REPORT DIGEST

OFFICE OF BANKS
AND REAL ESTATE

FINANCIAL AND COMPLIANCE AUDIT
For the Two Years Ended:
June 30, 1998

Summary of Findings:

Total this audit 13
Total last audit 18
Repeated from last audit 10


Release Date:
March 18, 1999


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
Attn: Records Manager
Iles Park Plaza
740 E. Ash Street
Springfield, IL 62703
(217) 782-6046 or TDD (217) 524-4646

This Report Digest is also available on
the worldwide web at
http://www.state.il.us/auditor

SYNOPSIS

  • The Agency did not fully comply with several State-mandated duties and responsibilities.
  • The Agency did not place certain past due accounts receivable in the Comptroller's Offset System. 
  • The Agency failed to allocate receipts for real estate licensing fees to the appropriate funds.
  • The Agency did not have adequate controls in place to ensure supervisory fees were billed timely. This finding has been repeated since 1992.



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



OFFICE OF BANKS AND REAL ESTATE
FINANCIAL AND COMPLIANCE AUDIT

EXPENDITURE STATISTICS

FY 98

FY 97

FY 96

  • Total Expenditures (All Funds)
  • Personal Services
    % of Total Expenditures
    Average No. of Employees:
    Other Payroll Costs (FICA, Retirement)
    % of Total Expenditures
    Contractual Services
    % of Total Expenditures
    Electronic Data Processing
    % of Total Expenditures
    Travel
    % of Total Expenditures
    Other Expenditures
    % of Total Expenditures

  • Cost of Property and Equipment

 

$22,871,441

$13,673,342
59.8%
271
$3,753,894
16.4%
$2,119,130
9.3%
$1,187,307
5.2%
$1,174,750
5.1%
$963,018
4.2%

$4,364,763

$21,446,043

$13,191,871
61.5%
271
$3,351,984
15.6%
$1,809,244
8.4%
$1,275,192
6.0%
$1,206,609
5.6%
$611,143
2.9%

$3,255,460

$20,780,177

$12,846,497
61.8%
283
$3,275,691
15.8%
$1,683,015
8.1%
$1,027,540
4.9%
$1,165,393
5.6%
$782,041
3.8%

$2,956,729

SELECTED ACTIVITY MEASURES

June 30, 1998

June 30, 1997

June 30, 1996

Trust Companies, Trust Departments of State
  Banks, Savings and Loans, and Foreign
  Corporate Fiduciaries Regulated
State Chartered Banks Regulated
Foreign Banking Offices Regulated
Financial Information Systems Regulated
State-Chartered Savings and Loan
  Associations, Savings Banks, and Service
  Corporations Regulated
Mortgage Banking Licenses in Force


Real Estate
  Initial Applications Received
  Renewals Issued
  Cases Opened
Real Estate Appraisers
  Applications Received
  Renewals Issued
  Complaints Against Licenses

 



366
545
36
453


115
1,187

FY 1998

6,608
29,679
699

400
3,800
110



388
571
38
445


142
1,044

FY 1997

6,984
58,646
788

608
20
93



394
616
42
435


125
957

FY 1996

7,820
30,180
700

482
4,186
93

AGENCY COMMISSIONER(S)
During Audit Period: Mr. Jack Schaffer
Currently: Mr. William Darr

 








The Agency has not fully complied with several of its mandated duties and responsibilities















Nine instances of non-compliance with State mandated duties and responsibilities were identified









Late fees assessed but never collected from 2 of 10 mortgage licensees
























































Past due accounts receivable of $73,357 were on the Agency's books at June 30, 1998 which included $27,696 which was past due at June 30, 1997


















$964,447 of real estate licensing fees were not allocated to the appropriate funds





















Quarterly supervisory fees were consistently billed from 1 to 4 months late

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

NONCOMPLIANCE WITH STATE MANDATES
 
The Agency did not fully comply with the provisions of certain State mandates. We selected a sample of the State mandated duties and responsibilities applicable to the Agency to test for compliance. Deficiencies were noted in the following mandates.
  • Illinois Bank Examiners' Education Foundation Act

- 20 ILCS 3210/1-8 requires the Foundation Board of Trustees to hold at least one meeting each calendar quarter. The Board did not meet during one out of eight quarters during the audit period.

- 20 ILCS 3210/1-8 requires the Illinois Bank Examiners' Education Foundation to submit an annual report to the Governor, the General Assembly, and all State chartered banks. The reports for years 1996 and 1997 were not submitted until February 1, 1998.
  • Illinois Banking Act
- 20 ILCS 5/9 requires applications for permits to organize a State bank be acknowledged before an officer authorized by law to acknowledge deeds. Our testing of five applications identified four had not been acknoweldged as required.
  • Residential Mortgage License Act of 1987

- 205 ILCS 635/1-5 requires Board members to file an annual statement of their business transactions or affiliations with licensees. Of 10 statements tested, 7 were filed past the annual deadlines.

- 205 ILCS 635/3-2(d)-(i) requires each residential mortgage licensee to submit an annual audit report or acceptable substitute within 90 days of fiscal year end. During testing of 10 mortgage banking license files, we determined 2 did not submit an annual audit report or acceptable substitute within the required time frame. Late fees were assessed in both instances, but never collected.
  • Real Estate License Act of 1983

- 225 ILCS 455/17 requires the Agency to employ one real estate auditor and one investigator for every 15,000 licenses. We noted the Agency employed 7 investigators but no auditors during the audit period. Based on data received from the Agency, there were approximately 67,960 brokers and salespersons with active licenses as of June 30, 1997. This would require 4 investigators and 4 auditors for compliance with the statute. Agency personnel indicated investigators perform essentially the same job as auditors, and legislation is pending that would eliminate this requirement.

- 225 ILCS 455/21 requires a summary report of final disciplinary actions against real estate licensees to be prepared at least once every other month. According to Agency personnel, reports are currently prepared quarterly.
 
- 225 ILCS 455/13 requires the Agency to mail a listing of all licensees sponsored by each licensed broker to the broker within 60 days after the renewal period. According to Agency officials, reports are currently being prepared quarterly.
 
- 225 ILCS 455/9 states members of the Real Estate Administration and Disciplinary Board may not serve more than eight years, must be appointed to four year terms, and no two members' terms shall expire in the same year. Based on our testing, we noted one member of nine examined served more than eight years; four members terms expired on October 1, 1997, and five members' terms are set to expire October 1, 2001.
We recommended the Agency allocate staff and resources necessary to ensure the Agency is in compliance with its mandates. (Finding 98-2, pages 12-13, Finding 98-5, pages 17-18, and Finding 98-7, pages 20-22)
 
The Agency concurred with the findings and recommendations
 
PAST DUE ACCOUNTS RECEIVABLE
 
The Agency did not place past due accounts receivable in the Comptroller's Offset System. During audit testing, it was noted at June 30, 1997, the Agency had 13 accounts receivable balances totaling $42,521 which were over one year old and had not been placed in the Offset System. Among these accounts was a receivable for $6,925 which was over five years old. At June 30, 1998, the Agency had 23 accounts receivable balances totaling $73,357 which were over one year old and had not been placed in the Offset System. Among these accounts were 10 receivables totaling $27,696 which were also over one year old at June 30, 1997.
 
 
We recommended the Agency routinely review outstanding accounts receivable to determine that collection attempts have been made and that those receivables over $1,000 and one year old are promptly placed in the Comptroller's Offset System. (Finding 98-4, page 16)
 
Agency officials responded that they anticipated this finding would be corrected by January 31, 1999.
 
IMPROPER ALLOCATION OF REAL ESTATE FEES
 
The Agency did not allocate real estate licensing receipts to the appropriate funds. During audit testing, it was noted that $964,447 of receipts for the Real Estate Division were not allocated to the appropriate funds and remained in a clearing account at the Treasurer's Office from July 1997 through November 1997.
 
We recommended the Agency allocate real estate licensing fee receipts to the appropriate funds in a timely manner. (Finding 98-9, page 24)
 
Agency officials stated they concurred with the recommendation and that all receipts are now allocated to their respective funds in a timely manner.
 
INADEQUATE CONTROLS OVER RECEIPT PROCESSING
 
The Agency did not have adequate controls in place to ensure supervisory fees were billed timely. Quarterly supervisory fees were consistently billed from six weeks to four months late. For example, during audit testing of receipts, we noted the following:

Fourth quarter 1996 supervisory fees of $215,480, which should have been billed December 31, 1996 were not billed until March 28, 1997.

Second and third quarter 1997 supervisory fees totaling $227,200 and $225,765, which should have been billed June 30, 1997 and September 30, 1997, respectively, were not billed until November 20, 1997.

First quarter 1998 supervisory fees totaling $250,092 which should have been billed March 31, 1998, were not billed until July 10, 1998.

We recommended the Agency establish controls to ensure supervisory fees are billed on each calendar quarter. (Finding 98-13, page 28) This finding has been repeated since 1992.
 
Agency officials stated they concur with the finding and that rules regarding supervisory fees have been changed. This change and a re-allocation of staff resources to calculate and collect the supervisory fees should bring the Agency into compliance. (For previous Agency responses, see digest footnote #1.)
 
OTHER FINDINGS
 
The remaining findings are less significant and are being given appropriate attention by Agency management. We will review progress toward implementation of our recommendations during our next audit.
 
Ms. Sandra Maxwell, Chief Internal Auditor, provided responses to our recommendations.
 

AUDITORS' OPINION

Our auditors state the financial statements as of and for the years ended June 30, 1998 and 1997 are fairly presented except for: 1) the effects of such adjustments, if any, as might have been determined to be necessary had they been able to examine evidence regarding Year 2000 disclosures, and 2) the Agency omission of a Budget to Actual Statement for the Real Estate Recovery Fund.

____________________________________
WILLIAM G. HOLLAND, Auditor General

WGH:BAR:pp
 

SPECIAL ASSISTANT AUDITORS

Clifton Gunderson L.L.C. were our special assistant auditors for this audit.
 

DIGEST FOOTNOTE

#1 INADEQUATE CONTROLS OVER RECEIPT PROCESSING
 
1996: "The Agency concurs with this finding. All funds are now being billed, collected, and allocated to the appropriate fund in a timely fashion."
 
1994: "This Office concurs with this recommendation. The addition of an Account Technician I to the fiscal area will allow this Office to re-write our cash processing procedures. Already we are having all receipts processed in Springfield rather than in both Springfield and Chicago. This consolidation, together with the additional staff will permit the full implementation of this recommendation."
 
1992: "This Office concurs with this recommendation. Cash receipts received in Chicago are now being restrictively endorsed as the checks received in Springfield have been. Reconciliation procedures are being developed to reconcile receipts directly to the log book. This should be completed and implemented by October 31, 1993.