REPORT DIGEST

NORTHEASTERN ILLINOIS UNIVERSITY

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

For The Year Ended June 30, 2008

Statement of Revenues, Expenses, and Changes in Net Assets	FY 2008	FY 2007
OPERATING REVENUES Student tuition and fees (net of scholarship allowances of $7,039,868 in 2008 and $7,039,868 in 2007) .......................................................................... Federal grants and contracts ............................................................. State and local grants ........................................................................ Nongovernmental grants and contracts.............................................. Auxiliary enterprises......................................................................... Other operating revenues................................................................... Total operating revenues........................................................... OPERATING EXPENSES Instruction ........................................................................................ Research ........................................................................................... Public service..................................................................................... Academic support ............................................................................. Student services and programs.......................................................... Institutional support......................................................................... Operation and maintenance of plant................................................. Scholarships and fellowships............................................................ Auxiliary enterprises......................................................................... Depreciation expense........................................................................ Other operating expenses.................................................................. Total operating expenses........................................................... Operating income (loss)......................................................... NONOPERATING REVENUES (EXPENSES) State appropriations – general revenue fund ..................................... Payments on behalf of the University ............................................... Gifts and donations ........................................................................... Investment income ............................................................................ Interest on indebtedness .................................................................... Other nonoperating revenues ............................................................ Net nonoperating revenues...................................................... Income (loss) before other revenues, expenses, gains and losses Gain (loss) on disposal of capital assets ........................................... Capital additions provided by State of Illinois ................................. Increase (decrease) in Net Assets NET ASSETS Net assets – beginning of year ......................................................... Net assets – end of year ..................................................................	$40,447,226 24,027,801 3,469,916 1,613,907 3,333,719 2,995,344 75,887,913 42,160,886 781,761 16,736,104 6,824,520 9,175,718 32,760,596 10,308,811 4,592,734 3,105,951 5,228,066 3,691,030 135,366,177 (59,478,264) 40,745,238 21,448,970 148,330 608,814 (1,571,749) 151,803 61,663,134 2,184,870 (32,780) 2,328,793 4,480,883 84,932,545 $89,413,428	$34,477,189 24,393,435 5,179,911 1,174,018 3,283,405 2,943,430 71,451,388 41,004,674 771,010 19,354,940 6,402,891 8,856,022 31,301,841 9,877,389 4,914,597 2,719,513 4,897,271 2,857,162 132,957,310 (61,505,922) 39,994,182 18,562,423 100,000 1,414,600 (1,600,052) 151,803 58,622,956 (2,882,966) (22,007) 391,902 (2,513,071) 87,445,616 $84,932,545
SUPPLEMENTARY INFORMATION (UNAUDITED)	FY 2008	FY 2007
Employment Statistics Administration........................................................................................... Faculty....................................................................................................... Civil Service............................................................................................... Students..................................................................................................... Total Employees.............................................................................. Selected Activity Measures Average annual full-time equivalent students.................................................... Full-time equivalent cost per student – Undergraduate.................................... Full-time equivalent cost per student – Graduate.............................................	267 437 487 369 1,560 8,172 $8,121 $11,591	290 423 464 368 1,545 8,481 $7,539 $10,398
UNIVERSITY PRESIDENT
During Audit Period: Dr. Sharon Hahs Current: Dr. Sharon Hahs

Control procedures are not in place to ensure that the information is complete and accurate

The June vacation usage was not included resulting in an overstatement of $247,102

Vacation balances for 21 faculty were not included resulting in a $262,685 understatement

Non-compensable time included for 43 employees resulting in overstatement of $80,848

28 employees were not included resulting in an understatement of $102,350

Incorrect salary rates used for 6 employees resulting in understatement of $95,232

Property items could not be located

Property listing was not updated

Projects did not always have the quarterly expenditure reports submitted timely

Projects frozen

16 items could not be found totaling $34,345

Equipment purchases totaling $167,143 were not included in the listing

Surplus property not found

Off-campus use forms were not always prepared

Certain contracts were not filed with the State Comptroller

Some contracts were not approved and executed prior to performance of services

Competitive bid not performed on payment of $33,000

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

NEED TO IMPROVE CONTROLS FOR REPORTING ACCRUED COMPENSATED ABSENCES

The University did not have adequate controls in place for identifying and reporting the University’s liability for accrued compensated absences.

Effective January 1, 2008, the University began maintaining its records of employees’ vested vacation and sick time in its new Human Resources (HR) Banner information system. At the end of the fiscal year, the HR department queried the system in order to extract data, which is then used to adjust the accrued compensated absences liability on the University’s financial statements. The HR department does not have procedures in place to ensure the information extracted from the system has been verified and analyzed for accuracy and completeness prior to submission to the Finance department for adjustments in the financial statements.

The liability for accrued compensated absences reported on the University’s financial statements amounted to $10,574,229 at June 30, 2008. Based on our review of the Leave Liability Report (Report), we noted the following errors:

· The June vacation usages of semi-monthly and bi-weekly employees were not included in the Report resulting in an overstatement of the accrued compensated absences liability in the amount of $247,102.

· Vacation leave balances for 21 tenure track faculty members who formerly served as chairpersons were not included in the Report resulting in an understatement of the accrued compensated absences liability in the amount of $262,685

· The Report included non-compensable vacation leave balances for 43 administrative and professional limited employees resulting in an overstatement of the accrued compensated absences liability in the amount of $80,848.

· Twenty-eight (28) employees with compensable vacation leave balances were not included in the Report resulting in an understatement of $102,350 in the accrued compensated absences liability.

· The salary rates used in the calculation of accrued compensated absences for 6 employees did not agree with the current salary rate per personnel appointment form resulting in an understatement of $95,232 in the accrued compensated absences liability.

· Five (5) terminated employees during the year and one provisional employee were included in the Report resulting in an overstatement of $4,016 in the accrued compensated absences liability.

The University was not aware of the errors noted above until the auditors brought the issues to their attention. An adjusting entry of $128,301 was proposed to correct the understated liability associated for the exceptions noted. The University did not adjust the financial statements as the amount was determined not to materially affect the financial statements and the adjustment has been included on the auditor’s schedule of passed adjustments. (Finding 1, Pages 17-18)

We recommended that the University implement adequate internal controls to ensure that financial information is complete and accurate. Specifically, the HR department should verify the information extracted from the system prior to submitting the Report to the auditors for review.

University officials concurred with the finding and stated that they will implement procedures using the new Banner system to ensure the liabilities for compensated absences are complete and accurate.

INADEQUATE CONTROLS OVER UNIVERSITY EQUIPMENT ACQUIRED FROM GRANT FUNDS

The University did not have adequate controls over its equipment acquired from grant funds.

In our physical identification of 40 items from the property records, we noted the following:

· Five (5) items with a total value of $3,110 were not found. There were no investigations conducted for these missing items.

· Two (2) items with a total value of $1,449 assigned off-campus to employees were not supported with Off-Campus Equipment Use Forms.

· Thirteen (13) items with a total value of $12,517 assigned off-campus to employees were not indicated as off-campus in the Property Listing. (Finding 2, Pages 19-21)

We recommended that the University adhere to its procedures to ensure that property records are accurately maintained and updated for the results of periodic physical inventories. Further, the University should improve its controls over off-campus use of property and equipment.

University officials concurred with the finding and stated that they will work with staff to assure that University policies and procedures are adhered to.

REQUIRED FEDERAL REPORTS WERE NOT SUBMITTED TIMELY

The University did not submit the quarterly and final expenditure reports of the 21^st Century Learning Centers as required by Illinois State Board of Education (ISBE). The annual performance reports of other programs were also not timely submitted.

The University is a recipient of the Twenty-First Century Community Learning Center and School Leadership grants from the U.S. Department of Education. The 21^st Century is a grant passed through the Illinois State Board of Education (ISBE).

During our detailed testing of the 21^st Century program, we noted the following:

· For two of the projects associated with this grant, the quarterly expenditure reports were submitted one day late. Additionally, one of those projects final expenditure reports was due on September 28, 2008 and was not submitted as of January 15, 2009 resulting in a delay of at least 109 days in the filing.

· We noted that both projects were frozen. One of the projects owed a refund to ISBE totaling $7,052. The University receives grant money from ISBE based on scheduled payments. The other project was frozen due to the non-submission of the fourth quarter final expenditure report noted above.

In our detailed testing of other programs, we also noted the following submission dates for the annual performance reports:

· The School Leadership programs due date was June 4, 2007 and the performance report was submitted on June 29, 2007 resulting in a delay of 25 days.

· The Trio-Upward Bound programs due date was November 30, 2007 and the performance report was submitted December 18, 2007 resulting in a delay of 18 days. (Finding 3, Pages 22-24)

We recommended that the University comply with all the reporting requirements of its grant agreements and ensure the timely submission of reports. We further recommended that a calendar of reporting deadlines be compiled and monitored by the grant fiscal administrator to ensure compliance.

University officials concurred with the finding and stated that they will strengthen procedures to comply with grant agreements and ensure timely submission of reports.

INADEQUATE CONTROLS OVER UNIVERSITY PROPERTY AND EQUIPMENT

The University did not have adequate controls over its property and equipment.

During the audit we performed various tests on the property records. Some of the items that we noted are summarized in the following paragraphs:

In our physical identification for 80 items in the property records a total of 16 items, with a total value of $34,345, were not found. Further, information in the property records for 38 equipment items tested were not updated. A total of 23 of these items did not have a property change notice form prepared.

In our detailed testing of 60 equipment vouchers, we noted that equipment purchases from 13 vouchers tested, with a total value of $167,143, were not included in the property listing. Further, equipment purchases from October 31, 2007 from 6 vouchers tested, with a total value of $34,344, were not included in the Property Listing as of October 31, 2007.

During our review of surplus equipment as of fiscal year-end, we noted that 24 items with a total value of $372,297 reported in the property listing as surplus were not found.

During our review of University controls over off-campus use of equipment and physical verification of the 25 laptops personally assigned, we noted that off-campus use forms were not prepared for 2 laptops with a total value of $5,381 assigned to employees. Further, the actual user of a laptop valued at $1,851 did not match the user indicated in the Property Listing. (Finding 4, Pages 25-30) (This finding was first reported in 2004)

We recommended the University adhere to its procedures to ensure that the property and equipment records are accurately maintained and updated. Periodic physical inventories should be conducted to ensure existence of equipment, and property records should be updated with the results of the inventory. Also, the University should improve its controls over off-campus use of property and equipment by reviewing the forms submitted by the employees for completeness and accuracy. Further, the University should ensure submission of a complete Inventory of Equipment with DCMS.

University officials concurred with the finding and stated that they will continue to improve adherence to their property control policies and procedures. (For previous University response, see Digest Footnote #1.)

NONCOMPLIANCE WITH REQUIRED CONTRACTING PROCEDURES

The University did not comply with certain required contracting procedures.

Some of the problems noted during our tests of contractual service expenditures follow:

· Nine of 60 contracts tested (15%) were valued at more than $10,000 and were not filed with the Office of the State Comptroller.

· Six of 60 contracts tested (10%), each valued at more than $10,000, were not filed within 15 days of execution. The contracts were filed between 5 to 112 days late.

· Fifteen of 60 contracts tested (25%) totaling $3,743,934 were not approved and executed prior to performance of services. Eight of the 15 contracts pertained to professional services. These contracts were executed 30 to 206 days after the start of services. Late filing affidavits were not filed together with the contracts.

· Eight of contracts (13%) did not have the three signatures required for contracts of $250,000 or more.

· Contracts were not executed for payments for training and ticket purchases covered by 2 purchase orders each valued at more than $10,000.

In our detailed testing of vouchers, we also noted the following:

A contract was not executed for the purchase of printers, imagers, adapters, and USB cables to a single vendor covered by a purchase order amounting to $13,337.

· Payment for rental of rooms, equipment and catering services to a single vendor totaling $33,000 was not competitively bid. (Finding 5, Pages 31-33) (This finding was first reported in 2005)

We recommended the University adhere to its procedures to ensure all contracts over the threshold amounts be reduced to writing and filed with the Office of the State Comptroller in accordance with State statutes and regulations. We also recommended that an Affidavit for Late Filing should be completed for any contract liability not filed within thirty (30) days of execution. Contract requirements and signatures must be observed in all instances.

University officials concurred with the recommendation and stated that they will increase efforts to ensure compliance with University and State contracting procedures, including compliance with Comptroller filing requirements, procedures for Late Filing Affidavits and signature and competitive solicitation procedures. (For previous University response, see Digest Footnote #2.)

OTHER FINDINGS

The remaining findings are reportedly being given attention by the University. We will review the University’s progress toward the implementation of our recommendations in our next audit.

AUDITORS' OPINION

Our auditors stated the University’s financial statements at June 30, 2008 and for the year then ended are fairly presented in all material respects.

___________________________________

WILLIAM G. HOLLAND, Auditor General

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SPECIAL ASSISTANT AUDITORS

Our special assistant auditors were E.C. Ortiz & Co., LLP.

DIGEST FOOTNOTE

#1 INADEQUATE CONTROLS OVER UNIVERSITY PROPERTY AND EQUIPMENT – (Previous University Response)

2007: “The University concurs with the finding and recommendation that we should adhere to our procedures to ensure that the property and equipment records are accurately maintained and updated, that inventory is updated based on periodic inventories, that we ensure that all required reports are submitted in a timely manner ad that Property Control has adequate staff. The University feels that it has made progress since this finding was first reported and will continue those efforts in the coming year.”

#2 NONCOMPLIANCE WITH REQUIRED CONTRACTING PROCEDURES – (Previous University Response)

2007: “The University concurs with the finding and recommendation. We are taking the necessary steps to ensure compliance with all required contracting procedures: filing contracts with the Office of the Comptroller; assuring contract requirements are included; and obtaining required signatures, sole source justifications and disclosure statements.”

WILLIAM G. HOLLAND

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

FY 2007

OPERATING EXPENSES

Operating income (loss).........................................................

NEED TO IMPROVE CONTROLS FOR REPORTING ACCRUED COMPENSATED ABSENCES

OTHER FINDINGS