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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
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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.
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