REPORT DIGEST
DEPARTMENT OF HUMAN SERVICES
FINANCIAL AUDIT
For the Year Ended: June 30, 2010
Summary of Findings:
Total this audit: 5
Total last audit: 6
Repeated from last audit: 5
Release Date: April 28, 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
This digest covers our financial audit of the Department of
Human Services (Department) for the year ended June 30, 2010. A two year compliance attestation examination
and a one year financial statement audit will be performed for the period(s)
ending June 30, 2011. The auditors
identified four findings involving the internal control over financial
reporting and one finding related to noncompliance with laws, rules and
regulations that affect financial reporting.
The findings are presented in the report beginning at page 52. Following is a summary of three of the
findings included in this report digest.
SYNOPSIS
• Weaknesses were identified in the preparation of the
generally accepted accounting principle (GAAP) reporting forms submitted to the
Illinois Office of the Comptroller and preparation of year-end Department
financial statements.
• The Department had various internal control weaknesses
over commodity inventories at several locations.
• Two of the Department’s Centers remained decertified as eligible Medicare or Medicaid service providers.
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
WEAKNESSES IN PREPARATION OF FINANCIAL INFORMATION AND GAAP
REPORTING FORMS
During the audit of the June 30, 2010 Department financial
statements numerous problems were noted.
Some of the conditions identified are as follows:
• Year end Generally Accepted Accounting Principle (GAAP) reports submitted to the State
Comptrollers’ Office contained numerous inaccuracies and required corrections
which delayed audit testing of the financial statements and the Schedule of
Expenditures of Federal Awards prepared by the Department. Auditors did not receive the final draft of
the financial statements from the Department until February 22, 2011,
approximately five months late.
• During testing of liabilities for the General Revenue
Fund, auditors noted amounts that were duplicated. As a result, an adjusting entry in the amount
of $23.420 million was proposed by the auditors and made by the Department to
correct the misstatement.
• Receivable totaling $11.889 million in the USDA Women,
Infants and Children Fund were not recorded or considered when completing the
fund GAAP reporting package. As a
result, current year expenditures were overstated by this amount. This resulted in the auditors proposing a
material adjustment to correct the misstatement.
• Expenditures as originally reported for the Rehabilitation
Services program were understated by $12.521 million. The Department identified the error and
submitted an updated GAAP report to the Comptroller. Upon subsequent completion and final
reconciliation of expenditures for the program, the Department noted
expenditures reported for the fund were not accurate. As a result, the GAAP reporting form required
a second revision to reduce expenditures by $5 million.
Department Management attributed the delays and errors to
the late submission of financial information from other State agencies and
component units, as well as a lack of sufficient staff with adequate
qualifications, education and experience to prepare the GAAP forms and
financial statements.
Because of the significance of the weaknesses in preparation
of GAAP reporting forms submitted to the Illinois Office of the Comptroller and
preparation of year end Department financial statements, this is considered a
material weakness in the Department’s internal control. A material weakness is a deficiency, or a
combination of deficiencies, in internal control, such that there is a
reasonable possibility that a material misstatement of the entity’s financial
statements will not be prevented, or detected and corrected on a timely
basis. (Finding 10-1, pages 52-55)
We recommended the Department implement procedures and
cross-training measures to ensure GAAP Reporting Packages are prepared in a
timely, accurate and complete manner.
Department officials accepted the recommendation and
indicated they are working to gain approval to hire staff with necessary
qualifications and a corrective action plan is being implemented that includes
cross-training wherever possible.
INADEQUATE CONTROLS OVER COMMODITIES
During testing several exceptions and weaknesses were noted
in the area of commodity inventories.
The exceptions and weaknesses were noted at individual facilities,
multiple warehouses, and Central Office locations. Following are some of the inventory problems
noted during testing:
• Nineteen facilities, 2 warehouses, and 13 pharmacies
failed to perform a complete year-end physical inventory count in close
proximity to the end of the fiscal year.
• Weaknesses in segregation of duties for annual inventory counting were noted at nine of twenty-one (43%) locations.
• Three clerical errors in year-end inventory count
documentation were noted including incomplete forms and incorrect inventory
count dates.
Strong internal controls require a centralized oversight
function related to commodities. This is
important considering the Department made commodities expenditures of $26.14
million during fiscal year 2010. In
addition, the Department recorded ending commodity inventories of $9.42 million
at June 30, 2010. (Finding 10-2, pages
56-58) This finding was first reported
in 1999.
We recommended the Department continue strengthening its
oversight function related to commodities to allow for improved internal
controls.
Department officials agreed with the recommendation and
noted they will identify strategies to continue strengthening its oversight
function related to commodities. (For
the previous Department response, see Digest Footnotes #1.)
FAILURE TO COMPLY WITH MEDICARE AND MEDICAID CERTIFICATION
REQUIREMENTS
Two of the Department’s facilities, Howe Developmental
Center (Howe) and Tinley Park Mental Health Center (Tinley), continued to
remain decertified during fiscal year 2010 as eligible Medicare or Medicaid
service providers.
The Department lost approximately $21.646 million of federal
revenue during fiscal year 2010 due to the decertification status of Howe. As the process of closing Howe proceeded, and
residents were moved from Howe into settings that were certified, the revenue
lost was reduced.
Tinley, which was decertified on February 23, 2007, had
applied for its recertification. A
certification survey was completed on September 16, 2009, on October 21, 2009 a
report ruling was issued that Tinley remained out of compliance and that the
facility remain decertified. The
Department disagreed with the report and filed an appeal on December 16, 2009
which was denied. A request for a
hearing was submitted and was also denied.
The Department must now initiate a new application for certification of
Tinley.
As of June 30, 2010, Tinley did not maintain housing for any
Medicare/Medicaid patients. A screening
process was implemented at Madden Mental Health Center to identify patients
with Medicaid or Medicare eligibility.
These patients were sent to State hospitals with certification, as
opposed to Tinley, increasing the burden to provide care at those
locations. (Finding 10-5, pages
63-64) This finding was first reported
in 2007.
We recommended the Department continue its efforts to
recertify Tinley Park Mental Health Center.
Department officials agreed with the recommendation and
indicated the Department will continue its efforts to recertify Tinley Park
Mental Health Center and will reapply for certification by the end of fiscal
year 2012. (For the previous Department
response, see Digest Footnotes #2.)
OTHER FINDINGS
The remaining findings are reportedly being given attention
by the Department. We will review the
Department’s progress towards the implementation of our recommendations in our
next engagement.
AUDITORS’ OPINION
The auditors stated the Department of Human Services
financial statements as of June 30, 2010 and for the year then ended were
presented fairly in all material respects.
WILLIAM G. HOLLAND
Auditor General
WGH:RPU:pp
SPECIAL ASSISTANT AUDITORS
Sikich LLP were our Special Assistant Auditors for this
engagement.
DIGEST FOOTNOTES
#1 - INADEQUATE CONTROLS OVER COMMODITIES –
Previous Department Response
2009: Accepted. The Department will continue strengthening
its oversight function related to commodities and the process of obtaining a
new Asset Management System to allow for improved internal control.
#2 - FAILURE TO COMPLY WITH MEDICARE AND
MEDICAID CERTIFICATION REQUIREMENTS - Previous Department Response
2009: Accepted. The Division of Mental Health will continue its efforts to recertify Tinley Park Mental Health Center. In an effort to reduce the amount of revenue lost in the General Revenue Fund, the Howe Developmental Center, in fiscal year 2010 year to date (5/25/10), has facilitated 62 community transitions and 170 State Operated Developmental Center transfers to restore Federal Financial Participation (FFP) / lost revenue. The remaining individuals residing at Howe (30) are projected to transition or transfer by June 18, 2010, thus restoring FFP. The effective closure date of the Center is scheduled for June 30, 2010.