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The Commission’s linked electronic
spreadsheets do not constitute an adequate accounting system
Internal control
weaknesses
The Commission’s
capital asset records lack sufficient detail
Retirement Plan
Change
Resolution
Pertaining to Bonuses
The Commission paid
$1,381,301 to employees to assist them in converting to a new retirement plan
pursuant to Resolutions passed
Retirement
Incentive Plan
The Commission paid
$239,744 to retiring employees in Fiscal Year 2004 for retirement incentives
Retirement
Agreement
Consulting
Agreement
Release From Known
and Unknown Claims
The Commission paid
$209,787 to the former General Manager pursuant to a retirement and
consulting agreement in FY04
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FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS
NEED TO IMPROVE ACCOUNTING SYSTEM
The Commission has an inadequate accounting
system.
The Commission has created a series of linked electronic
spreadsheets using Microsoft Excel, which function as its accounting
system. The Commission’s daily
activity is manually entered as journal entries into these spreadsheets. This does not constitute an adequate
accounting system.
Although the present system has certain advantages, it also
has serious weaknesses in terms of maintaining an adequate system of internal
control. Management has the ability
to manipulate the data. The biggest
risk is the potential to add erroneous data, delete or modify historical
data, or create unsubstantiated journal entries. In addition, within the current system, a formula change or
error could be made and go undetected/uncorrected.
According to Commission management, the Commission is considering
purchasing a commercial accounting software package, but has not yet
completed an investigation of their needs or assessed the various software
packages available. (Finding No. 1, Page 9)
We recommended, and Commission officials agreed to acquire an
adequate accounting software package for all of its accounting transactions.
NEED TO IMPROVE CAPITAL ASSET RECORDS
The Commission did not have detailed capital asset
records.
The Commission maintains records of the historical cost of
capital assets by pools (similar assets constructed or purchased at once),
but does not maintain records of the individual capital asset items within
the pools.
Good internal controls necessitate the need for detailed
capital asset records. Without such
records, it is difficult to accurately account for deletions, replacements,
depreciation and physical existence of capital assets.
According to Commission personnel, the capital asset
accounting records have been maintained this way for years, and significant research
will need to be done to establish a detailed listing of individual capital
assets. (Finding No. 2, Page 10)
We recommended, and Commission officials agreed to conduct a
physical inventory of its capital assets, research the historical cost, acquisition
date and accumulated depreciation, and then maintain the information, in
detail, on an ongoing basis.
OTHER FINDING
The remaining finding is less significant and is reportedly
being given adequate attention by the Commission.
Agency responses were provided by Mr. Robert L. Martin,
General Manager of the Commission on September 1, 2004.
OTHER MATTERS
CHANGES TO EMPLOYEE BENEFITS DURING YEAR
During the fiscal year ended April 30, 2004, the Commission
enacted significant changes to its employee benefit programs.
Until
April 19, 2003, the Commission had provided its employees with a Simplified
Employee Pension - Individual Retirement Account (SEP-IRA), which was funded
by the Commission at 8% of base pay.
A self-directed Individual Retirement Account was maintained for each
participant, and each participant had a fully vested interest in his/her
retirement account balance. As of
April 19, 2003, the Commission elected to have the Illinois Municipal Retirement
Fund (IMRF) provide its retirement plan.
Consequently, contributions to the SEP-IRA were terminated, and a
portion of each employee’s assets was rolled over from the SEP-IRA plan to
the IMRF plan. The remaining employee
assets remain in each participant account to be drawn at retirement.
Contributions
to IMRF began on May 1, 2003. The
employer contribution to the plan, paid by the Commission in calendar year
2003 totaled $302,762. On April 10,
2003, the Commission also passed a resolution to assist employees in funding
the employee’s share of the cost of converting prior service with the
Commission into IMRF creditable service.
The resolution permitted the Commission to pay up to $1,400,000 in
bonuses to its current employees to reward them for meritorious performance
and to assist them in funding the employee’s share of the cost of
participating in the IMRF pension system.
The Commission also approved a resolution to allow employees who
served in the armed forces to receive up to two years of service credit in
the IMRF for their prior military service.
On September 11, 2003, the Commission approved a resolution that
authorized the Commission to pick-up, including taxes and withholdings, the
employee’s share of the cost of converting the military service credit into
IMRF credit. During fiscal year
2004, $1,381,301 was paid to current employees pursuant to these
resolutions. These employee bonuses
were financed from the rate stabilization reserve sub-account of the General
Account of the Water Fund.
As
a result of these resolutions, the five most senior employees of the
Commission were immediately 100% vested with IMRF. All remaining employees were 60% - 89% vested. These remaining employees have a period of
five years to buy back their remaining service credit.
AGREEMENT WITH FORMER GENERAL MANAGER
The Commission entered into a retirement and consulting
agreement with the former General Manager on September 11, 2003.
The retirement agreement provided for the payment of accrued
unused personal leave days upon retirement, the receipt of 240 days of sick
leave to be used (but not paid for) during the term of the contract, and
retirement incentives in accordance with the resolution summarized above
(Changes to Employee Benefits).
The consulting agreement requires the former General Manager
to provide basic consulting services to the Commission for a period of 10
years following retirement (February 27, 2004), as well as consulting
services on specified projects during the 2 years immediately following retirement. The agreement specifies the amount of
compensation to be paid to the former General Manager for each type of
service provided.
The
total payments to the former General Manager for the basic services and
specified projects shall be an initial payment of $107,536 and an additional
$5,000 per year (less applicable taxes), for up to 10 years. For basic services and services on
specified projects that exceed 410 hours in a year, the former General
Manager will receive $135 per hour in the first year following retirement and
$145 per hour in the second year following retirement. The contract provides for termination of
the agreement 1) by mutual agreement, 2) by either the former General Manager
or the Commission under certain circumstances, or 3) in the event of the
death of the former General Manager.
In the agreement, the
exiting General Manager released the DuPage Water Commission from all known
and unknown claims, including claims under the Age Discrimination Act of 1967
and the Americans with Disabilities Act of 1990.
Total payments to the former General Manager in Fiscal Year
2004 under both the retirement and consulting portions of the agreement
totaled $209,787, including $97,251 in retirement benefits. (Page 53)
AUDITORS' OPINION
Our auditors stated the April 30, 2004 financial statements
of The DuPage Water Commission are fairly presented in all material respects.
___________________________________
WILLIAM
G. HOLLAND, Auditor General
WGH:KAL:pp
SPECIAL ASSISTANT AUDITORS
McGladrey & Pullen, LLP were our special assistant
auditors for this engagement.
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