REPORT DIGEST NORTHEASTERN ILLINOIS UNIVERSITY FINANCIAL AUDIT FOR THE YEAR ENDED JUNE 30, 2016 Release Date: February 2, 2017 FINDINGS THIS AUDIT: 3 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 0 -- 0 Category 2: 3 -- 0 -- 3 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 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 INTRODUCTION This digest covers the Northeastern Illinois University’s (University) Financial Audit as of and for the year ended June 30, 2016. The Northeastern Illinois University’s Compliance Examination (including the Single Audit) covering the year ended June 30, 2016 will be issued at a later date. SYNOPSIS • (16-01) The University has not established adequate internal controls over recording of bond issuance costs. • (16-03) The University did not establish an adequate process to evaluate the estimated allowance for doubtful accounts receivable and did not have adequate controls in place to monitor the completion of its construction projects. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS INADEQUATE CONTROLS OVER RECORDING OF BOND ISSUANCE COSTS The University has not established adequate internal controls over recording of bond issuance costs. During fiscal year 2016, the University issued Certificates of Participation (COP) Series 2015 in the amount of $9,510,000 as a result of refunding all the outstanding COP Series 2006. During testing, auditors noted the University incorrectly recorded a bond discount of $201,582, composed of underwriters’ discounts of $152,332 and a bond insurance premium of $49,250. The bond discount is presented as a reduction in COP Series 2015 in the University’s originally submitted financial statements. The University also has recorded an amortization of the bond discount of $20,158 during fiscal year 2016. Further, in fiscal year 2015 when the University issued Revenue Bond Series 2014, the auditors noted that the University also incorrectly recorded a bond discount of $300,020 for Revenue Bond Series 2014, composed of underwriters’ discounts of $266,570 and a bond insurance premium of $33,450. The bond discount is presented as a reduction in Revenue Bond Series 2014 in the University’s prior year financial statements. The University recorded an amortization of bond discount for Revenue Bond Series 2014 of $7,501 and $15,001 in fiscal years 2015 and 2016, respectively. The auditors proposed audit adjustments to correct the matters described above. University management reviewed and accepted the proposed adjustments; however, the University recorded the entire unamortized amount of $458,942 to expense during the current fiscal year since the adjustment to beginning net position and prepaid expenses was determined to be immaterial in relation to the financial statements (Finding 1, pages 65-66). We recommended the University implement procedures to ensure bond related costs are properly identified and recorded in the University’s accounting records in order to facilitate accurate financial reporting. University officials agreed with the recommendation. INADEQUATE CONTROLS OVER ALLOWANCE FOR DOUBTFUL ACCOUNTS AND MONITORING OF CONSTRUCTION PROJECTS The University did not establish an adequate process to evaluate the estimated allowance for doubtful accounts receivable and did not have adequate controls in place to monitor the completion of its construction projects. We noted the following: • The University estimated the allowance for doubtful accounts of the student accounts receivable to be $10,826,833 (60%) of the gross student accounts receivable balance of $18,055,339 at June 30, 2016. The allowance for doubtful accounts was calculated by applying estimated percentages of allowance for doubtful accounts to the outstanding receivables based on aging categories. The University has not recently evaluated its process to determine the reasonableness of the estimated percentages and could not provide auditors with any substantive basis for the percentages used that were available for review. As such, we could not test the information used by management to develop the estimates. • The University’s capital assets as of June 30, 2016 included construction in progress (CIP) account totaling $8,584,892. During our testing, there were 10 CIP projects as of June 30, 2016; however, the University could not provide the percentage of completion for three CIP projects totaling $1,766,623. Although the University provided a listing of CIP projects with accumulated costs incurred as of June 30, 2016, the University could not provide the percentage of completion for said projects (Finding 3, pages 69-71). We recommend the University accumulate relevant, sufficient, and reliable data for analysis and adjust its methodology for calculating the allowance for doubtful accounts, as necessary. We further recommended the University should perform a retrospective review of the estimate developed in the preceding year to determine if the estimate was reasonable based upon actual results in the subsequent period. Lastly, we recommended the University implement procedures to ensure CIP projects are properly and regularly monitored to facilitate accurate financial reporting. University officials agreed with the recommendations. OTHER FINDING The remaining finding pertains to inadequate controls over compliance with University investment policy. We will review the University’s progress towards the implementation of our recommendations in our next audit and examination AUDITOR’S OPINION Our auditors stated the financial statements of Northeastern Illinois University as of and for the year ended June 30, 2016 are fairly presented in all material respects FRANK J. MAUTINO Auditor General FJM:jgr SPECIAL ASSISTANT AUDITORS Our Special Assistant Auditors for this audit were E.C Ortiz & Co., LLP.