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, 1998

Summary of Findings:

Release Date:
May 20, 1999

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
Attn: Records Manager
Iles Park Plaza
740 E. Ash Street
Springfield, IL 62703

(217) 782-6046 or TDD (217) 524-4646

This Report Digest is also available on
the worldwide web at
http://www.state.il.us/auditor

SYNOPSIS

• The University's Year 2000 planning lacked upper management coordination and was not detailed enough to ensure full compliance on a University-wide basis.

• The University of Illinois Hospital needs to improve its fiscal procedures in several areas including:

- the computing of balance sheet reserves for contractual allowances and for doubtful accounts,

 

- the use of accurate and reliable operating statistics to monitor and analyze operations,

 

- the timely billing of patients, and

 

- the use of the Comptroller's Offset System as a debt collection method.

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

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

Year 2000 plans could be improved

Improved coordination may better control costs

INTRODUCTION

Our 1998 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 report presents nine findings. The Federal Compliance Audit report presents two findings.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

YEAR 2000 PLANNING NEEDS UPPER MANAGEMENT LEADERSHIP

The University's Year 2000 compliance action plans lack proper coordination by University upper management, and the existing plans are not detailed enough to ensure full compliance on a University-wide basis.

We noted that each department of the three respective campuses has developed Y2K plans and is addressing compliance in isolation. Each department voluntarily reports the progress of Y2K efforts to one of the management committees of the University. However, the committees have no authority to review or enforce changes to any of the plans or actions.

We noted the following deficiencies in the University's Y2K compliance efforts:

• The facility management area had not developed sufficient plans to ensure Y2K issues will be fully addressed and completed in a timely fashion to support the multi-million dollar facility infrastructure.

• The Hospital's Y2K efforts related to clinic and medical equipment were behind schedule; a plan was recently developed, and they were in the inventory phase of addressing Y2K.

• An individual with appropriate authority, reporting directly to the President or upper management, had not been appointed to coordinate all University-wide Y2K efforts.

• The University's legal department had not provided guidance for documenting the University's efforts to show that due care was being taken to ensure compliance with Y2K and to reduce potential financial liability. (Finding 98-4, pages 12-14 in State report)

We recommended the University assess the effectiveness of its current Year 2000 compliance process, focusing on a more comprehensive approach with appropriate upper management leadership. The process should detail the resources needed and the system capacity required, as well as any contingency plans. Throughout the implementation and testing phases, the status of the project must be monitored by an individual appointed by upper management.

The University's response indicates the President has delegated to the Vice President for Business and Finance the responsibility to coordinate Y2K issues on a University-wide basis. The leadership responsibility for campus Y2K issues has been delegated to the Vice Chancellors for Administration at each campus and the enterprise-wide Y2K issues have been assigned to the Associate Vice President for Administrative Information Systems and Services. A progress report will be presented to the University's Board of Trustees in January 1999.

FISCAL PROCEDURES AT HOSPITAL NEED IMPROVEMENT

Our review of fiscal procedures at the University's Hospital identified several weaknesses and areas where improvements are needed to enhance operations as follows:

• The Hospital did not adequately segregate balance sheet reserves for losses due to contractual allowances from those due to doubtful accounts. The reserve for contractual allowances includes amounts that will not be collected due to contractual agreements to accept less than full charges. It is industry practice to derive the percentages used to estimate the reserve for contractual allowances from the Hospital's executed contracts with the various third-party payors, including Medicaid, Medicare, and commercial carriers. The reserve for doubtful accounts includes amounts that patients are responsible for but are financially unable to pay. It is industry practice to base the reserve for doubtful accounts on an aging of patient accounts receivable. (Finding 98-6, page 16 in State report)

• Key operating statistics and patient receivable information used by the Hospital to monitor and analyze operations were often inaccurate and unreliable for financial analysis. Accurate statistics are necessary to enable management to make informed decisions. (Finding 98-7, page 17 in State report)

• The Hospital did not have adequate procedures to ensure that patient accounts were billed timely. The Hospital used an outside service organization to perform the coding of medical records prior to billing which contributed to the delay. At June 30, 1998, over $38 million in patient accounts had not been billed; $11 million related to charges over 30 days outstanding. Untimely billing can significantly impact the Hospital's cash flows and in some instances render the charges uncollectible. (Finding 98-8, page 18 in State report)

• The Hospital's treatment of patient accounts receivable did not allow it to comply with the Illinois State Collection Act. Patient accounts were reported on an individual service date basis rather than on a per patient basis. During Fiscal Year 1998, the Hospital wrote off as uncollectible over $10.8 million in patient receivables for 71,360 individual service dates. When these individual service dates were combined by patient, we identified 1,859 patients who each had accounts totaling over $1,000. The State Collection Act of 1986 establishes basic requirements for the collection of accounts receivable, including prescribing the use of the Comptroller's Offset System when a debt exceeds $1,000 and is more than 90 days past due. Additionally, debts totaling more than $1,000 must be reported to and certified as uncollectible by the Attorney General. (Finding 98-9, page 19 in State report)

University officials concurred with the findings related to the Hospital operations. They stated they would review procedures and take the actions necessary to improve operations.

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 1998 the State paid almost $1.4 million in unemployment benefits that were charged to University accounts.

The University does not consider the costs of unemployment in the hiring decisions for extra help positions. During the audit period, there was 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 98-1, pages 7-8 in State report)

We recommended the University study the overall cost effectiveness of utilizing and scheduling its extra help employees to reduce the overall cost to the State, including unemployment benefits.

University officials stated they will conduct a feasibility study of extra help employees in fiscal year 1999. This study will include the cost effectiveness of continuing the current practice versus contracting with outside agencies to provide temporary help.

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 audit report contains five sets of financial statements in the Report of the Comptroller; and the revenue bond financial statements of 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, 1998 financial statements are fairly presented.

_____________________________________
WILLIAM G. HOLLAND, Auditor General

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SPECIAL ASSISTANT AUDITORS

Olive LLP were our special assistant auditors.