REPORT DIGEST SOUTHERN ILLINOIS UNIVERSITY FINANCIAL AUDIT For the Year Ended: June 30, 2012 Release Date: April 11, 2013 Summary of Findings: Total this audit: 3 Total last audit: 0 Repeated from last audit: 0 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 Southern Illinois University’s financial audit report consists of three sets of financial statements as follows - the financial statements of Southern Illinois University (the “University”); the financial statements of the Housing and Auxiliary Facilities System (HAFS), a segment financial report of the University issued for bondholders; and the Medical Facilities System (MFS), a segment financial report of the University issued for bondholders. This report contains only Government Auditing Standards findings pertaining to the Financial Statement Audit of the University, HAFS and MFS for the year ended June 30, 2012. Those findings are reported in a report under separate cover titled “Reports Required Under Government Auditing Standards”. SYNOPSIS • The University needs to improve controls over financial reporting. • The University needs to improve the process used to estimate the allowance for doubtful accounts. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS NEED TO IMPROVE CONTROLS OVER FINANCIAL REPORTING Southern Illinois University (the University), the Housing and Auxiliary Facilities System (HAFS), and the Medical Facilities System (MFS) need to improve controls over financial reporting. During our audit of the draft financial statements several errors were identified and corrected. Part of the cash and cash equivalents, short-term investments and long-term investments were not properly classified as restricted on the Statement of Net Assets in the current and prior fiscal years. This resulted in reclassifications on the financial statements from unrestricted cash and investments to restricted cash and investments as follows: • On the University financial statements a reclassification of $68,870,186 in fiscal year 2012 and $45,910,047 in fiscal year 2011, • On the HAFS financial statements a reclassification of $66,663,321 for fiscal year 2012 and $43,588,363 for fiscal year 2011, and • On the MFS financial statements a reclassification of $1,712,233 for fiscal year 2012 and $1,353,044 for fiscal year 2011. This also resulted in a reclassification on the University discretely presented component unit’s (University Related Organizations) financial statements of $145,637,820 in fiscal year 2012 from unrestricted cash and investments to restricted cash and investments and of $154,040,969 in fiscal year 2011 from unrestricted cash and investments to restricted cash and investments. (Finding 1, page 5) University officials accepted our recommendation to improve controls over financial reporting to ensure accurate presentation and disclosure of the University’s annual financial statements. NEED TO ENHANCE THE PROCESS TO ESTIMATE ALLOWANCE FOR DOUBTFUL ACCOUNTS The University did not establish an adequate process to estimate the allowance for doubtful accounts for accounts and notes receivable. The Carbondale campus estimated the allowance for doubtful accounts and notes receivables to be $9.4 million (18%) of the gross receivables of $53.7 million and $2.6 million (15%) of notes receivable balance of $17.8 million at June 30, 2012. The allowance was calculated by applying historical percentages to some categories of outstanding receivables based on aging categories and by specific identification for other categories of receivables. For student tuition and fees and auxiliary enterprise receivables the allowance percentages had not changed for several years and the University could not provide auditors with any substantive basis for the percentages used when they were initially requested. Similarly for general operating receivables, the University had difficulty with providing auditors: 1) with a complete aged listing that agreed with the financial statements; and 2) support for the allowances reserved. The auditors requested the University to perform additional analysis on the allowance for doubtful accounts. As a result, the University determined that certain receivables from State agencies totaling $5.0 million at June 30, 2012 and $5.2 million at June 30, 2011 should have had an allowance for doubtful accounts of $2.6 million and $3.1 million, respectively. In addition, the University determined that its Perkins loans were over-reserved by $2.3 million and $2.0 million at June 30, 2012 and 2011, respectively. The University did not record these adjustments because they were not material to the financial statements. (Finding 2, pages 6-7) University officials accepted our recommendation to maintain documentation used to arrive at the accounting estimates for the allowance for doubtful accounts using relevant, sufficient and reliable data in accordance with generally accepted accounting principles. OTHER FINDING The remaining finding pertains to inadequate processes in the valuation of text book services inventory and the University accepted the auditors’ recommendation. We will review the University’s progress towards the implementation of our recommendations in our next engagement. AUDITORS’ OPINION Our auditors stated the financial statements of the University, HAFS and MFS are fairly stated in all material respects. WILLIAM G. HOLLAND Auditor General WGH:JAF:rt SPECIAL ASSISTANT AUDITORS Our special assistant auditors for this audit were CliftonLarsonAllen LLP.