REPORT DIGEST

 

ILLINOIS FINANCE AUTHORITY

 

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

 

For the Year Ended:

June 30, 2005

 

Summary of Findings:

Total this audit                          9

Total last audit                        14

Repeated from last audit           3

 

Release Date:

May 18, 2006 

 

 

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.state.il.us/auditor

 

 

SYNOPSIS

 

 

¨      The Illinois Finance Authority did not have sufficient collateralization for cash deposits held at three financial institutions.

¨      The Authority paid $267,447 in bonuses during fiscal year 2005 to 23 employees based on an Incentive Based Compensation Plan.

¨      The Authority did not report required revenue bond information to the Illinois Office of the Comptroller.

¨      The Authority did not have adequate procedures in place to ensure compliance with the Illinois Procurement Code and Statewide Accounting Management System Procedures relating to purchasing, contractual agreements, and real estate lease agreements.

¨      The Authority failed to submit Receipt Deposit Transmittals with the Illinois Office of the Comptroller.  

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

{Revenue, Expenditures and Activity Measures are summarized on the next page.}


 

ILLINOIS FINANCE AUTHORITY

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

YEAR ENDED JUNE 30, 2005

 

FINANCIAL INFORMATION

For The Year Ended June 30, 2005

For The Six Months Ended June 30, 2004

·        Total Revenues.........................................

$18,066,385

$4,708,897

      Appropriations from State of Illinois.............

        % of Revenues........................................

$6,227,472

34.5%

$117,467

2.5%

      Administrative Service Fees........................

        % of Revenues........................................

$4,977,492

27.5%

$1,682,146

35.7%

      Interest on Loans........................................

        % of Revenues......................................  

$3,084,364

17.1%

$1,636,618

34.8%

      Annual fees................................................

        % of Revenues........................................

$1,747,670

 9.7%

$717,165

15.2%

      Other Income.............................................

        % of Revenues........................................

$2,029,387

11.2%

$555,501

11.8%

·        Total Expenses..........................................

$9,329,616

$4,944,989

      Employee Related Expenses........................

        % of Expenses.........................................

$3,169,979

34.0%

$1,153,180

23.3%

      Average No. of Employees.........................

29

21

      Interest Expense.........................................

        % of Expenses.........................................

      Professional Services..................................

        % of Expenses.........................................

$3,089,751

33.1%

$1,173,012

12.6%

$1,677,128

33.9%

$998,378

20.2%

      Other Items................................................

        % of Expenses.........................................

$1,896,874

20.3%

$1,116,303

22.6%

·        Deficiency of Revenues over Expenses...

$8,736,769

($236,092)

·        Cash and investments...............................

·        Receivables, net........................................

·        Bonds payable and long-term debt............

·        Net assets..................................................

$67,703,310

$80,012,862

$64,677,209

$81,086,128

$68,670,304

$72,642,352

$67,226,074

$72,349,359

SELECTED ACTIVITY MEASURES

For The Year Ended June 30, 2005

For The Six Months Ended June 30, 2004

·        Total Number of Bond Issues and Loans Outstanding at June 30,...............................

 

818

 

945

·        Total Number of New Bond Issues and Loans.................................................................

 

66

 

26

·        Total Bond Value Outstanding (in millions).....

$20,348

$19,721

AGENCY EXECUTIVE DIRECTOR

During Audit Period: Mr. Ali Ata (through 3/7/05)

Currently: Ms. Jill Rendleman (Acting)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1,324,659 in deposits were uncollateralized at June 30, 2005

 

 

 

 

 

 

 

 

 

 

Management indicated the uncollateralized deposits were due to improper collateral agreements and market fluctuations

 

 

 

 

 

 

 

 

 

 

 

 

 


$267,447 in bonuses were paid during the fiscal year

 

 

 


23 employees were paid under the Incentive Based Compensation Plan

 

 

 

 

 

 

 

 

There is no provision in the Personnel Code for incentive pay or bonuses

 

 

 

 

 

 

 

 

 

 

Authority management accepted our recommendation but did not accept the finding

 

 

 

 

 


Auditors’ comment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

576 interest and 166 principal payments of revenue bonds were either not reported to the Comptroller or reported late

 

 

 

 

 

 

 

 

 

 

 


Management indicated that there was miscommunication regarding bond reporting requirements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10 contracts had missing required contract content

 

6 contracts not filed with the Office of the Comptroller

 

6 contracts subject to the competitive bidding requirements did not go through the competitive bidding process

 

Disclosure of Financial Interest was not obtained for 8 contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Authority did not forward Receipt Deposit Transmittal forms to the Comptroller from September 2004 through March 2005

 

 

 


Receipt Transmittal Forms filed late totaled $29,363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTRODUCTION

 

      The mission of the Authority is to foster economic development to the public and private institutions that create and retain jobs, and improve the quality of life in Illinois by providing access to capital. 

 

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

 

NONCOMPLIANCE WITH THE STATE OFFICERS AND MONEY DISPOSITION ACT

 

      The Authority did not have sufficient collateralization for cash deposits held at three financial institutions. 

 

      The Authority had total uncollateralized cash deposits at June 30, 2005 of $1,324,659. The Authority had $400,839 of uncollateralized deposits at one bank for the entire fiscal year, $900,000 of uncollateralized deposits at another bank for six months of the fiscal year, and $23,820 of uncollateralized deposits at a third bank for one month of the fiscal year.

 

      The State Officers and Employees Money Disposition Act (30 ILCS 230/2c) states, “Whenever funds deposited with a bank or savings and loan association exceed the amount of federal deposit insurance coverage, a bond, pledged securities, or other eligible collateral shall be obtained.”

 

      Management indicated that the uncollateralized deposits at two of the banks were due to improper collateral agreements when the funds were initially deposited and the uncollateralized deposits at the third bank were due to a fluctuation in the market value of the pledged securities.  (Finding 1, page 9) 

 

      We recommended the Authority review the procedures for monitoring deposit collateralization and implement controls to secure collateralization agreements prior to opening deposit accounts with balances over the FDIC limit.

      Authority management accepted our recommendation and responded that they had identified the lack of sufficient collateral on specific deposits and reported it to the auditors.  Authority management reported that a monthly review process has been implemented to help ensure that proper collateral levels are maintained in compliance with applicable mandates.

 

NONCOMPLIANCE WITH THE PERSONNEL CODE – INCENTIVE BASED COMPENSATION

 

      The Authority paid $267,447 in bonuses during fiscal year 2005 to 23 employees based on an Incentive Based Compensation Plan.

 

      During our testing of personal services, we determined that the Authority was making payments to 23 employees based on the Authority’s Incentive Based Compensation Plan.  The Incentive Plan is calculated based on individual performance and the Authority’s performance.  The Plan’s administrative rules contain a schedule of ranges and percentages for determining the incentive pay.  The Authority paid a total of $267,447 for fiscal year June 30, 2005 to 23 eligible employees according to the Incentive Plan.

 

      The Personnel Code “Increases in Pay” (80 Ill. Adm. Code 310.80) establishes the guidelines for increasing an employees pay.  Approved methods include a satisfactory performance increase, a superior performance increase, promotion and reallocation, reevaluation and adjustments that require the prior approval of the Director of Management Services (DCMS).  There is no provision in the Personnel Code for the payment of incentive pay or bonuses.  (Finding 2, pages 10-11)

 

      Management indicated the Authority is exempt from the Personnel Code, therefore, allowing the Incentive Based Compensation Plan.

 

      We recommended that the Authority conform its personnel practices to governing law.  Further, the Authority should seek an opinion from the Attorney General to determine if the Authority is exempt from the Personnel Code.

 

      Authority management accepted our recommendation but did not accept our finding.  Authority management stated that the Illinois Finance Authority Act (20 ILCS 3501/801) exempts the Authority from the Personnel Code because it grants the Authority its own power to establish its own system of personnel administration.  However, Authority management accepted our recommendation to seek a legal opinion from the Attorney General’s Office regarding the applicability of the Personnel Code to the Authority.

 

      In an auditors’ comment the auditors stated that neither the Illinois Finance Act nor the Personnel Code specifically excludes the Illinois Finance Authority from the Personnel Code.  Under the Personnel Code all positions of employment in the service of the State of Illinois are subject to the provisions of the Personnel Code unless exempted either in the Personnel Code or in another law (20 ILCS 415/4).  The auditors continue to believe such exemption must be express and not implied.  The auditors continue to recommend the Authority seek a formal opinion from the Attorney General if it continues to disagree. 

 

FAILURE TO REPORT REVENUE BOND INFORMATION TO THE ILLINOIS OFFICE OF THE COMPTROLLER

 

      The Authority did not report required revenue bond information to the Illinois Office of the Comptroller (Comptroller). 

 

      During the fiscal year ended June 30, 2005, there were 818 conduit debt bonds with a total principal balance outstanding of $20.4 million that were in the care of the Authority. The Comptroller prepared a listing of revenue bonds that had delinquent reporting activity.  A review of that listing, dated August 31, 2005, resulted in the following conditions being noted:

 

·        191 interest and 98 principal notice of payments were not reported in a timely manner.

 

·        385 interest and 68 principal notice of payments were past due and were not reported.

 

·        10 prospectuses and 9 maturity schedules were not received in a timely manner.

 

 

      Management indicated that there was miscommunication between the bond trustees and the Authority in regards to the reporting requirements of the bond trustees.  (Finding 3, page 12)    

 

        We recommended the Authority improve communications with the bond trustees and strengthen internal controls to ensure the Comptroller receives the required revenue bond reporting information in a timely manner. 

 

      The Authority accepted our recommendation and indicated that it has implemented a system to improve reporting to the Comptroller.

 

NONCOMPLIANCE WITH THE ILLINOIS PROCUREMENT CODE AND STATEWIDE ACCOUNTING MANAGEMENT SYSTEM PROCEDURES

 

      The Authority did not have adequate procedures in place to ensure compliance with the Illinois Procurement Code and Statewide Accounting Management System (SAMS) procedures relating to purchasing, contractual agreements and real estate lease agreements.

 

      The Illinois Finance Authority entered into 44 contractual agreements (contracts) during the audit period. Of the 44 contracts we noted the following:

 

·        10 contracts (23%) had missing required contract content, such as contracts were not dated and signed by the contractor or contractors doing business under another name that was not clearly specified in the contract;

·        6 contracts (14%) required to be filed with the Illinois Office of the Comptroller (Comptroller) were not filed with the Comptroller;

·        6 contracts (14%) subject to competitive bidding were entered into without undergoing the competitive selection process;

·        6 contracts (14%) required to be published in the Illinois Procurement Bulletin were not published;

·        Disclosures of Financial Interest were not obtained for 8 contracts (18%) requiring such disclosure;

 

 

      During our detailed testing of four real estate lease agreements (leases), we noted the following:

 

·        1 out of 4 (25%) leases was not filed with the Comptroller;

·        1 lease (25%) stated a rate of $13.91 per square foot, which was effective 04/01/05, while the voucher that was processed reflected a $13.50 per square foot rate.

 

      Management indicated that many of the contracts subject to this finding were put in place before the Authority had appropriate procedures in place to ensure all regulations were followed. As these contracts expire, the newer contracts will be done within appropriate procurement regulations.  (Finding 4, pages 13-14) 

 

      We recommended that the Authority implement controls and procedures to ensure compliance with the Illinois Procurement Code and SAMS procedures when procuring contractual services.

 

      The Authority accepted our recommendation and stated that it has implemented procedures to comply with the Procurement Code and has hired a Compliance Officer to ensure the requirements of the Procurement Code are met. 

 

 

UNTIMELY SUBMISSION OF RECEIPT DEPOSIT TRANSMITTALS WITH THE ILLINOIS OFFICE OF THE COMPTROLLER

 

      The Authority failed to timely submit Receipt Deposit Transmittals (C-64 Form) with the Illinois Office of the Comptroller (Comptroller). 

 

      During our examination of revenues and receipts, we noted that the Springfield office of the Illinois Finance Authority (Authority) did not forward any deposit receipts to the Chicago office until April.  Therefore, the Authority did not submit Form C-64 to the Comptroller for the deposit receipts between September 2004 and March 2005.  A C-64 Form was submitted on April 26, 2005 to catch up for receipts from September 2004 through March 2005.  The following are the monthly receipts that were included on the C-64 submitted on April 26, 2005:

 

·        September  -       $2,283.54

·        October     -       $2,283.54

·        January       -     $20,229.25

·        March        -       $4,567.08

 

      Authority personnel stated that they were not aware of this filing requirement.  (Finding 7, page 18)

 

      We recommended that the Authority implement procedures to ensure that all Receipt Deposit Transmittal Form C-64’s are filed on time with the Office of the State Comptroller.

 

      The Authority accepted our recommendation and indicated that it has implemented procedures to file the C-64 Forms on a timely basis.

 

VOUCHER PROCESSING CONTROLS NEED IMPROVEMENT

 

      The Authority did not have adequate controls in place to ensure all payment vouchers were processed in accordance with established procedures. (Finding 5, pages 15-16)

 

      We recommend that the Authority document the receipt date on all incoming invoices and continue to strengthen controls over voucher processing to ensure compliance with State statute, administrative rule, Authority policies and procedures and generally accepted accounting principles.

 

      The Authority accepted our recommendation and stated that it has implemented a more stringent process to date invoices when they are received.

 

OTHER FINDINGS

 

      The remaining findings are reportedly being giving attention by the Authority.  We will review progress toward implementing our recommendations in our next audit of the Authority.

 

      Ms. Jill Rendleman, Acting Executive Director of the Illinois Finance Authority, provided the Authority’s responses.

 

 

AUDITORS’ OPINION

 

      Our auditors state the financial statements of the Authority as of and for the year ended June 30, 2005 are fairly presented in all material respects.

 

 

 

 

 

____________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:JAF:pp

 

SPECIAL ASSISTANT AUDITORS

 

      McGladrey & Pullen, LLP were our special assistant auditors on this audit.