REPORT DIGEST DEPARTMENT OF NATURAL RESOURCES, SCHEDULE OF CAPITAL ASSETS FINANCIAL AUDIT FOR THE YEAR ENDED JUNE 30, 2020 Release Date: February 10, 2021 FINDINGS THIS AUDIT: 1 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 1 -- 0 -- 1 Category 2: 0 -- 0 -- 0 Category 3: 0 -- 0 -- 0 TOTAL: 1 -- 0 -- 1 FINDINGS LAST AUDIT: 0 Category 1: Findings that are material weaknesses in internal control and/or a qualification on compliance with State laws and regulations (material noncompliance). Category 2: Findings that are significant deficiencies in internal control and noncompliance with State laws and regulations. Category 3: Findings that have no internal control issues but are in noncompliance with State laws and regulations. State of Illinois, Office of the Auditor General FRANK J. MAUTINO, 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 INTRODUCTION This digest covers the financial audit of the Department of Natural Resources’ (Department) Schedule of Capital Assets for the year ended June 30, 2020. The Department’s compliance examination covering the two years ended June 30, 2020 will be issued in a separate report at a later date. SYNOPSIS • (20-01) The Department did not maintain adequate control over its capital assets. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS INADEQUATE CONTROL OVER CAPITAL ASSETS The Department of Natural Resources (Department) did not maintain adequate control over its capital assets. The Department implemented the Enterprise Resource Planning (ERP) system on January 1, 2019 while simultaneously operating its legacy capital assets system. Effective June 1, 2020, the Department discontinued the legacy system keeping the ERP as its primary system to track its capital assets. During testing, auditors noted the following: • The Department did not reconcile the ERP reports with the legacy system reports during the transition. Auditors noted variances between ERP reports and the legacy system reports of $3.5 million and $6 million of costs and accumulated depreciation, respectively. Additionally, the Department could not explain the variances noted between FY20 beginning balances of capital assets prepared using the ERP and FY19 ending balances of capital assets prepared using the legacy system. Based on further analysis, auditors determined the beginning balances in the ERP report were accurate and the variances identified were due to accumulated errors in prior years’ legacy system reports. Specifically, the variances were costs and related accumulated depreciation of capitalizable assets that were categorized as noncapitalizable assets in error coupled with erroneous depreciation calculations in the legacy system over the years. These prior years’ errors were deemed not material for restatement, therefore, were recorded against additions or deletions, as applicable, in the FY20 Schedule of Capital Assets. • The Department did not exercise adequate control and oversight over the preparation of the Capital Asset Summary (SCO-538) resulting in an inaccurate SCO-538 submitted to the Office of the Comptroller. During testing, auditors noted variances of $578,000 and $30.7 million in cost and accumulated depreciation, respectively, between amounts reported on SCO-538 and those amounts from ERP at June 30, 2020. The Department indicated the variances identified on FY20 SCO-538 were not corrected because they were immaterial to the State’s Comprehensive Annual Financial Report. (Finding 1, pages 14-15) We recommended the Department improve its control over its capital assets by maintaining adequate oversight over personnel responsible for capital asset management and reviewing SCO-538 forms for accuracy before transmitting to the Comptroller. The Department agreed to the recommendation to improve control over capital assets by maintaining adequate oversight and reviewing forms for accuracy. The Department also stated they did review reports but due to a new system and lack of training the errors were not identified and corrected timely. AUDITOR’S OPINION The auditors stated the Department’s Schedule of Capital Assets as of June 30, 2020, is fairly stated in all material respects. This financial audit was conducted by Roth & Company, LLP. JANE CLARK Division Director This report is transmitted in accordance with Section 3-14 of the Illinois State Auditing Act. FRANK J. MAUTINO Auditor General FJM:vrb