REPORT DIGEST NORTHEASTERN ILLINOIS UNIVERSITY FINANCIAL AUDIT For the Year Ended June 30, 2014 Release Date: January 29, 2015 FINDINGS THIS AUDIT: 3 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 2 -- 0 -- 2 Category 2: 1 -- 0 -- 1 Category 3: 0 -- 0 -- 0 TOTAL: 3 -- 0 -- 3 FINDINGS LAST AUDIT: 1 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 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 www.auditor.illinois.gov INTRODUCTION This digest covers the Northeastern Illinois University’s Financial Audit as of and for the year ended June 30, 2014. The Northeastern Illinois University’s Compliance Examination (including the Single Audit) covering the year ended June 30, 2014 will be issued at a later date. SYNOPSIS • (14-1) The University has inadequate internal controls over identifying and recording accrued liabilities for financial reporting purposes. • (14-2) The University has not established adequate internal controls over recording the historical cost of capital assets. • (14-3) The University did not properly apply Generally Accepted Accounting Principles in the preparation of its financial statements. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS INADEQUATE CONTROLS OVER IDENTIFYING AND RECORDING ACCRUED LIABILITIES The University has not established adequate internal controls over identifying and recording accrued liabilities for financial reporting purposes. Subsequent to the release of the University’s financial statements for the year ended June 30, 2013, University management determined that expenses and the related liability for employees who had completed contracted services as of June 30, 2013, but had not received final payment for these services, had not been properly recorded. Consequently, University management recorded a prior period adjustment to correct this error. The adjustment reduced unrestricted net position as of June 30, 2013 by $2,832,752 for the unrecorded liability as of that date. (Finding 1, pages 55-56) We recommended the University implement procedures to ensure that all accrued liabilities are properly identified and recorded in the University’s accounting records in order to facilitate accurate financial reporting. The University agreed with our finding. INADEQUATE CONTROLS OVER RECORDING THE HISTORICAL COST OF CAPITAL ASSETS The University has not established adequate internal controls over recording the historical cost of capital assets. Subsequent to the release of the University’s financial statements for the year ended June 30, 2013, University management determined that net interest cost incurred on borrowed funds during the period of construction of capital assets through June 30, 2013 had incorrectly been charged to expense rather than properly capitalized as a component of the cost of acquiring those assets. Consequently, University management recorded a prior period adjustment to correct this error. The adjustment recorded by the University increased net position as of June 30, 2013 by $439,138 for the cumulative capitalized interest costs as of that date. (Finding 2, pages 57-58) We recommended the University implement procedures to ensure that the historical cost of capital assets is properly calculated and recorded in the University’s accounting records in order to facilitate accurate financial reporting. The University agreed with our finding. IMPROVEMENTS NEEDED IN THE PREPARATION OF THE FINANCIAL STATEMENTS The University did not properly apply Generally Accepted Accounting Principles in the preparation of the financial statements. During the audit we noted the following: • In implementing the provisions of Governmental Accounting Standards Board Statement 65 Items Previously Reported as Assets and Liabilities, the University erroneously wrote off premiums and discounts related to outstanding debt obligations totaling $166,954 and $59,699, respectively. • The originally submitted financial statements reflected a negative net position of $738,235 as restricted for capital projects. We proposed audit adjustments to correct the matters described above. University management reviewed, accepted and recorded the proposed adjustments. (Finding 3, pages 59-60) We recommended the University implement procedures to ensure that financial reporting is in accordance with accounting principles generally accepted in the United State of America. The University agreed with the finding. AUDITOR’S OPINION Our auditors state the financial statements of the Northeastern Illinois University as of and for the year ended June 30, 2014 are fairly presented in all material respects. WILLIAM G. HOLLAND Auditor General WGH:TLK SPECIAL ASSISTANT AUDITORS Our Special Assistant Auditors for this audit were CliftonLarsonAllen LLP.