REPORT DIGEST

REPORT DIGEST

NORTHERN ILLINOIS UNIVERSITY

COMPLIANCE EXAMINATION

(In accordance with the
Federal Single Audit Act and OMB Circular A-133)

For the Year Ended:

June 30, 2006

Summary of Findings:

Total this audit 4

Total last audit 8

Repeated from last audit 2

Release Date:

March 8, 2007

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

http://www.state.il.us/auditor

SYNOPSIS

· The University’s procedures for financial statement preparation and review did not identify errors in the following areas: cash, accounts payable, accrued payroll, accrued interest payable and expenses.

· The University does not have an adequate system in place to ensure capital asset purchases are recorded in the proper accounting period for financial statement purposes.

· The University did not require all employees to submit time sheets as required by the State Officials and Employees Ethics Act.

{Expenditures and Activity Measures are summarized on the next page.}

NORTHERN ILLINOIS UNIVERSITY

COMPLIANCE EXAMINATION

For The Year Ended June 30, 2006

COMPARATIVE SCHEDULE OF INCOME FUND REVENUES AND EXPENSES	FY 2006	FY 2005
INCOME FUND REVENUES Tuition, net of waivers................................................................................... Material fees.................................................................................................... Extension............................................................................................................ Interest income................................................................................................ Other................................................................................................................. Total Income Fund Revenues...................................................................... INCOME FUND EXPENSES Personal services............................................................................................ FICA/Medicare................................................................................................ Contractual services....................................................................................... Travel................................................................................................................ Commodities.................................................................................................... Award/grants and matching funds.............................................................. Equipment and library books........................................................................ Telecommunications........................................................................................ Automotive...................................................................................................... Capital repairs and permanent improvements............................................. CMS health insurance.................................................................................... Unemployment compensation benefits....................................................... Total Income Fund Expenses......................................................................	$90,350,856 5,290,947 5,025,919 1,718,248 1,053,854 $103,439,824 $58,246,785 1,452,603 20,548,519 1,084,272 1,971,448 2,533,050 2,013,070 1,269,631 185,173 13,088,449 1,204,000 28,839 $103,625,839	$82,937,826 5,267,623 5,136,773 808,444 986,354 $95,137,020 $52,282,362 1,726,596 15,115,961 989,173 1,250,964 2,736,431 5,093,530 479,236 133,417 2,445,977 1,204,000 38,344 $83,495,991
SUPPLEMENTARY INFORMATION (Unaudited)	FY 2006	FY 2005
Employment Statistics Appropriated and Nonappropriated funds: Faculty/administrative.................................................................................... Civil service...................................................................................................... Student employees......................................................................................... Miscellaneous contracts................................................................................ Total Employees............................................................................................ Selected Activity Measures Fall semester enrollment – Undergraduate.................................................... Fall semester enrollment – Graduate.............................................................. Fall semester enrollment – Professional........................................................	2,187 1,453 533 148 4,321 16,768 3,077 415	2,161 1,455 515 132 4,263 16,338 3,119 400
UNIVERSITY PRESIDENT
During Audit Period and Currently: Dr. John G. Peters

Incorrect reconciling items with some of the amounts in excess of $2 million

Errors in accrued interest payable and interest expense totaling $991,000

Capital assets were not recorded in the correct fiscal year

Noncompliance with State Officials and Employees Ethics Act

Negative time keeping system used by some employees

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

NEED TO IMPROVE FINANCIAL STATEMENT PREPARATION PRACTICES

The University’s procedures for financial statement preparation and review did not identify errors in the following areas: cash, accounts payable, accrued payroll, accrued interest payable and expenses.

During our testing of bank reconciliations, we noted several incorrect reconciling items with some of the amounts in excess of $2 million. The net effect to cash of these items was approximately $204,000 with the offset to accounts payable and accrued liabilities. During our testing of accrued interest payable and interest expense, we also noted errors that resulted in an entry to increase accrued interest payable and interest expense by $991,000. (Finding 1, page 11)

We recommended that the University implement procedures to ensure that the financial statements and underlying reconciliations are reviewed to verify all items are accurately reported.

University officials agreed with the finding and stated that they have made changes in the bank reconciliation process to eliminate the potential for misstatement.

CAPITAL ASSET REPORTING NEEDS IMPROVEMENT

The University does not have an adequate system in place to ensure capital asset purchases are recorded in the proper accounting period for financial statement purposes.

During our testing of capital asset additions for financial reporting purposes, we noted that $1,280,244 of the 2006 additions were actually purchased and expensed in fiscal year 2005. This caused the capital assets to be understated as of June 30, 2005 and expenses to be overstated for fiscal year 2005. Further, capitalizing these items in fiscal year 2006 caused certain financial reporting issues. Also, we noted that approximately $664,023 of 2006 additions were expensed rather than capitalized causing the capital assets as of June 30, 2006 to be understated and the fiscal year 2006 expenses to be overstated. (Finding 2, Page 12)

We recommended that the University record capital assets in the period in which they are purchased and received in accordance with accounting principles generally accepted in the United States of America.

University officials agreed with the finding and stated that they are in the process of modifying their fixed asset system to comply.

TIME SHEETS NOT REQUIRED

The University did not require all employees to submit time sheets as required by the State Officials and Employees Ethics Act.

The Act requires the University to adopt personnel policies consistent with the Act. The Act (5 ILCS 430/5-5 (c)) further states, “The policies shall require State employees to periodically submit time sheets documenting the time spent each day on official State business to the nearest quarter hour.”

We noted certain categories of the University’s employees did not submit time sheets in compliance with the Act. We tested a sample of 25 University employees during the year. The sample included 14 hourly employees and 11 salaried employees which included faculty and administrative staff. Except for hourly employees who do use timecards, employees’ time is tracked using the University’s payroll system, which is a “negative” timekeeping system whereby the employee is assumed to be working unless noted otherwise. No time sheets documenting the time spent each day on official State business to the nearest quarter hour are maintained for these employees. (Finding 4, Page 14)

We recommended the University amend its policies to require all employees to submit time sheets in compliance with the Act.

The University stated that the issue of supplemental time sheet formats/procedures is under review by University staff. Several work activity record requirements already exist and these are under review to determine the feasibility of utilizing these same or modified procedures to address the finding and to assure compliance with the Act.

OTHER FINDING

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

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

AUDITORS' OPINION

Our auditors stated the University’s financial statements at June 30, 2006 and for the year then ended are fairly presented in all material respects.

___________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:TLK:pp

SPECIAL ASSISTANT AUDITORS

Our special assistant auditors were Clifton Gunderson LLP.

COMPARATIVE SCHEDULE OF INCOME FUND REVENUES AND EXPENSES

FY 2006

UNIVERSITY PRESIDENT

NEED TO IMPROVE FINANCIAL STATEMENT PREPARATION PRACTICES

OTHER FINDING