REPORT DIGEST OFFICE OF THE SECRETARY OF STATE COMPLIANCE AUDIT Summary of Findings: Total this audit 14 Release Date: State of Illinois WILLIAM G. HOLLAND AUDITOR GENERAL To obtain a copy of the Report contact: (217)782-6046 or TDD (217) 524-4646 This Report Digest is also available on |
SYNOPSIS
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SECRETARY OF STATE
FINANCIAL AND COMPLIANCE AUDIT
For The Two Years Ended June 30, 2001
RECEIPT/EXPENDITURE STATISTICS | FY 2001 |
FY 2000 |
$1,690,883,079 |
$1,496,678,184 |
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Total Expenditures (All Funds) | $519,955,343 |
$483,262,290 |
OPERATIONS |
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3,587 |
Other Payroll Costs (FICA, Retirement) |
$24,925,127 |
$22,377,793 |
Contractual Services |
$35,192,042 |
$30,257,386 |
All Other Operations Items |
$59,767,182 |
$54,922,846 |
AWARDS AND GRANTS TOTAL |
$239,787,582 |
$235,653,673 |
REFUNDS & PERMANENT IMPROVEMENTS - TOTAL |
$13,323,125 |
$5,686,804 1.2% |
$392,607,102 |
$373,007,481 |
FISCAL YEAR |
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SELECTED ACTIVITY MEASURES | 2001 |
2000 |
7,957,960 |
7,037,175 |
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1,994,806 |
2,539,994 |
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2,405,208 |
3,053,591 |
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4,750,640 |
4,218,323 |
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319,271 |
312,815 |
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$81.2 |
$102.1 |
AGENCY HEAD(S) |
During Audit Period: Honorable Jesse White |
Utility bills are prepaid months in advance
Need to review vehicle installment payment procedures
Facility property control procedures need to be enhanced
Major information system changes not reviewed
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FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS INADEQUATE CASH MANAGEMENT PROCEDURES - PREPAYMENT OF UTILITY BILLS The Secretary of State does not have a formalized system for managing utility bill payments, resulting in the prepayment of utility bills of up to $1.8 million during fiscal years 2000 and 2001. The Secretary of State pays for utility usage at the Capitol Complex and at several of its Springfield locations on a level payment plan. During our review of 16 level payment accounts, we noted that the Secretary of State was prepaying its level payment plan utility bills several months in advance, thus carrying a significant prepaid balance during most of both fiscal years. As of January 15, 2001, the Secretary of State had a prepaid balance of over $1.8 million for these 16 accounts, with $1.7 million coming from just three of these accounts. For each of these three major accounts, the Secretary of State paid six monthly payments in September - October, 2000, and five monthly payments in January 2001. Good business practice would require the Secretary of State to maintain a cash management system to ensure payments are made in a timely manner, and not sooner or later than required. When the Secretary of State pays its level payment plan utility bills in advance, the State in effect loses the interest it could have earned on the prepaid balance. Using a 4% interest rate, we computed the State lost approximately $20,000 in interest in fiscal year 2001 alone by not managing the utility bill payments. (Finding 1, pages 16-17) We recommended the Secretary of State implement cash management procedures to pay its utility bills in a timely manner, soon enough to ensure continued service, and in a manner that avoids large prepaid balances and a loss of interest to the State. Agency officials responded that they accepted our recommendation and stated the Secretary of State will process vouchers for utility payments in the term or near term for which they are due to comply with proper cash management procedures. CERTIFICATES OF DEPOSIT IN EXCESS OF FDIC COVERAGE The Secretary of State accepted certificates of deposit with balances that exceeded the $100,000 Federal Deposit Insurance Corporation (FDIC) coverage. The Office is accepting certificates of deposit as guarantees of future installment payments. These certificates of deposit are accepted as security from vehicle owners who elect to pay the flat weight tax in semi-annual installments as provided by the Illinois Vehicle Code. These securities are to be deposited with the State Treasurer and have a current market value in the amount payable to the State of Illinois to guarantee the second tax installment payment. Large trucking companies often pay the flat weight tax for a large number of vehicles and guarantee the second semi-annual installment with a large-value certificate of deposit. At June 30, 2001, certificates of deposit totaled $4,305,602, with amounts exceeding FDIC insurance coverage by $1,931,740. If a certificate of deposit exceeds the federally insured threshold of $100,000, it leaves the State vulnerable should the financial institution at which the certificate is held dissolve or become unable to redeem the certificate. (Finding 2, pages 18-19) We recommended the Secretary of State only accept surety bonds or certificates of deposit that are fully collateralized or insured in order to avoid unnecessary exposure for the State. Agency officials accepted our recommendation and stated they will inform all applicants who intend to utilize the installment option of the new requirements for certificates of deposits used for collateral for the second installment payment, including the acceptance of only certificates of deposit not exceeding $100,000 per financial institution. INADEQUATE PROPERTY RECORDS AT DRIVER SERVICES AND MOTOR VEHICLE FACILITIES The Secretary of State did not maintain adequate property records for a sample of driver services and motor vehicle facilities tested. During our audit, we performed testing at five driver services and motor vehicle facilities as follows: Jacksonville, Chicago East, Chicago Central, Chicago South, and Chicago Heights. We selected a sample of 50 property items listed on the most recent property control report and noted that 11 of the 50 items (22%) could not be located or were found at different locations. These items included a computer, a printer, scanners, and a three panel display. We selected an additional sample of 60 property items located at the facilities to trace back to the property control listings. We noted that 15 of the 60 items selected (25%) - including scanners, printers, a vision tester, a validator, a vacuum cleaner, a floor scrubber, and a snow blower - were not included on the listing. The facilities have a responsibility to ensure all appropriate paperwork is received and that property records are up-to-date and accurate as required by the State Property Control Act. Inadequate property control records increase the likelihood of misappropriation of State assets. (Finding 3, pages 20-21) We recommended the Secretary of State appoint property coordinators at each facility and assign those coordinators the responsibility of ensuring that property records are properly maintained at all times. Agency officials responded that they accepted our recommendation and stated that all discrepancies noted have been corrected. All driver and motor vehicle facilities have personnel designated by the appropriate department director to ensure that property control records are properly maintained at all times. LACK OF INTERNAL AUDIT REVIEW OF MAJOR INFORMATION SYSTEM CHANGES The Secretary of State completed several major system development and modification projects during the audit period, including:
The Internal Audit Department did not actively participate in these projects, as mandated by the Fiscal Control and Internal Auditing Act. Failure to perform adequate reviews of new systems or major system modifications is a violation of the Act and could lead to material deficiencies in the Office's information systems environment. (Finding 6, pages 26-27) We recommended the Secretary of State Internal Audit Department conduct detailed reviews of significant system development and modification projects as required by statute. Agency officials accepted our recommendation and stated that the Internal Audit Department will establish a new system of reviews of all major system changes with the Department of Information Technology. This will ensure that information systems control and reviews and audits will be conducted during the annual audit cycle. OTHER FINDINGS The remaining findings were less significant and are reportedly being given attention by the Office of the Secretary of State. We will review progress toward implementing all recommendations in our next audit. Agency responses to the findings were provided by Mr. Al DiSilvestro, Chief Internal Auditor for the Office of the Secretary of State. AUDITORS' OPINION Our auditors stated the financial statements of the Office of the Secretary of State as of June 30, 2001, and for the year then ended are fairly presented in all material respects. ___________________________________ WILLIAM G. HOLLAND, Auditor General WGH:KMM:pp SPECIAL ASSISTANT AUDITORS Our special assistant auditors for this audit were Sikich Gardner & Co, LLP. |