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. REPORT DIGEST ILLINOIS WORKERS’ COMPENSATION COMMISSION Financial Audit for the Year Ended June 30, 2015 Compliance Examination for the Two Years Ended June 30, 2015 Release Date: February 11, 2016 FINDINGS THIS AUDIT: 5 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 0 -- 0 Category 2: 3 -- 2 -- 5 Category 3: 0 -- 0 -- 0 TOTAL: 3 -- 2 -- 5 FINDINGS LAST AUDIT: 10 Category 1: Findings that are material weaknesses in internal control and/or a qualification on compliance with State laws and regulations (material noncompliance). Category 2: Findings that are significant deficiencies in internal control and noncompliance with State laws and regulations. Category 3: Findings that have no internal control issues but are in noncompliance with State laws and regulations. State of Illinois, Office of the Auditor General FRANK J. MAUTINO, 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 TTY (888) 261-2887 This Report Digest and Full Report are also available on the worldwide web at www.auditor.illinois.gov SYNOPSIS • (15-02) The Illinois Workers’ Compensation Commission (Commission) failed to maintain adequate controls over timekeeping. • (15-03) The Commission maintained inadequate controls over property FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS INADEQUATE CONTROLS OVER TIMEKEEPING The Commission did not maintain adequate controls over timekeeping. During the last quarter of Fiscal Year 2014 and the first quarter of Fiscal Year 2015, the Commission converted from a paper-based timekeeping system to an electronic system (E-Time) for some of its employees. E-Time automatically updates the Central Time and Attendance System (CTAS) nightly for approved requests for time off work and at the end of each pay period for approved timesheets. Payroll for the employee will be processed based on CTAS activities. Internal controls were not sufficient to prevent employees from being paid for hours not worked even when paid benefit time has been exhausted, to detect such overpayments, or to ensure that adjustments are made to recover those overpayments. In addition, we noted that there is no control to verify that the adjustments made by the timekeeper to CTAS for previous pay periods are supported by approved E-Time timesheets. During our time sheet testing, mix of manual and E-Time, for 60 employees for two time periods, we noted the following • Five (4%) time sheets were not properly completed because both the employee’s signature and the supervisor’s signature were missing. • Two (2%) time sheets did not have appropriate supervisor signature. • Two (2%) time sheets had reporting discrepancies of benefit time usage and adjusted accrued balances. We noted 3.5 hours overstatement in accrued balance. • Six (5%) time sheets could not be located. In addition, we also selected one employee and examined all the related timesheets during the engagement period and noted the following: • Three of 45 (7%) timesheets had reporting discrepancies of hours not worked. We noted 5 hours not worked were processed as regular work hours. • Two of 45 (4%) time sheets could not be located. • Twelve of 45 (27%) time sheets were not properly approved by direct supervisor. During our leave of absence testing, we noted one of 15 (7%) in our test sample was on a paid maternity leave but hours were reported as regular work days in CTAS. This resulted in the overstatement of the employee’s maternity leave balance. The Commission corrected the employee’s records in CTAS to reflect the appropriate entries after the issue was brought to their attention. (Finding 2, pages 14-16) We recommended the Commission strengthen their controls over timekeeping to ensure accurate benefit time balances and pay for their employees. In addition, we recommended the Commission design controls for adequate segregation of duties and reconciliation procedures to detect errors and discrepancies timely and take the necessary actions for any overpayments or underpayments to employees. The Commission agreed with the recommendations. INADEQUATE CONTROLS OVER STATE PROPERTY The Commission did not maintain adequate controls over State Property. During our testing, we noted the following: • The Commission did not maintain supporting detail records for the Agency Report of State Property (Form C-15) filed quarterly with the Illinois Office of the Comptroller (IOC) for the fiscal year 2014 for the Self- Insurers’ Administration Fund (Fund 274) and Illinois Workers' Compensation Commission Operations Fund (Fund 534). Fund 274 reported total deletions of $36,162. Fund 534 reported total additions of $112,101, total deletions of $401,313, and total transfers of $162,238. • The Commission did not reconcile total equipment expenditures with total additions reported in the Form C-15 during fiscal years 2014 and 2015. We noted total expenditures for fiscal years 2014 and 2015 of $76,401 and $85,927, respectively, while total additions reported in Form C-15 for fiscal years 2014 and 2015 were $112,101 and $137,673, respectively. This resulted in unreconciled differences in fiscal years 2014 and 2015 of $35,700 and $51,746, respectively. • The Commission was unable to locate 23 laptops and desk top computers which were reported on their Annual Certification Report for the fiscal year 2015. These computers may have contained confidential and sensitive information. The Commission represented that these laptops and desk top computers were encrypted and there was no indication that confidential information was compromised. • During our additions testing, nine of 25 (36%) additions totaling $7,200 were not properly recorded in the inventory database. The value of the asset was based on the purchase order amount and not the actual invoice amount resulting in an understatement of $70. • During our equipment voucher testing, three of 25 (12%) equipment vouchers totaling $49,066 did not agree with the Commission’s property listing. Nineteen items in these three vouchers totaling $2,239 were not recorded in the Commission’s property listing. • Also during our equipment voucher testing, four of 25 (16%) equipment vouchers totaling $882 were not recorded in the Commission’s property listing. • During our equipment tracing testing, three of 60 (5%) equipment items could not be traced to the Commission’s property listing. • Also during our equipment tracing testing, two of 60 (3%) equipment items were recorded in another location in the Commission’s property listing. • During our physical identification of testing, three of 60 (5%) equipment items totaling $539 could not be located. • Also during our physical identification of testing, one of 60 (2%) equipment items totaling $425 was a personal item that should not have been included in the Commission’s property listing. • Further, during our physical identification of testing, we noted one of 60 (2%) equipment items totaling $640 from the Commission’s property listing was not in the Annual Inventory Certification List submitted to the Department of Central Management Services. (Finding 3, pages 17-19) This finding was first reported in 2003. We recommended the Commission adhere to the State mandates, Illinois Administrative Code, and the Statewide Accounting Management System requirements and improve its control over property equipment. The Commission agreed with the recommendation. (For the previous Commission response, see Digest Footnote #1.) OTHER FINDINGS The remaining findings and recommendations are reportedly being given attention by the Commission. We will review progress toward implementation of all our findings and recommendations during our next examination of the Commission. AUDITOR’S OPINION Auditors state that the financial statements present fairly, in all material respects, the financial position including its change in financial position and cash flows of the Self -Insurers’ Security Fund as of June 30, 2015. ACCOUNTANT’S OPINION We conducted a compliance examination of the Commission, for the two years ended June 30, 2015, as required by the Illinois State Auditing Act. The accountants stated the Commission complied, in all material respects, with the requirements described in the report. FRANK J. MAUTINO Auditor General FJM:JGR SPECIAL ASSISTANT AUDITORS Our Special Assistant Auditors for this engagement were Adelfia, LLC. DIGEST FOOTNOTES #1 - INADEQUATE CONTROLS OVER STATE PROPERTY 2013: The Commission agrees with the recommendation. Over the last 18 months, the Commission has overhauled its inventory tracking system after many prior years of inadequate and incomplete attempts at reconciling actual Commission inventory. This effort included merging together numerous data files, developing new procedures, performing a new physical inventory, reconciling with the Commission’s General Ledger, and the Department of Central Management Services inventory lists. As a result of this process, the Commission is making major adjustments to its current inventory. It appears that the property discrepancy in the Finding was caused by the failure of prior Commission administrations to remove items from its inventory. The Commission’s inventory was not updated for disposals and transfers for over forty years. A preliminary review by Internal Audit reveals that a majority of the items in the discrepancy are obsolete computer equipment.