601 union employees during fiscal year 2007.

The Department has implemented an additional timekeeping system that is primarily used to track time for merit compensation employees. This system does track time employees spend on State business, but is not used for union employees and is not the official timekeeping system for the Department. It is also not reconciled to the official CMS timekeeping system. Department management stated they plan to extend the additional system to the union employees in fiscal year 2008. (Finding 6, page 27) This finding was first reported in 2004.

We recommended the Department amend its policies to require all employees to maintain time sheets in compliance with the Act.

Department officials concurred with our recommendation and stated that at the time of the audit the Department did not maintain time sheets for union employees. On July 2, 2007, however, the Department implemented the Ethics Timekeeping Work Diary for all employees, so this finding has been corrected. (For previous Department response, see Digest Footnote #4.)

DEPARTMENT BOARDS NOT FULLY STAFFED

The Secretary of the Department did not appoint the required number of members to the various Boards in order to fill vacancies.

· The Secretary of the Department did not appoint two members to the Social Work Examining and Disciplinary Board in order to fill vacancies. A vacancy existed for one licensed social worker and one licensed clinical social worker since January 2004.

· The Secretary of the Department did not appoint 5 members to the Board of Nursing in order to fill vacancies. Vacancies existed for one LPN educator, one public member, one APN (CRNA), one LPN, and one APN (CNM).

· The Department’s Division of Professional Regulation was not in compliance with the provisions of the Pharmacy Practice Act of 1987 (Act) (225 ILCS 85/10) regarding the State Board of Pharmacy. During our testing we noted one of nine (11%) positions (licensed pharmacist) has been vacant since December 2005 and two of nine (22%) positions (licensed pharmacist) were held by individuals with terms that expired April 2004 and April 2007.

· The Secretary of the Department did not appoint members to the Board of Orthotics, Prosthetics, and Pedorthics (Board). During our testing we noted that four of six (67%) positions were held by individuals with expired terms. We also noted that two of six (33%) positions (public member and consumer) have been vacant since October 2006 and February 2001.

· The Department’s Division of Financial Institutions was not in compliance with the provisions of the Currency Exchange Act (Act) (205 ILCS 405/22.03) regarding the Board of Currency Exchange Advisers. During our testing we noted that seven out of seven (100%) board positions were vacant. We noted that one position has been vacant since January 1997, two positions have been vacant since January 1998, two positions have been vacant since January 1999, and two positions have been vacant since January 2001. Department personnel stated they were unaware of when the Board last met.

· The Department’s Division of Banking was not in compliance with the provisions of the State Banking Act (Act) (205 ILCS 5/78) regarding the State Banking Board. During our testing we noted that one of four (25%) Class A positions were vacant, nine of ten (90%) Class B positions were vacant, and one of two (50%) Class C positions were vacant.

· The Secretary of the Department did not appoint two members, who are Licensed Certified Public Accountants, and one member who is not a licensed member, to the Public Accountant Registration Committee in order to fill vacancies that have existed since November 2006, May 2007 and August 2006, respectively. In addition, one public accountant position was held by an individual whose term expired in January 2003.

· The Secretary of the Department did not appoint a member to the Massage Licensing Board in order to fill a vacancy. A vacancy existed for one of six (17%) massage therapist member positions since May 2006.

· The Department’s Division of Professional Regulation was not in compliance with the provisions of the Real Estate License Act of 2000 (Act) (225 ILCS 454/25-10). We noted that one of six (17%) positions (actively engaged broker or salesperson) has been vacant since October 2006 and two of three (67%) positions (public members) have been vacant since October 2003 and October 2005, respectively. Additionally, four of six (67%) positions were held by individuals with terms that expired in October 2006.

· The Department’s Division of Financial Institutions was not in compliance with the provisions of the Debt Management Service Act (Act) (205 ILCS 665/15.1-15.3) regarding the Board of Debt Management Service Advisors. During our testing, we noted that three out of five (60%) board positions were vacant. We noted that 2 positions have been vacant since November 2005 and 1 position has been vacant since February 2006. Additionally, two of five (40%) positions were held by individuals with terms that expired in July 2004 and July 2005. Department personnel stated they were unaware of when the Board last met.

· The Department’s Division of Professional Regulation was not in compliance with the provisions of the Real Estate License Act of 2000 (Act) (225 ILCS 454/30-10). During our testing, we noted that 1 of 7 (14%) position (licensee) on the Advisory Council has been vacant since December 2005. Additionally, 3 of 7 (43%) positions were held by individuals with terms that expired in October 2003 (1 position) and October 2006 (2 positions).

· The Department’s Division of Professional Regulation was not in compliance with the provisions of the Illinois Dental Practice Act (Act) (225 ILCS 25/6). During our testing, we noted that 4 of 11 (36%) positions (3 dentists and 1 dental hygienist) were held by individuals with terms that expired in October 2005 (1 position), December 2006 (2 positions) and April 2007 (1 position).

Department management stated they are currently reviewing qualified candidates to fill the vacancies. Department management stated it is difficult to find willing candidates to fill the positions. Reappointments were not made due to oversight. (Finding 12, pages 37-43) This finding was first reported in 2004.

We recommended the Secretary appoint qualifying members to these Boards as required by the Acts cited and reappoint applicable Board members in a timely manner. In those cases where the Governor’s Office is required to appoint the Board members we recommend the Department work with the Governor’s Office to fill Board vacancies by appointing qualified members to the Boards.

Department officials concurred with our recommendation regarding insufficiencies in staffing certain advisory boards. (For the previous Department response, see Digest Footnote #5.)

FAILURE TO TIMELY APPROVE/DENY INSURANCE COMPANY POLICY FORMS

The Department’s Division of Insurance failed to approve/deny life, accident, and/or health insurance policy forms submitted by insurance companies in a timely manner as required by the Illinois Insurance Code.

During our testing, we noted that 21 out of 25 (84%) policy forms reviewed were not approved or denied on a timely basis. These policy forms were approved or denied between 20 to 281 days later than the maximum 90 day time period.

Department personnel stated that the policy forms were not being approved or disapproved within the required timeframe due to a shortage in staff. In addition, many of these reviews are complex and lengthy. (Finding 14, page 45) This finding was first reported in 2006.

We recommended the Department implement procedures to ensure life, accident, and/or health insurance policy forms are properly approved or disapproved in a timely manner as required by the Code.

Department officials concurred with our recommendation and stated the new filings that the Division of Insurance is receiving are becoming more complex and lengthy as companies file new products to keep up with their competitors. Last year, the Department implemented an expedited review process that should improve the timeliness of approvals. (For the previous Department response, see Digest Footnote #6.)

FAILURE TO CONDUCT RESIDENTIAL MORTGAGE LICENSE EXAMINATIONS TIMELY

The Department failed to timely conduct examinations of the affairs of residential mortgage licensees.

During our testing, we noted examinations had not been conducted timely for 746 of the 1,578 (47%) residential mortgage licensees required to have an examination. The 746 examinations were late as follows:

· 161 were 1 to 5 months late

· 119 were 6 to 10 months late

· 127 were 11 to 15 months late

· 70 were 16 to 20 months late

· 108 were 21 to 25 months late

· 79 were 26 to 30 months late

· 82 were 31 to 48 months late

Department personnel stated due to staff shortages, the Department has not been able to complete all examinations in the required timeframe. Although additional examiners were hired during the year, much of their initial time was spent on training and educational courses due to the highly technical industry. (Finding 15, pages 46-47) This finding was first reported in 2004.

We recommended the Department ensure examinations are conducted within the required timeframe and to ensure licensees are in compliance with the Residential Mortgage License Act.

Department officials concurred with our recommendation and stated that additional examiners were added from the HB 4050 Program to assist with the backlog of examinations. The past audit finding was mainly due to out-of-state examinations that had travel restrictions. Since the audit finding, the Department has received approval from the Governor’s Office for out-of-state examination travel. The Department will continue to ensure examinations are conducted within the required timeframe and that licensees are in compliance with the Residential Mortgage Act of 1987. (For the previous Department response, see Digest Footnote #7.)

AUDITORS’ OPINION

Our auditors reported that the Department of Financial and Professional Regulation’s financial statement of the Security Deposit Fund #1109, as of and for the year ended June 30, 2007 is fairly stated in all material respects.

____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:TLD:pp

SPECIAL ASSISTANT AUDITORS

Sikich LLP was our special assistant auditors for this audit and examination.

DIGEST FOOTNOTES

#1 – ENFORCEMENT ACTIVITIES NOT PERFORMED TIMELY AND NOT SUFFICIENTLY DOCUMENTED

2006: The Department concurred with the recommendation in that the investigators and prosecutors should perform and document their activities within the timeframes and in the manner as set by the policy manual. However, the Department did not concur with the conclusion that enforcement files that are not in strict compliance with the policy manual create a significant public risk. The policy manual guidelines are internal guidelines to guide employees in the completion of their responsibilities. It is important to note that not all aspects of an investigation or prosecution are within the control of the Department. To achieve that end, the Department will develop a written case review policy and directive. The directive will instruct the Chiefs of the investigation, prosecution and probation units on what to look for and what to measure during the case reviews. The Chiefs of the investigation, prosecution and probation units will be instructed to follow the policy guidelines to ensure that all deadlines are met on a timely basis. They will hold monthly case reviews with the investigators, prosecutors and probation officers to ensure that the deadlines are enforced and to ensure that all RAES/ILES entries are recorded in a timely manner. Further, the Department is working with IT to develop automated notices to inform the Chiefs when cases fall outside of policy timelines. To ensure the files are properly maintained random case file reviews will be conducted to ensure that the documents in the files match the ILES documentation input by the employees. Additionally, the Department is undertaking a complete revision of the enforcement policy manual to assure that all policy guidelines are current, necessary, and designed to enhance the Department’s ability to investigate and prosecute violations of the acts and rules.

#2 – NEED TO IMPROVE CONTROLS OVER INTERAGENCY AGREEMENTS

2006: Concur. The Department will take the necessary steps to ensure that the recommendations of the auditors are implemented for future interagency agreements.

#3 – FAILURE TO TIMELY RECONCILE DEPARTMENT RECEIPT RECORDS TO THE ILLINOIS OFFICE OF THE COMPTROLLER RECORDS

2006: Concur. The agency has taken interim steps to consolidate the receipt reconciliations responsibilities within the Financial Reporting Section of the Division of Fiscal Operations. The failure to perform the reconciliation in a timely manner was due to the loss of staff within this section and the use of two financial systems. Regulatory Administration and Enforcement (RAES) and Integrated Licensing and Enforcement System (ILES) for the Department of Professional Regulations. The implementation to one system, ILES, for the Department of Professional Regulation has been completed but not until FY07.

#4 – TIME SHEETS NOT MAINTAINED FOR UNION EMPLOYEES

2006: Concur. We are reviewing and addressing the timkeeping procedure for all IDFPR union employees.

#5 – DEPARTMENT BOARDS NOT FULLY STAFFED

2006: Concur. The Department will continue to work with the Governor’s Office to fill the remaining vacancies on the State Banking Board of Illinois.

#6 - FAILURE TO TIMELY APPROVE/DENY INSURANCE COMPANY POLICY FORMS

2006: Concur. The Division of Insurance agrees that this continues to be a problem and will continue to strive to meet this requirement. In an effort to address this issue we have taken steps to fill a supervisory position over the LAH Compliance Unit. In March 2007, consistent with the practices of other states, the Division instituted a consumer-focused process for the certification of life and annuity filings.

#7 - FAILURE TO CONDUCT RESIDENTIAL MORTGAGE LICENSE EXAMINATIONS TIMELY

2006: Concur. The Department acquired several new Mortgage Banking examiners during calendar year 2006. However, most of the new examiners were not available during the initial months of 2006 due to their training and educational courses. Mortgage Banking Examination is a highly technical and very specialized profession. The Department has cleared the backlog of examinations and as a result of examinations will be up to date within fiscal year 2008. The Department will ensure examinations are conducted within the required timeframe and that licensees are in compliance with the Residential Mortgage License Act of 1987. The Department anticipates that all examinations are conducted within the required timeframe and to ensure licensees are in compliance with the Residential Mortgage License Act of 1987.