REPORT DIGEST

ILLINOIS INDUSTRIAL COMMISSION

FINANCIAL AND COMPLIANCE AUDIT

For the Two Years Ended:
June 30, 1997

Summary of Findings:

Release Date:
March 26, 1998

State of Illinois
Office of the Auditor General

WILLIAM G. HOLLAND
AUDITOR GENERAL

Iles Park Plaza
740 E. Ash Street
Springfield, IL 62703
(217) 782-6046

SYNOPSIS

• The Commission caused duplicate warrants to be issued totaling $79,590 for the Self-Insurer's Security Fund and $9,032 for the Self-Insurer's Administration Fund.

• The Commission is not charging statutorily required penalties to companies that pay Rate Adjustment Fund assessments after the established deadlines. This finding has existed since 1989.

• The Commission did not determine that employees were properly insured in accordance with the Workers' Compensation Act. This finding has existed since 1979.

• The Commission did not determine that employer contributions paid to various funds were in compliance with Statute. This finding has existed since 1977.
  
  
  
  

{Expenditures and Activity Measures are summarized on the reverse page.}

EXPENDITURE STATISTICS

FY 1997

FY 1996

FY 1995

• Total General Revenue Fund
  Expenditures (All Appropriated Funds)
  
  OPERATIONS TOTAL
  % of Total Expenditures
  Personal Services
  % of Operations Expenditures
  Average No. of Employees
  
  Other Payroll Costs (FICA, Retirement)
  % of Operations Expenditures
  
  Contractual Services
  % of Operations Expenditures
  
  All Other Operations Items
  % of Operations Expenditures
• Cost of Property and Equipment

$9,132,673

$9,132,673
100%
$6,809,246
75%
178

$1,072,014
12%

$478,370
5%

$773,043
7%

$1,305,553

 
$8,869,374

$8,869,374.
100%
$6,619,606
75%
180

$1,031,560
11%

$372,208
4%

$846,000
10%

$1,303,244

 
$8,444,427

$8,444,427
100%
$6,342,126
75%
183

$939,473
11%

$476,171
6%

$686,657
8%

$1,260,470

SELECTED ACTIVITY MEASURES

FY 1997

FY 1996

FY 1995

Workers' Compensation Case Load Volume:

• Cases Pending at Beginning of Year

• Add: New Cases (+ reinstated)

• Total Cases to be Processed

• Less: Cases Closed

• Cases Pending at Year End

124,891

70,543

195,434

(70,856)

124,578

120,787

73,905

194,692

(69,801)

124,891

115,887

70,642

186,529

(65,742)

120,787

AGENCY DIRECTOR(S)

During Audit Period: Robert J. Malooly (July 1, 1995-June 16, 1996)

Currently: John W. Hallock, Jr.

Duplicate warrants issued

Failure to charge late penalties on Rate Adjustment Fund Assessments

Failure to determine that workers were properly insured

On-site audits need to be performed to verify accuracy of employer contributions

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

DUPLICATE WARRANTS

Duplicate warrants of approximately $79,590 and $9,032 were issued within the Self-Insurer's Security Fund and Self-Insurer's Administration Fund respectively.

Duplicate warrants were issued as part of a rebate within the Self-Insurer's Security Fund. Duplicate salary and travel warrants were issued to Commission employees from the Self-Insurer's Administration Fund. (Finding 7, page 22)

Commission management agreed with our recommendation to document discussions with the State Comptroller's Office to resolve any miscommunications and to reduce the risk of issuing duplicate warrants.

TIMELY COLLECTION OF ASSESSMENTS

Assessments to be paid into the Rate Adjustment Fund were not received on time in accordance with statutory requirements resulting in lost revenues, and procedures to enforce timely payments appear inadequate. This finding has been repeated since 1989.

Assessments for the Rate Adjustment Fund are due semi-annually and the statute provides for a late penalty equal to the greater of 20% or $2,500; however, the Commission is not charging this delinquency penalty. During Fiscal Year 1997, 56 companies paid a total of $163,429 subsequent to established deadlines. This could have resulted in the imposition of more than $32,600 in penalties. (Finding 5, page 19)

Commission officials agreed with our recommendation to continue their procedures to monitor and enforce timely collection of assessments and stated they will support legislation to require assessments paid after the due date to automatically include interest. (For previous agency responses, see Digest Footnote 1.)

NONCOMPLIANCE WITH WORKERS' COMPENSATION ACT

The Commission has not determined that employers are providing workers' compensation insurance in accordance with the Workers' Compensation Act. This finding has been repeated since 1979.

According to Commission officials, the Commission has been unable to comply with this statute because of lack of staff and resources. This inability may result in workers being unprotected under the Act. (Finding 1, page 13)

Commission officials agreed with our finding and recommendation to continue its efforts to implement procedures for a system to comply with statutory requirements. (For previous agency responses, see Digest Footnote 2.)

FAILURE TO DETERMINE THAT EMPLOYER CONTRIBUTIONS WERE IN COMPLIANCE WITH STATUTE

The Commission did not determine if employer contributions to various funds were in compliance with the Workers' Compensation Act. This finding has been repeated since 1977.

The procedures to verify the accuracy of these contributions are based on statute. However, there is no statutory authority given to the Commission to perform on-site audits to verify the accuracy of these contributions. Lacking the authority and resources to perform such audits, revenue from these funds could be lost. (Finding 3, page 16)

Commission officials agreed with our recommendation to continue administrative procedures to ensure payments are made and stated they will seek ways to improve their ability to verify accuracy of assessment payments and support legislation to perform audits. (For previous agency responses, see Digest Footnote 3.)

OTHER FINDINGS

The remaining findings are less significant and are 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 of the Industrial Commission at June 30, 1997 and 1996 are presented fairly.

____________________________________
WILLIAM G. HOLLAND, Auditor General

WGH:ROQ:ak

SPECIAL ASSISTANT AUDITORS

Hill Taylor LLC were our special assistant auditors for this audit.

DIGEST FOOTNOTES

#1 TIMELY COLLECTION OF ASSESSMENTS - Previous Agency Responses

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 non-payment into the Rate Adjustment and Second Injury Funds."

#2 DETERMINE THAT EMPLOYEES ARE INSURED AS REQUIRED BY WORKERS' COMPENSATION ACT - Previous Agency Responses (Since 1987)

1995: "The Commission agrees that employer compliance with the Workers' Compensation Act is not currently being done. Funding for this function was eliminated from the Commission in 1983 and has not been restored. Prior to 1983 the Commission had a 4 person unit to perform insurance compliance functions."

1993: "The Commission agrees. We expect that with full implementation and operation of new automated systems that we will have the information necessary to achieve full compliance with this requirement."

1991: "The Commission agrees that it has not had the ability to determine that employers are properly insured. As part of the new accident reporting system, we have arranged cross-matches with the Department of Employment Security and Department of Revenue employer listings to identify non-complying employers."

1989: "The Agency has received funds in its fiscal 1990 appropriation to do a "Needs Analysis Study" on its data processing system needs. If sufficient funds are then appropriated, the Commission would be able to design and implement a system that would allow it to comply with the statutory section referenced in this finding."

1987: "The Agency agrees with this recommendation and will continue to seek the funds necessary to fulfill all of its statutory mandate."

#3 DETERMINATION THAT EMPLOYER CONTRIBUTIONS ARE IN COMPLIANCE WITH STATUTES - Previous Agency Responses (Since 1987)

1995: "The Commission agrees. We will propose to the Workers' Compensation Advisory Board that legislation be pursued to give us the authority and the funds to perform audits to verify the accuracy of employer contributions. We will continue to perform such cross-matches as are available and will attempt to determine additional administrative procedures as may be useful in making such determination."

1993: "The Commission agrees. The new automated systems will provide the required information to insure accurate payments into the funds. Appropriate procedures will be established to permit staff to monitor the compliance of employer contributions."

1991: "The Commission agrees. The Agency's new computer system will provide the required information to assure accurate payments into the various funds."

1989: "The Agency agrees with this recommendation. New legislation, signed by the Governor on December 18, 1989, imposes penalties on employers who do not pay (or underpay) the assessments into the Rate Adjustment Fund and the Second Injury Fund. In addition, it requires the Department of Insurance to verify the accuracy of the amounts paid by the insurance companies into the Funds. The additional staff and resources referred to in our response to recommendations 1 through 5, will permit the Commission to perform both computer verifications and some limited auditing of self-insured employers' records for assessment verification purposes."

1987: "The Commission will require all future assessment payments to be accompanied by an affidavit signed by an officer of the company affirming the accuracy of the information in the transmitted form and the amount tendered."