REPORT DIGEST

EAST ST. LOUIS FINANCIAL ADVISORY AUTHORITY

FINANCIAL AUDIT

For the Year Ended:

June 30, 2004

AND

COMPLIANCE EXAMINATION

For the Two Years Ended:

June 30, 2004

Summary of Findings:

Total this audit 2

Total last audit 3

Repeated from last audit 0

Release Date:

April 13, 2005

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

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 is also available on

the worldwide web at

http://www.state.il.us/auditor

SYNOPSIS

¨ The Authority only performs investment reconciliations at year-end rather than on a monthly basis.

¨ A member of the Board of Directors did not submit an Economic Interest Form for fiscal year 2004.

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

EAST ST. LOUIS FINANCIAL ADVISORY AUTHORITY

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

For the Two Years Ended June 30, 2004

EXPENDITURE STATISTICS

FY 2004

FY 2003

! Total Expenditures...............................

Locally Held Funds Total.............................

% of Total Expenditures.................

Appropriated Funds Total...........................

% of Total Expenditures.................

Expenditures from the Lump Sum

Appropriations:

Personal Services.......................................

Contractual Services...................................

Travel........................................................

Commodities..............................................

Printing.......................................................

Equipment..................................................

Electronic Data Processing.........................

Telecommunications...................................

Total......................................................

! Cost of Property and Equipment.............

! Final Balance - Locally Held Funds........

$200,524

$200,524

100%

$184,055

8,786

2,336

2,346

415

2,586

$200,524

$94,300

$5,751,539

$238,404

$238,404

100%

$180,683

48,305

3,364

2,902

125

3,025

$238,404

$94,654

$4,737,624

SELECTED ACTIVITY MEASURES

FY 2004

FY 2003

Total Loan Repayments (1)...........................

Loan Repayments - Principal.............

Loan Repayments - Interest..............

$870,781

857,911

12,870

City Loan Still Outstanding (1)......................

SUPPLEMENTARY INFORMATION	FY 2004	FY 2003
Number of Authority Employees...................	3	3

EXECUTIVE DIRECTOR

During Audit Period: Mr. W. Kenneth Gearhart

Currently: Mr. W. Kenneth Gearhart

1. The loan to the City of East St. Louis was paid off as of July 2003.

The investment account balance did not reflect the fair market value of the investments

Auditor Comment

A Board member did not submit an Economic Interest Statement

INTRODUCTION

This report presents our financial statement audit for the year ended June 30, 2004, and a State Compliance Examination of the East St. Louis Financial Advisory Authority’s (Authority) operations for the two years ended June 30, 2004.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

NEED TO PERFORM INVESTMENT RECONCILIATIONS PERIODICALLY

The Authority only performs investment reconciliations at year-end rather than on a monthly basis. Additionally, the reconciled balance of the investment account did not reflect the fair market value of the investment as of June 30, 2004. The actual investment balance at year-end was in excess of the recorded investment balance by $40,054. This difference represents an unrealized gain in investments that was not recorded. Lastly, it was noted that $1,450,937 of the investment balance had been converted to cash, thus, should have been classified as part of the cash balance rather than as within the investments balance.

Authority personnel stated that they rely on a third-party to perform the investment reconciliation, in conjunction with their annual preparation of the accounting reports prepared in accordance with generally accepted accounting principles that are submitted to the State Comptroller

We recommended the Authority periodically review and reconcile the investment account to obtain information that will allow the Authority to make investment decisions that allow for the maximization of return on its investments. We further recommended that the reported investment balances reflect the fair market value of the investment portfolio. (Finding 1, pages 10-11)

Authority officials stated that the Executive Director would seek instruction and implement procedures for monthly reconciliations of the investment account. Additionally, Authority officials stated that year-end balance differences were due to the Authority considering both money market accounts and Treasury notes in the investment account as investments, and the Authority preparing year-end balances from an account statement dated June 25, 2004. An investment matured on June 30, 2004 resulting in a change in how the balances were classified. Finally, Authority officials stated that the Executive Director would work with the accounting firm preparing the year-end reports to make certain that the account is properly reconciled and reported.

Our auditor’s comment stated that in accordance with generally accepted accounting principles, all cash and cash equivalents are to be recorded as such and all investments are required to be reported at fair market value.

NEED TO COMPLY WITH THE ILLINOIS GOVERNMENTAL ETHICS ACT

A member of the Board of Directors did not submit an Economic Interest Form for fiscal year 2004. This member is currently an active member of the Board of Directors.

The Illinois Governmental Ethics Act (5 ILCS 420/4A-105) requires that all qualified persons submit a verified written statement of economic interest by May 1 of each year with the Illinois Secretary of State.

Authority personnel stated that the lack of submission of the Economic Interest Form is due to management’s reliance on the Board of Directors to submit their forms independently. Management did not ensure that all required economic interest forms were properly submitted

We recommended that the Authority submit all required reports timely and ensure that its agents also submit required reports on a timely basis. (Finding 2, pages 11-12)

Authority officials agreed with the finding and stated that the member in question has subsequently filed a letter of resignation and this finding will not reoccur.

OTHER FINDINGS

There were no other findings noted in our report. We will review the Authority’s progress towards the implementation of our recommendations in our next audit.

Mr. W. Kenneth Gearhart, Director, provided responses to our findings and recommendations.

AUDITORS’ OPINION

Our auditors state the financial statements of the East St. Louis Financial Advisory Authority as of and for the year ended June 30, 2004 are fairly presented in all material respects.

____________________________________

WILLIAM G. HOLLAND, Auditor General

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AUDITORS ASSIGNED

Benford Brown & Associates were our special assistant auditors for this audit.