REPORT DIGEST ILLINOIS HOUSING DEVELOPMENT AUTHORITY FINANCIAL AUDIT For the Year Ended: June 30, 2009 Release Date: November 12, 2009 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 has inconsistencies in the process for monitoring problem loans and in the evaluation of factors used to rate loans for the allowance for the 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, 2009

FINANCIAL POSITION – ALL FUNDS	June 30, 2009	June 30, 2008
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....................................................	$94,194,867 604,656,751 1,929,723,835 60,341,099 $2,688,916,552 $1,546,591,624 340,987,058 154,333,914 71,600,737 $2,113,513,333 $(8,246,523) 501,544,059 82,105,683 $575,403,219	$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
ADMINISTRATIVE FUND OPERATIONS	FY 2009	FY 2008
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...........................................	$10,041,960 6,824,259 134,470,130 10,275,558 $161,611,907 $13,679,799 1,209,115 3,155,074 469,240 371,446 134,470,130 475,000 4,459,842 $158,287,646 $3,322,261	$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
EXECUTIVE DIRECTOR
During Audit Period: DeShana Forney (7-1-08 thru 9-17-09) Currently: Gloria Materre (9-18-09 thru current)

Loan ratings not updated The “watch list” for problem loans was incomplete Authority recognizes inconsistencies have occurred Loan loss estimate $43,630,000 Authority agrees with auditors Financial statements include $17.2 million in loan receivables for which entire amount is expected to be written off Awaiting Attorney General approval to write-off uncollectible loans Authority agrees with auditors

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, 2009. Information on the results of testing performed in conjunction with our compliance attestation examination and Single Audit for the year ended June 30, 2009 will be released in a separate report. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS 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 250 loans for various aspects of compliance with established procedures to rate loans. During one of our tests we noted that two loan ratings were not updated in the system, resulting in an under reserve of $239,442. In addition, 3 loans did not contain the proper support for the change in loan rating during the year. 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. The Authority’s policy states any loan rated a 5, 6, 7 or 8 should be listed on the “watch list”. The Authority had 252 loans rated 5, 6, 7 or 8. Of the 252 loans, 82 loans were listed on the “watch list”. 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 continues to adjust 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, 2009 was $43,630,000. Without consistent tools to monitor and rate the collectability of the loans, the estimate could be over or under stated. (Finding 1, page 63) 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, and update the loan ratings in the Asset Management System. 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 $17.2 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 eight additional loans were certified by the Authority during fiscal year 2009 as uncollectible, but the Authority has not received the approval from the Attorney General’s Office to write off any of these loans and the Authority is continuing to submit additional requests. (Finding 2, page 64) 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, 2009 financial statements of the Illinois Housing Development Authority are presented fairly in all material respects. ____________________________________ WILLIAM G. HOLLAND, Auditor General WGH:TLK:pp SPECIAL ASSISTANT AUDITORS McGladrey & Pullen, LLP were our special assistant auditors for the audit.