{Financial Information is summarized on the reverse page.}

During our audit of cash balances, we noted the Foundation did not request securities from their banks to collateralize bank balances in excess of the FDIC insurance limit of $100,000. A total of $89,061 in bank balances was unprotected by collateral at June 30, 2003.

The State Officers and Employees Money Disposition Act (30 ILCS 230/2c) (Act) requires State agencies obtain appropriate collateral whenever funds deposited exceed the $100,000 FDIC insurance limit. The Foundation is considered a component unit of the State of Illinois and should be following the Act.

Foundation management indicated the situation arose due to a lack of sufficient supervision of the bank balances. (Finding 1, page 16)

We recommended the Foundation request the necessary collateral be pledged by the banks in sufficient amount so as to provide protection for their bank balances.

Foundation management indicated they will establish procedures for monitoring the amounts maintained in bank accounts to minimize account balances in excess of FDIC limits. In addition, it was indicated they will work with the appropriate banks to reduce the Foundation’s risk and will request collateral from the banks where appropriate.

As part of our audit we tested the Foundation’s compliance with certain statutory mandates. We noted three instances where, through our interpretation of the statutory mandates, the Foundation was not complying.

First, we noted the Foundation was not filing an annual certification of their systems of internal control with the Office of the Auditor General as required by the Fiscal Control and Internal Auditing Act (FCIAA). Foundation management indicated they had not been filing the certification because they did not interpret the statute to apply to them; however, the Foundation recently indicated it now agrees with the auditor’s interpretation.

Second, we noted the Foundation was not filing documentation of the establishment of their locally held funds/accounts or quarterly reports of locally held fund/account activity with the Office of the State Comptroller as required by the State Comptroller Act (Act). The Foundation has three locally held funds/accounts that are held outside of the State Treasury. Foundation management noted they did not believe the locally held fund requirements apply to them as the Foundation was created as a not-for-profit corporation under the General Not for Profit Corporation Act of 1986.

Third, the Foundation was not filing copies of their grants in excess of $10,000 with the Office of the Comptroller as required by the Illinois Procurement Code (Code). The Illinois Conservation Foundation Act notes the Foundation is exempt from the Code when only private funds are used for procurement expenditures. During fiscal year 2003 the Foundation received approximately $1.36 million of federal grant funds. These funds maintain their public identity until they are expended for goods or services and would not be considered private funds.

The Foundation awarded 57 grants over $10,000 during fiscal year 2003 from the federal funds they received. Foundation management indicated the language to exempt the Foundation from the Code when private funds are used for procurement expenditures was added to clarify the Foundation is exempt from the Code.

Failure to comply with the Fiscal Control and Internal Auditing Act, State Comptroller Act and the Illinois Procurement Code are violations of statutorily mandated responsibilities. (Finding 2, pages 17-18)

We recommended the Foundation either comply with the applicable requirements set forth in the statutes or seek a formal written interpretation from the State of Illinois Office of the Attorney General regarding the applicability of the statutes to the Foundation.

Foundation management responded they will begin filing the annual internal control certification with the Office of the Auditor General starting with the certification due May 1, 2004. Foundation management also noted they will work with the Attorney General, Comptroller and other State entities to clarify requirements that are applicable to the Foundation’s activities. In addition, Foundation management responded that they will seek legislation to further clarify the statutory requirements applicable to the Foundation as a not-for-profit corporation.

The remaining finding is less significant and is reportedly being given attention by the Foundation. We will review the Foundation’s progress toward the implementation of our recommendation in our next audit.

Mr. Jess Hansen, Executive Director of the Illinois Conservation Foundation provided the Foundation’s responses.

Our auditors stated the Illinois Conservation Foundation’s financial statements as of and for the year ended June 30, 2003 were fairly presented in all material respects.

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WILLIAM G. HOLLAND, Auditor General

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Ginoli & Company LTD were our special assistant auditors.