REPORT DIGEST
WESTERN ILLINOIS UNIVERSITY
Financial Audit
For the One Year Ended June 30, 2010
Summary of Findings:
Total this audit: 2
Total last audit: 0
Repeated from last audit: 0
Release Date: February 16, 2011
State of Illinois, Office of the Auditor General
WILLIAM G. HOLLAND, AUDITOR GENERAL
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(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
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INTRODUCTION
This report contains only findings pertaining to the
Financial Statement Audit.
The State Compliance Examination and Federal Single Audit
Report will be issued at a later date.
SYNOPSIS
• The University did not ensure adequate internal control
over the acquisition of a public television station.
• The University had not established an adequate process for
evaluating the estimated allowance for doubtful accounts receivable.
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
INADEQUATE CONTROLS OVER ACQUISITION OF PUBLIC TV STATION
The University did
not perform adequate due diligence regarding the acquisition of a public
television station (Station).
The University and a community college (College) entered
into an agreement on October 16, 2009 to transfer the license and ownership of
the Station to the University and its Foundation. The agreement included donation of assets,
properties, interests and rights in connection with the operation of the
Station. Upon approval of the license transfer by the Federal Communications
Commission, the agreement was finalized on May 1, 2010. We noted the following
control weaknesses over equipment acquired by the University:
• Schedules of the Station’s tangible personal property
referenced in the original agreement were not provided until one month after
closing. Before closing, the College
disposed of analog Station equipment without the University’s written
consent. Other equipment was loaned out
without itemizing or tagging, making identification of Station property
impossible.
• The University capitalized equipment at the incorrect
value. The University also overstated
non-operating revenue and depreciation expense accounts by $1.9 million.
• Equipment was not tagged and inventoried by the University
upon closing in May 2010 or prior to physical transfer to a new location in
June 2010.
• Physical inventory of fixed assets at the Station was not
performed by the University until two months after closing. Based on the inventory, equipment transferred
and recorded at $1.9 million was missing, and assets with a $0.2 million cost
were found which had not been included in the schedule of transferred
property.
• The University capitalized equipment without verifying
whether the equipment existed or the accuracy of the property list.
• Prior to closing, 29 equipment items were transferred to
another station in lieu of rent, unknown to the University and in violation of
the terms of the agreement. Management
stated the University did not seek recourse because the equipment was no longer
used and this agreement would help sustain the Station’s budget.
• During our testing of equipment at the Station, we noted
that one of 25 (4%) items tested, a system satellite valued at $77,977, could
not be located. (Finding 1, pages 45-49)
University management stated they were not sufficiently
aware of the complex steps involved in the acquisition process to ensure
adequate controls were in place.
We recommended that the University implement a formal risk
assessment process, perform thorough due diligence, and re-evaluate its
financial reporting risk every time it undergoes an unusual, non-recurring, or
other complex type of transaction such as acquisition of a business, so that
management and the Board of Trustees can make informed decisions. We also recommended that the University
implement comprehensive review procedures to ensure that the transactions and
account balances are properly recorded in accordance with generally accepted
accounting principles. Further, we
recommended the University ensure that equipment records are accurately
maintained and updated in a timely manner.
Finally, the University should evaluate whether any legal remedies can
and should be pursued.
University officials accepted the finding and stated that
the Station acquisition was a complex, one-time transaction, compounded by the
Station relocation, conversion from analog to digital transmission and the outsourcing
of technological functions during the period of license transfer. Officials
stated they will ensure that future new equipment is properly inventoried and
timely tagged, and management will conduct a review of functions to ensure that
appropriate business practices are followed. Management also stated the
University has evaluated its options and does not plan to seek legal remedies.
INADEQUATE ALLOWANCE FOR DOUBTFUL ACCOUNTS EVALUATION
PROCESS
The University did not establish an adequate process to
evaluate the estimated allowance for doubtful accounts for financial reporting
purposes.
The University estimated the allowance for doubtful accounts
of the student accounts receivable to be $3.9 million at year-end, representing
51% of the ending balance. The University did not establish a process to
evaluate the reasonableness of the estimates used. There was not sufficient data on which the
estimates were based that were available for our review and testing. (Finding
2, pages 50-51)
We recommended that the University establish an adequate
process to prepare annual accounting estimates including: sufficient, reliable
supporting data; factors to consider; adequate review and approval by appropriate
levels of authority; and presentation and disclosure in conformity with
applicable accounting principles.
University officials agreed with the finding and stated they
will develop a process to evaluate reasonableness of the accounting estimate.
AUDITORS' OPINION
Our auditors stated the financial statements of Western
Illinois University as of June 30, 2010, and for the year then ended, are
fairly stated in all material respects.
WILLIAM G. HOLLAND
Auditor General
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AUDITORS ASSIGNED: Our special assistant auditors for this
examination were E. C. Ortiz & Co. LLP.