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$90,082 in bank balances were unprotected
by FDIC insurance or other collateral
Statute requires appropriate collateral
be obtained for funds in excess of FDIC coverage
Formal annual financial budget was not
prepared
Operating policies require a budget to be
prepared and approved by the Board of Directors
Accounting records required 13 audit
adjustments totaling $689,222 to correct errors and omissions
Financial statements were deficient
regarding required disclosures
Required internal control certification
not submitted to the Office of the Auditor General
Noncompliance with the State Comptroller
Act
Information on locally held funds was not
submitted to the Office of the Comptroller
Noncompliance with the Illinois
Procurement Code
Copies of grants in excess of $10,000
were not filed with the Office of the Comptroller
The Foundation awarded 15 grants to
sub-grantees in excess of $10,000
IDNR is seeking an Attorney General
opinion on applicability of statutes
Auditors’ comment
Contract for accounting related service
was not formally amended to adjust for $43,263 paid in excess of the contract
maximum
Contract was not formally competitively
bid or approved by the Board of Directors
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FINDINGS,
CONCLUSIONS, AND RECOMMENDATIONS
BANK BALANCES IN EXCESS
OF FDIC INSURANCE
During our testing of cash balances, we noted the Foundation did not
take timely action during fiscal year 2005 to collateralize (protect) bank
balances in excess of the FDIC insurance limit of $100,000. The Foundation established a separate
insured account (sweep account) on June 1, 2005. Our testing identified that prior to the sweep account being
established a total of $90,082 in bank balances were in excess of the FDIC
insurance limits at May 31, 2005.
The State Officers and Employees Money Disposition Act (30 ILCS
230/2c) (Act) requires State agencies to 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.
We recommended the Foundation continue the use of the sweep account
to provide protection for their bank balances. (Finding 05-1, pages 18-19)
The Foundation responded that they have taken action to reduce risk
by establishing a separate sweep account as a matter of sound business
practice. In addition to following
the Disposition Act, the Foundation noted they will continue the use of the
sweep account.
FINANCIAL BUDGET FOR FISCAL YEAR 2005 WAS NOT PREPARED
The Foundation did not prepare a
financial budget for fiscal year 2005.
The Foundation received $2,449,054 from contributions, grantors and
other sources during fiscal year 2005 and spent $3,484,217 on various
projects, grants and general administration.
The Foundation’s operating procedures
require an annual budget to be prepared and be presented to the Board of
Directors for discussion, amendment and approval. In addition, generally accepted accounting principles set forth
that governmental units should prepare a comprehensive annual budget covering
all funds for each fiscal year.
Budgeting is considered an essential
element of an entity’s financial planning, control and evaluation
process. Without a budget the
Foundation runs the risk of incurring unnecessary expenditures, and of not
using their resources in the most efficient manner.
We recommended the
Foundation management prepare an annual budget and submit it to the Board of
Directors on a timely basis for approval.
(Finding 05-2, page 20)
The Foundation agreed with our
recommendation in their response and noted a budget was prepared for fiscal
year 2005 but was not formally adopted by the Board of Directors.
WEAKNESSES IN THE
FOUNDATION’S ACCOUNTING RECORDS AND PREPARATION OF FINANCIAL STATEMENTS
During our audit of the Foundation’s June 30, 2005 financial
statements we recommended extensive adjustments and corrections. As a result of our testing we recommended
13 adjustments to various accounts within the Foundation’s financial records
for a total amount of $689,222. One
particular adjustment was to correct a misposting of $450,000, while $144,687
of other adjustments were to record various accruals required to be made at
the end of the year.
The Foundation’s initial draft financial statements either lacked or
were deficient regarding required disclosures for the Foundation’s deposits,
investments and reclassifications of the unreserved and reserved fund balance
amounts.
Errors and omissions in the maintenance of the Foundation’s
accounting records and delays in the preparation of the annual financial
statements leads to the use of additional resources in completing the annual
audit and can lead to the Foundation presenting information that is not
materially correct.
We recommended the Foundation devote sufficient resources to its
financial accounting function such that the financial information is properly
recorded and accounted for to permit the preparation of reliable and timely
financial statements. (Finding 05-03,
pages 21-22)
The Foundation agreed with our recommendation in their response and
noted they had contracted with an accounting firm during fiscal year 2005 to
perform day-to-day duties in the absence of a fiscal officer. The original agreement with the accounting
firm did not include preparation of the Foundation’s financial
statements. A fiscal officer was
hired during fiscal year 2006 to ensure financial statements are properly and
timely prepared.
NONCOMPLIANCE WITH
STATUTORY MANDATES
As part of our examination 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 did not file its 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). The Foundation had not filed the annual
certification as of the end of fieldwork for this engagement. Foundation management indicated they had
not been filing the certification because they did not interpret the statute
to apply to them.
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
maintained 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 2005 the Foundation
received approximately $1.269 million of federal grant funds. Grant funds maintain their public identity
until they are expended for goods or services and would not be considered
private funds.
The Foundation awarded 15 grants over $10,000 during fiscal year 2005
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.
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. (Finding 05-04, pages 23-25) This finding was first reported in
2003.
The Foundation responded that since its inception in 1996, they have
complied with the laws regulating not-for-profit entities and prior to fiscal
year 2003 no material findings were issued indicating the Foundation is
required to comply with the statutes noted in the finding. The Department of Natural Resources (IDNR)
has sought an interpretation from the State of Illinois Office of the
Attorney General regarding the Foundation’s status as a State agency. IDNR has not yet received a response from
the Illinois Office of the Attorney General.
(For the previous Foundation response, see Digest Footnote #1.)
The issues noted in the finding have been repeated in three
consecutive engagements and the Foundation is well aware of the auditors’
position. With regard to filing the
certification required by the FCIAA, a memo from the Foundation’s Executive
Director and IDNR General Counsel dated November 17, 2003, notes in part
“…because the Department assisted in the creation of the Foundation pursuant
to the Illinois Conservation Foundation [Act], it is required to file the
FCIAA certification as ‘a corporate outgrowth of State government.’” Further, with regard to the Foundation’s
failure to file grants with the Comptroller, Public Act 92-797, effective
August 15, 2002, amended the Illinois Procurement Code. The language of that amendment was taken
into consideration and led to the non-compliance first noted in the fiscal
year 2003 engagement.
PURCHASING PROCEDURES
NOT FOLLOWED FOR ACCOUNTING RELATED SERVICES
The Foundation paid a public
accounting firm (firm) $17,291 for
services prior to entering into a contract with the firm. The Foundation then entered into a
contract with the firm to provide the accounting related services for a
maximum amount of $23,400. The
Foundation paid the firm $66,663, which was $43,263 in excess of the contract
maximum. There was no amendment to
the contract to exceed the maximum or an extension of the contract as the
Foundation continued to use the firm after the end date of the contract.
The original contract was not
competitively bid, and was not approved by the Board of Directors or the
Executive Committee. The Board of
Directors or the Executive Committee also did not formally approve the
increase in the amount paid over the contract maximum or extending the term
for providing the accounting related services.
Failure to have a contract can lead
to misunderstandings of what is required of both parties. In addition, failure to adhere to contract
terms could also result in unnecessary expenditures to the Foundation.
We recommended
the Foundation follow its purchasing procedures and obtain contracts prior to
the start date of the contracted services.
We also recommended the Foundation document any changes to contracts
to ensure there are no misunderstandings.
(Finding
05-05 page 26-27)
The
Foundation responded in the future they would ensure their practices conform
to the recommendation. The Foundation
went on to indicate a number of factors resulted in changes and continuation
of the accounting related services to be performed and that the Executive Director
kept the Board apprised that expenses were exceeding the original contract
limits.
OTHER FINDINGS
The remaining findings are
reportedly being given attention by the Foundation. We will review the Foundation’s progress towards the
implementation of our recommendations during our next engagement.
Mr. Sam Flood, Chairman of the
Board of Directors of the Illinois Conservation Foundation provided the
Foundation’s responses.
AUDITORS’ OPINION
Our auditors state the June 30, 2005
financial statements of the Foundation are fairly presented in all material
respects.
_____________________________________
WILLIAM G. HOLLAND, Auditor General
WGH:RPU:pp
SPECIAL
ASSISTANT AUDITORS
Ginoli & Company LTD were our
special assistant auditors.
DIGEST FOOTNOTES
#1 - NONCOMPLIANCE WITH STATUTORY MANDATES – Previous
Foundation Response
2004: The
Foundation disagrees with this finding, as they do not believe they are a
State agency. The Foundation is in
the process of seeking a formal written opinion from the Attorney General
regarding the Foundation’s status.
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