REPORT DIGEST DEPARTMENT OF CENTRAL MANAGEMENT SERVICES FINANCIAL AUDIT FOR THE YEAR ENDED JUNE 30, 2017 Release Date: February 22, 2018 FINDINGS THIS AUDIT: 1 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 1 -- 1 Category 2: 0 -- 0 -- 0 Category 3: 0 -- 0 -- 0 TOTAL: 0 -- 1 -- 1 FINDINGS LAST AUDIT: 2 Category 1: Findings that are material weaknesses in internal control and/or a qualification on compliance with State laws and regulations (material noncompliance). Category 2: Findings that are significant deficiencies in internal control and noncompliance with State laws and regulations. Category 3: Findings that have no internal control issues but are in noncompliance with State laws and regulations. State of Illinois, Office of the Auditor General FRANK J. MAUTINO, 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 Full Report are also available on the worldwide web at www.auditor.illinois.gov INTRODUCTION This report covers our financial audit of the Department of Central Management Services for the year ended June 30, 2017. A State compliance examination covering the two years ended June 30, 2017 will be released at a later date. SYNOPSIS • (17-1) The Department’s year-end financial reporting to the Office of the State Comptroller contained errors in the determination of certain year-end account balances. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS WEAKNESSES IN INTERNAL CONTROL OVER FINANCIAL REPORTING The Department’s year-end financial reporting in accordance with generally accepted accounting principles (GAAP) to the Illinois Office of the State Comptroller contained errors in the determination of certain year- end account balances. During the audit of the June 30, 2017 financial statements we noted the following errors for which the Department revised their financial statements: • The Department understated accrued liabilities in the Health Insurance Reserve Fund by $11.849 million due to the exclusion of certain prescription drug benefit liabilities. This misstatement also resulted in an understatement of the amounts due to this fund from the General Revenue Fund and Road Fund. • The Department understated accrued liabilities in the Local Government Health Insurance Reserve Fund, the Teacher Health Insurance Security Fund, and the Community College Health Insurance Security Fund by $247 thousand, $2.032 million, and $199 thousand, respectively, due to the exclusion of certain prescription drug benefit liabilities. • In the prior fiscal year, the Department understated their accrued liabilities and benefit payments in the Community College Health Insurance Security Fund by $8.853 million due to a mathematical error when calculating the accrued liability. The Department restated its financial statements as of July 1, 2016 to correct for these errors. • The Department overstated accounts receivable in the Health Insurance Reserve Fund by $12.423 million due to including a deposit in transit in accounts receivable and cash. It should not have been included in accounts receivable. This misstatement also resulted in an understatement of the amounts due to this fund from the General Revenue Fund and Road Fund. • The Department overstated accounts receivable in the Local Government Health Insurance Reserve Fund, the Teacher Health Insurance Security Fund, and the Community College Health Insurance Security Fund by $296 thousand, $1.898 million, and $215 thousand, respectively, due to including a deposit in transit in accounts receivable and cash. It should not have been included in accounts receivable. (Finding 1, pages 68-70). This finding has been repeated since 2015. We recommended the Department implement procedures and cross-training measures throughout the Department to ensure required financial information is submitted to those responsible for financial reporting in a timely, accurate and complete manner. This should include allocating sufficient staff resources and the implementation of formal procedures to ensure adequate and reliable financial information is prepared and submitted to the Office of the State Comptroller. These procedures should address all elements of the Department’s financial reporting process including, but not limited to, accruals for liabilities and receivables, supervisory review of supporting spreadsheets for data accumulation, and the preparation of management estimates. The Department agreed with the finding and stated they will strive to implement cross- training measures and financial reporting procedures to ensure timeliness, accuracy, reliability and reasonableness of data utilized to perform financial reporting. Additionally, the Department stated they will continue to work diligently to fill key positions to ensure an independent, internal analytical review of calculations is documented and completed timely. (For the previous Department response, see Digest Footnote #1) AUDITOR’S OPINION The auditors stated the financial statements of the Department of Central Management Services as of and for the year ended June 30, 2017, are fairly stated in all material respects. This financial audit was conducted by Sikich, LLP. JANE CLARK Division Director This report is transmitted in accordance with Section 3-14 of the Illinois State Auditing Act. FRANK J. MAUTINO Auditor General FJM:skm DIGEST FOOTNOTES #1 – Weaknesses in internal control over financial reporting 2016: The Department agrees with the finding and recommendation. The Department experienced major transitions during the financial reporting time period including changes in personnel, the shared services de- consolidation, and the creation of the Illinois Department of Innovation and Technology as its own agency. Additionally, the Department continues to work through issues created by the budget impasse. The department will continue to work toward more comprehensive cross-training among staff and will continue to work to improve communications from Bureau staff to Financial Reporting staff. Lastly, the Department will continue to update its financial reporting procedures to help ensure accurate and reliable financial information is prepared and submitted to the Office of the Comptroller.