REPORT DIGEST
OFFICE OF THE SECRETARY OF STATE
FINANCIAL AUDIT AND COMPLIANCE
EXAMINATION
For the Two Years Ended: June 30, 2009
Summary of Findings:
Total this audit: 8
Total last audit: 6
Repeated from last audit: 4
Release Date: May 13, 2010
State of Illinois
Office of the Auditor General
WILLIAM G. HOLLAND
AUDITOR GENERAL
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SYNOPSIS
• The
Secretary of State did not have adequate review procedures in place to ensure
the Office’s annual financial statements were accurately prepared.
• The
Secretary of State did not have adequate internal controls to ensure accounts
receivable were accurately reported.
• The
Secretary of State did not require its employees to timely attest to the
accuracy of their attendance records in compliance with the State Officials and
Employee Ethics Act.
• The Secretary of State had not assured adequate Office-wide procedures existed for disposal of confidential information.
FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS
LACK OF FINANCIAL REPORTING
REVIEW PROCEDURES
The
Office of the Secretary of State (Office) did not have adequate review
procedures in place to ensure the Office’s annual financial statements were
accurately prepared.
The
Office’s financial statements were adjusted for the following reporting errors
identified by our audit:
• An
adjustment was made to record revenues receivable from the federal government
at June 30, 2009, related to a federal grant program. The amount of the adjustment was $1.086
million.
• A
classification error was identified requiring an adjustment to report the fund
balance totaling $64.275 million, of the State Construction Account, Fund
#0902, as unreserved fund balance rather than unrestricted net assets.
The
errors identified above were an oversight by the Office. Although the Office’s records accurately
accounted for the above noted items, its internal controls did not provide for
detection of the errors by management in its preparation of the Office’s
financial statements. (Finding #1, page
12)
We
recommended the Office continue in its efforts to implement internal control
procedures to assess the risk of material misstatements of the Office’s
financial statements and to identify such misstatements during the financial
statement preparation process.
Secretary
of State’s Office officials accepted the auditor’s recommendation and stated
that it would continue to look for ways to improve internal control procedures
over the preparation and review of its financial statements.
CONTROLS OVER REPORTING ACCOUNTS
RECEIVABLE NEED IMPROVEMENT
The
Office of the Secretary of State (Office) did not have adequate internal
controls to ensure accounts receivable were accurately reported. Also, the Office lacked effective methods of
estimating the uncollectible portion of its accounts receivable.
The
Office’s accounts receivable listing from its Securities Division erroneously
reported a balance of approximately $2.1 million at June 30, 2009 that had
actually been received. In addition, the
method used by the Office to estimate the portion of its accounts receivable
that are not collectible was not adequate to provide for a reasonable estimate.
Office
management stated that the error in its accounts receivable reporting was due
to the oversight of the individual preparing the information and that controls
to identify the error were not adequate.
With regard to the failure to reasonably estimate its uncollectible
accounts receivable, Office management stated that the method applied had been
recommended to them by a consultant several years ago. However, this methodology had not been
reviewed on an annual basis to determine whether it remained valid and
appropriate for the circumstances.
(Finding 2, page 13)
We
recommended the Office implement procedures to ensure the accuracy of its
accounts receivable reporting and annually assess its method of estimation of
uncollectible accounts to provide for reasonable estimates.
Secretary
of State officials accepted the recommendation and stated
they would train fiscal staff responsible for accounts receivable reporting and
develop procedures to ensure the accuracy of its reporting.
NONCOMPLIANCE WITH STATE
OFFICIALS AND EMPLOYEE ETHICS ACT
The
Office of the Secretary of State (Office) did not require its employees to
timely attest to the accuracy of their attendance records in compliance with
the State Officials and Employees Ethics Act (Act).
During
the current examination period, the Office implemented an automated timekeeping
system whereby each department assigns the responsibility of recording
attendance, for each employee in the department, to one timekeeper. However,
employees were required to attest to the accuracy of the attendance records
only on an annual basis.
Office
personnel stated that they had believed the changes implemented during the
current examination period had placed the Office in compliance with the
Act. (Finding #3, page 14) This finding was first reported in 2005.
We
recommended the Secretary of State continue its efforts to comply with the
State Officials and Employees Ethics Act and develop procedures that require
timely attestation from its employees as to the accuracy of their record of
time spent each day on official State business.
Secretary
of State officials accepted our recommendation and
stated they have made many changes to the attendance system to meet the
requirements under the Act. (For the
previous Office response, see Digest Footnote #1)
INADEQUATE PROCEDURES FOR DISPOSAL
OF CONFIDENTIAL INFORMATION
The
Secretary of State (Office) had not assured adequate Office-wide procedures
existed for disposal of confidential information.
Although
the Office had established some policies relating to the security of confidential
information, the Office failed to establish and implement Office-wide
procedures for adequately disposing of confidential information.
We
found informal procedures existed for shredding confidential documentation and
confidential documentation was not always secured prior to disposal. While performing walkthroughs at the Office
we noted the following:
• At
least 8 boxes of driver’s license fee remittance forms containing personal and
confidential information were maintained within a hallway accessible by the
public until they could be removed and disposed.
• Remittances
and unendorsed checks received by the Office, which included persons name,
address, bank routing numbers, etc. were not adequately secured when personnel
left at the close of business.
• A
room containing an incinerator used for disposing some confidential information
was not secured.
Office
personnel stated the rooms are left open for janitorial reasons and are secured
by Office police once the janitors are completed. In addition, personnel believed the boxes
placed in the hallway for disposal would be picked up and shredded within a
reasonable time. (Finding #7, page 19)
We
recommended the Office assess its procedures for safeguarding and subsequent
disposal of all confidential information.
Office-wide procedures for properly disposing confidential information
should be established.
Secretary
of State officials partially accepted this
finding. Officials stated they have
policies and procedures for disposal of confidential information. Also, there is a process in place to monitor
compliance of these policies. Further,
the Office has reviewed its access to the buildings and to areas containing
confidential information and has made changes to limit access to confidential
information where possible.
OTHER FINDINGS
The remaining findings are reportedly being given attention by the Office of the Secretary of State. We will review progress toward implementing all recommendations in our next compliance examination.
AUDITORS' OPINION
Our
auditors stated the financial statements of the Office of the Secretary of
State as of June 30, 2009, and for the year then ended are fairly presented in
all material respects.
WILLIAM G. HOLLAND, Auditor
General
WGH:JAF:pp
SPECIAL ASSISTANT AUDITORS
Sikich LLP were our special assistant
auditors for this audit.
DIGEST FOOTNOTES
#1 NONCOMPLIANCE WITH STATE OFFICIALS AND
EMPLOYEE ETHICS ACT - Previous Office Response
The Secretary of State office has
accepted and has implemented the auditor’s recommendation. The audit period for this finding ended June
30, 2007 at which time the Office of Secretary of State was in the process of
revising the attendance system to reflect the presence of employees at
work. The attendance system, which is
computerized, was revised to require a code of “ED” to be entered on the system
to reflect the presence of the employee on that particular day for the hours
the employee was scheduled to work. If
for some reason the employee took time off, the “ED” time would be altered to
reflect the actual time worked plus identify the type of time the employee took
for his or her absence. The change was
made in direct relation to the audit finding requiring time to be kept in a
positive manner.
In addition, it should be noted
that for some time the Office of the Secretary of State has had employees keep
their time, reporting his or her attendance on any given day. Specifically, almost two-thirds of Secretary
of State employees are subject to an attendance
mechanism in addition to the computerized attendance process that all employees
use. Such mechanisms are varied and
include but are not limited to time clocks, to signing in and out on computer
programs and paper signed in and out sheets.
The information is then stored by the employee’s specific SOS
department. These mechanisms were in
place during the relevant audit period.
Therefore, the Secretary of State
through the particular department processes and through the revisions to the
computerized attendance system now meets the reporting requirements of the
Act.