REPORT DIGEST DEPARTMENT OF EMPLOYMENT SECURITY FINANCIAL AUDIT AND COMPLIANCE EXAMINATION For the Year(s) Ending: June 30, 2013 Release Date: March 5, 2014 Summary of Findings: Total this audit: 7 Total last audit: 7 Repeated from last audit: 4 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 had inadequate controls over financial close and reporting to allow management or employees to prevent or detect financial statement misstatements in a timely manner. • The Department did not execute intergovernmental agreements with other State agencies in a timely manner. • The Department did not issue eligibility determinations within the prescribed timeframe. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS INADEQUATE CONTROLS OVER FINANCIAL CLOSE AND REPORTING The Department of Employment Security (Department) did not have adequate controls over financial close and reporting to allow management, in the normal course of performing their assigned functions, to prevent or detect financial statement misstatements in a timely manner. The Department submitted “GAAP Reporting Packages” to the Illinois Office of the Comptroller (Comptroller) 1 to 21 days late. The “GAAP Reporting Packages” are used by the Comptroller to prepare the State’s Basic Financial Statements. Some of the errors noted follow: • For the Title III Social Security and Employment Services Fund, the accrual for outstanding unpaid facilities, statistical, and telecommunication services provided by agency was understated by $3.8 million. • For the Unemployment Compensation Special Administration Fund, the Department overstated accounts payable and expenditures in the amount of $2.9 million. • For the Unemployment Compensation Trust Fund and the Master Bond Fund, the Department failed to record eliminating entries totaling $323.9 million. • The Notes to Financial Statements included a disclosure on federal expenditures totaling $1,019.3 million, identified under the American Recovery and Reinvestment Act of 2009. However, this disclosure was not applicable for the current year. All of the above referenced errors were subsequently corrected by the Department on their financial statements. The auditors also noted the other errors related to Financial Statement Reporting. Department officials, however, did not adjust their financial statements since they were deemed to be immaterial. The conditions noted follow: • For the Unemployment Compensation Trust Fund, the allowance for uncollectible taxes, interest and penalties was erroneously calculated resulting in an overstatement of $8.9 million to the allowance and an understatement to contribution revenues. • Benefit payments payable in the Unemployment Compensation Trust Fund were understated by $5.3 million. (Finding 1, Pages 13-18) We recommended the Department establish and implement procedures to ensure required financial information is prepared and submitted to the Comptroller in a timely manner. Further, the Department should improve controls over yearend financial closure and reporting to ensure accurate financial statement presentation and disclosure. Department officials accepted the recommendation. INTERAGENCY AGREEMENTS NOT EXECUTED IN A TIMELY MANNER The Department did not execute its intergovernmental agreements with other State agencies in a timely manner. During our review of 8 interagency agreements, we noted that 4 of the 8 (50%) Intergovernmental Agreements for Utilization of Leased Space were signed after the effective date of the lease. The agreements were signed between 57 and 201 days after the start of the lease term. (Finding 4, Page 25) This finding was first reported in 2005. We recommended the Department improve its process for timely executing intergovernmental agreements. Department officials accepted the recommendation and stated that they will continue to improve and streamline the approval process. (For the previous Department response, see Digest Footnote #1) UNTIMELY ISSUANCE OF ELIGIBILITY DETERMINATIONS The Department did not issue eligibility determinations within the prescribed timeframe. During FY 13, the Department did not meet the acceptable coverage of at least 80% for timely non-monetary determinations in 21 days. The Department’s quarterly performance was between 61% and 73%. The Code of Federal Regulation (20 CFR Part 640.3) states that a State law include provisions for such methods of administration as will reasonably insure the full payment of unemployment benefits for eligible claimants with the greatest promptness that is administratively feasible. (Finding 5, Pages 26-27) This finding was first reported in 2009. We recommended the Department implement procedures to ensure all eligibility determinations are made within the prescribed timeframes. Department officials accepted the recommendation and stated that Federal funding reductions led to staff reductions that have adversely impacted timeliness. (For the previous Department response, see Digest Footnote #2) OTHER FINDINGS The remaining findings are reportedly being given attention by Department personnel. We will review progress toward implementation of our recommendations in our next audit. 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, 2013, and the changes in financial position and cash flows, where applicable, thereof for the year then ended. WILLIAM G. HOLLAND Auditor General WGH:TLK SPECIAL ASSISTANT AUDITORS E.C. Ortiz & Co., LLP were our special assistant auditors. DIGEST FOOTNOTES #1 –Interagency Agreements Not Executed in a Timely Manner –Previous Department Response 2011-We accept the recommendation. The Department is continuing to improve the approval process by beginning the MOU approvals earlier in the year and meeting regularly to speed up the approval process. As a result, nine of the agreements cited in the finding were executed timely in FY 12. #2 –Untimely Issuance of Eligibility Determination –Previous Department Response 2011-We accept the recommendation. Through load-balancing and revised operations procedures, the determination completion time frame has significantly improved, with the last two quarters exceeding the ETA requirement.