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

The auditors were unable to obtain sufficient documentation from the Department of Children and Family Services (DCFS) supporting compliance regarding allowability and period of availability for all adjustments made on the Adoption Assistance and Foster Care programs. This condition resulted in an audit scope limitation. Total FY 01 federal program expenditures from the Adoption Assistance and Foster Care programs were $65,197,000 and $318,768,000, respectively. Questioned costs could not be determined.

The grant accounting system maintained by DCFS was not able to adequately match the expenditures paid prior to July 1, 2000 to the period in which federal claims were being made. Similarly, adjustments were often recorded to reduce amounts previously claimed for beneficiaries who were later determined to be ineligible. As a result, DCFS could not provide a list of expenditure adjustments that related to claims filed in FY 01 but incurred in FY 00 (and prior).

The "period of availability of federal funds" is limited to within 2 years after the calendar quarter in which the State made the expenditures.

DCFS officials stated they have begun to retain the required documentation and will be able to provide a complete listing of adjustments beginning in fiscal year 2002. (Finding 01-17, pages 59-60)

We recommended DCFS continue maintaining supporting documentation for all expenditure adjustments included on the quarterly claim.

DCFS officials agreed with the recommendation, and stated they will continue to maintain the data to support a claimed expenditure (and any subsequent adjustment).

The Department of Children and Family Services (DCFS) does not adequately monitor or have an adequate system in place to report federal funding to the Foster Care and Adoption Assistance programs for subrecipients.

In our subrecipient monitoring sample of 50 subrecipients out of a total of 110 subrecipients (totaling $111,261,910 of $125,653,176 in total federal expenditures), we noted certain items of noncompliance. Some of the conditions noted in our sample results showed DCFS did not always:

Additionally, DCFS is not performing on-site monitoring visits to review internal controls or the fiscal and administrative capabilities of its subrecipients. We noted that none of the 50 subrecipients selected for test work had been subject to an on-site review within the last three years.

Subrecipient monitoring procedures applicable to a pass-through entity requires monitoring subrecipients activities to provide reasonable assurance that the subrecipient is administering federal awards in compliance with federal requirements and that prompt corrective action is taken on any audit finding. DCFS will then have information to assess any impact in its ability to comply with applicable federal regulations.

As a result of the conditions noted pertaining to subrecipient monitoring, the auditors qualified their report on two major programs - Foster Care and Adoption Assistance programs. (Finding 01-18, pages 61 and 62)

We recommended DCFS implement procedures to ensure: (1) OMB Circular A-133 audit reports are received within the 180 days as required; (2) desk reviews are performed timely, including review of reports, follow-up on subrecipient findings and implementation of Corrective Action Plans, receipt and review of applicable management letters, and documentation of such review; (3) the reconciliation of the OMB Circular A-133 audit report to financial information in subrecipient files; and (4) an evaluation of the current staffing of the monitoring department to ensure resources are adequate. We also recommended DCFS consider revising its on-site monitoring policy to include a risk based approach for selecting subrecipients for on-site visits.

DCFS officials agreed with the recommendation and stated they are reviewing current procedures and practices to strengthen the monitoring function and will be implementing on-site visits where needed to resolve pending issues.

The auditors were unable to determine whether the Illinois Student Assistance Commission's (ISAC) loan records were updated within 10 business days of receiving the information supporting compliance of special tests and provisions. This condition resulted in an audit scope limitation. Total FY 01 federal program expenditures from the Federal Family Education Loans program was $181,462,000.

The Commission's procedures do not include documenting the date loan information is received from lenders, schools, borrowers, and others. Without the date of receipt of information, ISAC cannot demonstrate that they complied with the provisions of this program.

The program requires the Commission to maintain a complete record for each loan it holds and must provide ready identification of each loan's current status, updated at least once every 10 business days. (Finding 01-36, pages 97 and 98)

We recommended ISAC date stamp all source information that is received from lenders, schools, borrowers, and others.

ISAC officials agreed with our recommendation and state they are modifying their existing procedures to include date stamping all source information.

The Illinois Criminal Justice Information Authority's (ICJIA) documentation to substantiate payroll costs claimed for federal reimbursement does not exist. This condition resulted in a qualification of the Byrne Formula Grant Program. Total FY 01 federal program expenditures from the several federal programs was $2,201,986. This total amount is being reported as the amount of questioned costs.

ICJIA estimates the percentage of time employees will spend on each program and uses this percentage throughout the year to allocate to payroll and fringe benefit expenditures among federal programs. However, ICJIA does not require employees to document and certify the actual time spent on each federal program.

Federal cost principles require the ICJIA to maintain personnel activity reports that distributes their payroll and fringe benefits if they work on multiple activities. The reports must reflect an after-the-fact distribution of the actual activity of each employee. Also, where an employee works 100% on a single federal program, the ICJIA is required to obtain a certification from the employee or their supervisor. (Finding 01-47, pages 118 through 120)

We recommended ICJIA continue their work with the U.S. Department of Justice in developing a methodology to track time spent on each program to include a procedure to adjust budgeted time to actual time spent.

ICJIA officials accepted our recommendation and state they are continuing to work with the U.S. Department of Justice and have reached an agreement on a time documentation system for the federal payroll expenditures. Complete implementation of the new process is expected to begin with the 2003 fiscal year.

The Department of Human Services (IDHS) provided funds in excess of their immediate cash needs to subrecipients of the Special Supplemental Nutrition for Women, Infants and Children (WIC) program.

We reviewed 25 payments to subrecipients totaling $18,390,623. We noted 13 of the payments totaling $2,427,284 resulted in advances to subrecipients of more than 30 days of funding needs. The number of days advanced ranged from 36 to 53 days. Total payments to subrecipients of the WIC program were $31,748,000 for the year ended June 30, 2001.

The WIC program requires IDHS to monitor cash advances to subrecipients to ensure those advances are for immediate cash needs only. Based on discussions with federal agencies, "immediate cash needs" has been interpreted as being 30 days or less. As a result of the conditions noted related to monitoring the cash management of subrecipients, the auditors determined the IDHS was not in compliance with federal requirements. (Finding 01-12, page 50)

We recommended IDHS review its advance funding policies and techniques for subrecipients to ensure subrecipients receive no more than 30 days of funding on an advance basis.

IDHS officials accepted the recommendation and state they have implemented a procedure to provide only 30 days of funding to WIC subrecipients.

The Department of Public Aid (IDPA) did not follow the clearance pattern specified in the TSA related to the administrative and benefit payment cash draws for the Medicaid program. Not following the agreed clearance pattern results in the State paying the federal government an interest cost for the use of cash in excess of the agreed average days a warrant takes to clear the State Treasurer's account.

The auditors noted that IDPA drew down federal cash (similar to prior years) based upon the date the Comptroller's Office (IOC) charged the appropriation. The IOC's Statewide Accounting Management Systems (SAMS) is designed to recognize an expenditure when processing the invoice voucher (an approved payment) which usually correlates to the date the warrant was issued by the IOC. However, when cash management practices are invoked by the IOC, as was done during December, 2000 through April, 2001, the warrant issuance is held awaiting adequate cash availability prior to release by the IOC. The period of the delay from posting of the invoice voucher (expenditure posting to SAMS) to the actual date of warrant issuance was up to two weeks. As such, IDPA drew down funds prior to the actual issuance of warrants during this period which was not in compliance with the prescribed funding technique. Additionally, IDPA did not calculate an interest liability which is owed to the federal government for the delay in the disbursement of funds.

The State annually negotiates an agreement with the U.S. Department of the Treasury which details the funding technique to be used for the draw down of federal funds. The FY 2001 funding technique required the use of the average clearance pattern for both administrative and benefit payments. The average days of clearance agreed to was 6.2 after the warrant is issued. (Finding 01-01, pages 27 and 28)

As a result of the conditions noted, the auditors (based on invoice voucher posting) determined the Medicaid program cash draws were in excess of amounts disbursed (warrants issued); and thus, was not in compliance with the TSA. This internal control deficiency is a material weakness.

We recommended IDPA work with the IOC to establish procedures to ensure federal cash draws are based upon the date the warrant is issued by the IOC.

Agency officials accepted our recommendation and indicate they will be working with the IOC to acquire financial information based upon the date that warrants are actually issued.

The Illinois Department of Public Aid's on-site monitoring and other subrecipient monitoring requirements was not evident on all Child Support Enforcement Program files resulting in an inadequate monitoring process.

In a review of 8 subrecipients of the Child Support Enforcement Program, the auditors noted no on-site monitoring procedures has been performed on 4 of the subrecipients during the past 5 years. The on-site monitoring procedures would include a review of the financial and programmatic records, an observation of subrecipient operations and/or process for determining allowability and recipient eligibility. These 4 subrecipients had expenditures of $1,165,583.

Additionally, 3 of the 8 recipients had not submitted the required A-133 audit report and no follow-up by IDPA had been made for the current year. Total subrecipient expenditures for the Child Support Enforcement Program were $27,278,000 for FY 2001.

Other problems noted were: (1) no formal procedures for tracking and performing desk reviews of A-133 audit reports; (2) no process to identify those subrecipients required to file A-133 audit reports but who have failed to do so; and (3) no formal documentation process of performing (or the results thereof) A-133 desk reviews of audits.

The monitoring of the activities of a subrecipient is necessary to ensure that federal awards are used for authorized purposes in compliance with laws, regulations, and the provisions of contract agreements and that performance goals are achieved.

As a result of the conditions noted related to subrecipient monitoring, the auditors determined the Child Support Enforcement Program not to be in compliance with federal requirements. This internal control deficiency is a reportable condition. (Finding 01-05, pages 36 and 37)

We recommended IDPA perform timely on-site monitoring visits which include reviewing financial and programmatic records, observation of operations and/or processes for determining expenditure allowability or recipient eligibility. Also, IDPA should establish a uniform desk review performance process of OMB Circular A-133 audit reports and document the results. Finally, IDPA should implement a process for tracking the submission of subrecipient A-133 audit reports to ensure all reports are received in a timely manner.

IDPA officials state they have: (1) taken corrective action to insure all A-133 audit reports are reviewed, and (2) initiated an on-site monitoring process using a risk-based approach.

The Illinois State Board of Education (ISBE) is not adequately reviewing OMB Circular A-133 audit reports that are required to be received from subrecipients.

In the review of 240 subrecipient files for the various federal programs operated by ISBE, the auditors noted A-133 audit reports were received and reviewed for findings which were then conveyed to ISBE fiscal consulting staff for follow up. However, the desk review process was not documented in the files which would indicate the procedures employed during the desk review. Additionally, we noted there was no information in the files indicating what procedures were performed during the desk review. FY 2001 subrecipient expenditures for the 8 federal programs having subrecipient activities ranged from $25,695,000 to $319,300,000.

ISBE is required to monitor the activities of subrecipients, as necessary, to ensure that federal awards are used for authorized purposes. Further, ISBE should have an effective internal control structure in place to ensure proper monitoring of subrecipients and retain supporting documentation for a minimum of 3 years.

As a result of the conditions noted, the auditors determined the various federal programs subrecipient monitoring activities was not in compliance. This internal control weakness is a reportable condition. (Finding 01-28, pages 81 through 83)

We recommended ISBE implement the use of a desk review checklist and other procedures to document and ensure that a sufficient review is performed.

ISBE officials state they have developed a formal desk review checklist which they began using in FY 2002.

The remaining findings pertain to other compliance and internal control matters. We will follow up on the status of corrective action on all findings in our next Statewide Single Audit for the year ended June 30, 2002.

The auditors state the Schedule of Expenditures of Federal Awards for the State of Illinois as of and for the year ended June 30, 2001 is presented fairly in all material respects.

____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:SES:pp

SPECIAL ASSISTANT AUDITORS
KPMG LLP were our special assistant auditors for this audit.