REPORT DIGEST

EAST ST. LOUIS FINANCIAL ADVISORY AUTHORITY

FINANCIAL AUDIT

For the Year Ended:

June 30, 2006

AND

COMPLIANCE EXAMINATION

For the Two Years Ended:

June 30, 2006

Summary of Findings:

Total this audit 7

Total last audit 2

Repeated from last audit 1

Release Date:

March 22, 2007

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 and the full report are also available on

the worldwide web at

http://www.auditor.illinois.gov

SYNOPSIS

¨ The Authority performs investment reconciliations at year-end only.

¨ The Authority lacks adequate segregation of duties in its accounting and financial procedures.

¨ The termination and re-hire of an Authority employee was not administered or documented properly.

{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, 2006

EXPENDITURE STATISTICS

FY 2006

FY 2005

........... 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..............................................................

$210,687

$440

$210,247

100%

$184,894

14,651

2,701

4,099

1,078

2,824

$210,247

$235,448

$26,823

11%

$208,625

89%

$190,156

11,876

2,590

1,352

125

2,256

$208,625

SUMMARY OF SIGNIFICANT ACCOUNTS

FY 2006

FY 2005

Cash and Cash Equivalents.............................................

Investments.....................................................................

Property and Equipment.................................................

$249,903

$5,797,697

$87,457

$216,450

$5,617,111

$94,300

Ending Balance – Locally Held Fund...............................

$6,047,220

$5,833,561

SUPPLEMENTARY INFORMATION	FY 2006	FY 2005
Average Number of Authority Employees.......................	3	3

EXECUTIVE DIRECTOR

During Audit Period: Mr. W. Kenneth Gearhart (Retired October 31, 2006)

Currently: Ms. Melinda Carlton (November 1, 2006 through present)

Reconciliation of investments not being performed in a timely manner

Internal control weakness

Performance of duties not being adequately segregated due to limited personnel

An employee was terminated and subsequently re-hired by the Authority, and the appropriate procedures were not followed

No documentation for leave of absence

INTRODUCTION

This report presents our Financial Statement audit for the year ended June 30, 2006 and a State Compliance Examination of the East St. Louis Financial Advisory Authority’s (Authority) operations for the two years ended June 30, 2006

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. The investment balance at June 30, 2006 was $5,797,697.

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

We recommended the Authority periodically review and reconcile the investment account, in order to obtain information that will allow the Authority to make investment decisions that maximize the Authority’s return on its investments. (Finding 1, page 10) This finding was first reported in 2004.

Authority officials agreed with our recommendation, and stated that monthly reconciliations of the investment account are now being performed. (For previous Authority response, see Digest Footnote)

SEGREGATION OF DUTIES LACKING

The Authority lacks segregation of duties in its accounting and financial procedures. The Authority currently only has three employees. Because of the limited number of personnel, the Authority’s cash and investment receipts and disbursements procedures often require that one individual be responsible for duties that should be performed by at least two people. Total assets for the Authority were $6,049,981 at June 30, 2006.

Authority personnel indicated that achieving adequate segregation of duties is extremely difficult because the utilization of additional personnel is not a viable option due to limited appropriations.

We recommended that the Authority perform a reassessment of the current duties and procedures for processing and reviewing cash and investment receipts and disbursements, and involve the Board of Directors in the review of transactions as a compensating control for the lack of personnel. (Finding 3, page 12)

Authority officials agreed with our recommendation and stated it is implementing procedures to ensure an adequate segregation of duties.

EMPLOYEE TERMINATION AND RE-HIRE NOT PROPERLY ADMINISTERED OR DOCUMENTED

The termination and subsequent re-hire of an Authority employee was not properly administered or documented. In April 2005, one employee resigned from the Authority. This employee worked for the Authority through April 15, 2005, and then was on paid vacation leave through May 6, 2005. On June 1, 2005, the Authority re-hired the employee.

The employee received payment for time worked and for accrued vacation time through May 6, 2005. For the period of May 7 through May 31, 2005, the employee was not paid by the Authority. The employee was returned to the payroll on June 1, 2005.

Although the employee did not receive inappropriate payroll payments, the Authority did not properly administer or document the termination and subsequent re-hire of this employee. Effective May 7, the employee should have been terminated from the State payroll and the Group Insurance Program, but was not. Consequently, we noted that the employee received insurance coverage during the period from May 7 to May 31, and should not have.

Authority personnel indicated that the Executive Director did not accept the employee’s resignation, but rather considered the employee to be on a leave of absence. However, there was no documentation of a leave of absence maintained either. The authority was notified by the Group Insurance Program that the employee was discrepant in paying the required insurance premiums, however no payment of the past due amount was ever made to the Group Insurance Program. Per Central Management System (CMS) officials, the Authority should file the necessary paperwork to terminate and rehire this individual, in order to resolve the discrepant report still on the records.

We recommended the Authority file the required paper work with CMS and continue to explore the circumstances and ramifications of the termination and re-hire to determine if additional action should be taken, or reimbursement sought, to resolve the matter. Also, the Authority should include documentation for all changes in employee status in the personnel files in the future, revise its handbook to include procedures for the employment and termination of employees, and report all future terminations to the Department of Central Management Services. (Finding 6, pages 15-16)

Authority officials agreed with our recommendations, and stated they have been in contact with CMS to rectify the situation.

OTHER FINDINGS

With regard to the other findings noted in our report, Authority officials responded that corrective action has already been taken. We will review the Authority’s progress towards the implementation of all our recommendations in our next audit.

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, 2006 are fairly presented in all material respects.

____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:KAL:pp

AUDITORS ASSIGNED

Schorb & Schmersahl, LLC were our special assistant auditors for this audit.

DIGEST FOOTNOTE

INFREQUENT PERFORMANCE OF INVESTMENT RECONCILIATIONS – Previous Authority Response

2004: The Authority acknowledges that reconciliation of the investment account was only done annually as part of the GAAP report preparation. This was consistent with instructions previously provided to the Authority. Now that we have been advised that the Authority must do it differently, the Executive Director well seek instruction and implement procedures for monthly reconciliation of the investment account.