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INTRODUCTION
The
Illinois Student Assistance Commission (Commission) 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 2005 was
the seventh year ISAC issued contracts under its mandate of offering a
prepaid tuition program – College Illinois!.
Note 14 to the financial statements disclosed that College Illinois!
had an actuarial deficit of $111.7 million as of June 30, 2005. (pages 67-68
of the Financial Audit)
FINDINGS, CONCLUSIONS AND
RECOMMENDATIONS
EFFICIENCY INITIATIVE BILLINGS PAID FROM IMPROPER
LINE ITEMS
The Commission made payments for efficiency initiative
billings from improper line item appropriations.
Public Act 93-0025, in part, outlines a program for
efficiency initiatives to reorganize, restructure and reengineer the business
processes of the State. The State
Finance Act details that the amount designated as savings from efficiency
initiatives implemented by the Department of Central Management Services
(CMS) shall be paid into the Efficiency Initiatives Revolving Fund. “State agencies shall pay these
amounts…from the line item appropriations where the cost savings are
anticipated to occur.” (30 ILCS 105/6p-5)
The Commission was billed for one efficiency initiative
billing in fiscal year 2005. The
initiative and amount billed to the Commission was $16,335 for procurement
efficiencies.
The Commission reported that while the billing invoice was
dated January 19, 2005, the Commission did not discover the amount due until
July or August 2005. Further, staff
reported it had no prior information regarding savings that were going to
occur, nor has the Commission performed an analysis of the efficiency savings
by CMS.
Based on our review, we question whether
the appropriate appropriations, as required by the State Finance Act, were
used to pay for anticipated savings.
While supporting documentation for the billing contained savings
detail by detailed object code, the Commission did not use that guidance when
making a payment. Commission staff
indicated that since payment was being processed so late – August 2005 – the
Commission took the funds where funds were remaining.
The Commission paid the total $16,335
for the procurement efficiency billing from appropriated funds for
commodities in fiscal year 2005. A
review of other administrative appropriations, such as the printing line,
which was designated by CMS as a savings area, showed available funds from
which payment could have been made.
Use
of appropriations unrelated to the cost savings initiatives resulted in
non-compliance with the State Finance Act.
Furthermore, use of appropriations for purposes other than those
authorized by the General Assembly effectively negates a fundamental control
established in State government.
Finally, use of funds unrelated to the savings initiative may result
in an adverse effect on services the Commission provides. (Finding 1, pages 10-11)
We
recommended the Commission only make payments for efficiency initiative
billings from line item appropriations where savings would be anticipated to
occur.
The
Commission agreed with our recommendation and stated that any future invoices
received for efficiency payments will be charged to the appropriate line
items.
NON-COMPLIANCE WITH BOND INDENTURE
The Illinois Designated Account Purchase
Program (IDAPP), a program of the Commission, did not comply with several
bond indentures that require IDAPP to deliver audited financial statements to
the Trustees no later than 120 days after year-end.
The requirement for audited financial
statements to be issued within 120 days after year-end (by October 28) to
bond Trustees was not met during fiscal years 2004 and 2005. The fiscal year 2004 audited financial
report was not delivered until January 2005 and the fiscal year 2005 report
had not been delivered as of the end of fieldwork November 4, 2005.
According to Commission management, the
delay is due to the growing complexity of the program coupled with the number
of parties involved in the financial reporting process.
The failure to comply with the terms of
the bonds indentures and letters of credit could result in potential
technical default causing the bonds to be called. (Finding 2, page 12)
We recommended IDAPP take a
comprehensive look at the entire financial reporting process and make changes
needed to comply with the requirements of the bond indentures. Further, IDAPP should prepare the year-end
financial statement work in a timelier manner in order to allow sufficient
time to have the audited financial statements issued prior to the due dates.
The Commission agreed with our
recommendation and stated that IDAPP would work to improve the timeliness of
completion of the annual financial statements to better meet the reporting
requirements of those older indentures that have a filing date requirement.
FINANCIAL REPORTING PROCESS
The Commission’s draft financial
statements required numerous revisions to comply with generally accepted
accounting principles.
During our audit of the Commission, we
noted the following:
·
The Commission did not
adequately disclose contingent liabilities related to federal noncompliance
as a result of a review conducted by the Department of Education.
·
The Commission did not
adequately disclose in its financial statements deposit and investment risk
disclosures required by Government Accounting Standards Board (GASB)
Statement No. 40. Investments totaled
$837 million at June 30, 2005.
·
The Commission did not
adequately disclose take-out agreements for demand revenue bonds. The disclosures did not support the
classification of certain debt issuances as noncurrent. Demand revenue bonds totaled $280 million
at June 30, 2005.
Commission officials stated that they
were unable to prepare complete and accurate draft financial statements
because of changes in key management personnel at IDAPP, complexity of the
financial reporting process with the Illinois Office of the Comptroller, and
unfamiliarity with the backup documents required to provide sufficient audit
evidence for the new GASB Statement No. 40 reporting requirements.
Inaccurate reporting of the Commission’s
financial statements leads to an untimely completion and issuance of its
audited financial statements.
(Finding 3, pages 13-14)
We recommended the Commission take a
comprehensive look at the entire financial reporting process to determine the
changes necessary to prepare draft financial statements in accordance with
generally accepted accounting principles.
The
Commission agreed with our recommendation and stated it made all efforts and
was in constant communication with the Illinois Office of the Comptroller and
the auditors prior to the end of the fiscal year to ensure that the year-end
process was timely and accurate. The Commission stated it is committed to
working with the Illinois Office of the Comptroller and the Office of the
Auditor General to complete financial statements accurately and in a
timely manner and will continue to review their internal procedures to
determine if additional modifications can be made to assist in timely and
accurate reporting.
FAILURE TO REVIEW COMPUTERIZED INFORMATION
SYSTEMS CONTROLS FOR THIRD-PARTY VENDORS
The Commission did not obtain
independent reviews of an externally controlled computerized system used to
service portions of its student loan portfolio. Without a review, the Commission did not have complete assurance
that the information system controls necessary to prevent errors or
irregularities from occurring were established and operating effectively at
all times.
The Commission utilized seven
third-party service providers to service a significant portion of its student
loan portfolio. Each of the service
providers used their own system to record accrued interest, cash collections
and adjustments and to ensure that the program is in compliance with the
Department of Education regulations for the Federal Family Education Loan
Program.
Of the total student loan portfolio of
$3.56 billion in 2005, $2.36 billion (67%) was serviced by the seven
third-party service providers. The
Commission did not obtain nor did it review reports (i.e. SAS 70 – Report on
the Internal Controls in Place and Tests of Operating Effectiveness) to
determine if controls were effective for one of the seven service providers
who serviced approximately $670 million for the Commission during fiscal year
2005.
The Commission stated that they have
been in contact with the service provider requiring them to provide a SAS 70
report. Based on our review, the SAS
70 has not been received and was also not provided during the prior audit for
the period ending June 30, 2003. (Finding 4, pages 15-16)
We recommended the Commission obtain and adequately review a
copy of an independent review of computer systems maintained by its
third-party service providers on an annual basis.
The Commission agreed with our recommendation and
stated that the servicer is waiting for the final report to be issued. Further, the Commission will review its
approach for obtaining the independent reviews of the computer systems for
third-party servicers to ensure more timely submission of the reports.
TIME
SHEETS NOT MAINTAINED TO COMPLY WITH THE STATE OFFICERS’ AND EMPLOYEE ETHICS
ACT
The
Commission did not maintain time sheets for its employees in compliance with
the State Officials and Employees Ethics Act (Act).
The Act
requires the Commission to adopt personnel policies consistent with the Act. The Act (5 ILCS 430/5-5(c)) states, “The
policies shall require State employees to periodically submit time sheets
documenting the time spent each day on official State business to the nearest
quarter hour.”
We
noted the Commission’s 277 salaried employees did not maintain time sheets in
compliance with the Act. Employees’
time is tracked using a “negative” timekeeping system whereby the employee is
assumed to be working unless noted otherwise. No time sheets documenting the time spent each day on official
State business to the nearest quarter hour are maintained for these
employees.
Commission management stated they believed the
current system of reporting benefit usage by full-time salaried employees was
sufficient under the Act. (Finding 5, page 17)
We
recommended the Commission amend its policies to require all employees to
maintain time sheets in compliance with the Act.
The
Commission agreed with our recommendation and stated that it will work with
its legal counsel to review and modify their time reporting process by July
1, 2006, to ensure compliance with the State Officials and Employees Ethics
Act.
OTHER FINDINGS
Other findings are reportedly being given attention by
Commission management. We will review
progress toward implementation of our recommendations in our next
examination.
Mr. Larry Matejka, Executive Director, provided the
Commission’s responses.
AUDITORS’ OPINION
The auditors stated the financial statements for the Illinois
Student Assistance Commission as of and for the year ended June 30, 2005 are
fairly presented in all material respects.
____________________________________
WILLIAM
G. HOLLAND, Auditor General
WGH:JAF:pp
AUDITORS ASSIGNED
McGladrey & Pullen, LLP were our special assistant
auditors for this audit.
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