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Insufficient controls over financial
reporting process
Errors were identified
Student loans and bond issuance cost were
inappropriately classified Caused by a change in procedure and
reduction in workforce
Commission officials agreed with auditors’
recommendation
Deposits were not collateralized
10% invested in a single issuer limited
by policy to 5%
$5 million deposit balance
uncollateralized
Management stated that errors were made
Recommended improved monitoring of
deposits and investments
The Commission accepted the auditor’s
recommendation |
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONSNEED TO IMPROVE CONTROLS OVER FINANCIAL
REPORTING The
Illinois Designated Account Purchase Program (IDAPP) of the Illinois Student
Assistance Commission (Commission) did not have sufficient controls over
financial reporting. Several errors and
omissions were identified during the audit of the draft financial statements
provided for IDAPP. Some of the more
significant adjustments and omissions were as follows:
·
Unamortized bond issuance costs that totaled
approximately $840,000 were inappropriately classified as unrestricted other
assets instead of restricted unamortized bond issuance costs.
·
Approximately $16 million of student loans, net of
allowance for loan losses, were inappropriately classified as unamortized
bond issuance costs.
·
Generally Accepted Accounting Standards Board (GASB)
Statement No. 40 disclosure of custodial credit risk for deposits and
investments was not complete. According
to Commission management, the primary issues noted above were caused by a
change in procedures and reductions in the workforce resulting from the
outsourcing of the servicing of alternative loans. (Finding 2, pages 29-30) We recommended the
Commission review its procedures over outsourced services, allocate the
resources necessary, and improve controls over financial reporting to ensure
accurate presentation and disclosure of IDAPP’s annual financial
statements. The Commission accepted our recommendation and stated that it had implemented several changes to address the issues noted above. The Accounting department has been reorganized to better utilize existing talent and also a new financial reporting manager (with a CPA certificate) has been hired who will assist in the review process. INVESTMENT POLICIES
NOT FOLLOWED The Illinois Designated
Account Purchase Program (IDAPP) does not have adequate collateral to cover
100% of its bank deposit balances that exceed FDIC insured amounts, and
investments in a single issuer exceeded investment policy established limits.
IDAPP was in violation of
its current investment policy restricting investments in a single issuer to
no more than 5% of the total investment portfolio of the agency. IDAPP held over $5.6 million in commercial
paper issued by a financial institution.
This investment was approximately 10% of IDAPP’s total investment
balance at its fiscal year-end. In addition, during
testing of cash and investments, a lack of sufficient collateral for deposits
in excess of FDIC insured amounts was noted.
IDAPP has an uninsured uncollateralized deposit balance of
approximately $5 million at June 30, 2008, consisting of 2 locally held
accounts in violation of the State Officers and Employees Money Disposition
Act (Act). According
to Commission management, one of the bank accounts was set-up incorrectly,
resulting in the balances being uncollateralized. An additional $4.7
million in a different bank was set up as a collateral account based on a
contractual agreement. It was an oversight that a reciprocal collateralization
was not provided (by the bank) for the funds that IDAPP provided to the bank
as collateral. The $5,612,565 of
commercial paper at another financial institution was also set-up in error. (Finding 3, pages 31-32)
We recommended IDAPP obtain sufficient collateral
to cover uninsured deposit balances at each applicable bank. In addition, IDAPP should improve
monitoring controls over deposit balances and to ensure that it adheres to
its investment policy.
The Commission accepted our recommendation
and stated that it had subsequently reduced its commercial paper investment to
$3.5 million and invested in treasury bills.
The $4.7 million uncollateralized
deposit at Guarantee Bank has now
been closed and other deposits are now fully collateralized.
OTHER FINDING The other finding concerned the Commission’s documentation of journal entries. We will review progress toward implementation of all recommendations during the next audit. AUDITORS’ OPINIONOur auditors stated the financial statements of IDAPP were fairly presented in all material respects. ____________________________________ WILLIAM G. HOLLAND, Auditor General WGH:JAF:pp SPECIAL ASSISTANT AUDITORS
Our special assistant auditors for this audit were McGladrey & Pullen, LLP. |
