REPORT DIGEST

 

ILLINOIS STUDENT ASSISTANCE COMMISSION

 

FINANCIAL AUDIT

For the Year Ended:

June 30, 2003

AND

COMPLIANCE AUDIT

For the Two Years Ended:

June 30, 2003

 

Summary of Findings:

 

Total this audit                        9

Total last audit                        5

Repeated from last audit        1

 

Release Date:

April 13, 2004

 

 

 

 

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 TDD (217) 524-4646

 

This Report Digest is also available on

the worldwide web at

http://www.state.il.us/auditor

 

 

 

 

SYNOPSIS

  • Project management deficiencies resulted in both cost and time overruns in the development of the new "loan-based" computer system.
  • Failure to monitor lender claims for defaulted student loans resulted in forfeiting $1.6 million in federal insurance.
  • ISAC has not yet developed a program for administering the Child Development Teachers Scholarship program.
  • ISAC is behind with monthly cash receipts reconciliations.
  • The Illinois Designated Account Purchase Program did not comply with bond indenture requirements related to delivery of audited financial statements.

 

 

 

 

 

 

 

 

{Expenditures and Activity Measures are summarized on the reverse page.}

 

                            ILLINOIS STUDENT ASSISTANCE COMMISSION

 

                                   FINANCIAL AND COMPLIANCE AUDIT

                                          For The Year Ended June 30, 2003

                          (Comparative Data Shown for Year Ended June 30, 2002)

                                                        (In Thousands)

 

FINANCIAL OPERATIONS (All Funds)

FY 2003

FY 2002

GOVERNMENTAL ACTIVITIES

Program revenues:

     Charges for services

     Operating grants and contributions

 

Program expenses:

     Education program

     Administrative expense

     Interest

 

     Governmental activities, net (expenses)

BUSINESS-TYPE ACTIVITIES

Program revenues:

     Charges for services

     Operating grants and contributions

 

Program expenses:

     Education program

     Interest and student loan expenses

 

     Business-type activities, net (expenses)

          Program activities, net

GENERAL REVENUES

     Appropriations

     Investment income

     Miscellaneous

 

          Change in net assets

 

 

$234

122,901

123,135

 

496,150

6,201

793

503,144

(380,009)

 

 

36,604

131,299

167,903

 

100,719

72,418

173,137

(5,234)

(385,243)

 

377,135

566

273

377,974

$(7,269)

 

 

$6

137,861

137,867

 

549,370

7,578

902

557,850

(419,983)

 

 

38,530

134,215

172,745

 

92,822

81,161

173,983

(1,238)

(421,221)

 

416,403

2,086

1,136

419,625

$(1,596)

SELECTED BALANCE SHEET ACCOUNTS

FY 2003

FY 2003

Cash and cash equivalents

Investments and marketable securities

Receivables, net:

     Student loans

     Other

Notes receivable

Capital assets, net

Tuition & accretion payable

Revenue notes and bonds payable

Net assets, restricted

Net assets, unrestricted (deficit)

Total assets

Total liabilities

Total net assets

$265,673

933,385

 

2,428,497

71,157

101,766

16,329

396,914

3,200,980

142,492

(36,190)

3,846,155

3,738,507

107,648

$208,393

668,996

 

2,049,799

86,132

90,209

16,765

264,381

2,590,505

128,399

(14,127)

3,166,771

3,051,854

114,917

AGENCY DIRECTOR(S)

 

 

During Audit Period and Currently: Larry E. Matejka

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Project scope increases costs of new loan system and delays implementation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1.6 million in reimbursements from federal government forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fewer trained child development teacher scholarships awarded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ISAC behind with monthly cash receipt reconciliations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Requirements for audited financial statements to be issued within 120 days were not met

 

INTRODUCTION

The Illinois Student Assistance Commission (ISAC) was created to establish and administer a system of financial assistance, through loan guarantees, scholarships and grant awards for residents of the State of Illinois to enable them to attend qualified public or private institutions of their choice within Illinois. FY 2003 was the fifth year ISAC issued contracts in its new mandate of offering a prepaid tuition program – College Illinois!. Footnote 15 discloses that College Illinois! had an actuarial (deficit) of $76.2 million as of June 30, 2003.

FINDINGS, CONCLUSIONS AND

RECOMMENDATIONS

 

PROJECT MANAGEMENT DEFICIENCIES IN THE DEVELOPMENT OF A COMPUTER SYSTEM

ISAC experienced problems in the development and implementation of its loan-based system, Odyssey. The problems experienced resulted in increased cost of the project by an additional $4.1 million and delayed planned implementation by 19 months.

A contract was issued pursuant to a Request for Proposal and was based on an ISAC developed functional requirements document. After commencing the project, ISAC requested 29 change orders which increased the cost by $4.1 million. Several of the change orders added enhancements not identified in the original functional requirements document.

ISAC did not completely define its needs and the functional requirements prior to the execution of the contract with the selected vendor. (Finding 2, pages 12-13)

We recommended ISAC identify key functional requirements during the planning phase to prevent cost and time overruns.

ISAC officials partially agreed with the finding and recommendation. They stated that it defined the functional requirements of the Odyssey system to the best of its knowledge given the magnitude of the project, the age of the legacy system, the condition of the data in the legacy system, and the inability to control ever changing industry standards and federal regulations.

FAILURE TO MONITOR LENDER CLAIMS

ISAC did not effectively monitor the submission of lender claims. As a result, over $1.6 million in reimbursements from the federal government were forfeited.

The reinsurance program with the U.S. Department of Education allows the recovery of 98% of the payments to lenders when a student defaults on a guaranteed loan. The ability to recover the payments from the federal agency is dependent on ISAC paying the claim within 90 days of receipt of the claim.

ISAC management stated that the claims were not made to the lenders within 90 days because:

  • All claims were not entered into the Odyssey system prior to implementation.
  • Matching and edit routines in Odyssey system rejected valid claims.
  • Resources were allocated to the Odyssey system project resulting in inadequate resources for claim processing. (Finding 4, pages 16-17)

We recommended ISAC establish procedures for assuring that all claims received are logged and entered into the system. Also, procedures should include routine reconciliations between claims received and claims processed.

ISAC management agreed with the finding and recommendation and asserted the problem was most evident in the three-month period following the Odyssey system's implementation.

 

FAILURE TO DEVELOP CHILD DEVELOPMENT TEACHER SCHOLARSHIP PROGRAM

ISAC has not yet developed a program for administering the Child Development Teacher Scholarship program.

Legislation was passed and approved (P.A. 88-432 - effective August 20, 1993) for ISAC to "administer a program designed to provide each qualified student with a child development teacher scholarship to any qualified Illinois institution of higher learning".

To date, ISAC has not developed rules and regulations needed to administer this program.

ISAC management stated the lack of funding and lack of resources is the reason the Child Development Teacher Scholarship program has not been developed. (Finding 7, page 21)

We recommended ISAC request funding to develop and implement the Child Development Teacher Scholarship program.

ISAC management stated they believe that this legislation contemplated a federal funds initiative which was never funded. Since the program was never funded nor fully developed, no rules were adopted for the administration of the program. ISAC management also identified several programs which they currently administer that provide teacher incentives which would assist students pursuing careers in child development.

 

UNTIMELY MONTHLY CASH RECEIPT RECONCILIATIONS

ISAC did not reconcile cash receipts in the months immediately following the implementation of the Odyssey system.

During our audit, we noted that ISAC had not completed several months of cash receipt reconciliations. The months remaining unreconciled were the 5 months following the implementation of the Odyssey system on October 1, 2002.

ISAC management indicated that the Odyssey system, when implemented, could not generate the reports needed to prepare the monthly cash receipt reconciliation. Also, staff performing the reconciliations were not familiar with the reporting formats produced by the new system. (Finding 6, page 20)

We recommended that ISAC complete the remaining monthly reconciliations as soon as possible to determine if receipts were properly processed and posted in the Odyssey systems detail records.

ISAC management agreed with the finding and recommendation and expected to be current in the monthly reconciliation process by May 1, 2004.

 

NON-COMPLIANCE WITH BOND INDENTURES

The Illinois Designed Account Purchase Program (IDAPP) did not comply with the requirement to have timely audited financial statements filed with the bond trustees.

During our audit, we noted that bond indentures of several revenue bonds, revenue notes, and letters of credit were required to have audited financial statements within 120 days of year-end. The audited financial statements for both fiscal year 2002 and fiscal year 2003 were not sent to the trustees until January, 2003 and February, 2004, respectively.

ISAC management stated the delay is due to the growing complexity of the program coupled with the number of parties involved in the financial reporting process. (Finding 8, page 22)

We recommended ISAC comply with the requirements of the indentures and prepare the year-end work more timely to allow sufficient time to have audited financial statements issued prior to the due date.

ISAC management agreed with the finding and recommendation. Officials stated that more recent bond indentures, beginning in February 1998, eliminated the mandatory 120 day audited financial statement filing requirement.

OTHER FINDINGS

Other findings involved issues with independent reviews of computer systems, the year-end financial reporting process, excess computer equipment, and additional Odyssey system items. They are reportedly being given attention by ISAC management. We will review progress toward implementation of our recommendations in our next audit.

The Commission's responses were provided by Mr. Larry Matejka, Executive Director.

AUDITORS’ OPINION

The auditors stated the financial statements for the Illinois Student Assistance Commission as of and for the year ended June 30, 2003 are fairly presented in all material respects.

 

____________________________________

WILLIAM G. HOLLAND, Auditor General

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AUDITORS ASSIGNED

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