REPORT DIGEST

UNIVERSITY OF ILLINOIS

FINANCIAL AND COMPLIANCE AUDIT
(In accordance with the Single Audit Act and OMB Circular A-133)
For the Year Ended:
June 30, 1997

Summary of Findings:

Release Date:
April 23, 1998

State of Illinois
Office of the Auditor General

WILLIAM G. HOLLAND
AUDITOR GENERAL

Iles Park Plaza
740 E. Ash Street
Springfield, IL 62703
(217) 782-6046

SYNOPSIS

• The University has encountered problems in its monitoring of unemployment benefit claims.

• The University needs to coordinate hiring and lay off decisions to reduce unemployment costs.

• The University did not perform all required annual employee performance reviews. This condition has existed since 1992.

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

Problems with unemployment claims

Extra help unemployment costs not budgeted

Some employees did not receive performance reviews

INTRODUCTION

Our 1997 audit of the University of Illinois is presented in four reports. The financial part consists of two reports which include the various financial statements of the University and other supplementary information. The compliance part consists of two reports which include the compliance findings disclosed by our audit tests. The State Compliance Audit document presents five findings. The Federal Compliance Audit report presents two findings.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

NEED TO PROPERLY REVIEW UNEMPLOYMENT CLAIMS

The University's failure to develop adequate controls over the review of unemployment benefit claims and payments has resulted in several problems, including unemployment benefits being paid by the State to employees who were still receiving a paycheck from the University. During the audit period, the Illinois Department of Employment Security (IDES) paid unemployment benefits of almost $1.9 million to 805 former/current employees of the University. Some of the problems included:

• Questionable unemployment benefit payments of approximately $9,600 for 69 weeks of unemployment were paid to 12 employees while they were working at the University.

• The University failed to protest that four individuals who resigned from their employment were subsequently paid $21,887 for 95 weeks of unemployment. Individuals are ineligible for unemployment benefits in weeks in which they have voluntarily left work.

• The University failed to testify at IDES Referees Hearings after a local IDES office had denied benefits to three individuals (based on a claim protested by the University). At these three hearings the Referee set aside the local office decision and granted unemployment benefits. The three individuals were paid $14,946 in benefits for 55 weeks of unemployment. (Finding 3, page 8, State report)

We recommended the University develop adequate policies and procedures for the review of unemployment benefit claims, investigate the cases where questionable benefits were paid, and work with the Illinois Department of Employment Security to see if any funds should be recovered.

University officials concurred with the finding and stated they will establish system-wide guidelines and procedures for reviewing, monitoring and responding to unemployment claims by March 1, 1998. Also, effective September 1, 1997, the University reorganized the management and operations of the Human Resource Offices in order to improve the control and coordination of these functions across all three campuses. They state they are working with the Illinois Department of Employment Security to recover funds where questionable benefits were paid to employees.

UNEMPLOYMENT BENEFIT COST OF USING EXTRA HELP EMPLOYEES NOT IN BUDGET

The University's use of extra help employees results in additional costs to the State that are not reflected in the University's budget. State moneys used to pay unemployment benefits to the University's employees are appropriated to the Illinois Department of Employment Security (IDES) from the General Revenue Fund (GRF). After payment of unemployment benefits to the recipients, the University is billed for 20 percent of the payment amounts by IDES on a quarterly basis. The remaining 80 percent is charged to the GRF appropriation to IDES. During FY 97 the State paid almost $1.9 million in unemployment benefits that were charged to University accounts.

Our sample of 110 unemployment benefit cases at the University revealed that 58, or 53%, of the recipients were extra help employees. Currently, the University does not consider the costs of unemployment in the hiring decisions for extra help positions, and these costs are not presented in the budget. Presently, there is no formal system within the University to coordinate or otherwise control the use of the extra help employees to minimize unemployment costs to the State. Layoff and hiring decisions are made by the individual departments within the University. Unemployment compensation paid as a result of layoff decisions is not charged back to the departments. Improved coordination and scheduling of extra help employees or use of other employment arrangements may allow the University to better control unemployment costs. (Finding 4, page 11, State report)

We recommended the University study the overall cost effectiveness of utilizing their extra help employees to reduce the overall cost to the State, including unemployment benefits. Further, we recommended the University institute guidelines to employing departments requiring them to submit timely notices of layoffs to the parties responsible for monitoring unemployment activity.

University officials concurred and stated they will review the use of extra help employees to assure compliance with State University Civil Service Statutes and Rules. They will also work with the Illinois Department of Employment Security to determine if regulations can be adjusted as they relate to the employment base period used to establish unemployment compensation.

NEED TO COMPLETE EMPLOYEE PERFORMANCE REVIEWS

The University does not formally review the performance of all nonacademic (civil service) and academic professional employees on a periodic basis. Our sample of 35 employees revealed that 6, or 17%, did not have performance reviews. The University has a policy and procedure requiring performance evaluations. Accordingly, these situations represent the University's failure to comply with its existing policies and procedures.

It is a good management practice to formally evaluate the performance of employees and communicate the results to the employee and to management on a periodic basis. It is also a good management practice to maintain evaluations in employee personnel files. Failure to perform such employee evaluations may result in poor performance, decreased productivity, and a misunderstanding of employee duties, responsibilities and expectations. (Finding 1, page 6, State report) This finding has been repeated since 1992.

We recommended the University ensure that all employees be formally evaluated on an annual basis by better enforcing its existing procedures so that evaluations are properly documented and maintained in employee personnel files.

University officials concurred with the finding and stated they will continue to reinforce with managers and department heads the need to follow established procedures to perform required annual personnel evaluations of continuing academic professional and civil service employees. (For the previous agency responses, see Digest Footnote 1.)

OTHER FINDINGS

The remaining findings were less significant and have been given appropriate attention by University management. We will review progress toward the implementation of our recommendations in our next audit. University responses were provided by Dr. Craig S. Bazzani, Vice President for Business and Finance, and Comptroller.

AUDITORS' OPINION

The financial report part contains five sets of financial statements in the Report of the Comptroller; the revenue bond financial statements in the Auxiliary Facilities System, the Willard Airport Facility, the Construction Engineering Research Laboratory, and the Health Services Facilities System.

Our auditors state the June 30, 1997 financial statements are fairly presented.

_____________________________________
WILLIAM G. HOLLAND, Auditor General

WGH:KMM:pp

SPECIAL ASSISTANT AUDITORS

Geo. S. Olive & Co. LLC were our Special Assistant Auditors.

Digest Footnote

(1) Prior responses to Finding No. 1 in report, repeated since 1992 - Need for Employee Performance Reviews

1996: University officials concurred and stated they agree that is good management practice to formally evaluate the performance of employees. As the auditor noted, the Chicago Campus has established the Employee Development Program, which requires academic professional and civil service personnel to have formal annual performance reviews. The University Administration has also implemented an employee evaluation program for FY 97.

The Urbana Campus now requires performance evaluations for civil service employees on the Open Range Pay Plan, which is a merit-based salary program. Two forms were distributed for an evaluation cycle from July 1, 1996 through June 30, 1997. One of the forms is for employees who are in their probationary periods, and the other is for employees who completed their probationary periods. The Urbana campus is also in the process of developing an appraisal program for Academic Professional employees. The Office of Academic Human Resources is working with the Professional Advisory Committee to devise evaluation models for performance appraisals. It is expected that during the fall of 1996, a program will be implemented and training sessions will be provided for those conducting appraisals.

1995: University officials concurred with the importance of employee evaluation for purposes of merit and for communication between supervisor and employee. On the Urbana campus, many individual department shave performance review programs in place, although there is no all-campus requirement. The Personnel Office administers an evaluation program for civil service employees in probationary periods. In addition, the Urbana campus has recently developed and implemented a performance appraisal program for those civil service employees whose positions are assigned to the merit-based University pay plan.

The Chicago campus has recently implemented a comprehensive Employee Development Program for all civil service staff and academic professional employees who are not employed in the hospital. During this first year of implementation, 50% of employees participated; more are expected to participate next year, as this new annual program becomes more firmly established. The Hospital program, which has been in place for several years, continues to function effectively. Since it reflects compliance with national hospital accreditation standards, this program is not applicable to those employees who work in other areas of the University.

1994: University officials concurred with the importance of employee evaluation for purposes of merit and for communication between supervisor and employee. On the Urbana campus, many individual departments have performance review programs in place, although there is no all-campus requirement. The Personnel Office administers an evaluation program for civil service employees in probationary periods. A new salary program incorporating merit increases has been implemented recently, and policies with regard to documenting performance are under review at this time.

The Chicago campus is moving forward with the development of a comprehensive performance appraisal program for all civil service staff and academic professional employees. The campus is completing the first phase of the program, which consists of a review of job descriptions, expectations, and goals. An appraisal instrument has been developed, and the program is expected to be fully implemented during the spring of 1995. The appraisal program for all Hospital employees continues to function effectively.

1993: University officials concurred with the important of employee evaluation for purposes of merit and for communication between supervisor and employee. On the Urbana campus, many individual department shave performance review programs in place, although there is no all-campus requirement administered by the Personnel Office. The Personnel Office does administer a required evaluation program for probationary employees before they are terminated or approved as status employees. Also, the Personnel Office requires an evaluation and a recommendation from the department head before an employee can receive a periodic of merit-based salary increase. A standard performance evaluation form must be completed for all merit increases requested for those Civil Service employees assigned to salary grades 22 and above.

The Chicago campus is developing a comprehensive performance appraisal program for all Civil Service Staff and Academic Professional Employees. This program is projected to be implemented during the spring of 1994. In addition, the Performance Management System designed for the University Hospital has now been in place for over two years, and it continues to function effectively. All Hospital employees are evaluated on an annual basis.

1992: University officials concurred with the importance of employees evaluation for purposes of merit and for communication between supervisor and employee. Employees are required to be evaluated, and a recommendation is required from the department head before an employee can receive a periodic or merit based salary increase. Also, a standard performance evaluation form for Civil Service employees assigned to salary grades 22 and above is required. The Urbana/Champaign campus has developed a new performance evaluation form and program for probationary employees that was implemented in November 1992. The program mandates that probationary employees be evaluated at least three times before they are terminated or approved as a status employee. A pilot program is now being conducted in the campus Personnel Services Office which may be used at other locations on campus depending on the success of the program. If it is found to be satisfactory, it will be used to evaluate all Civil Service employees on the Urbana/Champaign campus.

The University Hospital at Chicago has implemented a complete Performance Management System. The system was designed to meet the standards required by the joint commission for hospital accreditation. Employees are evaluated on an annual basis. Approximately 2,500 Civil Service employees are being evaluated under the new system. The University is currently reviewing the salary program for Civil Service employees who are not governed by collective bargaining agreements. It is anticipated that a proposed program will be recommended that will place a major emphasis on performance management. The study should be completed by March 31, 1993.