The University did not properly account for the transactions related to four performance contracts in the financial statements submitted with the GAAP Package to the State Comptroller.

The University entered into multiple performance contracts for the installation of energy conservation measures and related upgrades at various University buildings. The contracts included installment agreements to pay the contractor for the costs of the project. The contracts also include a performance guarantee agreement where the contractor undertakes to reimburse the University for the difference between the total guaranteed savings and the actual savings realized over the installment period.

All of the projects have been completed and the University has title to the energy conservation measures and responsibility for their operations and maintenance. The total installment payments (principal and interest) made on these contracts were recognized as remodeling and renovation expenses when paid. However, generally accepted accounting principles required the University to capitalize the total costs of the project and depreciate the underlying improvements.

The initial financial statements reflected approximate understatements of the following accounts: assets, $5,967,611, liabilities, $5,825,478, and net assets by $141,833. Upon being notified by the auditors of the reporting and recording issues, the University submitted a revised GAAP package and financial statement to reflect the proper accounting of the performance contracts.

We recommended the University establish procedures to ensure that contracts, that include special terms and conditions, be carefully reviewed for proper accounting and recognition of related transactions. If necessary, accounting and reporting guidance should be obtained from technical resources to be in conformity with generally accepted accounting principles. (Finding 1, pages 19-21)

University officials concurred with our recommendation and stated that the GAAP filing and financial statement presentation was adjusted to conform to the proper presentation and recognition for these transactions.

The University did not deposit receipts in a timely manner.

During our testing of University cash receipts, we noted that the Bursar’s office deposited seven out of the 25 receipt batches tested, totaling $201,977, two to four days after the departmental deposit receipt date. We noted that three departments do not date stamp the supporting receipt documents nor maintain a copy of the check received. Lastly, we noted some departments did not deposit receipts with the Bursar’s office timely. Receipts totaling $92,287 were deposited 1 to 60 days after receipt.

University Procedure No. 5-1 states that receipts are to be deposited daily with the Bursar’s Office or an authorized depository bank. If the volume of receipts does not warrant a daily deposit, receipts should be deposited no later than five days after receipt or when they amount to $500, whichever comes first.

We recommended that the University establish procedures to review the timeliness of deposits and transmittals from the different receiving departments. Departments should be required to maintain supporting documents for the receipt items and indicate, via a date stamp, the actual date of the cash receipt. (Finding 4, Pages 26-27)

University officials agreed with our finding and stated that the Controller’s Office will remind all departments of their responsibility to make deposits on a timely basis.

The remaining findings and recommendations were less significant and reportedly are being given attention by

University management. We will review progress toward implementation of our recommendations during our next audit.

University responses were provided by Mr. Keith Jackson, Controller.

Our auditors stated the financial statements of Northern Illinois University as of June 30, 2003, and for the year then ended, are fairly presented in all material respects.

____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:TLK:pp

Our special assistant auditors for this audit were The Bronner Group.