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INTRODUCTION
Our 2004 audit and examination of the University of Illinois
is presented in three reports. The
financial part consists of two reports which include the various financial
statements of the University and other supplementary information. The Compliance Examination report
contains the compliance findings disclosed by our tests.
FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS
NEED TO IMPROVE BANK
RECONCILIATION PROCESS
The University had numerous reconciling items on a
student loan collection account that were left unresolved and a payroll bank
account was not reconciled on a timely basis. The fiscal year end bank account reconciliation for the student
loan collection account contained several reconciling items with a net value
of $2,079,478. These reconciling
items should have triggered adjustments to the accounting system. Instead they were carried forward as
reconciling items from month to month, with items dating back to July
2003. In addition, the fiscal year
end consolidated payroll account reconciliation with a book balance of
($6,605,640) was not reconciled until September 2004.
Effective internal control policies require all transactions
be recorded in the accounting system in a timely manner and bank account
reconciliations be performed and reviewed on a timely basis. Failure to do so may result in inaccurate
financial statement information and may mislead management in analyzing cash
flow and cash availability of the University. (Finding 1, page 10)
We recommended the University research and resolve all
reconciling items on a timely basis.
Further, the University should establish procedures to review
reconciliations in a timely manner to ensure they are being performed on a
timely basis and to assist in resolving reconciling items as they occur.
University officials concurred and stated University staff
have identified the procedural problems that created the reconciling items on
the student loan collection account and implemented new procedures to
accurately post all transactions.
Further, procedures are in place that require timely reconciliation of
all bank accounts and the subsequent resolution of all reconciling items.
NEED TO RECORD GIFTS ON A
TIMELY BASIS
University personnel did not record a land donation on a
timely basis. We noted a $2,400,000
land gift to the University, which occurred in fiscal year 2002, was not
recorded on the University's accounting system until fiscal year 2004.
Generally accepted accounting principles require that gifts
in kind be recorded at fair market value on the date of the transfer of
economic benefit. According to
University management, the failure to record the land donation in the
appropriate fiscal year was due to untimely filing of supporting information
which was an oversight. Failure to
properly record gifts on a timely basis results in inaccurate financial
statement information being reported.
(Finding 2, page 11)
University officials concurred with our finding and stated
the Real Estate Planning and Services Offices understand the requirements for
timely recording of all acquisitions of real estate and will coordinate their
efforts with Accounting to ensure timely recording of real estate gifts and
other acquisitions.
NONCOMPLIANCE WITH FEDERAL
GRANT AGREEMENT
Statements of Appointments were not completed properly as
required by a federal grant agreement.
The Department of Health and Human Services (DHHS) requires the
completion of a Statement of Appointment Trainee form for each trainee
receiving grant support. The form
must be completed and submitted within 30 days of the appointment.
We reviewed the Statements of Appointment for all students
included in the University's November 19, 2003 report submitted to the
Centers for Disease Control and Prevention, DHHS. Of the 49 students required to file a Statement of Appointment
form, we noted 25 students did not have a form completed and 20 students did
not have a form completed timely.
Failure to comply with federal requirements could jeopardize
future funding. (Finding 3, pages
12-13) This finding was first
reported in 2003.
We recommended the University follow through with the
procedures developed to ensure that all Statements of Appointment follow the
guidelines set by the federal grant.
University officials concurred and stated they will continue
to follow up to ensure adherence to grant guidelines. (For previous University response, see
Digest Footnote #1.)
OPERATION OF UNAUTHORIZED
STOREROOM
The biochemistry department was operating a storeroom that
was not approved by the University and was not following University policies
and procedures.
In June 2003, the University was notified of the unauthorized
storeroom which had different procedures for the biochemistry department and
other non-biochemistry departments.
We analyzed the procedures separately for the fiscal years ended June
30, 2001 through June 30, 2004.
For the non-biochemistry departments, the storeroom manager
would accumulate the total dollar amount of items removed from the storeroom
by department, charge them a 15% mark-up, and prepare an internal billing
sheet for the individual departments.
Based upon the financial information provided by the University, the
questioned costs are the 15% mark-up and the indirect costs associated to
those mark-ups which total $192,796.
The process used by the storeroom for biochemistry staff was
to maintain a handwritten log of storeroom activity by principal investigator. Purchases made to stock the storeroom were
recorded as an expense by grant in the University's accounting system;
however, items signed out from the storeroom were recorded in the handwritten
log and not entered into the University's accounting system. We compared the accounting system charges
per principal investigator to the handwritten log and the indirect costs
related to these charges. Potential
questioned costs for biochemistry staff use of the storeroom ranged from
$32,741 to $275,566.
University policies require approval from proper officials
prior to creating a storeroom, using proper accounting controls, and
following the University's established policies and procedures manual. According to University personnel, the
storeroom was started to allow greater purchasing power by buying in
bulk. The storeroom had been
operating for over 10 years but was shut down effective July 1, 2003. (Finding 4, pages 14-16)
We recommended the University review their current accounting
policies and procedures related to storerooms, provide training to ensure
departments are following the policies and procedures correctly, and
determine if any other unauthorized storerooms may be operating. The University should report the
unauthorized storeroom financial information to the affected federal agencies
and return any documented questioned costs.
University officials concurred with our recommendation but
stated their calculation of questioned costs is $32,741. They indicated that costs to operate the
storeroom, charges for supplies and related indirect costs should be
allowable.
In an auditor's comment it was noted that we did not consider
the operating costs of the storeroom as a reduction of questioned costs since
the storeroom was not authorized by the University. We continued to recommend the University work with the
applicable federal agencies to reach an agreement on the amount of the
questioned costs.
NEED TO PREPARE REAL ESTATE
LEASES IN ACCORDANCE WITH GUIDELINES
The University's real estate leases were not all prepared in
accordance with guidelines nor were they all filed with the State Comptroller
on a timely basis.
We examined 25 real estate leases from all areas of the
University and noted that 15 leases were not filed with the State Comptroller
on a timely basis. The leases were
filed from 3 months to 21 months late.
We also noted that several leases:
were executed after the lease term began; did not contain an option to
purchase the building; did not include the Real Estate Ownership Disclosure;
did not include the FEIN, TIN or Legal Status Disclosure; did not include the
Environmental Barriers Act/Handicapped Accessibility Disclosure; or did not
include a certification that the lessor is not barred from contracting with
State agencies due to violations of the Environmental Protection Act.
Requirements for the preparation and filing of real estate
leases can be found in the Illinois Procurement Code, the Statewide
Accounting Management System and the University's Business and Financial Policies
and Procedures. (Finding 5, pages
17-18) This finding was first
reported in 2003.
We recommended the University implement appropriate
procedures to ensure all appropriate clauses and certifications are obtained
prior to execution for all real estate leases and that they be filed with the
State Comptroller as required by State guidelines.
University officials concurred and stated they have taken
steps to ensure compliance. (For the
previous University response, see Digest Footnote #2.)
OTHER FINDINGS
The remaining findings
are less significant and are being addressed by University management. We will review the University's progress
toward the implementation of our recommendations in our next examination. University responses were provided by
Kathe Shinham, Assistant Vice President for Business and Finance at
Urbana-Champaign.
AUDITORS’ OPINION
The financial audit report contains four sets of financial
statements in the Annual Financial Report; and the revenue bond
financial statements of the Auxiliary Facilities System, the Willard
Airport Facility, and the Health Services Facilities System.
Our auditors state the June 30, 2004 financial statements are
fairly presented in all material respects.
_____________________________________
WILLIAM
G. HOLLAND, Auditor General
WGH:KMA:pp
SPECIAL ASSISTANT AUDITORS
Clifton Gunderson LLP were our special assistant auditors.
DIGEST FOOTNOTES
#1 - NONCOMPLIANCE WITH FEDERAL GRANT AGREEMENT - Previous University
Response
2003: We
concur. An oversight committee has
been established within the School of Public Health to examine all
administrative requirements under the program to ensure overall compliance
and to upgrade internal processes and communication.
#2 - NEED TO PREPARE REAL ESTATE LEASES IN ACCORDANCE WITH GUIDELINES
- Previous University Response
2003: We
agree. The University's Real Estate
offices will implement enhanced procedures to ensure appropriate and
consistent state clauses and certifications are included in all real estate
lease agreements. We will continue to
take steps to improve staff review of lease agreements to assure documents
are completed and in full compliance.
We will implement procedures to ensure that all existing real estate
leases in excess of $10,000 have been filed with the Comptroller's Office in
accordance with state guidelines.
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