REPORT DIGEST

MEDICAL DISTRICT COMMISSION

FINANCIAL AUDIT

AND COMPLIANCE EXAMINATION

For the Year Ended

June 30, 2007  

Summary of Findings:

Total this audit                 9

Total last audit                 4

Repeated from last audit  3

Release Date:

May 20, 2008

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

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 http://www.auditor.illinois.gov

SYNOPSIS

¨      The Commission did not have adequate controls over financial reporting. 

¨      The Commission did not properly prepare accounting reports submitted to the State Comptroller.

¨      The Commission did not comply with required contracting procedures.

¨      The Commission did not remit unexpended proceeds from the sale of Commission property to the State Treasury for deposit into the Medical Center Commission Income Fund.

{Financial Information is summarized on the reverse page.}

STATEMENT OF REVENUES, EXPENSES,

AND CHANGES IN NET ASSETS

         FY 2007

         FY 2006

OPERATING REVENUES

Grants ........................................................................

Rental Income............................................................

Other Income.............................................................

Total Operating Revenues..............................

OPERATING EXPENSES

Property Management and Development...........

Grant Programs........................................................

Depreciation and Amortization.............................

Total Operating Expenses...............................

OPERATING (L0SS) INCOME..............................

NONOPERATING, REVENUES (EXPENSES)

State Appropriations..............................................

Interest Income.......................................................

Interest Expense......................................................

Total Nonoperating Revenues (Expenses)…

Capital Assets (Net gain/loss)

CHANGES IN NET ASSETS

$1,422,250

2,383,679

   144,231

$ 3,950,160

$5,506,023

1,262,197

     833,822

$7,602,042

$(3,651,882)

$    176,425

   1,346,789

 (2,182,566)

 $( 659,352)

$_______

$(4,311,234)

       $  1,535,795

          2,257,362

              321,958

        $ 4,115,115

        $ 3,687,311

           1,097,001

              635,265

        $ 5,419,577

       $(1,304,462)

        $    195,179

              809,756

            (926,386)

        $       78,549

       $     289,210

       $   (936,703)

STATEMENT OF NET ASSETS

 2007  FY 2007

      FY 2006

ASSETS

Cash and cash Equivalents...................................

Investments.............................................................

Notes and Accounts Receivable..........................

Other Assets...........................................................

Capital Assets, Net of Depreciation....................

Total Assets......................................................

LIABILITIES

Accounts Payable..................................................

Accrued Interest Payable......................................

Other Liabilities and Payables..............................

Line of Credit...........................................................

Revenue Bonds Payable........................................

Total Liabilities..................................................

NET ASSETS

Invested in Capital Assets (net of debt).............

Restricted for Grants and Capital Projects..........

Unrestricted.............................................................

Total Net Assets.............................................

TOTAL LIABILITIES AND NET ASSETS

$16,100,552

11,804,344

7,924,936

1,201,104

52,574,524

   $89,605,460

$1,083,067

712,782

553,218

2,042,506

40,000,000

$44,391,573

$35,408,403

3,982,154

       5,823,330

$45,213,887

$89,605,460

       $ 13,877,681

         17,089,479

           8,355,780

           1,537,237

         52,421,905

      $ 93,282,082

      $      891,409

              871,281

              726,039

           1,268,232

      $ 40,000,000

      $ 43,756,961

      $ 31,924,875

           7,194,553

         10,405,693

      $ 49,525,121

       $ 93,282,082

EXECUTIVE DIRECTOR

During Audit Period:  Samuel Pruett

Currently:  Samuel Pruett

Inadequate internal controls

Incorrect financial statement account classifications

Unrecorded expenses

In an exchange of similar assets the Commission deleted the assets exchanged but did not record the assets acquired

Land for which title and ownership had passed were recorded as Construction in Progress instead of Land at June 30, 2007

The Commission did not properly prepare accounting reports for timely submission to the Office of the State Comptroller

Failure to comply with competitive bidding requirements

Payments exceeded the contract maximums

Several contracts did not contain all required certifications or clauses

Unexpended proceeds of $8,152,049 were not remitted to the State Treasury

Commission officials disagree

Auditor Comment

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INADEQUATE CONTROLS OVER FINANCIAL REPORTING

The Illinois Medical District Commission did not have

an adequate system of internal controls over financial reporting to allow management or employees in the normal course of performing their assigned functions to prevent or detect financial statement misstatements in a timely manner.  The Commission did not record some transactions and did not properly record several other transactions.  As a result, the Commission did not properly apply appropriate generally accepted accounting principles (GAAP).  During our audit, we noted several problems, including the following:

·               Cash equivalents totaling $7,093,090 included investments maturing beyond three months from date of purchase, which should have been reported as investments.  Investments totaling $11,003,361 included amounts maturing within three months from the date of purchase which should have been reported as cash equivalents.

·               Amortization expense on intangibles totaling $469,036 was not recorded.

·               The Commission did not adjust its records when it changed its plan to raze a building and instead converted it to a revenue-generating asset. The building component of $126,000 with cumulative depreciation expense of $38,850 was still recorded as part of the original acquisition cost of land.

·               The Commission acquired parcels of land through exchange of similar assets totaling $248,211.  The Commission recorded these transactions by recognizing an expense and deleting the assets exchanged, but did not record the assets acquired.

·               Architect fees totaling $266,008 incurred during the year in constructing a building not yet completed as of June 30, 2007 were recorded as Building and Building Improvement instead of Construction in Progress.

·               Costs incurred ($142,502) in acquiring parcels of land for which title and ownership had not been transferred to the Commission as of June 30, 2007 were recorded as Construction in Progress instead of Prepaid Assets.

·               Costs of parcels of land ($208,385) for which title and ownership had been transferred to the Commission as of June 30, 2007 were recorded as Construction in Progress instead of Land. (Finding 1, pages 12-16)

Commission officials agreed with our recommendation to comprehensively review their procedures to ensure that the financial statements, including disclosures, are complete accurate, and comply with generally accepted accounting principles.

INACCURATE AND UNTIMELY SUBMISSION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) REPORTING PACKAGE

The Illinois Medical District Commission did not properly prepare accounting reports (GAAP Reporting Package) for timely submission to the Office of the Comptroller.

The Commission submitted an initial GAAP package

to the Comptroller’s Office on September 21, 2007, which included information for the financial statements.  The Comptroller’s Office questioned several accounts and requested numerous clarifications.  Our analysis disclosed that the Commission did not keep adequate records, schedules, or reconciliations to support the initial GAAP submissions.  At the conclusion of our field work on January 5, 2008, the Commission had not yet finalized a revised GAAP Package.  (Finding 3, pages 19-20)  This issue was first reported in 2002.

Commission officials agreed with our recommendation to improves its procedures to ensure that accounting records are appropriately and timely maintained so that schedules or reconciliations to support the “GAAP Reporting Packages” can be prepared in the future.  (For previous Commission response, see Digest Footnote #1)

NONCOMPLIANCE WITH REQUIRED CONTRACTING PROCEDURES

The Illinois Medical District Commission did not comply with certain contracting procedures.  During our testing of 22 contracts, we noted several problems, including the following:

-         Two (9%) of 22 contracts totaling $120,000
    (architectural and engineering services) did not comply
    with competitive bidding requirements.

-         Four (18%) of 22 contracts awarded totaling $245,000
   (cleaning, architectural, engineering, and consulting 
    services) were not published in the Illinois 
    Procurement Bulletin as sole source.

-         Six (27%) of 22 contracts totaling $640,418 were not
    filed with the State Comptroller.

-         Two (9%) contracts paid from locally held funds
    exceeded the amount of contract maximums.  Both
    contracts were awarded not to exceed $25,000. 
    Payments under one contract (legal service) were
    $175,000 and under the other (cleaning services) were
    $74,000.

-         Seven (32%) of 22 contracts totaling $817,218 did not
    include all the required certifications or clauses.
    (Finding 6, pages 27-30) This issue was first 

         reported in 2005.

Commission Officials agreed with our recommendations to ensure that contracts over $5,000 (professional and artistic) and over $10,000 (all other) be filed with the Comptroller; that an affidavit for Late Filing should be completed for any contract liability not filed within thirty days of execution; and that contract requirements and signatures, sole source justification, and disclosure statements be obtained and published as required.  (For previous Commission response, see Digest Footnote #2)

FAILURE TO REMIT UNEXPENDED PROCEEDS FROM THE SALE OF COMMISSION PROPERTY INTO THE INCOME FUND HELD IN THE STATE TREASURY

     The Illinois Medical District Commission did not remit unexpended proceeds from the sale of Commission property to the State Treasury for deposit into the Medical Center Commission Income Fund.

The Illinois Medical District Act requires the Commission to remit to the State Treasury all moneys on hand (originating from the sale of Commission property) as of June 30 in excess of $350,000.

During Fiscal Year 2004, the Commission sold real property to the Federal Bureau of Investigation.  The proceeds from the sale totaled $10,688,767.  As of June 30, 2005, an estimated $8,152,049 of those proceeds has not been expended or obligated and the Commission did not remit these excess funds to the State Treasury.  As of June 30, 2006, the unexpended portion of these proceeds totaled $7,877,969, and the Commission had not yet remitted any excess funds to the State Treasury. As of June 30, 2007, funds in the amount of $4,000,000 were pledged as collateral for a $40 million bond offering and pursuant to a Commission Resolution dated May 23, 2006, the remainder of the funds were pledged as collateral for a $4,000,000 line of credit with a bank. (Finding 8, pages 33-34) This finding was first reported in 2005.

We recommended the Commission remit the excess moneys to the State Treasury for deposit into the Income Fund.

Commission officials continue to disagree with this finding and maintain their actions are consistent with the Illinois Medical District Act. They stated the matter is pending before the Illinois Attorney General and this should no longer be a finding as there were not funds in excess of $350,000 at the close of fiscal year 2007 that were either unexpended or not under contractual obligation. (For previous Commission responses, see Digest Footnote #3)

In an Auditor Comment, we stated that the auditors continue to stand by the finding based on the same criteria that was cited in the prior two audits.  We noted that under the statute, by October 10^th of each year money is either expended or it is on hand.  Under common everyday usage, the term “expended” means paid out.  This definition is also consistent with usage in State government.  Under the plain meaning of the law, money on hand in excess of $350,000 must be remitted to the State Treasury in the time frame set forth in Section 10.  The auditors do not believe the statute allows the Commission to hold for an indefinite period of time an unlimited accumulation of money that has been “set aside” or “ pledged as collateral” or “committed” but not paid out.

OTHER FINDINGS

Other findings dealt with inadequate review of outstanding accounts, inadequate controls over personnel and payroll, property, and equipment, fiscal control and internal auditing, and inaccurate reporting of receipts and disbursements.  We will review the Commission’s progress toward implementation of all our recommendations in our next audit.

AUDITORS' OPINION

Our auditors stated that the financial statements present fairly, in all material respects, the respective financial position of the Commission, as of June 30, 2007, and the respective changes in net assets and cash flows, thereof for the year then ended.

___________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:KMC:drh

SPECIAL ASSISTANT AUDITORS

Our special assistant auditors for this audit were

E. C. Ortiz & Co., LLP.