REPORT DIGEST

WESTERN ILLINOIS UNIVERSITY

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

(In accordance with the
Single Audit Act and OMB Circular A-133)

For the Year Ended

June 30, 2007

Summary of Findings:

Total this audit 6

Total last audit 5

Repeated from last audit 4

Release Date:

March 11, 2008

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

Iles Park Plaza

740 E. Ash Street

Springfield, IL 62703

(217) 782-6046 or TTY (888) 261-2887

This Report Digest and the Full Report are also available on

the worldwide web at

www.auditor.illinois.gov

SYNOPSIS

· The University did not properly record contract retainage liabilities in the financial statements.

· The University’s Internal Audit Department did not fully comply with the Fiscal Control and Internal Auditing Act.

· All employees were not required to submit time sheets to document the time spent on official State business as required by the State Officials and Employees Ethics Act.

· The University failed to ensure adequate security over its computer systems and resources.

{Financial Information is summarized on the reverse page.}

WESTERN ILLINOIS UNIVERSITY

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

For the Year Ended June 30, 2007

FINANCIAL OPERATIONS	FY 2007		FY 2006
OPERATING REVENUES Tuition and fees, net.......................................................... Auxiliary enterprises, net................................................... Grants and contracts.......................................................... Other..................................................................................... Total Operating Revenues........................................ OPERATING EXPENSES Instruction........................................................................... Research............................................................................... Public service...................................................................... Academic support.............................................................. Student services................................................................. Institutional support.......................................................... Operation and maintenance of plant................................ Student aid........................................................................... Auxiliary enterprises.......................................................... Depreciation........................................................................ On-behalf payments........................................................... Other..................................................................................... Total Operating Expenses......................................... Operating Income (Loss)........................................................... NONOPERATING REVENUES (EXPENSES) State appropriations........................................................... Capital appropriations........................................................ Gifts....................................................................................... Interest on capital assets - related debt.......................... Investment income............................................................. Other net.............................................................................. INCREASE IN NET ASSETS................................................... Net assets, beginning of year................................................... Net assets, end of year..............................................................	$63,194,327 49,335,561 20,130,041 7,882,470 $140,542,399 $52,589,250 3,103,945 11,033,770 17,620,763 18,635,960 12,352,845 14,324,253 5,720,519 41,457,129 9,989,358 30,855,587 6,898,313 $224,581,692 $(84,039,293) $88,078,972 2,417,967 309,244 (2,629,802) 3,960,265 (25,369) $8,071,984 $104,916,390 $112,988,374		$56,901,766 48,131,654 20,043,910 7,244,230 $132,321,560 $50,065,412 4,199,667 10,211,092 16,251,212 17,518,386 11,215,194 13,609,700 5,297,383 41,334,877 9,926,247 27,624,162 5,441,032 $212,694,364 $(80,372,804) $84,025,247 3,152,373 696,200 (2,359,443) 2,420,131 (122,109) $7,439,595 $97,476,795 $104,916,390
SELECTED ACCOUNT BALANCES	June 30, 2007		June 30, 2006
Cash and Investments............................................................... Capital Assets, net of accumulated depreciation.................. Accrued Compensated Absences........................................... Revenue Bonds Payable............................................................	$60,802,206 $135,028,693 $16,897,657 $46,466,197		$60,199,562 $128,939,107 $16,782,325 $49,512,640
SUPPLEMENTAL INFORMATION (unaudited)	FY 2007		FY 2006
Employment Statistics
Faculty and Administrative...............................................	1,125		1,109
Civil Service.........................................................................	844		832
Student Employees.............................................................	297		303
Total Employees.........................................................	2,266		2,244
Enrollment Statistics
Fall term enrollment - undergraduate...............................	10,972	10,930
Fall term enrollment –graduate.........................................	1,727	1,564
Fall term enrollment – extension.......................................	903	910
Total..............................................................................	13,602	13,404
UNIVERSITY PRESIDENT
During Audit Period: Dr. Alvin Goldfarb Currently: Dr. Alvin Goldfarb

Construction retainage not recorded

Liability totaling $570,934 not recorded

Internal audit plan not implemented

No internal auditor for approximately 5 months

Negative time reporting is not adequate

Administrative and professional employees to submit time sheets in FY 2008

Inadequate password policies

Physical access not adequately restricted

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CONTRACT RETAINAGE LIABILITIES NOT RECORDED

The University did not properly record contract retainage liabilities in the financial statements. Certain construction contracts require the University to withhold a percentage of each payment related to the total contract until the contractor has completed performance under the contract.

Our review of the University’s existing construction contracts as of June 30,2007 disclosed that approximately 60% of the University’s construction contracts have retainage clauses and retainage balances were withheld from each progress payment. However, the University recorded only the net payment as construction in progress and did not set up the retainage liability totaling $570,934.

GASB Statement No. 35, Basic Financial Statements – and Management’s Discussion and Analysis – for Public Colleges and Universities, requires the financial statements to be presented using the full accrual method which recognizes the financial effect of events that impact the entity during the accounting period, regardless of whether cash has been received or spent. (Finding 1, pages 39-40 in Financial Audit Report)

We recommended the University establish procedures to properly account for and record contract retainages as each payment is made to the contractors.

University officials agreed and stated contract retainage liabilities have historically not been recorded since the amounts have been immaterial and were not due until the construction was complete and accepted by the University. They said beginning in fiscal year 2008, year end procedures will include the booking of retainage liabilities.

NONCOMPLIANCE WITH THE FISCAL CONTROL AND INTERNAL AUDITING ACT

The University’s Internal Auditing Department did not fully comply with the Fiscal Control and Internal Auditing Act (Act).

During Fiscal Year 2007, there were seven specific compliance audits on the internal audit plan. Our review of completed audits disclosed that the audit plan was not implemented. Two audits were conducted but neither were on the original audit plan. In addition, no audits relating to internal and administrative controls for grants received or made by the University were completed during the last two years.

The Act requires that the internal auditing program include audits of major systems of internal and administrative control conducted on a periodic basis so that all major systems are reviewed at least once every two years. The audits must include grants received or made to determine that the grants are monitored, administered, and accounted for in accordance with applicable laws and regulations. (Finding 2, pages 13-14 in Compliance Examination Report)

We recommended the University complete internal audits of its major systems of internal accounting and administrative controls as required by the Act.

University officials agreed with the finding and stated that with the position being vacant for approximately 5 months and the hiring and orientation of a new Internal Audit Director in December 2006, only limited activities could be completed.

EMPLOYEE TIME SHEETS NOT ADEQUATE

The University did not require all employees to submit time sheets as required by the State Officials and Employees Ethics Act.

Administrative, professional and faculty employees are required to submit time reports. However, the employee’s time is reported using a negative reporting method. The negative reporting method assumes employees are working their contracted/required hours unless otherwise reported. The time report lists minimum contracted hours and the employee indicates time away from the office, for vacation, sick or other types of leave.

The Act requires the University adopt personnel policies which require State employees to periodically submit time sheets documenting the time spent each day on official State business to the nearest quarter hour.

University management stated they have implemented a system for all administrative and professional employees to submit time sheets starting in fiscal year 2008 but have not yet developed a system for faculty employees. (Finding 3, pages 15-16 in Compliance Examination Report) This finding was first reported in 2005.

We recommended the University amend its policies to require all employees to submit time sheets.

University officials agreed with our finding and stated they are still investigating a feasible, efficient reporting process for the unique requirements of faculty. (For the previous University response, see Digest Footnote #1)

INADEQUATE COMPUTER SECURITY

The University failed to ensure adequate security over its computer systems and resources. During our review, we noted the following:

- Domain security settings being utilized often provided only a default level of access control and auditing. The University’s password policies do not always require a password change, minimum length and password history.

- Access to the University’s Data Center was not adequately restricted. Access is restricted using a keypad system; however, the access code is shared by everyone having access to the computer room, which eliminated adequate accountability.

- The number of personnel having powerful system-level access privileges was excessive.

Without an adequately secured computer environment, the University cannot ensure that access to critical applications, programs and confidential data is appropriately restricted to authorized personnel and the integrity of its computer systems and data is maintained. (Finding 4, pages 17-19 in Compliance Examination Report)

We recommended the University continue to evaluate its computer environment and data maintained to ensure adequate security controls, including adequate physical and logical access restrictions, have been established to safeguard its computer resources.

University officials agreed with the finding. They stated they will soon install a proximity ID card based system that will allow the University to manage access as well as document access to computing facilities. The issue of password policy and security will be examined by the new Chief Technology Security Officer and the WIU Technology Security Committee.

OTHER FINDINGS

The remaining findings are reportedly being given attention by University management. We will review progress toward the implementation of our recommendations in our next examination.

AUDITORS' OPINION

Our auditors state the financial statements of Western Illinois University as of June 30, 2007, and for the year then ended, are fairly presented in all material respects.

___________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:KMA:pp

SPECIAL ASSISTANT AUDITORS

E.C. Ortiz & Co., LLP were our special assistant auditors.

DIGEST FOOTNOTES

#1: EMPLOYEE TIME SHEETS NOT ADEQUATE – Previous University Response

The University concurs with the finding that the University has not yet established a procedure for administrative and professional employees to submit positive timekeeping sheets. The statutory requirement has been reviewed and implementation has been delayed by two factors.

The first factor relates to the provisions of 430/15-35 which provides that the rights provided for in collective bargaining agreements cannot be diminished. For this reason, any additional job related requirements placed on employees subject to collective bargaining agreements have to be negotiated. This is complicated by the fact that the University is still bound by the terms of multi-year agreements which are currently in negotiation.

The second factor relates to the request for clarification on the requirements and implementation of the law filed by the University of Illinois. Initially, Universities were advised by the Executive Inspector General that “negative” timekeeping was acceptable. This ruling has not been addressed by her successor. To date, no response to the request to the Attorney General has been received. The unique nature of teaching and interacting with students for University faculty, while complying with the requirements for Public Service and Professional Research, presents issues, which cannot be addressed by traditional timekeeping methods.

Upon satisfactorily resolving these issues, the University will comply with the applicable requirements of the law.