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.

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.

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:

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.

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.

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.

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 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.

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.

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WILLIAM G. HOLLAND, Auditor General

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