REPORT DIGEST

 

UNIVERSITY OF ILLINOIS

 

FINANCIAL AUDIT

For the Year Ended:

June 30, 2007

 

 

 

 

 

Release Date:

February 26, 2008

 

 

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 the Full Report are available on

the worldwide web at

http://www.auditor.illinois.gov

 

 

 

 

INTRODUCTION

 

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.

 

This report contains only findings pertaining to the Financial Statement audit.

 

Findings related to the State Compliance and Federal Single Audit will be issued at a later date.

 

SYNOPSIS

(of Financial Statement Findings)

 

·        University policies for monitoring and reporting budget deficits and for limitations on transfers were ineffective or not complied with resulting in a utilities budget deficit of $117.6 million as of June 30, 2007.

 

·        Significant control over University utility operations was with one individual.

 

·        The University did not have adequate controls in place for identifying and reporting the University’s liability for accrued compensated absences.

 

·        The University has not recorded certain exchange transactions in their financial records or reported them in their financial statements.

 

 

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


UNIVERSITY OF ILLINOIS

FINANCIAL AUDIT

For The Year Ended June 30, 2007

 

FINANCIAL OPERATIONS

FY 2007

FY 2006

OPERATING REVENUES

 

 

        Tuition and fees, net..........................................................

                    $608,780,000

                    $554,856,000

        Federal grants, contracts and appropriations................

                      604,164,000

                      608,949,000

        State and private gifts, grants and contracts.................

                      197,592,000

                      176,805,000

        Hospital and medical activities.........................................

                      568,514,000

                      549,742,000

        Auxiliary enterprises, net...................................................

                      304,094,000

                      282,321,000

        Educational activities.........................................................

                      215,348,000

                      197,089,000

        Other.....................................................................................

                      129,537,000

                      120,546,000

                Total Operating Revenues........................................

                 $2,628,029,000

                 $2,490,308,000

OPERATING EXPENSES

 

 

        Instruction...........................................................................

                    $703,540,000

                    $666,200,000

        Research...............................................................................

                      561,876,000

                      556,874,000

        Public service......................................................................

                      326,348,000

                      300,990,000

        Academic support..............................................................

                      236,561,000

                      218,043,000

        Hospital and medical activities.........................................

                      431,762,000

                      406,466,000

        Auxiliary enterprises..........................................................

                      234,751,000

                      229,935,000

        On behalf payments for fringe benefits...........................

                      376,657,000

                      327,927,000

        Operation and maintenance of plant................................

                      218,028,000

                      229,038,000

        Institutional support..........................................................

                      167,172,000

                      150,572,000

        Depreciation........................................................................

                      191,679,000

                      185,105,000

        Scholarships and fellowships...........................................

                      198,016,000

                      185,155,000

        Other.....................................................................................

                        98,397,000

                        92,295,000

                Total Operating Expenses.........................................

                 $3,744,787,000

                 $3,548,600,000

Operating Income (Loss)...........................................................

            $(1,116,758,000)

            $(1,058,292,000)

NONOPERATING REVENUES (EXPENSES)

 

 

        State appropriations...........................................................

                    $665,752,000

                    $655,521,000

        Capital appropriations, gifts and grants..........................

                        20,828,000

                        65,600,000

        Private gifts and endowments..........................................

                      128,852,000

                      116,319,000

        On behalf payments for fringe benefits...........................

                      305,047,000

                      266,706,000

        Other, net.............................................................................

                        42,150,000

                        15,047,000

INCREASE IN NET ASSETS...................................................

                      $45,871,000

                      $60,901,000

Net assets, beginning of year...................................................

                   2,369,985,000

                   2,309,084,000

Net assets, end of year..............................................................

                 $2,415,856,000

                 $2,369,985,000

SUMMARY – STATEMENT OF NET ASSETS

June 30, 2007

June 30, 2006

Current Assets............................................................................

Noncurrent Assets.....................................................................

        Total Assets........................................................................

Current Liabilities........................................................................

Noncurrent Liabilities.................................................................

        Total Liabilities....................................................................

        Total Net Assets.................................................................

        Total Liabilities and Net Assets.......................................

$1,107,822,000

3,775,826,000

$4,883,648,000

$634,395,000

1,833,397,000

$2,467,792,000

2,415,856,000

$4,883,648,000

$873,666,000

3,663,421,000

$4,537,087,000

$570,946,000

1,596,656,000

$1,167,102,000

2,369,985,000

$4,537,087,000

UNIVERSITY PRESIDENT

 

 

During Audit Period: Dr. B. Joseph White

Currently:  Dr. B. Joseph White

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Monitoring and reporting utility budget deficits were ineffective

 

 

 

 


Need to assign responsibility for reporting budget deficits

 

 

 

 

Some reports were not prepared as required by policy

 

 


Deficits were not discussed with the Board of trustees

 

 

 

 Policy guidance to the Board of Trustees is currently not sufficient

 

 

 

The accounting for utility expenditures is excessively complex

 

 

 

 

 

 

 

 

 

 

 

 

University officials agree with auditors

 

 

 

 

 

 

 

 

 

 


Need to segregate duties

 

 


Failure to communicate with the Board of Trustees and the President

 

 

 

 

 

 

 

 

 

 

 

 

University officials agree with auditors

 

 

 

 

 

 

 

 

 


Inadequate controls over accrued compensated absences

 

 

 


No procedure in place to ensure that raw data was verified

 

 

 

 

 

 


The accrual for 750 employees was understated by $1,870,288

 

 

 

 

 

 

 

 

 

 

 


University officials agree with auditors

 

 

 

 

 

 

Lack of controls over reporting exchange transactions

 

 


Transactions were not reduced to writing and were not accounted for in the financial records

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

University officials agree with auditors

 

 

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

NEED TO IMPROVE INTERNAL CONTROLS OVER UTILITIES

 

      University policies for monitoring and reporting budget deficits and for limitations on transfers were ineffective or not complied with resulting in a utilities budget deficit of $117.6 million as of June 30, 2007.

 

      During the audit we noted the following issues:

 

¨      The University does not have a policy in place to assign responsibility for reporting budget deficits to specific individuals for activities that cross campuses and the University Administration (UA) accounts.

 

¨      The current policy expectations for the Board of Trustees (BOT) include quarterly reporting of budget versus actual spending at the University-wide “object” level, which does not highlight utility results.  The fourth quarter Comptroller Reports that should have highlighted the deficits: 1) were not prepared as required by policy, and 2) were not discussed with or presented to the BOT in a way that would highlight the results of utilities.  Consequently, this deficit continued to build annually beginning in fiscal year 2004, to a deficit of $117.6 million as of June 30, 2007.

 

¨      The current BOT policy does not provide sufficient guidance on when BOT approval is required for transfers between State funds and other unrestricted funds.

 

¨      The University’s accounting for utilities expenditures is excessively complex.  The account structure is spread across all campuses and UA.  Further, neither the Executive Summary Letter, nor the college level reports, required annually for the reporting to the President, included this deficit.  (Finding 1, Pages 7-8)

 

      We recommended that the Business and Financial Administration Manual and BOT policies, respectively, be revised to include a policy for comparison of budget and actual expenditures and for annual budget deficit elimination for activities that cross campuses and UA, and to clearly indicate whether the limitation on transfers is cumulative.  We further recommended that University management simplify the accounting and reporting for utilities, and any other activities, if any, that cross campuses and UA.

 

      University officials accepted our recommendation and stated that they will revise the budget oversight policies referenced in the finding. The revised policies will more clearly define University-wide budgetary authority and reporting requirements.

 

 

INADEQUATE SEGREGATION OF DUTIES OVER UTILITY OPERATIONS

 

      Significant control over the University utility operations was with one individual.

 

      The President of Prairieland Energy, Inc. (a University Related Organization) was also the Associate Vice President for Facilities Planning and Programs of the University.  These two roles vested the responsibility for all utility accounting, reporting, rate setting, budgeting, and approval activities in the same individual.  The individual’s supervisor also did not communicate significant utility deficits to the University Board of Trustees (BOT) or the President of the University. 

 

      Inadequate segregation of duties along with insufficient oversight resulted in a failure to communicate the overspending and unfavorable budget variances to University management and the BOT. (Finding 2, Page 9)

 

      We recommended that the University review the organizational structure for utility operations and make appropriate revisions to establish an adequate segregation of duties and enhance management oversight.

 

      University officials accepted our recommendation and stated that they have reviewed the organization and staffing of utility operations and that a revised organization chart has been established.  The new organization structure includes a finance and administrative position that will improve segregation of duties.

 

LACK OF CONTROLS FOR REPORTING ACCRUED COMPENSATED ABSENCES

 

      The University did not have adequate controls in place for identifying and reporting the University’s liability for accrued compensated absences.

 

      The University maintains its records of employees’ vested vacation and sick time on its Banner information system.  At the end of each fiscal year, the University queries the system in order to extract data, which is then used to adjust the accrued compensated absence liability on the University’s financial statements.  The University performs certain calculations of the raw data prior to making the adjustments.  Although the University had procedures to assess the reasonableness of the accrual, there was no procedure in place to ensure the raw data was verified against a control total.

 

      It was determined that the query used to extract information for all employees who had a status change during the fiscal year however, this query did not extract data for approximately 750 employees who did not have a status change during the fiscal year.  The liability for accrued compensated absences reported on the University’s financial statements totals $201,980,064.  We proposed an adjusting entry of $1,870,288 to correct the understated liability associated with the 750 employees.  The University did not adjust their financial statements and the proposed adjustment amount has been included on the auditor’s schedule of passed adjustments. (Finding 3, Page 10)

 

      We recommended the University implement additional controls to ensure that financial information is complete and accurate.

 

      University officials accepted our recommendation and stated that the number of employees from the Banner history tables with accrued benefits will be summarized and compared to the number of employees used in the accrual calculation to ensure that all eligible employees are properly included.

 

NEED TO IMPROVE CONTROL OVER THE REPORTING OF EXCHANGE TRANSACTIONS

 

      The University has not recorded certain exchange transactions in their financial records or reported them in their financial statements.

 

      During our testing related to the Division of Intercollegiate Athletics (DIA) at the Urbana Campus, we noted that DIA receives the use of over 50 “courtesy vehicles” from area car dealerships in exchange for season tickets to men’s football and basketball games.  During the current year, these transactions were not reduced to writing and were not accounted for on the University’s financial records.  According to DIA personnel, they have estimated the annual value of these exchanges to be $111,000.

 

      During our examination, we also became aware that Sangamon Auditorium at the Springfield Campus receives advertising from area media agencies in exchange for event tickets and other services.  The Auditorium has prepared Trade Agreements for these exchanges; however, the value of the transactions has not been recorded on the University’s financial records.  Auditorium personnel estimate the value of these exchanges to be $52,000. (Finding 4, Page 11)

 

      We recommended that the University identify the departments engaging in these types of transactions and properly quantify and record the transactions.  In addition, the University should review its Policies and Procedures, and revise them as necessary, to ensure the proper accounting for exchange transactions.  Further, the University should ensure that all departments fully understand the policies and procedures for exchange transactions.

 

 

      University officials accepted our recommendation and stated that they are surveying departments to determine the frequency and types of non-cash exchange transactions at the University and that they will develop the necessary policies and procedures.

 

 

OTHER FINDING

 

      The remaining finding deals with University credit cards and is reportedly being addressed by University management.  We will review the University’s progress toward the implementation of our recommendations in our next audit. 

 

AUDITORS’ OPINION

 

      Our auditors state the June 30, 2007 financial statements are fairly presented in all material respects.

 

 

 

 

 

_____________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:TLK:pp

 

 

SPECIAL ASSISTANT AUDITORS

 

      Clifton Gunderson LLP were our special assistant auditors.