REPORT DIGEST

 

DEPARTMENT OF CENTRAL MANAGEMENT SERVICES

 

FINANCIAL AUDIT

For the Year Ended:

June 30, 2006

and

COMPLIANCE EXAMINATION

For the One Year Ended:

June 30, 2006

 

Summary of Findings:

Total this audit                      18

Total last audit                      22

Repeated from last audit       10

 

Release Date:

May 24, 2007

 

 

 

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

                    740 E. Ash Street

Springfield, IL 62703

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

 

This Report Digest and the Full Report are also available on

the worldwide web at

http://www.auditor.illinois.gov

 

 

 

 

 

SYNOPSIS

 

  • CMS did not recognize a liability to the federal government for overcharges made in two internal service funds.  CMS over billed federal programs by approximately $13 million.

 

  • CMS' contract files lacked certain documentation for 5 of 10 contracts we tested.  The maximum award amount for these 10 contracts totaled approximately $151 million.

 

  • CMS evaluated vendor proposals using evaluation criteria that were not stated in the RFP.  Specifics of the scoring methodology and weighting of pricing alternatives were not included in the original RFP, and in some cases, not communicated to proposing vendors or reflected in any addendums.

 

  • CMS does not have an adequate process in place to assess the State’s needs for master contracts.

 

  • CMS has not established a property management function to effectively manage occupancy costs and revenues.

 

  • CMS had deficiencies in processing, recording and collecting of receivables.

 

  • CMS circumvented the appropriation process and violated the State Finance Act when it temporarily transferred personnel paid from the Facilities Management Revolving Fund to two other revolving funds.

 

  • CMS did not maintain time sheets for its employees as required by the State Officials and Employees Ethics Act.

 

  • The CMS Office of Internal Audit did not complete audits of all major systems of internal accounting and administrative control as required by law.

 

  • The CMS process for monitoring interagency agreements was inadequate.

 

 

 

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

 


STATE OF ILLINOIS

DEPARTMENT OF CENTRAL MANAGEMENT SERVICES

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

For The Year Ended June 30, 2006

 

STATEMENT OF ACTIVITIES INFORMATION

(expressed in thousands)

Governmental Activities

Business-Type Activities

PROGRAM REVENUES

Charges for Services.........................................................

 

EXPENSES

General Government.........................................................

Interest.............................................................................

Insurance Programs...........................................................

Total Expenses..................................................................

 

NET (EXPENSE) REVENUES...................................

 

Total General Revenues and transfers...............................

CHANGE IN NET ASSETS..........................................

 

Net Assets July 1, 2005....................................................

NET ASSETS, JUNE 30, 2006....................................

 

       $434,444

 

 

       $530,890

                247

                    0

       $531,137

 

       $(96,693)

 

$243,767

$147,074

 

           $6,933

       $154,007

 

$0

 

 

$0

0

  0

$0

 

$0

 

$(52,041)

$(52,041)

 

$52,041

$0

STATEMENT OF NET ASSETS INFORMATION

(expressed in thousands)

Governmental Activities

Business-Type Activities

Cash equity with State Treasurer........................................

$72,706

$0

Cash and cash equivalents..................................................

$5,605

$0

Investments.......................................................................

$1,918

$0

Capital Assets, net.............................................................

$284,188

$0

Other Assets.....................................................................

$93,992

$0

Total Assets....................................................................

$458,409

$0

Accounts Payable..............................................................

$37,539

$0

Long Term Obligations.......................................................

$247,037

$0

Other Liabilities.................................................................

$19,826

$0

Total Liabilities...............................................................

$304,402

$0

Net Assets, invested in capital assets, net of debt.................

$236,316

$0

Net Assets, restricted.........................................................

$3,441

$0

Net Assets, unrestricted.....................................................

        $(85,750)

$0

Total Net Assets.............................................................

$154,007

$0

SELECTED ACTIVITY MEASURES (unaudited)

FY06

FY05

FY04

Number of flexible spending account participants.................

Number of equipment items transferred out of surplus........

Percent of Workers’ Compensation claims paid within 90 days..

Total gallons of gasohol sold (in millions)..............................

Number of facilities participating in I-cycle........................

7,705

2,616

31.28%

1.1

251

8,286

5,093

89.6%

1.1

251

6,839

3,638

97.94%

1.3

251

EXECUTIVE DIRECTOR

 

 

During Audit Period:  Mr. Paul J. Campbell (through March 9, 2007)

Currently:  Ms. Maureen O’Donnell (Acting Director beginning March 10, 2007)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Failure to recognize liability to the federal government

 

 

 

 


Internal services funds

 

 

 

 

 

 

 


CMS over billed federal programs by approximately $13 million during FY 04 and FY 05

 

 


FY 06 liability currently indeterminable

 

 


Failure to perform annual review

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5 of 10 contract files reviewed did not include all documents pertinent to the decision making process

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMS evaluated vendor proposals using criteria that was not stated in the Request for Proposals

 

 

 

 

 

 

 

 

 

10 contracts or solicitations tested with maximum award amount of approximately $151 million

 

 


Master contract for leasing and purchasing computers

 

 

 

 

 

 

 

 


Contract for federal revenue maximization services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Actual usage on a $3.8 million master contract was only $20,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Process used was not adequate to assess the State’s needs

 

 

 

 

 

 

 

 

 

No system in place to effectively monitor master contract usage once awarded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Failure to establish a property management function to effectively manage occupancy costs and revenues

 

 

The Department currently manages 706 State owned or leased properties

 

 

 

 

 

 

 

 

 

 

 

 

 


Untimely billings to agencies have had a negative impact in the development of FY 06 budgets and FY07 forecasting

 

 

 

 

 

 

 

 

 

Failure to make timely payments to vendors

 

 

 

 


230 leases in holdover status

 

 

 

 

 


CMS has been exposed to litigation as a result of failing to timely renew or terminate holdover leases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At the end of FY 06, the Department had not posted over $18 million in receipts to the accounts receivable system

 

 

 


Uncollectible amounts owed by State and federal government agencies increased from $75,730 in FY 05 to $512,650 in FY 06

 

 


Procedures used result in improper timing in recognition of revenue

 

 

 

Estimated uncollectible accounts receivable is not representative of historical results

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appropriation process circumvented

 

 

 

 

 

 

 

 

 

 

 

 

 


The Department transferred 100% of the payroll costs from the Facilities Management Fund to other funds for three pay periods in FY 06

 

 

 

 

 

 

 

 

 

 

 

 

 

 


CMS disagrees

 

 

 

 

 

 


Auditor Comment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Failure to maintain time sheets in compliance with the State Officials and Employees Ethics Act (Act)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Failure to comply with the Fiscal Control and Internal Auditing Act

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Interagency agreements were not properly monitored

 

 

 

 

 

 

 

 

INTRODUCTION

 

      Our audit of the Department of Central Management Services is issued in two documents: 1) the Financial Audit, and 2) the Compliance Examination.  The Financial Audit Report contains the Department’s financial statements and the auditors’ opinion on these statements.  The Compliance Examination document contains the audit findings, recommendations, and Department Responses, as well as the supplementary financial information. 

 

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

NONCOMPLIANCE WITH FEDERAL REGULATIONS AND FAILURE TO TIMELY RECOGNIZE A FEDERAL LIABILITY

 

      The Department did not comply with the requirements of OMB Circular A-87, incurred a liability to the federal government for overcharges in two internal service funds for fiscal years 2004 and 2005, and did not recognize the liability until a federal audit was initiated subsequent to fiscal year 2006.

 

      The Department’s internal service funds receive revenue from charges for services provided to various federal grants of the State.  OMB Circular A-87 (circular), Cost Principles for State, Local and Indian Tribal Governments, establishes policies governing central service activities such as those provided by the Department’s internal service funds.  The Circular allows internal service funds to maintain reasonable working capital reserves, up to 60 days cash expenses, for normal operating purposes. 

 

      However, two internal service funds administered by the Department maintained fund balances in excess of the allowable working capital reserve. Consequently, the Department believes that it is probable that a payback representing the federal share of excess fund balances will be required from the Statistical Services Revolving Fund (SSRF) and the Communications Revolving Fund (CRF).  It is estimated that the SSRF liability for fiscal years 2004 and 2005 is approximately $6.136 million and the CRF liability for fiscal years 2004 and 2005 is approximately $6.920 million.  The Department has indicated any potential liability for fiscal year 2006 is indeterminable at this time.

 

      Furthermore, the circular stipulates “A comparison of the revenue generated by each billed service (including total revenues whether or not billed or collected) to the actual allowable cost of the service will be made at least annually, and an adjustment will be made for the difference between the revenue and the allowable costs.”  The Department has failed to perform the annual comparison and make adjustments as required by the Circular.  This current situation was brought to the Department’s attention by federal auditors.  (Finding Number 1, pages 13-14)

 

      We recommended the Department comply with the provisions of OMB Circular A-87 by performing an annual comparison of revenue generated by each billed service to the actual allowable cost of the service and make an adjustment for the difference using an acceptable method.  In addition, the financial statements should reflect the effect of this determination.   

 

      Department officials concurred with the overall recommendation to adjust for overbalances on a timelier basis, and to recognize potential payback liabilities on its financial statements.

 

 

LACK OF DOCUMENTATION IN CONTRACT FILES

 

      The Department of Central Management Services (Department) contract files lacked basic information, such as best and final offers and written determinations for contract award, to adequately document the evaluation and selection process.  Documentation of the process used and decisions made in the evaluation and scoring of proposals is a critical control component to ensure a fair and open procurement process.

 

      During the current period, the procurement and award files for ten solicitations or contracts awarded in fiscal year 2006, totaling a maximum award amount of approximately $151 million, were selected for testing.  Some documents expected to be centrally located in the procurement file were missing upon initial review.  Many of the requested documents were subsequently provided, however the initial omission of these documents from the contract files demonstrates the Department’s inability to provide sufficient support for procurement decisions in a timely and complete manner.

 

      Five of the 10 tested files (50 percent) awarded in fiscal year 2006 lacked documentation in the contract files in one or more areas.

 

      Specific documentation not contained in contract files included the following:

 

·        One of 10 (10%) did not have a written recommendation or decision memorandum for a procurement outlining reasons for selecting the winning vendor,

·        One of 10 (10%) did not have documentation supporting the pricing evaluation component of the procurement,

·        4 of 10(40%) did not have documentation of reference checks,

·        2 of 5 (40%) did not have best and final offer documentation, and

·        One of 4 (25%) did not have documentation of the protest letters and responses. (Finding Number 2, pages 15-16)

 

      We recommended the Department maintain procurement files that contain all relevant information to the decision making process in a procurement. 

 

      Department officials concurred with our recommendation and stated it is continuing to make improvements.

 

 

CHANGES IN AWARD EVALUATION CRITERIA NOT COMMUNICATED TO PROPOSERS

 

      The Department used evaluation criteria to evaluate vendor proposals that were not stated in the Request for Proposals (RFP).  Specifics of the scoring methodology and weighting of pricing alternatives were not included in the original RFP, and in some cases, not communicated to proposing vendors or reflected in any addendums.

 

      The Illinois Administrative Code states that proposals shall be evaluated only on the basis of evaluation factors set forth in the RFP (44 Ill. Adm. Code 1.2035 (h)(2) and 44 Ill. Adm. Code 1.2015 (f)2)).  For professional and artistic contracts, price will not be evaluated until ranking of all proposals and identification of the most qualified vendors.

 

      During the current period, the procurement and award files for ten solicitations or contracts awarded in fiscal year 2006, totaling a maximum award amount of approximately $151 million, were selected for testing.

 

      In 1 of 10 procurements evaluated (10 percent), a $27 million master contract for leasing and purchasing of personal computers and laptops, the Department used an evaluation process that was not consistent with the process specified in the RFP.  The pricing formula used to evaluate the proposal was not reflected in the original specifications or in an addendum to the Request for Proposal.  The Department specifically failed to indicate what percent of the scoring would be based on leasing versus purchasing, which was an essential element of the proposal.

 

      In 1 of 10 procurements evaluated (10 percent), a contract for federal revenue maximization services, we noted that the original request for proposal failed to specify how proposals would be evaluated if a vendor proposed on all components of work, an individual component of the work or multiple but not all components of the work.  The original solicitation did not clearly identify how a proposal for multiple components would be evaluated.  Additionally, the Request for Proposal did not include technical scoring values or scoring weights.  This information was subsequently provided to the prospective proposers through addendums.   (Finding Number 3, pages 17-18)

 

      We recommended the Department follow evaluation criteria stated in Requests for Proposals when evaluating and awarding State contracts.  Additionally, the Department should implement procedures to more thoroughly establish evaluation criteria prior to issuance of the original procurement request to minimize the need to change the evaluation criteria through subsequent addendum so that all vendors are assured of a fair and open contracting process.

 

      Department officials concurred with our recommendation and stated they have implemented procedures to strengthen controls in this area.  The Department also noted that the exceptions noted in this finding were selected from procurements made prior to the implementation of these new policies.

 

INADEQUATE CONTROLS REGARDING MASTER CONTRACT DEVELOPMENT AND USAGE

 

      The Department does not have an adequate process in place to assess the State’s needs for master contracts and to develop and monitor the usage of master contracts. 

 

      In 1 of 4 contracts awarded in 2005 reviewed in the current year (25 percent), a master contract to provide VSAT (Very Small Aperture Terminal) data transport services, the State determined there was a need to provide satellite services across the State for schools in remote areas as well as for Illinois State Police mobile units.  The State believed these alternative data transport services would be much more cost effective than existing services, along with providing transportable solutions that could be temporarily set up in remote locations. 

 

      The request for proposal estimated the contract amount at $3,800,000 over three years; however, actual usage by one agency was just over $20,000 during the first year (FY06).  A total of $114,421 was expended for VSAT satellite services in FY06, but Department personnel indicated approximately $94,000 of the total was for mobile installation of the VSAT units in support of the Hurricane Katrina effort.  The Department noted this payment was not made off the VSAT master contract; however, the vendor agreed to extend the master contract pricing to the emergency equipment/service order. 

 

      This master contract has not been utilized to the extent originally estimated.  Furthermore, because the VSAT program has not been deployed as a statewide initiative, the master contract requirements regarding reporting, milestones, and deliverables have not been monitored. 

 

      Significant resources were dedicated in procuring the master contract for VSAT services and negotiating a final contract.  The Department’s process for developing specifications for master contracts to be used by State agencies in awarding separate contracts to eligible vendors was not adequate to assess the State’s needs.  Further, we noted the Department does not currently have a system to monitor the usage of State master contracts once they are awarded.  The unique number of each master contract awarded by the Department is not retained as a tracking mechanism as the master contract is adopted and used by each agency.

 

      Failure to adequately assess the State’s needs in developing specifications for master contracts may impair the procurement process.  Misrepresentation of the scope of the procurement may alter the pool of prospective bidders, thus denying the State and the individual agencies access to qualified vendors.  Inadequate assessment can also cause State resources, specifically those dedicated in procuring and negotiating master contracts, to be wasted.   Further, the Department lacks a system to effectively monitor usage of master contracts.  The current system does not facilitate reporting of an estimated usage amount vs. actual.  Consequently, if a contract is being over or under utilized, there is not a system to monitor these results.  Since one purpose of a master contract is to provide advantageous pricing to all State agencies, underutilization of a master contract may mean the agencies are not accessing planned savings.  (Finding Number 5, pages 21-23)

 

      We recommended that the Department develop a process to more effectively assess the needs of State agencies when developing master contract procurement specifications.  Further, the Department should establish guidelines or a system to ensure multiple agency utilization of master contracts provides adequate vendor performance in relation to anticipated needs, especially for awards made through a proposal process. 

 

      Department officials stated they will continue to improve its assessment of the needs of State agencies when developing master contracts, on a case by case basis, since each master contract has unique criteria and circumstances.

 

 

INEFFECTIVE PROPERTY MANAGEMENT

 

      The Department has not established a property management function to effectively manage occupancy costs and revenues.  Responsibility for managing the majority of State owned and leased buildings was transferred to the Department through Executive Order 2003-10, which consolidated the Facilities Management function.  This Executive Order, which was effective May 31, 2003, stipulated the consolidation of the facilities management function to be implemented as of July 1, 2004.   The Department is currently responsible for managing 706 State owned or leased properties.

 

      The Department’s Bureau of Property Management has primary responsibility for coordinating Department activities involving State property.  Beginning in fiscal year 2005, most transactions, including charges to or transfers from user agencies for space occupancy and payment of property costs such as lease payments, building maintenance, utilities and security were accounted for in the Facilities Management Revolving Fund (FMRF).

 

      Specifically, we noted deficiencies in the following areas:

 

·        Lack of Timely Funding or Billing – The Department contracted with a consultant to design a cost allocation methodology that would determine costs by agency and property for purposes of establishing billings to the agencies for the management of their buildings and properties.  On April 8, 2005 the Department completed its new rate model and did its first billing using these rates.  As of December 7, 2005, the Department had not completed the calculation of the new rates for fiscal year 2006.  Furthermore, as of January 30, 2006, agencies had not been billed using new 2006 Rates.  Delays in updating the cost allocation model and billing agencies have created difficulties in monitoring user agency occupancy costs which has had a negative impact in the development of fiscal year 2006 budgets and forecasting for fiscal year 2007.

 

·        Delayed Vendor Payments and Consolidation Issues - Payments to vendors for monthly lease obligations, utilities and other occupancy related costs were not made timely. 

 

·        Renewal of Leases not Actively Managed - The Department is not actively managing its leased space or occupancy, nor bidding and renewing, or consolidating its existing leases resulting in a substantial number of leases that have not been timely renewed or terminated.  Department records indicate that as of October 2006 there were 230 leases in holdover status.  Leases in holdover status represent leases for which the contractual term of the lease has expired but the State continues to occupy the building and pay on a month-to-month basis under the previous terms of the lease.  Many of these leases have been in this status for over 5 years.  Furthermore, lack of a formal, written agreement has exposed the State to litigation in one situation involving a holdover lease and in another situation involving the termination of a lease.  In these cases, the claimants are seeking a total of $3,314,713 restitution.  

 

In addition to the holdover lease issue, we also noted numerous deficiencies regarding the handling of three leases in a Chicago property.  (Finding Number 7, pages 25-29)

 

      We made several recommendations that the Department should implement to effectively carry out its facilities management responsibilities. 

 

      Department officials concurred and noted that it has already implemented most of the recommendations.

 

ACCOUNTS RECEIVABLE DEFICIENCIES

 

      Deficiencies were noted in the Department’s processing, recording and collection of receivables.  During our testing we noted the following:

 

·        The Department is not applying payments received to vendor accounts in their Accounts Receivable Posting System (ARPS) for certain internal service funds on a timely basis.  At the end of fiscal year 2006 the Department had received $16,373,021 in the Facilities Management Revolving Fund and $2,026,995 in the Communications Revolving Fund that had not been properly applied against the corresponding agency account.

 

·        Amounts deemed uncollectible from other State agencies, component units and the federal government increased significantly from fiscal year 2005 to fiscal year 2006.  During fiscal year 2006 the Department requested permission to write-off receivables totaling $512,650, the majority of which was owed by other State agencies, compared to only $75,730 written off in fiscal year 2005.  Amounts owed by other State agencies should be collectible in their entirety.

 

·        In the financial reporting to the Office of the Comptroller, the Department reports net accounts receivable relating only to the current fiscal year without regard to outstanding balances relating to prior fiscal years that remain uncollected.  As such, the financial statements reflect an improper timing in the recognition of income between fiscal years. 

 

·        The methodology for calculating the allowance for uncollectible accounts receivable does not consider receivables written off in prior years.  As a result, the estimated uncollectible balance is not representative of the historical financial results.

 

      Good business practices require the Department to process agency payments in a timely manner, properly report receivables in the financial statements and utilize an acceptable methodology for estimated uncollectible receivable balances.  (Finding Number 12, pages 38-39)

 

                  We recommend the Department take the necessary steps and implement policies to allow for more timely processing of vendor payments and apply them to appropriate accounts within their accounts receivable system. 

 

      Department officials concurred with the recommendations, but noted that it has limited influence over the budgets or payment cycles of other agencies.  The Department also stated to the extent practicable, the Department seeks to collect past due amounts, and properly estimate allowances for doubtful accounts based on its collection experience.

 

IMPROPER TRANSFERS OF PERSONNEL AND CERTIFICATION OF PAYROLL

 

      The Department circumvented the appropriation process and violated the State Finance Act when it temporarily transferred personnel from the Facilities Management Revolving Fund (FMRF) to the Efficiency Initiatives Revolving Fund (EIRF) and the Professional Services Fund (PSF).

 

      The FMRF is an internal service fund intended to finance its operations through charges to user agencies.  The Department did not bill user agencies on a timely basis in fiscal year 2006 resulting in a cash shortfall to meet its operating costs.  In order to pay outstanding vendor bills and meet payroll obligations, the Department transferred employees performing facilities management functions to other funds that had the ability to absorb the payroll obligations of the FMRF.

 

      For three pay periods during fiscal year 2006, approximately 300 employees performing facilities management duties were temporarily transferred to the EIRF.  Total payroll and related costs of $2,219,596 were paid by the EIRF.  Additionally, for three pay periods during fiscal year 2006, approximately 300 employees performing facilities management duties were temporarily transferred to the PSF.  Total payroll and related costs of $2,188,941 were paid by the PSF. 

 

      The transfer of personnel and payroll costs circumvents the appropriation process (Public Act 094-0015) and violates the State Finance Act (30 ILCS 105/9.03) by overriding the controls established by the General Assembly. (Finding Number 12, pages 40-41)

 

      We recommend the Department bill Facilities Management Revolving Fund charges to user agencies on a timely basis to avoid cash shortfalls within the fund.  We further recommend the Department comply with the statute regarding payroll certification.

 

      Department officials did not concur with this finding and recommendation.  The Department contends that it has statutory authority to expend both PSF and EIRF funds in support of Facilities Management Services.  The Department further believes that its payroll certification was accurate. 

 

      We commented, because of problems noted by the auditors in billing and collecting State agencies for facilities management services, the FMRF had a severe shortfall (see Finding 06-7).  Consequently, Bureau of Property Management payroll costs that were intended to be paid from FMRF, and that were appropriated from FMRF, were instead administratively shifted to appropriations made for the Bureau of Administrative Operations from the Professional Services Fund (PSF) and Efficiency Initiatives Revolving Fund (EIRF).  While use of the PSF and EIRF for this purpose is permitted under the statutory provisions creating these funds, we continue to recommend that appropriations made by the General Assembly for one Bureau not be used for costs associated with operations of another Bureau absent the use of established methods designed to alter or amend appropriation authority.

 

TIMESHEETS NOT MAINTAINED IN COMPLIANCE WITH THE STATE OFFICIALS AND EMPLOYEES ETHICS ACT

 

      The Department is not maintaining time sheets for its employees in compliance with the State Officials and Employees Ethics Act (Act).  The Act (5 ILCS 430/5-5(c)) states, “The policies shall require State employees to periodically submit time sheets documenting the time spent each day on official State business to the nearest quarter hour.”

 

      We noted that only 75 of the 1,745 average Department employees maintained time sheets in compliance with

the Act.  Most employees’ time is generally tracked using the Central Management Services payroll system, which is a “negative” timekeeping system whereby the employee is assumed to be working unless noted otherwise.  No time sheets documenting the time spent each day on official State business to the nearest quarter hour are maintained for the majority of Department employees.  (Finding Number 14, page 43)

 

      We recommended the Department establish an appropriate mechanism that will enable all employees to maintain time sheets in compliance with the Act. 

 

      Department officials concurred with the recommendation and stated that the ongoing Shared Services initiative will be focusing on a statewide time keeping solution. 

 

NONCOMPLIANCE WITH THE FISCAL CONTROL AND INTERNAL AUDITING ACT

           

      The Department’s Illinois Office of Internal Audit (IOIA) did not complete audits of all major systems of internal accounting and administrative control as required.

 

      The Fiscal Control and Internal Auditing Act (Act) (30 ILCS 10/2003) requires the internal auditing program include audits of major systems of internal accounting and administrative control be conducted on a periodic basis so that all major systems are reviewed at least once every two years.  For the two year audit period ending June 30, 2006, the IOIA planned to conduct 196 audits but only completed 46 audits (23%) with an additional 24 audits (12%) in progress. (Finding Number 16, page 45)

 

      We recommended the Department comply with the Fiscal Control and Internal Auditing Act by ensuring that audits of all major systems of internal accounting and administrative control be conducted at least once every two years and that independent reviews of major new computer systems and major modifications to those computer systems are performed. 

 

      Department officials concurred with the recommendation and stated they will effectively allocate resources to ensure compliance with the Fiscal Control and Internal Auditing Act.

 

 

INADEQUATE MONITORING OF INTERAGENCY AGREEMENTS

 

      The Department’s process to monitor interagency agreements was inadequate.  During our examination of four interagency agreements between the Department and the Governor’s Office of Management and Budget the following deficiencies were noted:

 

·        4 of 4 (100%) interagency agreements tested were signed 127 to 385 days after the effective date. 

 

·        1 of 4 (25%) interagency agreements tested pertaining to legal services did not include supporting documentation detailing the methodology used for determining the percent allocation to be paid by the Department for billing of shared services.

 

·        4 of 4 (100%) interagency agreements tested had services invoiced prior to the effective date of the agreement totaling $387,488.

 

·        1 of 4 (25%) interagency agreements pertaining to legal services had the same expense paid twice totaling $10,986.

 

                  The Department enters into multiple agreements with other State agencies and other units of government.  The purpose of the agreements is to assist the Department in fulfilling its mandated mission.  In order to assess whether the agreement is reasonable, appropriate, and sufficiently documents the responsibilities of the appropriate parties, the agreement needs to be approved prior to the effective date, include proper documentation supporting the percent allocation used for billings, and include proper support for payments to vendors.  (Finding Number 17, pages 46-47)

 

      We recommended that the Department ensure all interagency agreements are approved by an authorized signer prior to the effective date of the agreement.  Additionally, the Department should take the necessary steps to increase monitoring of the billings and expenses submitted by the contractors and request refunds in instances where the Department determines that the contractor was overpaid.  Further, the Department should require all interagency agreements include methodology supporting the percent allocations used for billing of shared services.

 

      Department officials concurred with the overall recommendations, noting however, that all affidavits regarding these contracts were properly executed and filed, and all Comptroller rules were met.

 

OTHER FINDINGS

 

      The remaining findings are reportedly being given attention by the Department.  We will review the Department’s progress toward the implementation of our recommendations in our next engagement.

 

AUDITORS’ OPINION

 

      Our auditors stated the Department’s financial statements as of and for the year ended June 30, 2006 are fairly presented in all material respects.

 

 

 

 

___________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:KAL:pp

 

SPECIAL ASSISTANT AUDITORS

 

      Sikich LLP was our special assistant auditor for this engagement.