REPORT
DIGEST

COMPLIANCE AUDIT
For the Two Years Ended:
June 30, 1998

Summary of Findings:

Release Date:
April 15, 1999

State of Illinois
Office of the Auditor General

WILLIAM G. HOLLAND
AUDITOR GENERAL

This Report Digest is also available on
the worldwide web at
http://www.state.il.us/auditor

SYNOPSIS

• Controls over the Member's Benefit Fund were not adequate.
• Receipt-processing duties were not segregated.

{Expenditures and Activity Measures are summarized on the next page.}

FY 1998

FY 1997

FY 1996

• Total Expenditures (All Funds) (1)

OPERATIONS TOTAL
% of Total Expenditures

Personal Services
% of Operations Expenditures
Average No. of State Employees

Other Payroll Costs (FICA, Retirement)
% of Operations Expenditures

Contractual Services
% of Operations Expenditures

Locally Held Funds - Benefit Fund
% of Operations Expenditures

All Other Operations Items
% of Operations Expenditures

• Cost of Property and Equipment

$2,308,765

$2,308,765
100%

$140,780
6.10%
3

$25,088
1.09%

$2,113,033
91.52%

$6,917
0.30%

$22,947
0.99%

$4,886,704

$2,096,991

$2,096,991
100%

$77,114
3.68%
2

$12,631
0.60%

$1,987,679
94.79%

$5,752
0.27%

$13,815
0.66%

$4,773,183

$2,015,028

$2,015,028
100%

$72,397
3.59%
2

$11,677
0.58%

$1,917,709
95.17%

$642
0.03%

$12,603
0.63%

$4,750,379

FY 1998

FY 1997

FY 1996

56

57

54

58

58

47.5

1.04

1.02

0.88

$14,856

$8,612

$14,720

Duties over receipts processing need to be segregated

INTRODUCTION

The Department of Veterans' Affairs has contracted with a private organization to manage and operate the Home since it opened. The Department contracted with Diversified Health Services (DHS), a subsidiary of Service Master from Downers Grove, Illinois.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INADEQUATE CONTROLS OVER THE MEMBERS' BENEFIT FUND

The Home did not have adequate controls over its Members' Benefit Fund. We noted the following:

• Supporting documentation was not maintained for 6 of 25 (24%) receipts tested totaling $3,228 and 5 of 11 (46%) disbursements tested totaling $4,989.
• A cash receipts ledger was not maintained. A check register was maintained; however, the receipt date was not recorded, and timeliness of deposit could not be determined.
• Adequate segregation of duties was not maintained over disbursements processing. One individual was responsible for approving, recording, and reconciling disbursements. The same person maintained custody of the blank checks.

We recommended the Home properly segregate the disbursements duties in order to maintain an effective internal control over the authorization, custody and recordkeeping of assets. We also recommended the Home maintain sufficient supporting documentation for each receipt and disbursement, and that each receipt date be recorded. (Finding 98-1, page 8)

The Home agreed with our finding and recommendation and stated a number of changes to strengthen the controls over the Members' Benefit Fund have been put into place.

INADEQUATE SEGREGATION OF DUTIES OVER RECEIPT PROCESSING

The Home did not have an adequate segregation of duties over receipt processing. One individual was responsible for all aspects of receipt processing including custody of assets and recordkeeping. (Finding 98-2, page 9)

We recommended the Home adequately segregate the receipt processing duties in order to maintain an effective control over the custody and recordkeeping of assets.

The Home agreed with the finding and recommendation and stated the duties for the processing and reconciliation of the receipts have been segregated.

Responses to the recommendations were provided by Donald A. Bullerman, Chief Internal Auditor, Department of Veterans' Affairs.

AUDITORS' OPINION

We conducted a compliance audit of the Home as required by the Illinois State Auditing Act. We also performed certain agreed-upon procedures with respect to the records of the Home to assist our single audit of the entire Department of Veterans' Affairs. Financial statements for the Department and federal reporting are included in the audit report of the Department of Veterans' Affairs - Central Office.

____________________________________
WILLIAM G. HOLLAND, Auditor General

WGH:GSR:pp

SPECIAL ASSISTANT AUDITORS

The audit was conducted by the Auditor General's staff.