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INTRODUCTION
The 2004 engagement of the Illinois Housing Development
Authority (Authority) is presented in two parts. The State compliance attestation examination is presented in
one report and the financial statement audit is presented in another
report. Our engagement was performed
in accordance with the Single Audit Act and OMB Circular A-133.
FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS
INADEQUATE MONITORING OF SUBRECIPIENTS RECEIVING FEDERAL AWARDS
The Authority is not adequately monitoring subrecipients of
the HOME Investment Partnership Program (HOME). We tested 14 subrecipients that comprised 67% of the total HOME
subrecipient expenditures for fiscal year 2004. We noted the following exceptions:
·
The Authority does not document their review of the
OMB Circular A-133 reports, and they do not document when the reports have
been received.
·
The Catalog of Federal Domestic Assistance (CFDA)
number and Federal agency name are not identified to the subrecipient.
Authority
management indicated that the lack of documentation was due to staff
shortages and the Authority not having a checklist to monitor HOME sub-recipient
reporting.
Failure to
adequately monitor all subrecipients could result in federal funds being
expended for unallowable purposes and/or subrecipients not properly
administering the federal programs.
(Finding 1, pages 15-17) This
finding was first reported in 2002.
We
recommended the Authority document the review of the financial audits
performed in accordance with OMB Circular A-133 for each subrecipient that
has HOME program expenditures.
Additionally we recommended the Authority document when the OMB
Circular A-133 reports have been received to ensure the reports are reviewed
in a timely manner.
Authority management concurred with our recommendations and
indicated they will develop a checklist to document the receipt and review of
sub-recipient reports. The Authority
also indicated they will include the CFDA number and federal agency name in
correspondence with sub-recipients. (For the previous Authority response, see
Digest footnote #1.)
INACCURATE CALCULATION AND
REPORTING OF MATCH EXPENDITURES
During our testing of the match calculations for the HOME
program, we selected 12 loans that comprised 50% of the match reported for
the HOME program. We noted 4 of the 12
loan match calculations used loan terms that did not agree to the final loan
documents, resulting in an over reporting of match funds of approximately
$45,000. In addition, we noted there
was no documentation of a supervisory review of the match calculations prior
to their submission.
Authority management stated that the lack of a review of the
match calculation was due to staff shortages at the time the calculations
were made.
Failure to accurately calculate and report match
expenditures could result in the Authority not meeting its match requirement. (Finding 4, pages 21-22)
We recommended the Authority implement procedures to ensure
match calculations are accurate, and the HOME match report is reviewed by a
supervisor prior to submission.
Authority management concurred with our recommendation and
indicated they will implement procedures to ensure that match calculations
are accurate and there is a supervisory review of the HOME match report prior
to its submission.
NEED TO IMPLEMENT SYSTEM RECONCILIATION PROCEDURES
The Authority has not
implemented periodic reconciliation procedures for data output produced by
the Authority’s individual processing systems versus amounts recorded in the
general ledger.
The
Authority completed an implementation of four new computer application
systems during fiscal year 2000: the upgraded general ledger system, the
single-family program system (AMOS), the investment system (CAMRA), and the
multifamily, HOME and affordable trust fund loan programs billing and
receivable system (Benedict). The
systems were not integrated in the sense of simultaneously recording a single
transaction within each of the individual systems and within the general
ledger.
Authority
management stated these systems do not interface with each other because the operational
and reporting features inherent in the individual systems were not available
to the Authority in an integrated system at the time of implementation. This results in the need to create
interfaces between the three processing systems and the general ledger either
electronically or manually in order to record transactions accurately,
completely and consistently. The
Authority has not yet implemented procedures to reconcile all data output
produced by their individual operating systems versus amounts recorded in its
general ledger.
Authority
management acknowledged the importance of developing and implementing
reconciling procedures. Various
committees were established to oversee and assist in completing the
reconciliation project for each individual operating system. The Authority has made a number of
enhancements to the computer applications.
Without
periodic reconciliation procedures in place to ensure data output produced by
the individual systems equate to amounts recorded in the general ledger, the
risk exists the Authority’s general ledger may not include the most accurate
and complete information. This finding
was first reported in 2000.
(Finding 7, pages 26-27)
We
recommended the Authority proceed with the re-engineering of its financial
process.
Authority
officials concurred with our recommendation and indicated they expect to
complete a number of system linkage and reconciliation steps by the end of
fiscal year 2005 and should complete the implementation of the recommended process
early in fiscal year 2006. (For the
previous Authority response, see Digest footnote #2.)
NEED TO ESTABLISH ADDITIONAL
CONTROLS RELATED TO ACCOUNTING FOR PROGRAM LOANS RECEIVABLE
We noted one individual is responsible for entering new
loan information into the Benedict system without any supervisory review of
the loan terms entered. In addition,
we noted that for ten of the thirty loan payments tested the loan terms in
the Benedict system did not agree to the original loan documents.
Authority management
stated the staff responsible for monitoring the respective program loans had
been updating the balances reported in the system throughout fiscal year
2004. However, the Benedict system
could not be timely updated for Affordable Trust Fund program loans due to an
information flow problem.
Without ensuring program loan terms are properly included in
the Benedict system, the system cannot be relied upon to update loan balances
and properly report financial information.
This finding was first reported
in 2001. (Finding 8, pages
28-29)
We recommended the Authority establish and implement
procedures to reconcile the program loan balances reported per the Benedict
system to the general ledger on a monthly basis. We also recommended the Authority implement procedures to
include a supervisory review of new loans entered into the Benedict system to
ensure the loan terms agree to the final loan documents.
Authority officials concurred with our recommendations and
indicated they plan to perform a reconciliation between the Benedict system
and the general ledger starting June 30, 2005 and then monthly going
forward. In addition they indicated
they would include a supervisory review of new loans entered into the Benedict
system to ensure loan terms agree to final loan documents. (For the previous Authority response, see
Digest footnote #3.)
NONCOMPLIANCE WITH THE STATE
OFFICIALS AND EMPLOYEES ETHICS ACT
The Authority was not maintaining time sheets for its salaried
employees in compliance with the State Officials and Employees Ethics Act
(Act). The Authority does not require
time reports from its salaried employees unless overtime hours are incurred.
The Act requires the Authority to maintain a positive timekeeping
process. The Act notes policies shall
require State employees to periodically submit time sheets documenting the
time spent each day on official State business.
Authority management stated they did not receive direction
from the Governor’s Office until March 24, 2005 and they are in the process
of finalizing procedures for new timesheets.
(Finding 10, page 33)
We recommended the Authority amend its policies to require
employees to maintain time sheets in compliance with the Act.
Authority management concurred with our
recommendation and indicated they have amended the IHDA Employee Manual and
are in the process of finalizing the procedure for the new timesheets, with
implementation expected to occur by June 30, 2005.
OTHER FINDINGS
The remaining findings are reportedly being given attention
by the Authority. We will review the
Authority’s progress toward the implementation of our recommendations in our
next engagement.
Mr. James Kregor, Controller, provided the responses to our
recommendations.
AUDITORS’ OPINION
Our auditors state the Authority’s financial statements as of
and for the year ended June 30, 2004 were fairly presented in all material
respects.
___________________________________
WILLIAM
G. HOLLAND, Auditor General
WGH:RPU:pp
SPECIAL ASSISTANT AUDITORS
KPMG LLP was our special assistant auditor for this
engagement.
DIGEST FOOTNOTES
#1 - INADEQUATE MONITORING OF
SUBRECIPIENTS RECEIVING FEDERAL AWARDS
2003: The Authority concurs with the
recommendation to obtain and review the financial audits performed in
accordance with OMB Circular A-133 for each subrecipient that has HOME
program expenditures. The Authority
will also review and revise, if necessary, its subrecipient monitoring
procedures to ensure that subrecipients are notified of OMB Circular A-133
financial audit requirements prior to their receipt of Federal funds and that
Authority monitoring activities are properly documented, including follow-up
activities in regards to subrecipients that fail to submit reports within the
required timeframes.
The Authority concurs
with the recommendation to add the CFDA number of the HOME Investment
Partnership program and the federal agency name to correspondence with the
subrecipient.
#2 - SYSTEM RECONCILIATION
PROCEDURES
2003: The Authority agrees with the
recommendation to proceed with the re-engineering of its financial processes
and is actively proceeding with this program. The vendor with whom Authority management contracted to assist
the Authority in re-engineering its financial processes has issued its final
report. The Authority has since
implemented a number of procedural improvements recommended in the report,
including the enhancement of the CAMRA system, which has resolved the system
reporting issues. In addition, the
Authority is in the process of installing a single-family system to replace
the AMOS system. This system, the
testing of which will begin in May, will have a full linkage with the
Authority’s general ledger. Other
financial process re-engineering recommendations, as presented in the
external vendor’s report, are also being addressed.
#3 -
ACCOUNTING FOR PROGRAM LOANS RECEIVABLE
2003: The Authority concurs with the
recommendations to create a formal plan that identifies the current
limitations inherent in the functionality of the Benedict system and
corresponding action steps to address and resolve these limitations and to
establish and implement monthly reconciliation procedures. These issues were addressed in the
external vendor’s report on re-engineering processes, and the Authority is
considering a number of corrective actions, which will address the above
recommendations.
The Authority during the audit performed quarterly
reconciliations of the Benedict system loan balances to those reported in its
financial statements, and has narrowed the difference to less than .5%, as
compared to approximately 15% difference as cited in the prior year report.
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