REPORT DIGEST

 

ILLINOIS RURAL BOND BANK

 

FINANCIAL AND COMPLIANCE AUDIT

For the Year Ended:

June 30, 2003

 

Summary of Findings:

 

Total this audit:                       2

Total last audit:                       2

Repeated from last audit:        1

 

Release Date:

March 9, 2004

 

 

 

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 TDD (217) 524-4646

 

This Report Digest is also available on

the worldwide web at

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

 

 

 

SYNOPSIS
  • The Agency made several errors in financial reporting that required adjustments to the financial statements and to the accounting information sent to the Office of the State Comptroller.
  • Certain contractual agreements entered into by the Agency did not include all the required elements for State contracts.


 

SUBSEQUENT EVENTS

On July 17, 2003 the Governor signed Public Act 93-0205. This Act repeals the enabling legislation of the Illinois Rural Bond Bank and several other bonding authorities effective January 1, 2004 and creates the Illinois Finance Authority. The activities of each of the bonding authorities, including the Illinois Rural Bond Bank, were transferred to the Illinois Finance Authority on January 1, 2004.

 

 

 

 

 

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

 

ILLINOIS RURAL BOND BANK

FINANCIAL AND COMPLIANCE AUDIT

For The Year Ended June 30, 2003 and 2002

 

REVENUE AND EXPENSE STATISTICS

FY2003

FY 2002

Operating Revenues

$4,303,050

$4,645,146

Operating Expenses

$5,429,388

$6,044,097

&Interest expense and amortized issuance cost net of amortized premium

% of Operating Expenses

 

$4,876,460

89.8%

 

$5,485,783

90.8%

Salary and Benefits

% of Operations Expenditures

Average No. of Employees

$317,129

5.9%

4.83

$198,202

3.3%

4.00

Professional Services

% of Operations Expenditures

$104,463

1.9%

$157,814

2.6%

Financing Costs

% of Operations Expenditures

$49,527

0.9%

$115,462

1.9%

Equipment and Office Leases

% of Operations Expenditures

$39,739

0.7%

$44,086

0.7%

Other Operating Expenses

% of Operations Expenditures

$42,070

0.8%

$42,750

0.7%

Operating Income (Loss)

$(1,126,338)

$(1,398,951)

Nonoperating Revenues (Expenses)

$1,028,039

$1,384,227

Change in Net Assets

$(98,299)

$(14,724)

Total Net Assets at June 30

$3,827,792

$3,926,091

SELECTED ACTIVITY MEASURES

FY 2003

FY 2002

! Revenue Bonds Outstanding

$81,645,000

$89,900,000

! Loans Made During Year

$13,739,646

$24,307,855

AGENCY DIRECTOR(S)

During Audit Period: Mr. Eric Watson

Currently: Mr. Ali Ata (Illinois Finance Authority)

 

 

 

 

 

 

 

 

The Agency made several errors in financial reporting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency contracts did not include required elements

 

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

FINANCIAL STATEMENT ADJUSTMENTS AND ACCOUNTING ERRORS

The Agency made several errors in financial reporting that required adjustments to the financial statements and to the accounting information sent to the Office of the State Comptroller.

We noted the following errors in reporting in accordance with generally accepted accounting principles (GAAP) during our audit of the financial statements and review of the GAAP Reporting Form Packages sent to the Office of the State Comptroller:
  • The Agency did not record the prior year’s adjusting journal entries increasing assets $1.1 million and increasing liabilities $1.2 million on their financial statements.
     
  • The Agency did not record amortized bond issuance cost of $116,000 and amortized bond premiums of $128,000 on their financial statements.
     
  • The Agency did not defer and amortize the 2003 Public Projects Construction Notes (PPCN) premium received of $56,000 and note issuance cost of $38,000 on their financial statements and GAAP Reporting Forms sent to the Office of the State Comptroller.
     
  • The Agency made several classification errors in reporting assets, income and expenses on their GAAP Reporting Forms sent to the Office of the State Comptroller. These errors included a misclassification of $144,000 of interest income and premiums received as other income instead of a reduction of interest expense; misclassification of a $71,000 receivable as an investment; and misclassification of $275,000 of operating program income as nonoperating investment income.
     
  • The Agency did not report short-term debt activity or future minimum lease payments properly on the GAAP Reporting Forms sent to the Office of the State Comptroller.
     
  • Numerous inconsistencies were noted between the Statement of Cash Flows in the Agency’s financial statements and amounts the Agency reported on GAAP Reporting Forms to the Office of the State Comptroller.

Agency officials stated the errors were related to the changeover of responsibilities from the contractual accountant used in previous years to in-house personnel. The Agency subsequently posted the adjusting journal entries to their financial statements to correct the errors noted above. (Finding 1, pages 10-11)

We recommended the Agency develop procedures to ensure that their financial statements and GAAP Reporting Form Packages are properly completed and include accurate GAAP basis financial information.

Agency officials responded that changing their accounting from an external to an internal source required a period of adjustment and that the future responsibility for development of procedures will need to be addressed by the Illinois Finance Authority - the successor to the Illinois Rural Bond Bank.

 

CONTRACTS DID NOT INCLUDE MINIMUM REQUIRED ELEMENTS

We examined the written Agency contracts related to each of the contractual service expenditures selected for expenditure testing. Five of those expenditures met the $5,000 threshold for requiring a "written" contract. Each of these contracts entered into by the Agency did not include some or all of the following elements:
  • Bribery clause,
  • Default on repayment of educational loan certification,
  • Advance payment certification,
  • Discriminatory club dues certification,
  • International boycott certification,
  • Right to audit records clause,
  • Bid rigging/Bid rotating certification,
  • Drug free work place certification,
  • Contractor’s federal taxpayer identification number, and
  • Appropriation contingency clause.

The Statewide Accounting Management System (SAMS) procedure 15.50.10 lists contents that are required to be included in all written contracts entered into by State agencies.

The Agency stated they were unable to update the contracts for the required provisions as they had indicated they would do in the prior year’s response to this finding because the contracts were renewed before they were aware of the finding and because they decided to defer amending the contracts pending the consolidation of the Agency in the Illinois Finance Authority according to Public Act 93-0205. (Finding 2, pages 12-13)

We recommended the Agency update their contractual agreements to contain the required contract elements.

Agency officials responded that they assumed the intent of the finding last fiscal year was in regard to any future contracts and not for current contractual agreements awarded under prior management.

Mr. Eric Watson, Executive Director, provided the Agency’s responses to our findings and recommendations.

 

AUDITORS’ OPINION

Our auditors state the Illinois Rural Bond Bank’s financial statements as of June 30, 2003 and for the year then ended are fairly presented in all material respects.

 

 

___________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:JAF:pp

 

SPECIAL ASSISTANT AUDITORS

Our special assistant auditors were Nykiel-Carlin & Co., LTD.