REPORT DIGEST
DEPARTMENT OF TRANSPORTATION
FINANCIAL AUDIT AND COMPLIANCE
EXAMINATION
For the Year Ended: June 30, 2009
Summary of Findings:
Total this audit: 20
Total last audit: 30
Repeated from last audit: 14
Release Date: May 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 http://www.auditor.illinois.gov
SYNOPSIS
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
NEED TO IMPROVE FINANCIAL REPORTING
The Department of Transportation’s (Department’s) year-end
financial reporting in accordance with Generally Accepted Accounting Principles
(GAAP) to the Illinois Office of the Comptroller contained weaknesses and
inaccuracies.
Some of the conditions noted follow:
• GAAP reporting packages were not submitted to
the Comptroller in a timely manner. GAAP
reporting packages were due to the Comptroller on September 11, 2009. The
Department submitted 7 of its 32 (22%) packages late. The final package was submitted on October
14, 2009, approximately (1) month late.
Due to discussions and communication between the Department, Comptroller,
and other State agencies and universities, the forms did not receive the
Comptroller’s final review until December 15, 2009, and the final draft of the
financial statements, after adjustments, was provided on February 19, 2010.
• The
Department could not provide supporting documentation from its accounting
records for $59,423,000 (4%) of $1,412,088,000 federal expenditures reported to
the Office of the State Comptroller for five federal programs. The expenditure totals reported for those
programs were derived by subtracting prior year grant receivables from the
current year grant receipts.
• The
Department’s liability estimation model does not permit for the calculation of
encumbrances. During fieldwork, the Department performed an analysis of its encumbrances
at June 30, 2009 and determined that it was approximately $2,321,000 more than
what was recorded in its financial statements.
We recommended the Department implement procedures and
cross-training measures to ensure GAAP Reporting Packages are prepared in a
timely, accurate and complete manner.
Also, the Department should modify its accounts payable model to include
the dates tangible items such as commodities and fixed assets are ordered and
received so that the encumbrances can be accurately computed.
Department officials agreed with our recommendation and
stated the Department experienced the unexpected loss of key personnel during
the GAAP reporting process.
NEED TO IMPROVE COMMODITIES INVENTORY RECORDS
The
Department maintained inaccurate commodities inventory records for the year
ended June 30, 2009.
During our
physical inventory counts, we counted 650 inventory items and noted
discrepancies between audit test counts and Department inventory counts for 240
(37%) items. The errors resulted in an
understatement of the year end inventory balance of $327,000 which, when
extrapolated over the entire inventory population, resulted in an estimated
understatement of $4,093,000. The
Department was not able to reconcile between audit test counts and Department
physical inventory counts for these differences.
During our price testing, we sampled 67 inventory
items. We were not provided with price
documentation for 6 (9%) items in our sample.
Of the documentation provided, 23 (34%) items contained an inaccurate
price. It was determined that certain
commodities were given equal pricing across the State although actual commodity
costs varied by location. In other
instances, the inventoried commodities costs did not agree to the actual
invoice at the time the commodities were purchased. The discrepancies between final inventory
prices and invoice prices, including the 6 items for which no documentation was
provided, resulted in an overstatement of the year end inventory amount of
$308,000. When extrapolated over the
entire inventory population, this discrepancy resulted in an estimated
overstatement of $7,478,000. (Finding 2, pages 15-17) This finding was first reported in 1994.
We
recommended the Department strongly emphasize the importance of maintaining
accurate inventory quantity and cost records throughout the year. We also recommended the Department perform
periodic physical inventory counts of commodities inventory and reconcile those
counts to its Department records.
Further, we recommended the Department implement a review at year-end to
compare costs assigned per inventory listings to the most recent inventory
amounts to ensure accurate unit costs.
Department
officials agreed with the recommendation and stated the Department is committed
to resolving the issues involved with the commodities inventory process (For
the previous Department response, see Digest Footnote #1)
NEED TO IMPROVE REPORTING OF CAPITAL ASSETS
The
Department did not accurately report capital assets to the Illinois Office of
the State Comptroller for fiscal year 2009.
We noted
the following errors and weaknesses in the Department’s capital assets
financial reporting process:
• The
Department determined that its June 30, 2008 government activity capital assets
balance, net, was understated by $21,259,000 due to errors in the preparation
of its quarterly State property information.
This information is reported to the Illinois Office of the State
Comptroller. When the Department
discovered the error in fiscal year 2009, it determined to record the activity
necessary to correct the understatement in fiscal year 2009 rather than
restating the balance as of July 1, 2008.
This treatment, while significant, did not result in materially
misstating the Department’s financial statements for the year ended June 30,
2009. However, the error represents
deficiencies in the operation of the Department’s control over the capital
asset reporting process.
• Our testing
noted errors of $135,188,000 in the initial information reported by the
Department to the Office of the State Comptroller. These errors included
rounding infrastructure accounts payable to millions rather than thousands;
mathematical inaccuracies of data input; and improper determination of the cost
basis of Right of Way land assets disposed of during fiscal year 2009. (Finding 3, pages 18-19)
We
recommended the Department devote sufficient resources to its financial
accounting functions such that the capital assets information is properly
recorded and accounted for to permit the preparation of reliable financial
information and reports to the Office of the State Comptroller.
Department
officials agreed with the recommendation and stated they identified errors in the
prior year capital assets reporting and as a result had significant corrections
to the capital assets balance during FY09.
INADEQUATE CONTROLS OVER EMPLOYEE ATTENDANCE
The
Department did not exercise adequate controls over employee attendance to
ensure employees’ work hours and benefit time were properly documented.
During
testing, we noted the following:
• Three of 35
(9%) employees tested did not complete leave slips for 63 hours of benefit time
taken and no leave time was entered into the Department’s timekeeping system (TKS) resulting in the overstatement of employees’ accrued
compensated balances by that amount.
• The
Department could not locate all employee sign-in sheets for 4 of 35 (11%)
employees tested. The Department had no
FY09 weekly sign-in sheets for one employee who separated in August. In
addition, 26 weekly sign-in sheets were missing for the 3 employees. Further, 6
of 35 (17%) employees’ tested timesheets were inaccurate in that the employee
signed in and out on their regular day off or on State holidays, or they did
not document benefit time used when signing out.
• Three of 35
(9%) employees tested did not prepare timesheets until 36 to 148 days after the
end of the pay period.
• Four of 35
(11%) employees’ tested supervisors did not approve the timesheets for the 3
months tested. In addition 1 of 35 (3%)
tested employees timesheets were approved by the supervisor from 37 to 83 days
after the end of the pay period for the 3 months tested.
• Six of 35
(17%) employees tested did not complete leave slips timely for the 3 months
tested. The leave requests tested were submitted from 14 to 153 days after the
time off occurred. (Finding 4, pages 20-21) This finding was first reported in
2007.
We
recommended the Department implement controls to ensure employees complete
leave requests for time off, accurately complete the sign-on sheets and agree
those records to the timekeeping system to ensure accrued absence balances are
accurate. Further, the Department should
ensure employees time records are complete and approved by their
supervisor. In addition, the Department
should correct any employee’s accrued absence balance noted as incorrect.
Department
officials agreed with the recommendation and stated the Personnel Policy Manual
has been updated to state employees are responsible for submitting leave
requests to their supervisors in advance when possible, but no later than one
week after the absence. (For the
previous Department response, see Digest Footnote #2)
INADEQUATE CONTROLS OVER EMPLOYEE OVERTIME
The
Department did not exercise adequate controls over the employee use, accrual,
and documentation of Equivalent Earned Time (EET) or
overtime.
Some of the
conditions noted follow:
• Nineteen of
35 (54%) employees tested overtime or Equivalent Earned Time (EET) was not properly tracked, recorded, and approved.
• Thirteen
employees reported a total of 508 hours of EET
without the supervisor’s pre-approval.
• Six
employees reported a total 575 hours of overtime on overtime cards without the
supervisor’s pre-approval.
• Five
employees did not complete leave slips for 41 hours of EET
utilized.
• Three
employees did not maintain overtime cards for 38 hours of overtime and 11 hours
of EET earned.
• Three
employees worked 34 hours of EET that were accrued at
1 ½ times the standard rate. This
resulted in an overstatement of 17 hours.
• Four of 35
(11%) employees tested had accrued EET balances
totaling from 219 to 259 hours as of June 30, 2009. Department policy limits
the EET accrual for certain technical employees’
levels to 90 hours. (Finding 5, pages
22-24) This finding was first reported
in 2007.
We
recommended the Department ensure overtime and EET is
approved in advance, properly documented, recorded and accrued.
Department
officials agreed with the recommendation and stated the Personnel Policy Manual
has been updated to clarify Employee Overtime and Earned Equivalent Time (EET). (For the
previous Department response, see Digest Footnote #3)
INADEQUATE INTERNAL CONTROLS OVER PERSONNEL FUNCTIONS AND
POLICIES
The
Department did not have adequate internal controls over its personnel functions
and policies.
During our testing of
personnel files, we noted the following:
• Three of 35
(9%) employees tested received pay increases for interim assignments that were
extended beyond the initial term without proper approval. In addition, one
employee’s interim assignment pay was $216 per month higher than the policy
allowed for twelve and one-half months.
• Seven of 35
(20%) employees tested received pay increases up to 10% for additional duties
effective January 15, 2009. We reviewed
the individual’s specific job description and did not note any documented
additional duties. These raises were
subsequently rescinded on April 29, 2009.
• We noted
the Secretary’s signature approved via stamp or autopen were
routinely used as approvals on changes in personnel transactions on the Notice
of Personnel Action Form (PM 1) such as salary changes and employee
status. The stamps are not
differentiated and there were typically no initials present to distinguish
which employee had affixed the stamp. In
addition, the Department did not maintain documentation to substantiate any of
the former Secretary’s authorizations for the stamps. Further, we did not note
written documentation of the current Secretary’s authorization for one of the
individuals we were informed had possession and affixed the signature stamp on PM1s. (Finding 6, pages 25-26)
We recommended the Department ensure its signature
authorizations are properly documented and the signature stamps are either
differentiated or accompanied by documentation of the user. In addition, the Department should ensure all
salary adjustments are adequately documented and authorized as required in the
Department’s Personnel Policy.
Department officials agreed with the recommendation and
stated they will ensure that appropriate staff is reminded of the documentation
and authorization requirements related to salary adjustments.
FAILURE TO COMPLY WITH INTERAGENCY AGREEMENT AND ORDER
The
Department did not comply with certain requirements of an interagency agreement
and an Illinois Commerce Commission (Commission) Order when disbursing payments
for a Grade Crossing Protection Fund Project.
The Department entered into an interagency agreement with
the Commission on March 21, 2005 to administer Grade Crossing Protection Fund (GCPF) safety improvement projects. The agreement assigns certain
responsibilities to the Commission and the Department. The Commission issued an Order on June 7,
2006 for improvements to a railroad carrier’s street structure component in a
large city in Illinois. The estimated cost was $1.5 million with approximately
39% or $582,000 to be paid by the GCPF and the
railroad carrier paying the remaining 61%.
A supplemental order was approved by the Commission on November 13, 2008
increasing the project cost by $1,100,000, of which, the Department would be
responsible for approximately 39% or $429,000.
The interagency agreement and Order assigns the Department
the responsibility to ensure the rail carrier provided sufficient documentation
for all reimbursements and provided for minimum documentation
requirements. The agreement further
requires the Department to conduct audits of all GCPF
projects. As of June 30, 2009,
Department management stated the last such audit was conducted in FY07.
We reviewed
the payments totaling $1,011,000 by the Department to the railroad carrier
during FY09 and noted none of the invoices contained sufficient documentation.
The following problems were noted:
• The
Department was unable to provide adequate supporting documentation for a total
of $255,822 paid for labor charges including engineering and supervision and
the overhead additive percentage of 82%.
• The
Department reimbursed a 60% overhead additive rate applied to the labor charges
for equipment totaled $81,756 rather than paying the actual equipment costs. We
also noted equipment charges in addition to the overhead rate which were paid
totaling $5,727 with no documentation provided.
• The
Department was unable to provide supporting documentation for a total of
$158,458 paid for materials and supplies.
• Contractual
payments totaling $480,723 were not adequately documented or were supported by
the railroad carrier rather than the contractors.
• We were
unable to determine whether expenditures related to travel totaling $67,060 and
miscellaneous expenses totaling $6,426 were related to the GCPF
project. The travel expenses included
meals, lodging, and mileage reimbursement in different states and locations
that did not appear reasonable given the location of the project. (Finding 7, pages 27-29)
We
recommended the Department ensure all payments are adequately supported and in
compliance with the Order and interagency agreement. Further, the Department should conduct audits
as required by the interagency agreement.
Department
officials agreed with the recommendation and stated they are currently
conducting reviews in compliance with the Illinois Commerce Commission (ICC) Order and ICC/Department of
Transportation Interagency agreement. Department officials further stated the
auditors’ concerns over the bill in question have been forwarded to the
railroad for explanation and additional documentation for charges billed. Further review of this project will be
conducted.
INADEQUATE PROCESS TO MONITOR INTERAGENCY AGREEMENT
The
Department’s process to monitor interagency agreements was inadequate.
We noted
the following:
• Three of 5
(60%) interagency agreements tested were not signed by all parties prior to the
effective date. The agreements were signed from 11 to 132 days late.
• For 1 of 5
(20%) agreements tested, entered into by the Office of the Governor (Office)
and the Department, for the sharing of employee services (“liaisons”) during
FY09, the salary paid differed from the salary amount specified in the
agreement. The agreement stated the
employee’s annual salary paid would be $76,020; however, the annual salary paid
by the Department totaled $79,620, a difference of $3,600.
• For 4 of 5
(80%) agreements tested, required documentation was not maintained by the
Department. These agreements for liaisons entered into by the Office and the
Department required the Department to maintain all documentation related to
leave administration, payroll, and other personnel activities. We noted the
following:
• Three
liaisons’ sign-in sheets were not maintained by the Department;
• One
liaison did not submit leave requests for 37.5 hours of vacation and 15 hours
of sick time taken. In addition, the
Department’s timekeeping system (TKS) balances were
not adjusted and the employees’ accrued absence balances were overstated by
those amounts. (Finding 9, pages
33-34) This finding was first reported
in 2007.
We
recommended the Department ensure interagency agreements are approved prior to
the effective date of the agreement.
Also, the Department should ensure terms of the agreement are followed.
Department officials agreed with the recommendation and
stated they were working with the IAA manager in the Governor’s Office to
ensure that all IAA’s are properly executed before the employee begins work,
that if during the term of the IAA a salary increase is proposed, the appropriate
IAA amendment will be executed and the employees will be asked to coordinate
all leave requests with the Department’s timekeeper. (For the previous
Department response, see Digest Footnote #4)
INADEQUATE CONTROLS TO PREVENT INAPPROPRIATE PAYMENTS TO VENDORS
The
Department did not have adequate controls to prevent inappropriate payments to
vendors. During testing, we noted eight instances where the Department issued
$103,172 in duplicate or erroneous payments to vendors during FY09.
We obtained
a report of potential duplicate vouchers using auditing software and the
following 2 of 25 (8%) payments tested were issued twice by the Department:
• $956 to an
employee for lodging, parking and meals reimbursement;
• $3,400
reimbursement to a local government for overpayment on its share of
construction costs on a joint improvement.
We also noted 6 of 25 (24%) refunds tested were received by
the Department when vendors returned duplicate or erroneous payments:
• A vendor
was paid $2,367 twice for a scenic byway grant;
• A park
district was paid $1,994 twice for municipal maintenance of State highways;
• Two
counties returned checks totaling $53,027 and $31,833 for duplicate payments
for construction costs and operating assistance to provide public
transportation;
• Two vendors
returned checks totaling $7,887 and $1,708 and stated the Department did not
owe them any money.
The Department’s accounting system invokes a warning for
duplicate payments for invoices if the invoice number already exists or if the
payee identification and invoice dollar amount are the same, but the same
individual who enters the voucher can override the alert. In addition, there is no centralized report
to allow management to review all
employee overrides for reasonableness.
Further, the system only warns for duplicates within the same accounting
entity and fiscal year, and the Department has 35 accounting entities entering
vouchers and also has reappropriated accounts that do
not lapse at the end of the fiscal year.
(Finding 13, pages 41-42) This
finding was first reported in 2007.
We recommended the Department implement controls to review
the employee override for duplicate payments.
In addition, we recommended controls be implemented to prevent duplicate
payments between accounting entries and over different fiscal years for the reappropriated accounts. Further, the Department should
obtain reimbursement for any duplicate payments made if not already received.
The
Department officials agreed with the recommendation and stated for FY10 the Department now requires all Accounting Entities to
keep copies of invoices received and sent to the accounting unit. (For the
previous Department response, see Digest Footnote #5)
OTHER FINDINGS
The
remaining findings are reportedly being given attention by the Department. We will review the Department’s progress
toward implementation of our recommendations in our next examination.
AUDITORS’ OPINION
Our
auditors state the basic financial statements of the Department as of and for
the year ended June 30, 2009 were fairly presented in all material respects.
STATE COMPLIANCE EXAMINATION – ACCOUNTANT’S REPORT
The
auditors qualified their report on State Compliance for findings 09-3 and 09-5
through 09-7. Except for the
noncompliance described in these findings, the auditors state the Department
complied, in all material respects, with the requirement described in the
report.
WILLIAM G. HOLLAND, Auditor General
WGH:PH:pp
AUDITORS ASSIGNED
The
compliance examination was performed by the Auditor General’s staff. Sikich, LLP was our special assistant auditors for the financial
audit.
DIGEST FOOTNOTES
#1 – INACCURATE COMMODITIES INVENTORY RECORDS
2008: The Department
agreed with the recommendation and stated the Division of Highways staff was
preparing a standard spreadsheet which will go out to all districts on which
they will record the inventory counts.
They stated they would expand the spreadsheet to include the last year’s
counts and the spreadsheet will perform a calculation for variances and ask the
districts to investigate items with significant variances and provide reasons
as to why there was a variance. When the
district was pricing out some of the commodity items they would average yard
costs among commodity items to get an average district price. The Department further stated they would have
a conference call with all the districts approximately a month before the
inventory is taken, emphasizing the importance of correct pricing and attention
to detail. This call will be followed up
with a detailed memo reiterating the main points on the call.
#2 –INADEQUATE CONTROLS OVER EMPLOYEE ATTENDANCE
2008: The Department
agreed with the recommendation and stated the sign-in/sign-out sheets were
under the purview of Labor Relations.
A reminder will be sent employees/supervisors reminding them of the proper
procedure for completion of sign-in/sign-out sheets. A reminder will be sent to
the Personnel Managers requesting that TKS be updated
to reflect current work schedules and remind them that leave requests must be
signed and dated by supervisors.
#3 –INADEQUATE CONTROLS OVER EMPLOYEE OVERTIME
2008: The Department
agreed with the recommendation and stated a reminder will be distributed
reinforcing the need to complete overtime cards in a complete/consistent manner
as well as document all time on individual office timesheets as opposed to the
main desk (particularly for time worked on weekends).
#4 –INADEQUATE PROCESS TO MONITOR
INTERAGENCY AGREEMENT
2008: The Department
agreed with the recommendation and stated they will work with the other agencies
participating in the interagency agreement to ensure a more timely
process. The Department stated with
respect to the issues concerning the three interagency agreements for liaisons,
these agreements were developed by the Office of the former Governor and sent
to the Department to execute and then returned to the former Governor’s Office
for execution. While the interagency
agreements clearly establish a sharing responsibility for the salary and leave
administration of each employee, the Department was not in control of the
agreement execution process at the former Governor’s Office and can therefore
not address the time lapse between the effective date of the agreements and
when we received them to execute, or when the former Governor’s Office executed
the agreements after the Department had returned them for their execution.
The Department further stated with regard to the timekeeping
issues with one of the interagency agreements for liaisons, insurance and
deferred compensation benefits were deducted by IDOT. As noted, leave administration was not
handled by IDOT, but rather by the former Governor’s Office. The former Governor’s Office used an
electronic timekeeping system and informed IDOT that the individual’s time off
requests would be submitted and approved or denied electronically within the
Office of the former Governor and that the employee would not be sending paper
time off requests to IDOT to approve or deny.
Because all management staff at the former Governor’s Office apparently
used electronic timekeeping, they did not want to agree to have the
individual’s leave administration handled by paper, through IDOT. As to the
approval or denial of the electronic time sheets submitted by the individual,
the former Governor’s Office would have had to respond to the actions taken by
the individual’s supervisor in the former Governor’s Office. When the Department is asked to enter into
such interagency agreements in the future, they stated they would coordinate
with the Governor’s Office to ensure that leave administration is handled by
the Governor’s Office, rather than by IDOT.
With regard to the salary issues noted, the Department stated they had
sent a letter to the former Governor’s Office signed by the Secretary of
Transportation amending the interagency agreements to correct the salary
information. The former Governor’s Office was asked to sign the letter as a
two-party agreement to amend the interagency agreements. The Department stated
they contacted the former Governor’s Office numerous times over several months
to get the signed copy of the letter (i.e., to have been signed by the former
Chief of Staff). Each time the
Department was told the former Governor’s Chief of Staff still had the letter
to sign. The Department stated they
never received a signed copy of the letter and had to assume it was not
signed. Unfortunately they could remedy
this situation. When it is agreed to
increase salaries for staff paid through interagency agreements with the
Governor’s Office, the Department stated they would coordinate with the
Governor’s Office to make every effort to execute appropriate amendments to the
interagency agreements in a timely manner, prior to the effective date of the
salary adjustments.
#5 –INADEQUATE CONTROLS TO PREVENT INAPPROPRIATE PAYMENT TO
VENDORS
2008: The Department
agrees with our recommendation and stated:
• $3,026 paid
to the Communications Revolving Fund for telecommunication Services: The duplicate payment to Central Management
Services was credited back to the department six days after it was recorded as
paid to CMS.
• $7,378 paid
to a consultant for condemnation services.
The consultant will be invoiced for the duplicate payment.
• $213 paid
for aerosol cleaner. The vendor has now
refunded the overpayment to the department.
• $342.29 to
an employee for mileage reimbursement:
The Department was aware of this payment and the issue has been pending
with Labor Relations.
The Department stated it would review its processes so that duplicate payments and employee overrides are controlled and monitored.