REPORT DIGEST DEPARTMENT OF MILITARY AFFAIRS COMPLIANCE EXAMINATION FOR THE TWO YEARS ENDED JUNE 30, 2020 Release Date: July 14, 2021 FINDINGS THIS AUDIT: 18 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 1 -- 4 -- 5 Category 2: 7 -- 6 -- 13 Category 3: 0 -- 0 -- 0 TOTAL: 8 -- 10 -- 18 FINDINGS LAST AUDIT: 16 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 • (20-1) The Department did not maintain sufficient controls over its property and related fiscal records. • (20-2) The Department did not adhere to the internal auditing provisions of the Fiscal Control and Internal Auditing Act. • (20-3) The Department did not exercise adequate controls over its commodities inventories. • (20-13) The Department did not exercise adequate controls over voucher processing. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS PROPERTY CONTROL WEAKNESSES The Department did not maintain sufficient controls over its property and related fiscal records. During testing, we noted the Department did not maintain detailed supporting documentation for its quarterly Agency Report of State Property (Form C-15) filed with the Office of Comptroller (Comptroller). Due to the lack of detailed documentation, the following compliance examination procedures could not be performed: • The State property listing provided by the Department in response to audit requests could not be reconciled with the ending balances reported in the Form C-15 Reports. Moreover, the Department could not provide annual additions and deletions reports during fiscal years 2019 and 2020. • Property additions per the Form C-15 Reports could not be reconciled to the Comptroller’s records reflected on the Object Expense/ Expenditures by Quarter Report (SA02). • During testing, the Department failed to provide documentation to support its calculations for the SCO-537/538 forms; therefore, we were unable to test if the Department appropriately classified purchases as building improvements, land improvements, or site improvements. Due to these conditions, the accountants were unable to conclude whether the Department’s population records were sufficiently precise and detailed under the Attestation Standards promulgated by the American Institute of Certified Public Accountants (AT-C § 205.35) to test the Department’s equipment. Even given the population limitations noted above which hindered the ability of the accountants to conclude whether selected samples were representative of the population as a whole, the accountants performed testing of what records were available. Some of the more significant issues noted by the accountants included the following: • Three of 60 (5%) equipment items tested were not found in the Department’s property listing • Fourteen of 19 (74%) telecommunication, State property and electronic data processing expenditure vouchers tested, totaling $646,141, contained purchases of equipment with individual unit prices of $1,000 and more, but those items were not found on the Department’s property control records. • Twenty-nine of 46 (63%) permanent improvement vouchers tested, totaling $4,060,921, were remodeling, renovation, and site improvement expenditures, but those items were not added to the Department’s property records, • For ten of 10 (100%) Capital Development Board (CDB) projects tested, totaling $2,976,811 as of June 30, 2020, the Department failed to record transfers-in from CDB for the 1st quarter of Fiscal Year 2019 through the 3rd quarter of Fiscal Year 2020, totaling $2,558,595, to the Department’s property records. (Finding 1, pages 11-15) This finding has been repeated since 2004. We recommended the Department take actions to strengthen its internal controls over the recording and reporting of its State property and equipment transactions to ensure property records accurately reflect equipment on-hand in accordance with State regulations, and equipment items are properly inventoried and tagged. Further, the Department should implement a corrective action plan to complete a full inventory to identify and correct its accumulated property and equipment errors. Department officials agreed with the finding. NONCOMPLIANCE WITH THE FISCAL CONTROL AND INTERNAL AUDITING ACT The Department failed to fully comply with the Fiscal Control and Internal Auditing Act (Act) and International Standards for the Professional Practice of Internal Auditing (internal auditing standards). A few of the issues we noted during our review of the Department’s internal audit activities for fiscal years 2019 and 2020 follow: • The Department did not have a two- year audit plan for the fiscal year ended June 30, 2019. In addition, the fiscal year 2020-2021 two-year audit plan did not identify all of the Department’s material laws and regulations, material provisions of contracts and grant agreements, major systems of internal accounting and administrative controls over the obligation and expenditure, and use of public funds of the State, and reviews of the design of major new electronic data processing systems before their installation in assessing its risk factors when selecting the internal audits to be performed. Further, the plan was not approved by the Adjutant General or Chief of Staff. • The Department did not conduct a review of the State’s Enterprise Resource Planning (ERP) application prior to its implementation on January 1, 2020. • The Chief Internal Auditor did not submit a written report to the Adjutant General detailing how the audit plan was carried out, the significant findings, and the extent to which recommended changes were implemented for fiscal years 2019 and 2020. (Finding 2, pages 16-18) This finding has been repeated since 2012. We recommended the Chief Internal Auditor gain a thorough understanding of the compliance requirements applicable to the Department and develop policies and procedures to ensure compliance with the Act and internal auditing standards. Department officials agreed with the finding. INADEQUATE INTERNAL CONTROL OVER COMMODITIES The Department did not exercise adequate internal control over its commodities inventories. In Fiscal Year 2019, the Department implemented a new, web-based database for ordering commodities inventory. The database allows Readiness Centers’ (armories) Managers throughout the State to email orders to the Storekeeper and the Department to maintain an items-on-hand count. During our testing, we noted the database could not generate a report of items-on-hand as of a given point- in-time. As a result, the Department was not able to provide the list of commodities inventories as of June 30, 2019 and June 30, 2020. Due to this condition, we were unable to conclude whether the Department’s population records were sufficiently precise and detailed under the Attestation Standards promulgated by the American Institute of Certified Public Accountants (AT-C § 205.35) to test the Department’s year end commodities inventories balances. (Finding 3, pages 19-20) This finding has been repeated since 2012. We recommended the Department implement procedures to maintain accurate records of its commodities inventory, perform periodic inventory counts, and reconcile its inventory records as required. Department officials agreed with this finding. INADEQUATE CONTROLS OVER VOUCHER PROCESSING The Department did not exercise adequate controls over voucher processing. During our review of 288 expenditure vouchers, totaling $16,734,538, we noted the following: • Six (2%) vouchers tested, totaling $660,305, included travel, repairs and maintenance, and professional services expenditures totaling $332,366 that were recognized as expenses in the wrong fiscal year. • Thirty-five (12%) vouchers tested, totaling $1,229,510, were approved from 4 to 200 days late. • Two (1%) vouchers tested, totaling $29,019, lacked documentary evidence to support approval of the invoices, and therefore, we were unable to determine whether the approvals were timely. • For 16 (6%) vouchers tested, totaling $492,030, the Department failed to maintain supporting documentation showing the date invoices were received. (Finding 13, pages 39-40) We recommended the Department strengthen its internal controls to ensure expenditures are adequately supported, posted to the correct fiscal year, properly approved, paid timely, and properly documented. Department officials agreed with this finding. OTHER FINDINGS The remaining findings pertain to weaknesses in preparation of GAAP reporting forms, inadequate controls over contractual services, monthly reconciliations, and Agency Fee Impositions Reports, failure to file required reports and develop a formal fraud risk assessment program, noncompliance with vehicle requirements, completion and retention of employment eligibility verification forms, noncompliance with the Military Code of Illinois, inaccurate accounts receivable reporting, inadequate computer security controls, weaknesses in cybersecurity programs and practices, weaknesses with payment card industry data security standards, and the failure to demonstrate the completeness and accuracy of report components. We will review the Department’s progress towards the implementation of our recommendations in our next compliance examination. ACCOUNTANT’S OPINION The accountants conducted a compliance examination of the Department for the two years ended June 30, 2020, as required by the Illinois State Auditing Act. The accountants qualified their report on State compliance for Findings 2020-001 through 2020-005. Except for the noncompliance described in these findings, the accountants stated the Department complied, in all material respects, with the requirements described in the report. This compliance examination was conducted by the Office of the Auditor General’s staff. JANE CLARK Division Director This report is transmitted in accordance with Section 3-14 of the Illinois State Auditing Act. FRANK J. MAUTINO Auditor General FJM:ph