REPORT DIGEST

 

ILLINOIS HOUSING

DEVELOPMENT

AUTHORITY

 

FINANCIAL AUDIT

For the Year Ended:

June 30, 2008

 

Release Date:

November 6, 2008

 

 

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 available on

the worldwide web at

http://www.auditor.illinois.gov

 

 

 

 

SYNOPSIS

 

 

¨      The Authority does not have an adequate process for reconciling the general ledger with the subsidiary ledger used to account for deposits held in escrow.

 

¨      The Authority has inconsistencies in the process for monitoring problem loans and in the evaluation of factors used to rate loans for the allowance for loan loss estimate.

 

¨      The Authority has loan balances recorded in their financial statements that should be removed due to the loans being uncollectible.

 


 

 

 

ILLINOIS HOUSING DEVELOPMENT AUTHORITY

FINANCIAL AUDIT

For The Year Ended June 30, 2008

 

 

FINANCIAL POSITION – ALL FUNDS

June 30, 2008

June 30, 2007

Assets

      Cash and investments – unrestricted.............

      Investments – restricted..............................

      Net program loans receivable.......................

      Other........................................................

            Total...................................................

Liabilities

      Bonds and notes payable.............................

      Due to State of Illinois................................

      Deposits held in escrow..............................

      Other........................................................

            Total...................................................

Net Assets

      Invested in capital assets, net of related debt..

      Restricted..................................................

      Unrestricted...............................................

            Total...................................................

 

        $153,705,953

         630,939,289

       1,946,457,448

           62,306,925

     $2,793,409,615

 

     $1,644,973,679

         345,733,700

         166,077,785

           94,628,944

     $2,251,414,108

 

          $(8,726,586)

         466,110,554

           84,611,539

        $541,995,507

 

       $157,598,730

         635,752,493

      1,785,273,986

           61,737,230

    $2,640,362,439

 

    $1,587,520,899

         316,383,098

         158,952,248

           66,607,837

    $2,129,464,082

 

             $203,532

         425,135,012

           85,559,813

       $510,898,357

ADMINISTRATIVE FUND OPERATIONS

FY 2008

FY 2007

Revenues

      Service fees...............................................

      Interest and investment income....................

      Federal assistance programs........................

      Other........................................................

            Total...................................................

Expenses

      Salaries and benefits...................................

      Professional fees........................................

      Other general and administrative...................

      Transfers, net............................................

      Financing Costs.........................................

      Federal assistance programs........................

      Provision (reversal) for est. loss on loans receivable...............................................

      Other........................................................

            Total...................................................

Change in net assets.........................................

 

           $9,660,338

             5,379,394

         133,240,360

             5,874,344

        $154,154,436

 

         $12,583,775

             1,065,674

             3,344,317

             2,607,645

                202,516

         133,240,360

 

              (540,000)

                965,765

        $153,470,052

              $684,384

 

          $9,960,474

           5,097,184

        147,397,197

           5,983,977

      $168,438,832

 

        $11,958,570

           1,895,699

           3,503,945

           1,742,737

              413,690

        147,397,197

 

          (5,998,000)

           1,677,866

      $162,591,704

          $5,847,128

EXECUTIVE DIRECTOR

 

 

During Audit Period:  DeShana Forney

Currently:  DeShana Forney

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Ledgers not reconciled resulted in adjustment of $252,963

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All loans did not have debt service ratio calculated

 

 

 

 

 

 

All loans did not have appraisals

 

 

 

 

 

 

 

The “watch list” for problem loans was incomplete

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Awaiting Attorney General approval to write-off uncollectible loans

 

 

 

 

 

 

INTRODUCTION

 

       This report covers our financial audit of the Illinois Housing Development Authority, a component unit of the State of Illinois, for the year ended June 30, 2008.  Information on the results of testing performed in conjunction with our compliance attestation examination and Single Audit for the year ended June 30, 2008 will be released in a separate report.

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

INADEQUATE RECONCILIATION PROCEDURES FOR DEPOSITS HELD IN ESCROW

 

       The Authority does not have an adequate process for reconciling the general ledger with the subsidiary ledger used to account for deposits held in escrow.

 

       The Authority is holding $166,077,785 in escrow deposit balances as of June 30, 2008 in approximately 1,850 individual accounts.  Deposits from developers, which are held in escrow by the Authority, are primarily used to pay tax and insurance payments and capital improvements.  Also, the deposits are used to make principal and interest payments and fund construction cost overruns, change orders or operating deficits.

 

       The Authority implemented procedures in the current year to reconcile the escrow account detail subsidiary ledger records to the general ledger.  However, they were unable to reconcile the escrow accounts resulting in an adjusting entry of $252,963 for unidentified variances.

 

       Without adequately reconciling the deposits held in escrow, the Authority may not have adequate funds on hand to satisfy liabilities incurred that are funded with escrow balances.  (Finding 1, page 63)

 

       Authority officials agreed with our recommendation to reconcile escrow accounts on a regular basis in order to prevent unidentified variances.

 

 

INCONSISTENCIES IN THE LOAN MONITORING AND LOAN RATING SYSTEM

 

       The Authority has inconsistencies in the process for monitoring problem loans and in the evaluation of factors used to rate loans for the allowance for loan loss estimate.

 

       The Authority’s Assets Management Services Department performs an annual property inspection and loan review in order to rate loans for the calculation of the allowance for loan loss estimate.  We tested over 200 loans for various aspects of compliance with established procedures to rate loans.  In one test, we noted that 4 of the 20 loans we tested did not have the debt service coverage ratio calculated, which evaluates the borrowers ability to repay the debt.  In another test, 13 of the 20 loans we tested did not have the original appraisal or an updated appraisal in order to calculate the loan to value ratio, which is used to evaluate the market value of the underlying collateral.  One of our other tests revealed that the documentation for an individual loan did not contain the correct address.

 

       During our audit of the Authority’s loan receivable balances, we noted the “watch list”, a tool to monitor problem loans, was incomplete according to the Authority’s rating policies.  In addition, the Authority does not have a formal policy to stop accruing and recognizing interest income on delinquent loans.  The calculation of the allowance for loan loss estimate requires various elements of monitoring and evaluating the collectability of loan receivable balances.  In accordance with generally accepted accounting principles, the estimate should be supported by detailed information including that from monitoring tools and consistent loan rating factors.

 

       Authority management stated that the loan monitoring and rating system, which was implemented in stages beginning in May 2007, with the adoption of a comprehensive Loan Loss Rating Policy, includes risk analysis of the entire multi-family portfolio.  The Authority recognizes that inconsistencies have occurred as its staff adjusts to new procedures to implement the policy.  The Authority stated that they are working to reduce any inconsistencies or weaknesses noted.

 

       The allowance for loan loss estimate as of June 30, 2008 was $34,185,000.  Without consistent tools to monitor and rate the collectability of the loans, the estimate could be over or under stated.  (Finding 2, page 64)

 

       We recommended the Authority develop policies and procedures to ensure the “watch list” reports are complete and accurate.  In addition, we recommended the Authority implement procedures to ensure that the Asset Management Services department receives the necessary documents to accurately perform their annual loan review.   Also, the Authority should develop a formal policy to suspend recognizing interest income on delinquent loans.

 

       Authority officials concurred with our recommendation.

 

 

LOAN RECEIVABLE BALANCE AND ALLOWANCE FOR LOAN LOSS BALANCE OVERSTATED

 

       The Authority has loan balances recorded in their financial statements that should be removed due to the loans being uncollectible.

 

       During our audit of the Authority’s allowance for loan loss estimate, we noted loans totaling approximately $17.4 million were recorded on the Authority’s financial statements for which a 100% allowance reserve was recorded.  The Authority anticipates that most of these loans will be written off.  In accordance with generally accepted accounting principles, receivable balances that are uncollectible should be written off and removed from the financial statements.

 

       Authority management stated that several loan write-offs are pending approval from the Attorney General’s Office and the Authority is continuing to submit additional requests.  (Finding 3, page 65)

 

       We recommended the Authority work with the Attorney General’s Office to get approval to write-off the uncollectible loan balances.

 

       Authority officials concurred with our recommendation.

 

 

AUDITORS’ OPINION

 

       Our auditors state the June 30, 2008 financial statements of the Illinois Housing Development Authority are presented fairly in all material respects.

 

 

 

 

 

____________________________________

WILLIAM G. HOLLAND, Auditor General

 

 

WGH:KMA:pp

 

SPECIAL ASSISTANT AUDITORS

 

       McGladrey & Pullen, LLP were our special assistant auditors for the audit.