REPORT DIGEST

 

DEPARTMENT OF FINANCIAL AND PROFESSIONAL REGULATION

 

FINANCIAL AUDIT

AND COMPLIANCE EXAMINATION

For the Year Ended:

June 30, 2006

 

Summary of Findings:

Total this audit†††††††††           29

Total last audit†††††††††           34

Repeated from last audit ††††††22

 

 

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

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

http://www.auditor.illinois.gov

 

 

 

SYNOPSIS

 

®       The Department has not consolidated many aspects of its administrative processes as intended by the Governorís Executive Order Number 6 (2004).

 

®       The Departmentís process to monitor interagency agreements was inadequate.

 

®       The Departmentís Division of Professional Regulationís Enforcement Unit did not perform and/or document enforcement activities in a timely or sufficient manner.

 

®       The Departmentís Division of Financial Institutionís Consumer Credit Section did not comply with various statutory requirements.

 

®       The Departmentís Division of Insurance failed to issue timely refunds to insurance companies for overpayment of the annual privilege tax as required by the Illinois Insurance Code.

 

®       The Department did not perform timely reconciliations of Department receipt records to the State Comptroller records.

 

®       The Department did not maintain adequate controls over the processing, approval and payment of vouchers as required by the Illinois Administrative Code and Department policy.

 

®       The Department is not maintaining time sheets for certain employees in compliance with the State Officials and Employee Ethics Act.

 

®       The Department did not have a current, tested disaster contingency plan that addresses the recovery of computer systems for all of its divisions.

 

®       The Secretary of the Department did not appoint the required number of members to the various Boards in order to fill vacancies.

 

®       The Department did not fully implement three of nine recommendations presented in the Management Audit of Group Workersí Compensation Self-Insured Pools.

 

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

 


 

DEPARTMENT OF FINANCIAL AND PROFESSIONAL REGULATION

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

For The Year Ended June 30, 2006

 

EXPENDITURE STATISTICS

FY 2006

FY 2005

Total Expenditures (All Funds)........................

$81,981,481

$81,855,692

Personal Services..................................................

††††† % of Total Expenditures...................................

††††† Average Number of Employees.......................

††††† Average Salary per Employee..........................

$45,692,058

55.7%

804

$57,204

$46,599,681

56.9%

825

$56,484

Other Payroll Costs (FICA, Retirement)................

††††† % of Total Expenditures...................................

$17,994,784

22.0%

$22,027,566

26.9%

Contractual Services..............................................

††††† % of Total Expenditures...................................

$8,493,036

10.4%

$3,963,300

4.8%

Electronic Data Processing.....................................

††††† % of Total Expenditures...................................

$1,958,455

2.4%

$1,627,986

2.0%

Travel....................................................................

††††† % of Total Expenditures...................................

$1,758,128

2.1%

$1,767,361

2.2%

Lump Sum and Awards and Grants........................

††††† % of Total Expenditures...................................

$2,202,915

2.7%

$1,936,494

2.4%

Other Expenditures................................................

††††† % of Total Expenditures...................................

$1,928,721

2.3%

$1,914,421

2.3%

Non-Appropriated Funds Total.............................

††††† % of Total Expenditures...................................

$1,953,384

2.4%

$2,018,883

2.5%

Cost of Property and Equipment........................

Total Cash Receipts Collected..........................

$14,305,902

$511,987,555

$15,329,889

$536,418,399

SELECTED ACTIVITY MEASURES (not examined)

FY 2006

FY 2005

Examinations Completed:

Financial Institutions..................................

Insurance Financial Statement Analysis......

Insurance Field Financial/Pension Fund......

Insurance Market Conduct........................

Banks and Trust Companies......................

Thrift and Mortgage..................................

Number of Licensees:

Financial Institutions..................................

Insurance (New/Renewal Processed)........

Banks and Trust Companies......................

Residential Finance....................................

Professions (New/Renewals Received)......

Enforcement:†††

Complaints Received.................................

Complaints Closed....................................

Cases Closed at Investigations...................

Cases Referred to Prosecution..................

Cases Closed at Prosecution.....................

 

 

3,210

425

146

22

489

191

 

3,389

64,810

1,388

2,236

496,108

 

9,682

9,381

4,937

2,029

1,214

 

 

2,798

437

148

32

542

451

 

3,249

66,823

1,411

1,985

339,004

 

9,195

9,548

431

3,590

1,293

 

 

AGENCY HEAD

During Audit Period:Mr. Fernando Grillo (until 9/05); Mr. Dean Martinez (beginning 9/05)

Currently:Mr. Dean Martinez

.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Many aspects of the Department not consolidated as intended by Governorís Executive Order #6 (2004)

 

 

 

 


Lack of standardized controls and consistent department-wide procedures were the cause of many of the findings in this report

 

 

 

 

Lack of consolidation

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Computer disaster contingency plan not standardized

 

 

 

 

 

 

 

 


Multi-year $699,880 agreement with a consultant to assist with the consolidation

 


The Department will be well into its third or fourth year of existence until recommendations can be implemented

 

 

 

 

 

 

 

Department officials disagreed with the finding

 

 

 

 

 

 


Auditorsí comment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Inadequate process to monitor interagency agreements

 

 

 

 

 


Interagency agreements were not signed before the effective date of the contract

 


Failure to document allocation methodology

 

 

 

Services performed prior to effective date of agreement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Failure to document enforcement activities in a timely or sufficient manner

 

 

 

 

 

 

 

 

 


Investigative files could not be located

 


Files did not include anInvestigative Report

 

 

 

 

 

 

 

 

Prosecution case files could not be located

 

 

 

 


The Chief Prosecutor was late in reviewing and assigning cases

 

 

 

 

 


Probation files could not be located

 

 

 

 

 


Files did not include the acknowledgement letter sent to the complainant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The Department did not agree with our conclusion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Auditorsí comment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Installment Loan licensee files

 

 


Annual examination lacking

 

 

 

Examinations were filed late

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Department disagrees

 

 

 

 

 

 

 

 

 


Auditorsí comments

 

 

 

 

 

 

 

 

 

 

 

 


Refunds were issued late

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FY 06 monthly receipt reconciliations were not started until FY 07 and were not completed until September 2006

 

 

 

 

 


Department officials stated the receipt reconciliations are complicated by several legacy financial systems

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vouchers were approved late

 

 


Vouchers did not document the date of receipt of a proper bill

 


Interest payments not remitted to vendors

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Department maintains they have adequate controls

 

 

 

 

 

 

 

Auditorsí comment

 

 

 

 

 

 

 

 

 

 

 

Timesheets not maintained for union employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lack of disaster contingency plan

 

 


The Department maintains 115 servers and 1,137 PCs

 

 

 

 

 

 

Only the Division of Insurance plan had been recently tested

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Department officials expect the responsibility for disaster contingency plans to be assigned to DCMS

 

 

 

 

 

 

 

 

 

 


Social Work Examining and Disciplinary Board

 

 

 

Board of Nursing

 

 

 

 

 

 

State Pharmacy Board

 

 

 

 


Board of Orthotics, Prosthetics and Pedorthics

 

 

 

 

 

 

Board of Currency Exchanges

 

 

 

 

 

State Banking Board

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Pools included members with dissimilar risk characteristics

 

 

 

 


Neither statute or rule defines homogenous risk

 

 

 

 

 

 

 

Pools in runoff (inactive) lack payroll

 

 

 

 

 

 

 

 


Fund assets insufficient

 

 

 

 

 

Only $564 thousand of more than$1.3 million in assessments has been collected

 

 

 


Department officials represented that pending lawsuits impact changes to laws and regulations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Department response

 

 

 

 

 

 

 

 

 

 

Auditorís comment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTRODUCTION

 

This report presents our State compliance examination of the Department of Financial and Professional Regulation and our financial audit of the Security Deposit Fund for the year ended June 30, 2006.

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

ADMINISTRATIVE PROCESSES NOT FULLY CONSOLIDATED

 

The Department has not consolidated many aspects of its administrative processes as intended by Governorís Executive Order Number 6 (2004) (Executive Order).

 

††††††††††† The Department of Financial and Professional Regulation was established on July 1, 2004 when the functions of the former Department of Professional Regulation, Department of Financial Institutions, Department of Insurance and Office of Banks and Real Estate, referred to here as ďlegacy agenciesĒ, were merged in accordance with the Executive Order.

 

††††††††††† During our examination, we noted many of the operational and administrative processes had not been consolidated, but continued to be performed in a decentralized manner by each legacy agency.Lack of consolidation, standardized controls and consistent department-wide procedures were the cause of many of the findings in this report.Specific problems noted were as follows:

 

        The Departmentís annual accounting reports (GAAP reporting packages) submitted to the Illinois Office of the Comptroller were prepared separately by each legacy agency.

 

        Receipts processing is not consolidated.†††

 

        Reconciliations to State Comptroller fund records were performed separately by each legacy agency.

 

        There were inconsistent requirements for employee evaluations among the four legacy agencies.

        Policies and procedures over vehicle reporting and operations for the four legacy agencies had not been standardized.

 

        The Departmentís computer disaster contingency plans are not standardized and consist of the four legacy agency plans.

 

The Executive Order was issued by the Governor on March 31, 2004 and gave the four legacy agencies only three months to plan the consolidation.However, the weaknesses noted above were still ongoing during our examination fieldwork, several months after the end of fiscal year 2006.

 

The Department entered into a multi-year agreement with a consultant at a cost of $699,880 ($200,000 in fiscal year 2005 and $499,880 in fiscal year 2006) to assist and support the consolidation.Recommendations for ďshould beĒ processes for the consolidated agency were received April 4, 2006, and the Department is in the process of evaluating the recommendations.Based on the timetable, the Department will be well into its third or fourth year of existence until recommendations can be implemented.(Finding 1, pages 15-20)

†††††††††††

We recommended the Department continue its consolidation efforts including an overall standardization of business practices throughout the Department.Further, the Department should accelerate its efforts to standardize business practices to comply with the Executive Order.

 

Department officials disagreed with the finding and acknowledged that the Audit Report demonstrates that there is work still to be completed.The Department stated they are moving on a steady, efficient and responsible pace towards absolute consolidation of the entire agency and noted it had made progress since last yearís audit resulting in the elimination of 12 repeat findings.

In an auditorsí comment we acknowledged that the Department had made progress in its consolidation efforts, but noted there are several areas which had not been consolidated, as specifically identified in the finding.Auditors noted that in its response, the Department identified several areas where progress was made, but much of this was not completed until fiscal year 2007, which was after our examination period.

 

Auditors also noted that many unconsolidated areas were in the fiscal office, where the Department acknowledged separate legacy systems, including separate revenue/receipts systems, still exist and many of the weaknesses noted in this report were a result of inconsistent legacy policies and procedures utilized by the Department during the examination period.

 

 

NEED TO IMPROVE MONITORING OF INTERAGENCY AGREEMENTS

 

The Departmentís process to monitor interagency agreements was inadequate.

 

During our examination of two interagency agreements between the Department and the Governorís Office of Management and Budget, the following deficiencies were noted:

 

        2 out of 2 (100%) interagency agreements tested, totaling $55,640, were not signed by all necessary parties before the effective date.The agreements were signed 174-294 days late.

 

        1 out of 2 (50%) interagency agreements tested pertaining to legal services, totaling $25,640, 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.

 

        1 out of 2 (50%) interagency agreements pertaining to legal services had services invoiced prior to the effective date of the agreement totaling $25,640.(Finding 2, page 21)

 

We recommended the Department ensure all interagency agreements are approved by an authorized signer prior to the effective date of the agreement.Further, the Department should require all interagency agreements include methodology supporting the percent allocations used for billing of shared services.

 

Department officials concurred with our recommendation and stated it would take the necessary steps to ensure that the recommendations of the auditors are implemented for future interagency agreements.

 

 

NEED TO IMPROVE TIMELINESS AND DOCUMENTATION OF ENFORCEMENT ACTIVITIES

 

The Departmentís Division of Professional Regulationís Enforcement Unit did not perform and/or document enforcement activities in a timely or sufficient manner.

 

††††† The Department has established and implemented guidelines and time frames for significant investigation, prosecution, and probation/compliance activities of the enforcement unit.Since the Department did implement guidelines to ensure that the investigation and prosecution activity is initiated and completed within reasonable time parameters, we used their guidelines and time frames as the criteria for our tests.

 

††††††††††† We reviewed 34 investigation files and noted numerous deficiencies, including the following:

 

        In 12 out of 34 (35%) case files reviewed, the Department was unable to locate the case files or any supporting documentation for the case.

 

        In 9 out of 34 (26%) case files reviewed, an Investigative Report was not included in the file.

 

        In 4 out of 34 (12%) case files reviewed, significant activities had not been completed for normal cases within 90 days of receiving the complaint.

 

We reviewed 25 prosecution files and noted numerous deficiencies, including the following:

 

        In 5 out of 25 (20%) case files reviewed, the Department was unable to locate the case file or any supporting documentation for the case.

 

        In 7 out of 25 (28%) case files reviewed, an Investigative Report was not included in the file.

        In 4 out of 25 (16%) case files reviewed, the Chief Prosecutor did not review and assign the case within 30 days of referral.For these cases, the review and referral ranged from 41 to 110 days late.

 

We reviewed 16 probation files and noted numerous deficiencies, including the following:

 

        In 1 out of 16 (6%) case files reviewed, the Department was unable to locate the case file or any supporting documentation for the case.†††

 

        In 11 out of 16 (69%) case files reviewed, an Investigative Report was not included in the file.

 

        In 8 out of 16 (50%) case files reviewed, the acknowledgement letter sent to the complainant was not maintained in the case file.Therefore, we were unable to determine if one was completed or filed within 30 days of initial receipt.††

 

††††††††††† In carrying out the Departmentís mission to serve, safeguard, and promote the public welfare, the Department has a responsibility to expeditiously discipline licensees who violate the governing regulations to prevent further harm to the public.Continued deficiencies in the enforcement process place the public at risk to licensees who are not fulfilling their responsibilities.(Finding 3, pages 22-25)This finding was first reported in 2004.

 

††††††††††† We recommended the Department comply with the State Records Act and maintain the documentation required within its Enforcement Unit files.Further, the Department should allocate the resources necessary to comply with its internal guidelines for the Enforcement Unit to ensure that case files and the Regulatory Administration and Enforcement System reflect necessary and significant investigative, prosecution, and probation/compliance activities within the Departmentís established time frames.

 

††††††††††† The Department concurred with the recommendation in that the investigators and prosecutors should perform and document their activities within the timeframes and in the manner as set by the policy manual.However, the Department did not concur with the conclusion that enforcement files that are not in strict compliance with the policy manual creates a significant public risk.

 

The Department stated that the policy manual guidelines are internal guidelines and noted that not all aspects of an investigation or prosecution are within the control of the Department.The Department stated it would develop a written case review policy and directive and work with IT to develop automated notices to inform the Chiefs when cases fall outside of policy timelines.Further, the Department is undertaking a complete revision of the enforcement policy manual.(For previous Department response, see Digest Footnote #1.)†††

 

In an auditorsí comment, we did not concur with the Departmentís assertion that enforcement files not in strict compliance with the policy manual do not create a significant public risk.Also, we noted that one of the Departmentís primary responsibilities is to regulate professions.Since the Department regulates thousands of individuals and businesses, it is imperative the Department have strong standardized policies and procedures for its Enforcement Unit.Auditors are holding the Department to its own policies and procedures.If these are inadequate, the Department needs to modify its policies and procedures.

 

As evidenced by the numerous exceptions noted above, the Departmentís documentation and recordkeeping in its Enforcement Unit needs significant improvement.Failure to expeditiously discipline licensees who violate governing regulations does indeed place the public at risk to licensees who are not fulfilling their responsibilities.

 

 

NEED TO IMPROVE CONTROLS IN THE CONSUMER CREDIT SECTION

 

The Departmentís Division of Financial Institutionís Consumer Credit Section did not comply with various statutory requirements of the Department.

 

††††††††††† During our review of the eight areas within the Consumer Credit Section, we noted exceptions in 14 of 20 (70%) Consumer Installment Loan Act (CILA) licensee files tested:

 

        2 out of 20 (10%) CILA files tested did not have an annual examination performed as required by the Consumer Installment Loan Act.

†††††

        6 out of 20 (30%) CILA files tested did not contain an annual report submitted timely, as required by Consumer Installment Loan Act.The annual reports were submitted from 2 to 92 days late.

 

        11 out of 20 (55%) CILA files tested did not contain an annual license fee submitted timely, as required by the Consumer Installment Loan Act.(Finding 4, pages 26-28)

 

††††††††††† We recommended the Department strengthen internal controls to ensure all statutory requirements are strictly adhered to, including the review of Department rules and policies to ensure all statutory requirements are properly addressed.Further, the Department should review all licenseesí files to ensure adequate documentation exists, and take measures to terminate licenses where statutory provisions are not met.

 

Department officials concurred that 2 of 20 files in the sample did not have examinations conducted in fiscal year 2006.  However, Department officials disagreed with bullet points two and three and stated it had taken sufficient measures to monitor and control the submission of annual reports and fees.The Department noted that penalties for failure to submit these items in a timely manner are discretionary and have been assessed when deemed appropriate and that other than issuing fines the Department has no other means to force a licensee to submit the required information.Per statute, licenses automatically expire if not renewed by December 31.

 

††††††††††† In an auditorsí comment, we noted the Department did not dispute the facts that CILA files did not contain an annual report submitted timely or an annual fee submitted timely.Regardless of controls, these exceptions are in noncompliance with the Consumer Installment Loan Act.

 

 

UNTIMELY REFUNDS ISSUED TO INSURANCE COMPANIES

 

The Departmentís Division of Insurance failed to issue timely refunds to insurance companies for overpayment of the annual privilege tax as required by the Illinois Insurance Code (Code).

 

During our examination of the Departmentís issuance of refunds, the Department failed to issue refunds totaling $112,418 in a timely manner for 4 out of 25 (16%) refunds tested, ranging from 1 to 285 days late.

 

Department personnel stated written requests for refunds are often submitted with the tax return, and may not be noted by the Department until a random audit or follow up call by the company.In addition, due to peak workload during March through June of each year, the refund process has a low priority.(Finding 6, page 31)

 

We recommended the Department issue the required refunds to insurance companies for overpayments of the privilege tax within the 120 day requirement set forth by the Code.

 

Department officials concurred with our recommendation and stated it would make every effort to issue the cash refunds as promptly as possible in the future.

 

 

 

FAILURE TO TIMELY RECONCILE DEPARTMENT RECEIPT RECORDS TO THE STATE COMPTROLLER RECORDS

 

The Department did not perform timely reconciliations of Department receipt records to the State Comptroller records, as required by the Statewide Accounting Management System (SAMS).

 

During the engagement period, the Departmentís receipts totaled $512,158,794.Receipts are collected by the Department through five different cash systems.Our testing of monthly receipt reconciliations of Department records to the Comptrollerís SB04 Report noted the Departmentís Division of Professional Regulation failed to perform timely receipt reconciliations for all twelve months of fiscal year 2006 in a timely manner.All monthly reconciliations were not started until after fiscal year 2006 year end (July 2006) and not completed until September 2006.

 

Department personnel stated the timeliness and accuracy of receipt reconciliations are complicated due to the use of several legacy financial systems and the current implementation process of the Integrated Licensing and Enforcement System (ILES) system for the Division of Professional Regulation.The implementation of the ILES system has been initiated, but was not completed until fiscal year 2007.(Finding 7, pages 32-33)This finding was first reported in 2003.

 

We recommended the Department ensure monthly reconciliations are performed in accordance with SAMS procedures to ensure accurate financial reporting.

 

Department officials concurred with our recommendation and stated it had taken interim steps to consolidate the receipt reconciliations responsibilities within the Financial Reporting Section of the Division of Fiscal Operations.(For previous Department response, see Digest Footnote #2.)

 

 

NEED TO IMPROVE CONTROLS OVER VOUCHER PROCESSING, APPROVAL AND PAYMENT

 

The Department did not maintain adequate controls over the processing, approval and payment of vouchers as required by the Illinois Administrative Code and Department Policy.

 

During our testing of invoice vouchers processed during the examination period, we noted the following:

 

        In 6 out of 60 (10%) invoice vouchers reviewed, the vendor invoices were approved for payment from 2 to 37 days late;

 

        In 10 out of 60 (17%) invoice vouchers reviewed, the vendor invoices were not properly documented to identify the date of receipt of a proper bill;

 

        In 6 out of 60 (10%) invoice vouchers reviewed, interest payments were not properly remitted to the vendors, totaling $69;

 

        In 4 out of 50 (8%) invoice vouchers reviewed, there was no copy of the required purchase order with the voucher.(Finding 10, pages 37-38)This finding was first reported in 2003.

We recommended the Department follow established policies and procedures to ensure invoice vouchers are processed, approved and paid in a timely manner.Further, the Department should perform the calculations necessary to determine if they owe any vendors interest and pay required charges.

 

 In its response Department officials stated they believe adequate controls over processing, approval and payment of vouchers are maintained.The Department noted that the majority of processing delays were due to vendor invoice problems and internal questions related to vendor invoices that required time to review and confirm vendor billing accuracy (ďproper billĒ as defined).(For previous Department response, see Digest Footnote #3.) 

 

  In an auditorsí comment, we noted that the Department did not dispute the facts noted in the finding.Processing delays may have been due to vendor invoice problems and internal questions relative to vendor invoices.However, as noted in the finding, the reasons for delays were not documented so auditors could not determine when the invoice was a ďproper billĒ.Auditors noted the Department still has a responsibility to comply with the Illinois Administrative Code and Department policy to ensure vouchers are processed, approved and paid in a timely manner.

 

 

TIMESHEETS NOT MAINTAINED FOR CERTAIN EMPLOYEES

 

The Department is not maintaining time sheets for union employees in compliance with the State Officials and Employees Ethics Act (Act).

 

The Department expended $39,725,118 for payroll and related costs and had an average of approximately 500 union employees during fiscal year 2006.

 

During the engagement period, the Department implemented an additional timekeeping system that is primarily used to track time for merit compensation employees.This system does track time employees spend on State business, but is not used for union employees.(Finding 11, page 39)This finding was first reported in 2004.

 

We recommended the Department amend its policies to require all employees to maintain time sheets in compliance with the Act.†††

 

 Department officials concurred with our recommendation and stated it was reviewing and addressing the timekeeping procedures for all Department union employees.(For previous Department response, see Digest Footnote #4.)

 

 

 

LACK OF AN ADEQUATE DISASTER CONTINGENCY PLAN FOR COMPUTER SYSTEMS

 

The Department did not have a current, tested disaster contingency plan that addresses the recovery of computer systems for all of its divisions.

 

  The Department utilizes mainframe, midrange and microcomputer networks comprised of approximately 115 servers and 1,137 PCs to run its critical applications.The Divisions of Banking and Professional Regulation rely heavily on information systems to track and process thousands of licenses for the State.Recovery procedures for these systems had not been formally documented.

 

 The Department provided documentation of disaster recovery procedures for its legacy agencies, however, only the Division of Insurance document was up to date and had been recently tested.

 

The Departmentís Information Technology (IT) functions are being consolidated into the Department of Central Management Services (DCMS).Service Level Agreements have been developed to outline the terms and conditions under which DCMS will provide specified IT services to consolidated agencies.(Finding 19, pages 58-59)

 

We recommended the Department develop and test a comprehensive disaster contingency plan that covers all significant computer systems.The Department should ensure that the responsibilities outlined in its Service Level Agreement are adequately addressed in the Plan.In addition, the Department should work with DCMS to ensure DCMS is complying with its responsibilities as outlined in the Agreement.

 

In its response Department officials stated the move of DFPR servers to DCMS is expected to be completed no later than August 31.  DFPR and DCMS are negotiating an agreement regarding the handling of DFPR servers upon their relocation to CMS.  The agreement, which is expected to be formalized in 2007, explicitly assigns Disaster Recovery responsibilities to DCMS. 

 

 

DEPARTMENT BOARDS NOT FULLY STAFFED

 

The Secretary of the Department did not appoint the required number of members to the various Boards in order to fill vacancies.

 

        The Secretary of the Department did not appoint three members to the Social Work Examining and Disciplinary Board in order to fill vacancies.Vacancies existed for two public members since November 2002 and one licensed social worker since March 2002.†††

        The Secretary of the Department did not appoint a member to the Board of Nursing in order to fill a vacancy and allowed Board positions to be held by individuals with expired terms.During our testing we noted that four of ten (40%) positions were held by individuals with expired terms.One of ten (10%) positions has been vacant since October 2005.

        We noted during our testing of the State Pharmacy Board that one of nine (11%) positions has been vacant since December 2005 and one of nine (11%) positions was held by an individual with term that expired April 2004.

        The Secretary of the Department did not appoint a member to the Board of Orthotics, Prosthetics, and Pedorthics (Board) in order to fill a vacancy and allowed Board positions to be held by individuals with expired terms.During our testing we noted that four of six (67%) positions were held by individuals with expired terms.We also noted that one of six (17%) positions (public consumer) has been vacant since February 2001.

        During our testing of the Board of Currency Exchange Advisors we noted that seven out of seven (100%) board positions were vacant.We noted that one position has been vacant since January 1997, two positions have been vacant since January 1998, two positions have been vacant since January 1999, and two positions have been vacant since January 2001.

        During our testing of the State Banking Board we noted that three of four (75%) Class A positions were vacant and that seven of ten (70%) Class B positions were vacant.

 

Department management stated they are currently reviewing qualified candidates to fill the vacancies.Department management stated it is difficult to find willing candidates to fill the positions.Reappointments were not made due to oversight.(Finding 28, pages 72-74)This finding was first reported in 2004.

 

††††††††††† We recommended the Secretary appoint qualifying members to these Boards as required by the Acts cited and reappoint applicable Board members in a timely manner.In those cases where the Governorís Office is required to appoint the Board members we recommend the Department work with the Governorís Office to fill Board vacancies by appointing qualified members to the Boards.

 

Department officials concurred with our recommendation and stated that it would continue to work with the Office of the Governor to ensure more timely appointments to the various Boards/Committees.(For the previous Department response, see Digest Footnote #5.)

 

 

RECOMMENDATIONS PRESENTED IN THE MANAGEMENT AUDIT OF GROUP WORKERSí COMPENSATION SELF-INSURED POOLS NOT IMPLEMENTED

 

The Department did not fully implement three of nine recommendations presented in the Management Audit of Group Workersí Compensation Self-Insured Pools (Management Audit) conducted by the Office of the Auditor General.

 

The audit was released in January 2003, pursuant to Legislative Audit Commission Resolution Number 121.The following are findings and issues raised in the audit that have not been fully implemented:

 

        The Management Audit found that there were pools in liquidation and some active pools that included members with dissimilar risk characteristics.The Workersí Compensation Pool Law (215 ILCS 5/107a.03) enacted effective January 1, 2001 requires all pools to be comprised of members with homogenous risks.However, neither the statutes nor Department rules define homogenous.According to Department officials, this issue will be resolved by regulations currently in draft form. Department officials have represented that changes in regulations cannot be sought pending resolution of outstanding lawsuits.†† (Recommendation 4)

        The Management Audit found that 12 of the 23 pools licensed at December 31, 2001, either reported gross annual payrolls under $10,000,000, or did not disclose payrolls in their annual statements at all.Of the 9 active pools as of June 30, 2006, all had annual gross payrolls in excess of the statutory requirement.The Department has indicated that pools in runoff (not active) lack payroll.According to Department officials, this issue will be resolved by regulations currently in draft form.Department officials have represented that changes in regulations cannot be sought pending resolution of outstanding lawsuits.(Recommendation 5)

        The Management Audit found that the Group Self-Insurers Workersí Compensation Fund assets did not appear to be sufficient to cover estimated claims against the fund as of June 30, 2002.As of June 30, 2002, the Insolvency Fund balance was $152,051.The estimated claims outstanding against the fund amounted to $1.1 million.The Management Audit recommended the Department ďConsider whether the statutory percentage of semi-annual assessment paid by the pools should be increased to raise the fundís balance and seek legislation to assist in preventing future shortfalls.ĒIn December of 2001, the Director ordered assessments totaling in excess of $1.3 million.However, only $564,018 of these funds has been collected through June 30, 2006.The primary reason for this is that in October, 2002, lawsuits were filed by the pools challenging the constitutionality of the statute.As of June 30, 2006, the outcome of the challenge was still pending.Department officials have represented that changes in legislation cannot be sought pending resolution of outstanding lawsuits.(Recommendation 9)(Finding 29, pages 75-77)This finding was first reported in 2004.

 

We recommended the Department:

 

        Continue in its efforts to enact final rules to define homogeneous for pool membership, and monitor the pool members for homogeneous risks on an ongoing basis;

        Continue in its efforts to enact final rules that would allow waiver of the gross payroll requirement for pools in runoff; and

        Seek a statutory increase to the Insolvency Fund assessments, or show cause why such an increase is not considered necessary.

†††††

Department officials responded that all pools currently have members with homogeneous risks, but it would continue to seek to enact rules to formalize this requirement.  Further, the Department responded that all pools with members currently meet the statutory payroll requirement, but it would continue to seek to enact rules to allow waivers for pools with no members.  The Department also responded that based on its current projections, the insolvency fund was adequate to pay all losses for which the fund is responsible, but that it would continue to evaluate the need to increase the assessments.(For the previous Department response, see Digest Footnote #6.)

 

In an auditorsí comment, we noted that while all active pools have gross payrolls in excess of the statutory requirements, the pools in runoff (not active) do not meet these requirements and continue to subject the Department to unexpected risks.Also, we disagreed with the Departmentís response indicating the insolvency fund is adequate to pay all losses for which the fund is responsible.Management had previously indicated that estimated claims outstanding against the fund amounted to $1.1 million; however, funds available to pay these claims at June 30, 2006 totaled only $375,000.

 

 

OTHER FINDINGS

 

††††† The remaining findings are reportedly being given attention by Agency management.We will review progress toward implementation of our recommendations during our next examination.

 

 

AUDITORSí OPINION

 

††††† Our auditors report the Department of Financial and Professional Regulationís financial statement of the Security Deposit Fund #1109, as of and for the year ended June 30, 2006 is fairly stated in all material respects.

 

 

 

____________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:JAF:pp

 

SPECIAL ASSISTANT AUDITORS

 

††††† Sikich LLP was our special assistant auditors for this audit and examination.

 

DIGEST FOOTNOTES

 

#1 Ė ENFORCEMENT ACTIVITIES NOT PERFORMED TIMELY AND NOT SUFFICIENTLY DOCUMENTED

 

2005: Concur.The Chief of each investigative unit will be instructed to review all investigative files before the files are either closed or sent to the prosecution unit.Further, the Chiefs will regularly review each investigatorís caseload to ensure that all reports are signed and all activity is updated in the RAES system.The Chiefs of the prosecution unit will be instructed to assign cases within 30 days of receipt.Further, they will regularly review the cases of the attorneys to ensure that activity on the files is done within the policy guidelines and that all documentation that must be in the attorney work file is actually there.The Administrative Assistants for each prosecution unit will be instructed to review files referred from the investigations unit to ensure that all of the investigative reports are signed and in the prosecution file.The Administrative Assistant will also review the attorneyís files after the cases are disposed of to ensure that copies of signed Directorís orders are contained in the files.The Chief of the probation unit will be instructed to follow the policy guidelines to ensure that all deadlines are met on a timely basis.The chief will have regular case reviews with the investigators to ensure that the deadlines are enforced and to ensure that all RAES entries are recorded in a timely manner.A manual checklist is being created to ensure all documents and processes have been completed appropriately.Additionally, the Department will explore the capabilities of ILES to provide an automatic method of notifying staff of due dates for processes or actions.

 

#2 Ė FAILURE TO TIMELY RECONCILE DEPARTMENT RECEIPT RECORDS TO THE ILLINOIS OFFICE OF THE COMPTROLLER RECORDS

 

2005: Concur.The Department is working on consolidating numerous legacy receipt systems into a single integrated financial system.As this will be a multi-year project, the agency is taking interim steps to consolidate receipt reconciliation functions within a common area.This will help ensure additional standardization and error checking procedures are implemented until the new system can be developed.The new system will be designed to provide a computerized receipt function.

 

#3 Ė INADEQUATE CONTROLS OVER VOUCHER PROCESSING, APPROVAL AND PAYMENT

 

2005: Concur.DFPR is in the process of implementing a new policy requiring review and approval of invoices by agency managers within a five-day time frame.This will allow sufficient time to process payments in accordance with the 30 day time limit defined in the Illinois Administrative Code.The Accounting Information System (AIS) generates an aging report that can be used to ensure future compliance of the State Prompt Payment Act.

 

#4 Ė TIME SHEETS NOT MAINTAINED FOR UNION EMPLOYEES

 

2005: Concur.In January of this year, the Department implemented an additional timekeeping system for the approximately 200 of its merit compensation employees.This electronic system requires employees to input the time they spend on state business to the nearest quarter hour, and contains controls to ensure that submission of the timesheet each week results in the employees, in effect, certifying their timesheet.The Department policy was communicated via e-mails and training sessions.The Department plans to begin negotiations with the unions to expand this timekeeping system to all union employees later this year.Once this is completed, a formal, written policy will be introduced.

 

 

#5 Ė DEPARTMENT BOARDS NOT FULLY STAFFED

 

2005: Concur.The Department will continue to work with the Governorís Office to fill the remaining vacancies on the State Banking Board of Illinois.

 

#6 - RECOMMENDATIONS PRESENTED IN THE MANAGEMENT AUDIT OF GROUP WORKERSí COMPENSATION SELF-INSURED POOLS NOT IMPLEMENTED

 

2005: Concur.The Division of Insurance will continue its efforts to finalize and submit a regulation to JCAR addressing the issues of similar risk characteristics for the members of each workersí compensation pool.The pool will also address whether any required amount of member payroll is necessary for inactive pools which have no members (pools in runoff).The Division wishes to reiterate that even without the existence of regulation, the members of each of the current active pools are annually reviewed by the Division to assure they maintained the required minimum amount of payroll.The Division will continue its efforts to complete examinations of workers compensation pools within the statutory timeframes.Such examinations are conducted once every five years, while the Division receives and analyses financial statements for every pool every three months, and based on such analysis takes appropriate actions against the pools as warranted.The Division will consider proposing legislation, if necessary, pertaining to the amount of assessments for the workers compensation pool insolvency fund once the litigation challenging the constitutionality of the existing statute is resolved.