Note:
This report of the Illinois Workers’ Compensation Commissions’ Self-Insurers Security Fund (Fund) should be read in conjunction with the FY16 financial statements of the Fund and the auditor’s report dated January 4, 2018.
In FY16, the auditors issued an adverse opinion on the Fund’s financial statements due to the Commission having an inadequate process to determine the claims liabilities of the Fund, and because the proper accounting treatment for the insolvent self-insurer security collected by the State of Illinois is not determinable due to two different irreconcilable interpretations of the Worker’s Compensation Act. Because of the adverse auditor opinion of the Fund’s financial statements for the year ended June 30, 2016, the audit reports for the year ended prior to June 30, 2016 should not be relied upon without considering the auditor’s report dated January 4, 2018.
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REPORT DIGEST ILLINOIS INDUSTRIAL COMMISSION FINANCIAL AND COMPLIANCE AUDIT For the Two Years Ended: June 30, 2001 Summary of Findings: Total this audit 7 Release Date:
State of Illinois Office of the Auditor General WILLIAM G. HOLLAND AUDITOR GENERAL To
obtain a copy of the Report contact: (217)782-6046 or TDD (217) 524-4646 This
Report Digest is also available on |
SYNOPSIS
{Expenditures and Activity Measures are summarized on the reverse page.} |
ILLINOIS INDUSTRIAL COMMISSION
FINANCIAL AND COMPLIANCE AUDIT
For The Two Years Ended June 30, 2001
|
EXPENDITURE STATISTICS |
FY 2001 |
FY 2000 |
FY 1999 |
|
Total General Revenue Fund Expenditures (All Appropriated Funds) |
$10,772,885 |
$10,421,339 |
$10,184,279 |
|
OPERATIONS TOTAL |
$10,772,885 |
$10,421,339 |
$10,184,279 |
|
% of Total Expenditures |
100% |
100% |
100% |
|
Personal Services |
$7,101,227 |
$7,013,003 |
$7,281,537 |
|
% of Operations Expenditures |
65.9% |
67.3% |
71.5% |
|
Average No. of Employees |
181 |
182 |
185 |
|
Other Payroll Costs (FICA, Retirement) |
$1,861,438 |
$1,882,757 |
$1,487,732 |
|
% of Operations Expenditures |
17.3% |
18.1% |
14.6% |
|
Contractual Services |
$165,035 |
$162,138 |
$553,016 |
|
% of Operations Expenditures |
1.5% |
1.5% |
5.4% |
|
All Other Operations Items |
$1,645,185 |
$1,363,441 |
$861,994 |
|
% of Operations Expenditures |
15.3% |
13.1% |
8.5% |
|
$1,735,442 |
$1,536,778 |
$1,557,271 |
|
SELECTED ACTIVITY MEASURES |
FY 2000 |
FY 1999 |
FY 1998 |
|
Workers’ Compensation Case Load Volume:
|
116,438 |
117,686 |
122,037 |
|
AGENCY DIRECTOR |
|
During Audit Period: John W. Hallock, Jr. |
|
Assessments for the Rate Adjustment Fund and the Second Injury Fund were not paid timely
The Rate Adjustment Fund had a deficit of $8,811,584 for the year ended June 30, 2001
The Commission did not perform required internal control reviews
The Commission had not established adequate computer security controls
The Commission had no formal methodology to assist in the development of information system |
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS TIMELY COLLECTION OF ASSESSMENTS Assessments for the Rate Adjustment Fund and the Second Injury Fund were not paid timely in accordance with statutory requirements. We sampled 75 companies with late payments. Our sample of 25 companies with assessments due March 15, 2000, showed late payments of $87,475; for 25 companies with payments due September 15, 2000, late payments totaled $104,452; and for 25 companies with payments due March 15, 2001, late payments totaled $286,320. Commission officials stated that no penalties were assessed because all employers and insurance carriers responded to the Commission’s notices by paying the delinquent amounts (Finding 3, pages 15-16) This finding has been repeated since 1989. Not collecting assessments timely results in a loss of revenues and/or a deficiency of funds and we recommended the Commission continue its procedures to monitor and enforce timely collection of assessments. The Commission agreed and also stated it would continue to support legislation that would require assessments paid after the due date to automatically include interest for the period of delinquency. (For previous agency responses, see Digest Footnote 1.) The Rate Adjustment Fund had a deficit of $8,811,584 for the year ended June 30, 2001. Assessments for this fund have been at the maximum for the 16 years ending June 30, 2001 and the fund has had to borrow money in order to meet its obligations. (See page 66 of this report for more information). ANNUAL REVIEW OF INTERNAL CONTROL NOT PERFORMED The Commission did not perform the required internal control reviews or file the Fiscal Year 2001 or 2000 certification that the Commission’s systems of internal fiscal and administrative controls are in compliance with the requirements of the Fiscal Control and Internal Auditing Act. Such an evaluation and certification is necessary to ensure assets are safeguarded, accounting data are reliable, operations are efficient and the Commission is in compliance with established policies, laws, regulations and contracts. (Finding 4, page 17) The Commission agreed with our recommendation to comply with the requirements of the Fiscal Control and Internal Auditing Act. COMPUTER SECURITY DEFICIENCIES The Commission relies on its computer resources to meet its mission but has not established adequate security controls over its Local Area Network (LAN) or Internet Environments. Our review of the Commission’s LAN and Internet security controls showed, among other things, that: 1) passwords were not required on all user accounts; 2) there were users who were actively logged on to the LAN for more than 24 hours, continuously providing an opportunity for unauthorized access or modification of resources and data; 3) physical security restrictions limiting public access to user workstations did not exist; 4) user accounts were generically assigned and shared by employees; 5) 66% of the workstations were not protected with anti virus software; and 6) direct access to the Internet was permitted without security controls. (Finding 6, pages 20-21) The Commission accepted our recommendation to establish comprehensive policies and procedures that outline general security provisions, appropriate use of computer resources, backup and care of data, and other appropriate policies to help ensure that effective security controls exist. LACK OF SYSTEM DEVELOPMENT AND CHANGE CONTROL STANDARDS The Commission had not established formal system development methodology or change control procedures for its computing environment. The Commission develops, acquires, implements, maintains, and modifies information systems that are critical for completing its mission. However, there was no formal methodology to assist in the planning of the information systems development process, testing, and changing programs. Our review of the Arbitration Tracking System, which was recently developed, showed: 1) the project was not formally approved; 2) a risk analysis was not performed; 3) the system design and testing was not formally documented; 4) the system was not approved before implementation; and 5) a post–implementation review was not performed. (Finding 7, pages 22-23) The Commission agreed with our recommendation to develop a formal system development methodology. OTHER FINDINGS The remaining findings are less significant and are reportedly being given attention by Commission management. We will review the progress toward implementation of our recommendations during our next audit. AUDITORS’ OPINION Our auditors state the financial statements present fairly, in all material respects, the financial position of the non-shared funds of the Illinois Industrial Commission as of June 30, 2001 and 2000.
___________________________________ WILLIAM G. HOLLAND, Auditor General WGH:KMC:ak SPECIAL ASSISTANT AUDITORS Hill Taylor LLC were our special assistant auditors for this audit.
DIGEST FOOTNOTES #1 DETERMINATION THAT EMPLOYER CONTRIBUTIONS ARE IN COMPLIANCE WITH STATUTES - Previous Agency Responses (Since 1989) 1999: "The Agency agrees with this recommendation. The Agency will continue to monitor to the timeliness of assessment payments, and when necessary utilize the provision to assess penalties. The agency will also continue to support legislation that would require assessments paid after the due date to automatically include interest for the delinquent period." 1997: "The agency agrees with this recommendation. The commission will continue its efforts to seek out insurance carriers and employers willing and capable of submitting accident report information electronically. Further, we will seek funds to expand our current system to accept electronic filing of paid benefit costs and specific injury data." 1995: "We agree with the recommendation. We will continue our efforts to secure timely payments into these funds and we will propose to the Workers’ Compensation Advisory Board that we pursue a statutory amendment which would permit the charging of interest for late payments to be deposited along with any penalties into the Rate Adjustment Fund." 1993: "The Commission agrees with #2. Due to loss of staff in the fiscal office, individual assessment transmittal forms are no longer filed in individual files, but are batched together by date of receipt. The Commission disagrees with #1. Based on the opinion of our legal counsel, penalties cannot be automatically imposed by the Commission. Imposition of penalties for late payment would require that the Commission make a finding that the payment in question was willfully and knowingly late." 1991: "The Agency disagrees. The Agency has procedures to monitor and collect assessments due to the Rate Adjustment Fund and Second Injury Fund. Further, based on opinions of our counsel, penalties cannot be automatically imposed, but can only be required "upon a finding by the Commission" that the payment was willfully and knowingly late." 1989: "The Agency has procedures to monitor and collect assessments due to the Rate Adjustment Fund and Second Injury Fund. During the period of the audit, however, the agency did not have enforcement powers adequate to ensure payment into the funds. On December 18, 1989, the Governor signed into law a major amendment to the Workers Compensation Act which included a provision that significant penalties will be assessed in the event of late or nonpayment into the Rate Adjustment and Second Injury Funds." |