REPORT DIGEST UNIVERSITY OF ILLINOIS Financial Audit For the Year Ended June 30, 2015 Release Date: January 21, 2016 FINDINGS THIS AUDIT: 3 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 0 -- 0 Category 2: 1 -- 2 -- 3 Category 3: 0 -- 0 -- 0 TOTAL: 1 -- 2 -- 3 FINDINGS LAST AUDIT: 3 Category 1: Findings that are material weaknesses in internal control and/or a qualification on compliance with State laws and regulations (material noncompliance). Category 2: Findings that are significant deficiencies in internal control and noncompliance with State laws and regulations. Category 3: Findings that have no internal control issues but are in noncompliance with State laws and regulations. State of Illinois, Office of the Auditor General FRANK J. MAUTINO, 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 Full Report are also available on the worldwide web at www.auditor.illinois.gov INTRODUCTION The University’s financial audit report consists of three sets of financial statements as follows – The financial statements of the University, and the revenue bond financial statements of the Auxiliary Facilities System and the Health Services Facilities System. This report contains only findings pertaining to the Financial Statement Audit. The State Compliance Examination and Federal Single Audit Reports will be issued at a later date. SYNOPSIS • (15-1) The University failed to establish adequate internal controls over accurately identifying and recording deferred expense transactions and reporting prepaid expenses at fiscal year-end for financial reporting purposes. • (15-3) The University lacked adequate internal controls over monitoring external audits, attestation engagements and other studies. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS CONTROLS OVER IDENTIFYING AND RECORDING TRANSACTIONS NEED IMPROVEMENT The University has not established adequate internal controls over accurately identifying and recording deferred expense transactions and reporting prepaid expenses at fiscal year-end for financial reporting purposes. In relation to our testwork over expense transactions, we reviewed 197 cash disbursement transactions (totaling $42,171,231), 67 P-Card expense transactions (totaling $247,947), and 60 T-Card expense transactions (totaling $239,444) recorded during the fiscal year. We also reviewed 11 cash disbursements occurring subsequent to year-end (totaling $24,827,569). Additionally, we separately reviewed 12 internal journal voucher transactions recorded during the fiscal year (totaling $13,894,968 debits and $16,297,995 credits). In relation to our test work over revenue transactions, we reviewed 60 cash receipt transactions recorded during the fiscal year (totaling $216,289,228). During our review of these transactions, some of the items that were not recorded in the proper accounting period are as follows: • One general expense cash disbursement (totaling $5,682) that was recorded as expense for fiscal year ended June 30, 2015, should have been partially accrued as of June 30, 2014 at an amount of $1,218. •One general expense cash disbursement (totaling $68,175) that was recorded as expense for the fiscal year ended June 30, 2015, should have been partially deferred as of June 30, 2015 at an amount of $34,088, and then recognized as expense for the fiscal year ending June 30, 2016. • One cash receipt (totaling $272,051) that was recorded as operating revenue for the fiscal year ended June 30, 2015, should have been partially deferred as of June 30, 2015 at an amount of $181,864, and then recognized as operating revenue for the fiscal year ending June 30, 2016. (Finding 1, Pages 5-7) This finding has been repeated since 2009. We recommended the University continue to review its process to assess the existence of current period expenses and consider changes necessary to ensure prepaid expenses are accurately identified and recorded for presentation in the University’s financial statements. University officials agreed with the finding and stated they will continue to implement corrective actions to address the recommendation in the finding. (For the previous University response, see Digest Footnote #1.) CONTROLS OVER MONITORING OF EXTERNAL AUDITS, ATTESTATION ENGAGEMENTS AND OTHER STUDIES NEED IMPROVEMENT The University has not established adequate internal controls over monitoring external audits, attestation engagements and other studies. The University’s system of internal controls over monitoring external audits, attestation engagements and other studies are inadequate as there are no policies or procedures requiring central monitoring to ensure all identified risks and deficiencies are adequately assessed and addressed at a University wide level. Monitoring all external audits, attestation engagements, and other studies at a central, University wide level is important to the overall system of internal controls to ensure the University is adequately addressing all potential risks and implementing proper corrective action plans to address risks. Centralized procedures to monitor external audits should be performed by the University. (Finding 3, pages 11-12) We recommended the University review and strengthen their internal controls in order to ensure the University remains in compliance with all applicable laws and regulations. University officials agreed with the finding and stated they will take the necessary corrective action to address the recommendation in the finding. OTHER FINDING The remaining finding is reportedly being given attention by the University. We will review the University’s progress towards implementation of our recommendations in our next engagement. AUDITOR’S OPINION Our auditors stated the financial statements of the University, the Auxiliary Facilities System and the Health Services Facilities System as of June 30, 2015, and for the year then ended, are fairly stated in all material respects. FRANK J. MAUTINO Auditor General FJM:TLK SPECIAL ASSISTANT AUDITORS Our Special Assistant Auditors for this audit were CliftonLarsonAllen. DIGEST FOOTNOTES #1 – Inadequate Year-End Expense Accruals, and Revenue and Expense Deferrals Process – Previous University Response Accepted. The University has already implemented significant process enhancements in this area. Through analysis of the exceptions identified in this audit, the University will work to develop and implement corrective actions to further improve the related year-end processes.