REPORT DIGEST UNIVERSITY OF ILLINOIS COMPLIANCE EXAMINATION AND SINGLE AUDIT FOR THE YEAR ENDED JUNE 30, 2018 Release Date: March 7, 2019 FINDINGS THIS AUDIT: 18 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 0 -- 0 Category 2: 3 -- 15 -- 18 Category 3: 0 -- 0 -- 0 TOTAL: 3 -- 15 -- 18 FINDINGS LAST AUDIT: 18 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 This digest covers our federal Single Audit and Compliance Examination of the University of Illinois for the year ended June 30, 2018. A separate Financial Audit as of and for the year ended June 30, 2018, was previously released on January 23, 2019. In total, this report contains 18 findings, four of which were reported in the Financial Audit. SYNOPSIS • (18-5) The University did not use at least 7% of its Federal Work Study funds for students employed in community service activities. • (18-6) The University does not have adequate procedures in place to ensure federal projects are closed in a timely manner. • (18-12) The University has not established adequate internal controls over contracts and leases to ensure all necessary approvals are received and the agreements are executed prior to the performance and filed with the State of Illinois, Office of the Comptroller on a timely basis. • (18-14) The University does not require all employees to submit time reports as required by the State Officials and Employees Ethics Act. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS FAILURE TO MEET COMMUNITY SERVICE REQUIREMENT The University did not use at least 7% of its Federal Work Study (FWS) funds for students employed in community service activities. At the University of Illinois at Chicago, we noted the federal share of FWS funds used for community service totaled to $36,400 from a statistically valid sample. The total amount of federal funds spent on FWS funds totaled $1,789,069. The University is reporting at 2% of Community Service used for FWS funds out of the minimum 7% requirement. The University should have used at least 7%, or $125,235 of its FWS funds toward Community Service or obtained a waiver from the US Department of Education. At the University of Illinois at Springfield, we noted the federal share of FWS funds used for community service totaled to $9,704 from a statistically valid sample. The total amount of federal funds spent on FWS funds totaled $213,399. The University is reporting at 5% of Community Service used for FWS funds out of the minimum 7% requirement. The University should have used at least 7%, or $14,938 of its FWS funds toward Community Service or obtained a waiver from the US Department of Education. (Finding 5, Pages 26- 27) We recommended the University review current processes for calculating and tracking the students employed in community service activities for its Federal Work Study funds to meet the minimum 7% requirement. University officials accepted our recommendation. INADEQUATE PROCEDURES FOR CLOSING OUT FEDERAL PROJECTS The University does not have adequate procedures in place to ensure federal projects are closed in a timely manner. The University administers thousands of individual federal projects from several federal agencies and pass-through entities which have varying project periods. The University has formally documented policies and procedures for closing out federally funded projects which generally require projects to be closed within 90 days after the project end date. Procedures have been established to send a notice of terminating accounts to the principal investigator or program coordinator 90 days prior to the project end date. The notice provides information about the process for closing projects and includes an information request for any extensions granted and other project information necessary to complete the project close out. Personnel in the Grants and Contracts Office are responsible for ensuring the University has met its obligations under the project, closing the general ledger accounts, and returning any unexpended grants funds to the federal agency or pass-through entity. During our review of the University’s schedule of expenditures of federal awards for the year ended June 30, 2018, we noted expenditures (or negative expenditures) were reported for several projects with end dates of greater than the 90 day close out period. Specifically we noted the following: Upon review of the transactions recorded in the projects above, we noted transactions included a number of transfer expenditures and corrections. Periodic financial reports previously submitted for several of the University’s federally funded projects inaccurately included or excluded project expenditures which have later been revised, if applicable. During the current year testing, 8 total transactions were noted, including 1 in Child Care Development Funds (CCDF) 6 in Supplemental Nutrition Assistance Program (SNAP) and 1 in Head Start Clusters, which had charges to the grant after the 90-day close out period during fiscal year 2018. (Finding 6, Pages 28-30) This finding was first reported in 2009. We recommended the University review its current close out procedures and implement additional procedures to monitor the timeliness of federal account close outs. University officials accepted our recommendation. (For the previous University response, see Digest Footnote #1.) CONTRACTS AND REAL PROPERTY LEASES NOT PROPERLY EXECUTED The University has not established adequate internal controls over contracts and leases to ensure all necessary approvals are received and the agreements are executed prior to the performance and filed with the State of Illinois, Office of the Comptroller on a timely basis. During our review of 69 contracts, including purchase orders, executed during the year ended June 30, 2018, we noted the following: • One contract (totaling $4,650,000) was not approved by the University’s Chief Executive Officer and Chief Legal Counsel out of 48 contracts sampled requiring this level of approval. • Two exempt purchases (totaling $1,708,281) were not published in the Illinois Procurement Bulletin, as required. • Thirteen contracts (totaling $5,987,407) were not submitted to the State Comptroller’s Office, as required. During our review of 25 real property leases executed during the year ended June 30, 2018, we noted the following: • Three lease agreements (totaling $2,765,535) did not contain the signature of the employee signing on behalf of the University Comptroller. • Seven lease agreements (totaling $817,052) did not contain the certification by the vendor to maintain and make available records to the State for audit purposes. (Finding 12, Pages 39-40) This finding was first reported in 2003. We recommended the University establish appropriate procedures to ensure that all contracts and leases are completed, approved, and properly executed prior to the start of the services and lease term. We also recommended the University review their procedures to ensure all appropriate signatures, clauses and certifications are obtained prior to execution for all contracts and lease agreements and that all applicable contracts and real estate leases are filed with the Office of the Comptroller of the State of Illinois in accordance with the State statutes and related guidelines. University officials accepted the recommendations. (For the previous University response, see Digest Footnote #2.) FAILURE TO FOLLOW TIME REPORTING REQUIREMENTS The University does not require all employees to submit time reports as required by the State Officials and Employees Ethics Act. During testing of payroll, we selected 27 employees across all three campuses and noted the following: • Ten employees (five from the Urbana- Champaign campus, three from the Chicago campus, and two from the Springfield campus) did not file time reports as required by the State Officials and Employees Ethics Act. University management stated faculty, postdoctoral employees, instructors, and lecturers continue to track their time using a “negative” timekeeping system whereby the employee is assumed to be working unless noted otherwise. • Four employees (two from the Urbana- Champaign campus and two from the Chicago campus) under the Academic Professional employee class did not properly submit time reports, as required by the University policy. Upon further inquiry, we noted three of these four noted employees (one from Urbana-Champaign campus and two from the Chicago campus) did not submit time reports for the entire fiscal year 2018. (Finding 14, Pages 43-44) This finding was first reported in 2005. We recommended the University implement procedures to ensure all employees submit time sheets as required by the State Officials and Employees Ethics Act. University officials accepted the recommendations. (For the previous University response, see Digest Footnote #3.) OTHER FINDINGS The remaining findings are reportedly being given attention by the University. We will review the University’s progress towards the implementation of our recommendations in our next engagement. AUDITOR’S OPINIONS The financial audit report was previously released. The auditors stated the financial statements of the University of Illinois as of and for the year ended June 30, 2018, are fairly stated in all material respects. The auditors also conducted a Single Audit of the University as required by the Uniform Guidance. Our auditors stated the University complied, in all material respects, with the types of compliance requirements that could have a direct and material effect on each of the University’s major federal programs for the year ended June 30, 2018. ACCOUNTANT’S OPINION The accountants conducted a compliance examination of the University for the year ended June 30, 2018, as required by the Illinois State Auditing Act. The auditors stated the University complied, in all material respects, with the requirements described in the report. This Single Audit and State Compliance Examination was performed by CliftonLarsonAllen LLP. JANE CLARK Division Director This report is transmitted in accordance with Section 3-14 of the Illinois State Auditing Act. FRANK J. MAUTINO Auditor General FJM:TLK DIGEST FOOTNOTES #1 –Inadequate Procedures for Closing out Federal Projects 2017: Accepted. Due to lengthy vacancies in the past that resulted in limited human capital, the University agrees that there were grants closed after the 90 closing period. Staffing vacancies have been filled or are in the process of being filled. The University agrees that 248 grants from prior fiscal years remained open at some point during fiscal year 2017. However, the University does not believe this is an issue related to internal controls. The University has made significant progress in the number of closeouts, which is demonstrated by having only three grants remain open from the cited list. These grants have not been closed due to non- payment issues. Two of the three grants remain open because they are currently going through the Illinois Court of Claims process and are either (1) awaiting legal judgement on an outstanding receivable or (2) awaiting payment as a result of a favorable judgement. We believe that our established internal controls as designed are sufficient to reasonably ensure compliance with federal laws, regulations, and program compliance requirements. These controls include procedures to ensure expenditures are allowable in accordance with federal regulations which resulted in a net change of negative $689,917 in expenditure transactions as shown in the chart. In FY17 there was a 40% decrease in the number of awards cited (415 in FY16 to 248 in FY17) and nearly a 50% reduction in the number of expenditure transactions (17,303 in FY16 to 8,811 in FY17). Specific older transactions hit the SEFA as a result of unusual circumstances. Examples are as follows: • 2002 – JV to correct Accounts Receivable issue • 2010 – Small balance adjustment of $0.67 The University continues to devote additional attention to close-out review and processing to improve the timeliness of project closeout. The University updated its close-out procedures and implemented additional procedures to monitor the timeliness of federal account close-outs. #2 – Contracts and Real Estate Leases Not Properly Executed 2017: Accepted. The University recognizes the importance of process controls, training, and transaction monitoring in these areas. Corrective action measures have been put in place or will be taken in connection with the recommendations in this finding to include: (1) ongoing training on the use of the Illinois Contract System (ICS) which includes name and title of person who signed the documents and includes automatic notifications to staff responsible for timely filing of contracts to the State Comptroller’s Office; (2) annual refresher training regarding executed and start dates of contracts and on University policy stating that all procurement contracts that exceed $249,999 must have the signature of the Comptroller, President, and Chief Legal Counsel; (3) further training and template revisions will be accomplished to mitigate human error and misinterpretations of transaction processing for group purchasing requirements in relation to the Board of Trustees approval, requirements for all contract and real estate lease disclosures to include financial interests, conflict of interest and certifications, contract approval prior to service, vendor registrations, contract file documentation, and emergency purchasing processing and filing. #3 – Failure to Follow Time Reporting Requirements 2017: Accepted. Regarding faculty and post-doctoral exceptions, there is ongoing dialogue with the academic leadership at each University campus regarding further implementation of this requirement. For academic professional and exempt civil service exceptions, the University continues to take steps to address any issues.