REPORT DIGEST DEPARTMENT OF EMPLOYMENT SECURITY FINANCIAL AUDIT For the One Year Ended: June 30, 2009 and COMPLIANCE EXAMINATION For the Two Years Ended: June 30, 2009 Summary of Findings: Total this audit 7 Total last audit 3 Repeated from last audit 2 Release Date: February 11, 2010 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 Full Report are also available on the worldwide web at www.auditor.illinois.gov

SYNOPSIS ¨ The Department understated its cash and cash equivalents by $43 million. The related benefit payments payable was also understated by the same amount. ¨ The Department did not execute its interagency agreements with other State agencies in a timely manner. ¨ The Department did not obtain required information from claimants regarding dependent children. ¨ The Department did not issue eligibility determinations within the prescribed timeframe. ¨ In July 2009 the State of Illinois began receiving repayable advances from the Federal Government for the Illinois Unemployment Compensation Trust Fund. At December 31, 2009, this amount totaled approximately $1,168,532,000. {Expenditures and Activity Measures are summarized on the next page.}

ILLINOIS DEPARTMENT OF EMPLOYMENT SECURITY

FINANCIAL AUDIT

For the Year Ended June 30, 2009

COMPLIANCE EXAMINATION

For the Two Years Ended June 30, 2009

STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS Unemployment Compensation Trust Fund (in thousands)	2009	2008
OPERATING REVENUES: Unemployment taxes........................................... Federal government............................................. Total Operating Revenues.............................. OPERATING EXPENSES: Benefit Payments and Refunds............................ Operating Income (Loss)............................... NONOPERATING REVENUES (EXPENSES): Interest and investment income............................ Total nonoperating revenues........................... Income (loss) before transfers...................... TRANSFERS OUT................................................. Increase (Decrease) in net assets................... NET ASSETS, July 1,............................................. NET ASSETS, June 30,..........................................	$1,600,817 1,644,757 3,245,574 5,086,053 (1,840,479) 61,180 61,180 (1,779,299) (11,702) (1,791,001) 2,391,158 $600,157	$1,971,147 26,992 1,998,139 1,991,147 6,992 88,650 88,650 95,642 (13,866) 81,776 2,277,774 $2,391,158
STATEMENT OF NET ASSETS (at June 30) Unemployment Compensation Trust Fund (in thousands)	2009	2008
ASSETS: Cash and cash equivalents................................... Deposits held by the federal government............... Receivables, Net: Taxes........................................................... Intergovernmental......................................... Other............................................................ Other assets........................................................ Total Assets................................................ LIABILITIES: Benefit payments payable.................................... Intergovernmental payables.................................. Due to other state funds....................................... Total Liabilities NET ASSETS...........................................................	$92,790 183,115 353,635 107,914 109,459 12,285 $859,198 $227,399 11,509 20,133 259,041 $600,157	$449 1,906,219 432,901 30,886 123,446 4,818 $2,498,719 $96,813 6,423 4,325 107,561 $2,391,158
AGENCY DIRECTOR
During Audit Period: Mr. James P. Sledge (to 8/25/08) Currently: Ms. Maureen T. O’Donnell (from 8/25/08 to current)

Cash and benefits payable were understated by $43 million Interagency agreements were not executed timely The Department’s rules require this information be obtained Cases determined to be untimely Amount repayable to the Federal government is $1,168,532,000

FINDING, CONCLUSION, AND RECOMMENDATIONS INACCURATE BALANCE OF CASH AND CASH EQUIVALENTS AND BENEFIT PAYMENTS PAYABLE The Department of Employment Security (Department) understated its cash and cash equivalents by $43 million. The related benefit payments payable was also understated by the same amount. During our audit, we noted that as of June 30, 2009, the Department recorded a transfer of funds amounting to $43 million against cash and cash equivalents for benefit payments when the actual transfer was not made until July 1, 2009. This resulted in an understatement in the Department’s benefit payments payable. The financial statements and disclosures have been corrected for these adjustments. (Finding 1, page 13) We recommended the Department evaluate its process and improve its controls over recording transactions in the correct fiscal year. Department officials accepted our recommendation and indicated that there was a miscommunication throughout their Accounting Services. INTERAGENCY AGREEMENTS NOT EXECUTED IN A TIMELY MANNER The Department did not execute its interagency agreements with other State agencies in a timely manner. During our detailed review of 15 interagency agreements, we noted that 13 of the agreements had contract terms prior to the completion of an executed agreement. The agreements were signed between 12 and 196 days late. (Finding 4, page 19) We recommended the Department improve its process for timely executing interagency agreements. Department officials accepted our recommendation and indicated that they will work toward improving the process. UNSUPPORTED CLAIMS ON DEPENDENT CHILDREN The Department did not obtain required information from claimants regarding dependent children. During our local office visits, we noted that the Unemployment Insurance Application did not provide space for information on the claimant’s dependent children’s name and birth dates. The Department’s rules require this information be obtained. (Finding 5, page 20) We recommended the Department revise the Unemployment Insurance Application to provide space for information on the claimant’s dependent children’s name and birth dates. Department officials accepted our recommendation and stated that they will resolve the inconsistency between its current process and Department rules. UNTIMELY ISSUANCE OF ELIGIBILITY DETERMINATION The Department did not issue eligibility determinations within the prescribed timeframe. During our testing, we noted the Department untimely issued eligibility determinations for 15 of 60 cases. The eligibility determinations were issued 1 to 38 days after the end of the 21-day prescribed timeframe. However, none of these cases resulted in an overpayment of unemployment insurance. (Finding 6, page 21) We recommended the Department implement procedures to ensure all eligibility determinations are made within the prescribed timeframe. Department officials accepted our recommendation. OTHER FINDINGS The remaining findings are reportedly being given attention by the Department. We will review the Department’s progress toward implementation of all recommendations during the next audit. SUBSEQUENT EVENT In July of 2009, the State of Illinois began receiving repayable advances to the account of the Illinois Unemployment Compensation Trust Fund from the federal unemployment account. As of December 31, 2009, a total of 26 States were borrowing from the Federal Government to fulfill the mandate to pay unemployment benefits and Illinois’ loan balance was approximately $1,168,532,000. These loans are interest-free under current federal law through the end of calendar year 2010. (Page 36 of the Financial Report) AUDITORS’ OPINIONS Our auditors stated the financial statements present fairly, in all material respects, the financial position of the Non-Shared Funds of the Department of Employment Security as of June 30, 2009, and the changes in financial position and cash flows, where applicable, thereof for the year then ended. ___________________________________ WILLIAM G. HOLLAND, Auditor General WGH:TLK:pp SPECIAL ASSISTANT AUDITORS Our special assistant auditors for this audit were E.C. Ortiz & Co. LLP.