FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
FAILURE TO ENSURE COMPLIANCE WITH THE GRANT FUNDS RECOVERY ACT
The Department did not have a system in place to ensure that unspent grant monies
were returned in a timely manner.
The Department expended approximately $761 million and $810 million in fiscal years
1998 and 1999, respectively, for awards and grants. We noted that the Department is not
requiring grantees to return unspent funds to the Department within 45 days of the end of
the grant period. According to the Illinois Grant Funds Recovery Act, grant funds not
expended or legally obligated by the end of the grant agreement must be returned to the
grantor of the funds within 45 days. This finding has been repeated since 1989.
(Finding 7, pages 34-35)
We recommended the Department comply with the Illinois Grant Funds Recovery Act and
enforce the requirement stated in its grant-funded community service provider agreements
to return lapsed grant funds to the Department within 45 days after the expiration of the
agreement.
Department officials accepted our recommendation and stated that beginning with the FY
2000 they will implement measures to ensure compliance with the Act. (For previous
Department responses, see Digest footnote #1.)
LACK OF CONTROLS OVER UNEMPLOYMENT COMPENSATION
The Department's Home Service Program (Program) did not have adequate controls over
monitoring unemployment insurance benefits paid by the Illinois Department of Employment
Security (IDES) to Personal Assistants (PAs) employed by customers of the Program.
The following deficiencies were noted during testing of 50 unemployment claims:
Failure to timely file reports on unemployment insurance benefit claims may cause IDES
to pay unemployment insurance benefits to PAs who are not entitled to benefits. The
customers of the Program employ approximately 23,000 PA's. (Finding 8, pages 36-37)
We recommended the Department implement procedures to ensure timely controls over
monitoring unemployment insurance benefits claims by PAs.
Department officials accepted our recommendation and said they felt substantial
improvement had already occurred. They also stated a full time position was added to
ensure timely processing of unemployment claims.
COMPUTER EQUIPMENT NOT INSTALLED IN A TIMELY MANNER
The Department ordered and received computer equipment that was held in its
warehouse for over one year without being installed or placed in service.
During our review of June 30, 1999 warehouse EDP equipment records, we noted 3,968
pieces of computer equipment costing $2,062,000 which had been at the warehouse over one
year. This equipment included PCs, printers and file servers, in addition to internal
components such as disk drives and memory cards. The actual number of items on hand for
over one year without being placed in service was probably higher, but due to weaknesses
noted in findings 99-10 and 99-11, receiving dates were not always recorded.
The PCs purchased under this project came with warranties covering three years for
parts and one year for labor. Printers had a one-year warranty. Failure to install the
equipment on a timely basis has resulted in loss of warranty coverage. In addition, good
business practices dictate that purchases should be made only when the resources and plans
are in place to allow for timely installation. This is especially true concerning computer
equipment due to the rapid advances in technology and price reduction trends over recent
years. (Finding 9, pages 38-39)
We recommended the Department develop a plan to ensure computer equipment can be
installed in a timely manner.
Department officials accepted our recommendation and stated that many factors delayed
the installation of equipment under the Local Office Reengineering project. The most
significant of the factors were that some of the local offices were or still are in the
process of remodeling or moving.
INADEQUATE CONTROLS OVER TRACKING INTERNAL PARTS FOR EDP EQUIPMENT
The Department had no procedures to track or account for internal computer parts
shipped from the Springfield warehouse to various locations.
Internal computer parts include items purchased separately such as internal modems,
memory boards, and token ring adapters. At June 30, 1999, we noted 2,599 internal items
costing $1,394,448 that were assigned to the Springfield warehouse location, but were not
tagged or formally assigned to a host piece of equipment. Many of these items had already
been shipped or installed, but had not been internally tracked.
Good internal controls require that the Department track internal parts with the piece
of computer equipment in which it is installed to compile accurate property records.
Failure to do so would result in overstated property records when the Department disposes
of equipment that includes internal components purchased separately. Without proper
controls or tracking, the Department heightens the potential for loss or theft of these
internal items.
Department personnel stated their Equipment Inventory System has the ability to
"anchor" internal parts to "host" items. However, this function was
not fully utilized due to the consolidation of inventory systems. (Finding 10, pages
40-41)
We recommended the Department implement procedures to track all internal items. We
further recommended the Department assign tag numbers to internal items as soon as the
item is assigned to a host item for installation.
Department officials accepted our recommendation and stated procedures have been
established to tag internal components as soon as they are shipped. Further, all
components shipped prior to July 1999 have been tagged.
INADEQUATE SAFEGUARDING OF PROPERTY AND EQUIPMENT AT DEPARTMENT WAREHOUSE
The Department of Human Services (Department) did not maintain proper safeguards
over property and equipment at its Springfield warehouse location.
The warehouse is the central receiving point for almost all of the Department's new
equipment purchases. This included over $28 million of EDP equipment purchased for the
Local Office Reengineering Project during the audit period. During our fieldwork, we noted
the following lack of controls over equipment located at the warehouse:
We recommended logbooks be maintained to document all persons accessing the warehouse
other than designated warehouse employees, access codes only be granted to authorized
personnel, loading dock doors be secured when not in use, computer equipment be accessible
only by authorized personnel, and warehouse personnel escort all visitors.
Department officials accepted our finding and recommendation and stated they now have
computer equipment segregated in a separate warehouse.
FAILURE TO UPDATE EDP PROPERTY CONTROL RECORDS
During our tour of four Springfield offices, we noted 124 EDP equipment items that
appeared to be unused or obsolete. Items were stacked in cubicles or otherwise not
apparently being used, and were not always in the location stated on equipment records.
Our review of the documentation that was prepared to support the location or relocation of
this equipment noted the documentation was not properly completed (missing dates, approval
signatures, location codes) or not prepared in a timely manner.
Department management stated that many of the property control issues noted above were
a result of consolidation of the legacy agencies' records. In some instances, legacy
agencies transferred items to the Department that did not exist or could not be located.
(Finding 13, page 46)
We recommended the Department enforce its procedures for controlling property and
equipment to decrease the potential for loss of theft and promptly report any unused or
obsolete equipment to DCMS for transfer or disposal.
Department officials accepted our finding and recommendation and stated a new form was
designed and implemented to properly record transfers and property control coordinators
were designated for each location.
PURCHASE OF ANNUITIES FOR PAYMENT OF WORKERS’
COMPENSATION CLAIMS
The Department purchased annuities to pay future workers’ compensation claims,
circumventing State fiscal year appropriation constraints. This practice may also
constitute the purchase of investments without specific statutory authority.
The Department is responsible for the administration and payment of all workers’
compensation claims relating to Department employees and receives an annual appropriation
to pay outstanding claims. These claims have historically been paid when due in accordance
with the workers’ compensation settlement. Many settlements contain provisions for
fixed payments to be made over a period of time, sometimes for the claimant’s life.
Beginning in fiscal year 1997, the Department began purchasing annuities from current
year appropriations through lump sum payments to insurance companies to fund some of these
future year claims. These lump sum payments totaled $998,978 in fiscal year 1998. The
legacy Department of Mental Health and Developmental Disabilities made lump sum payments
totaling $960,365 in fiscal year 1997.
The Department contracted with a broker to obtain annuity quotes from insurance
companies by individual claimant, then selected individual claimants and annuity payments
to expend remaining appropriations.
The process of purchasing annuities allows the Department to utilize some of its
current appropriations through the prepayment of future liabilities. Furthermore, the
contract with the broker used by the Department to bid the annuities did not disclose the
amount or nature of the broker's compensation. (Finding 18, pages 53-54)
We recommended the Department comply with fiscal year constraints and pay current year
obligations from current year appropriations. If proper appropriation authorization to
continue this practice is obtained, the Department should also review its lack of specific
statutory authority to invest appropriated Treasury funds and consult with the Attorney
General if necessary before continuing to purchase annuities.
Department officials accepted the finding and recommendation and stated they
discontinued this practice for FY 1999. They, however, stated their intention is to seek
statutory authority to purchase annuities in the future.
OTHER FINDINGS
The remaining findings are less significant and are being given attention by the
Department. We will review the Department’s progress toward the implementation of our
recommendations in our next audit.
Mr. James R. Donkin, Chief Internal Auditor, provided the responses to our findings and
recommendations.
AUDITORS’ OPINION
Our auditors stated the Department’s financial statements as of June 30,
1999, and for the year then ended were fairly presented in all material respects.
_____________________________________
WILLIAM G. HOLLAND, Auditor General
WGH:TEE:pp
SPECIAL ASSISTANT AUDITORS
Our special assistant auditors were Sikich Gardner & Co, LLP.
DIGEST FOOTNOTES
#1 FAILURE TO ENSURE COMPLIANCE WITH THE GRANT FUNDS RECOVERY ACT
1997: "The Department of Human Services will require
providers to make an initial verification of overpayment/underpayment within 45 days to
comply with the Grant Fund Recovery Act. This initial assessment will be confirmed by the
independent audit or audited financial statements. The Office of Contract Administration
will monitor the recovery of grant funds as necessary."
1995: "The Department concurs with the recommendations and has
taken action to develop and implement policies and procedures designed to ensure the
Department's compliance with the requirements of the Illinois Grant Funds Recovery
Act."
1993: "The Department has begun to document policies and
procedures to address this weakness. At the time of the 1993 Fiscal Control and Internal
Audit Act report, the Internal Auditors determined that the Department was in partial
compliance.
The Department will fully document these procedures by July 1, 1994 to
ensure consistent and uniform application."
1991: "The Department is in the process of reorganizing certain
functions. Staff are not yet in place for the Service Audit unit, which will have as one
function the review of Revenue and Expense reports and preparation of quarterly management
reports which will assist Program Services to identify funds subject to the Grant Funds
Recovery Act process."
1989: "On a quarterly basis, subgrantees are required to submit to
the Department Quarterly Revenue and Expense Reports not later than the 25th day of the
month following the close of each quarter on forms prescribed by the Department. The
completed report including supporting information must be obtained from the Provider's
accounting records. At end of the fourth quarter, a complete reconciliation must be made
for the entire fiscal year. If total payments exceed total Department-funded expenses, the
Provider owes the difference to the Department. Providers are to make reconciliation
payments or adjustments simultaneously with submission of the final quarter report to be
received by the 25th day of July in conformity with the Grant Funds Recovery Act's
requirements of 45 days after the close of the fiscal year.
The
Department feels that its on-going review of the Quarterly Reports enables the Department
to detect any potential for lapsed funds, and any appropriate measures to be taken. When
an unusual variance is detected during the review, the Office of Audits is accordingly
informed to investigate the circumstances.
Review of the annual audit reports and interagency statistical and
financial reports submitted by the agencies within 120 days after the fiscal year end,
validate the previously reviewed Quarterly Reports figures, and also enables the
Department to determine any deficiencies in subgrantee accounting procedures. We agree
that these reports are not reviewed in a timely manner. However, it is our belief that the
Department has adequate monitoring mechanisms in place to assure compliance with the Grant
Funds Recovery Act.
Inadequate staffing patterns contributed to the untimely review of
subgrantee audit reports. The Department has taken measures that would ensure that these
annual audit reports are reviewed in a timely manner in order to substantiate and/or
confirm previously reviewed unaudited revenue and expense figures, and also, determine any
deficiencies in subgrantee accounting procedures. The result from the annual reports
review would be provided to management to be utilized in decisions made during the grant
award process."
