REPORT DIGEST

ILLINOIS GAMING BOARD

FINANCIAL AUDIT - STATE GAMING FUND
For the Year Ended: June 30, 2012
COMPLIANCE EXAMINATION
For the Two Years Ended: June 30, 2012


Release Date:   April 25, 2013

Summary of Findings:
Total this audit: 12
Total last audit:  8
Repeated from last audit: 1

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 Board failed to exercise adequate internal control
over financial reporting, resulting in errors within the
State Gaming Fund’s year-end reporting package and draft
financial statements.

• The Board was unable to comply with the requirements
of the Riverboat Gambling Act, resulting in $66.9
million in excess funds being retained in the State
Gaming Fund’s cash balance at June 30, 2012.

• The Board did not exercise adequate control over the
calculation of its transfers to the Education Assistance
Fund from the State Gaming Fund.

• The Board had not developed an effective change
management process to control modifications to computer
applications.

• The Board failed to maintain sufficient controls over
the reconciliation and reporting of its property.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INADEQUATE CONTROL OVER FINANCIAL REPORTING

The Board did not exercise adequate internal control
over financial reporting, resulting in inaccuracies and
errors within the State Gaming Fund’s (Fund) year-end
Generally Accepted Accounting Principles (GAAP)
reporting package submitted to the Office of the State
Comptroller and the Fund’s draft financial statements.
We noted:

• The Board recorded adjusting journal entries which
incorrectly categorized $5.721 million as both taxes
receivable and other receivables on its June 30, 2012,
GAAP reporting forms. Further, the original taxes
receivable adjusting journal entry included $906
thousand for which the Board had already received the
cash as of June 30, 2012. The entry included a $45
thousand mathematical error when the Board added the
receivable amounts.

• The Board did not record $30 thousand in video gaming
licensing fees that were received on June 29, 2012 as
cash in-transit as of June 30, 2012.

These combined errors resulted in an overstatement of
the amount due to the Education Assistance Fund,
totaling $5.736 million, on the initial draft of the
Fund’s financial statements.

Auditors also noted errors and omissions from the Fund’s
draft financial statement disclosure notes:

• The Board’s “Description of the Fund” and “Interfund
Balance” footnotes did not reflect the Board’s current
operating environment and responsibilities under the
Video Gaming Act.
• The Board’s growing and current liability to the Horse
Racing Equity Fund and Chicago State University were
inaccurately included as a “Commitment” disclosure
footnote.
• The Board did not include a subsequent event footnote
regarding video gaming terminals going “live” in October
2012.

We recommended the Board work with Shared Services to
implement procedures and cross-training measures to
ensure the Fund’s GAAP Package and financial statements
are accurate and fairly presented in accordance with
generally accepted accounting principles. (Finding 1,
pages 14-16)

Board officials agreed with the recommendation and
indicated they will work toward implementing policies
and procedures to ensure the Fund’s GAAP Package and
financial statements are accurate and fairly presented.

NONCOMPLIANCE WITH STATUTORY PAYMENT REQUIREMENTS

The Board was unable to comply with the requirements of
the Riverboat Gambling Act, resulting in $66.9 million
in excess funds being retained in the State Gaming
Fund’s cash balance at June 30, 2012.

On July 15, 2011, the tenth riverboat casino license
became operational in Des Plaines, Illinois. When this
occurred, a statutory change required the Board to pay
15% and 2% of the tenth riverboat casino’s adjusted
gross receipts to the Illinois Racing Board for deposit
into the Horse Racing Equity Fund and to Chicago State
University, respectively. As of June 30, 2012, the State
Gaming Fund had outstanding liabilities due to the Horse
Racing Equity Fund and Chicago State University,
totaling $59.032 million and $7.871 million,
respectively.

We recommended the Board work with the Governor’s Office
of Management and Budget (GOMB) and the Illinois General
Assembly to seek legislative remedy to address the
growing cash balance within the State Gaming Fund.
(Finding 2, Page 17)

Board officials agreed with the recommendation and
indicated they will continue to work with GOMB and the
Illinois General Assembly to seek legislative remedy to
address the growing cash balance within the State Gaming
Fund.

NEED TO IMPROVE CONTROLS OVER FUND TRANSFERS

The Board did not exercise adequate internal control
over the calculation of its transfers to the Education
Assistance Fund (EAF) from the State Gaming Fund (SGF).

During testing of the Board’s bi-monthly transfers, we
noted:

• The Board did not include all outstanding obligations
due to Cook County as of the date the transfer was
calculated.
• The Board did not include all outstanding obligations
for admission and wagering taxes due to local
governments as of the date the transfer was calculated.
We were unable to recalculate the total obligation
amount used by the Board in its calculation for these
transfers.
• The Board did not include all receipts received by the
Board and deposited in the SGF as of the date the
transfer was calculated. We were unable to recalculate
the total receipt amount used by the Board in its
calculation for these transfers.
• The Board did not include all outstanding obligations
due to the Horse Racing Equity Fund and the Chicago
State University as of the date the transfer was
calculated.
• The Board did not ensure all previous SGF transfer
obligations to the EAF were included as of the date the
transfer was calculated.
• The Board did not accurately account for cash
disbursements paid by the Board as of the date the
transfer was calculated.
• The Board did not maintain supporting documentation
for cash disbursements paid by the Department of Human
Services pursuant to an appropriation from the SGF for
programs related to the treatment of problem gambling.

We recommended the Board implement internal controls to
timely prepare and accurately calculate transfers of
excess cash resources from the SGF to the EAF. (Finding
3, pages 18-19)

Board officials agreed with the recommendation and
stated procedures are in the process of being revised to
strengthen controls regarding the fund transfers.

LACK OF FORMALIZED CHANGE MANAGEMENT STANDARD

The Board had not developed an effective change
management process to control modifications to computer
applications to ensure changes are properly approved,
tested and documented.

The Board maintains sixteen applications in order to
meet their mission of administering and regulating
riverboat casino gambling and video gaming in Illinois.
Auditors noted, in the event a change was required, an
email would be sent to the applicable programmer
requesting the change be made. The programmer would
complete the change; however, documentation was not
always maintained.

We recommended the Board implement a structured change
management standard to ensure adequate oversight of
modifications to existing systems. (Finding 4, pages
20-21)

Board officials agreed with the recommendation and
stated a structured change management standard was
implemented, effective January 1, 2013.
INADEQUATE RECONCILIATION AND REPORTING OF PROPERTY

The Board did not maintain sufficient controls over the
reconciliation and reporting of its property.  Some of
the conditions we noted are as follows:

• The Board did not adequately reconcile its property
control records to the Agency Report of State Property
(C-15) filed with the Office of the Comptroller.
• The Board could not provide support for numbers
presented on the C-15.
• The Board’s property listing contained inadequate and
inaccurate information.
• The Board did not properly record pieces of equipment
on its property listing.
• The Board did not timely record equipment on its
property listing.
• The Board improperly included a commodity item as part
of an asset’s value.
• The Board did not record equipment items on the C-15
during the same quarter the items were actually added,
transferred, or deleted.
• The Board improperly reported transfers-out as
deletions.
• The Board reported a transfer-out of the same asset on
two successive C-15s.

We recommended the Board establish controls over
property reporting and implement procedures. (Finding 5,
pages 22-26)

Board officials agreed with the recommendation and
stated property control procedures have been
implemented.

OTHER FINDINGS

The remaining findings pertain to: (1) noncompliance
with timekeeping requirements, (2) performance
evaluations, (3) inaccurate Agency Workforce Reports,
(4) certifying insurance automotive coverage, (5) Board
membership, (6) Identity Protection Act, and (7)
weaknesses over security and control of confidential
information.  We will review the Board’s progress
towards the implementation of our recommendations in our
next engagement.

AUDITORS’ OPINION

Our auditors stated the State Gaming Fund Financial
Statements of the Illinois Gaming Board as of and for
the year ended June 30, 2012 are fairly stated in all
material respects.

WILLIAM G. HOLLAND
Auditor General
WGH:JV:rt

AUDITORS ASSIGNED

The financial audit and attestation engagement was
performed by the Office of the Auditor General’s staff.