REPORT DIGEST

 

DUPAGE WATER COMMISSION

 

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

For the One Year Ended:

April 30, 2004

 

Summary of Findings:

Total this audit                             3

Total last audit                         N/A

Repeated from last audit          N/A

 

Release Date:

September 23, 2004 

 

 

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 is also available on

the worldwide web at

http://www.state.il.us/auditor

 

 

 

 

  

SYNOPSIS

 

·        The Commission had an inadequate accounting system. 

 

·        The Commission did not maintain detailed capital asset records.

 

·        The Commission made significant changes to the employee benefits that it offered its employees during fiscal year 2004.

 

·        The Commission entered into a retirement and consulting agreement with its former General Manager.  In the agreement the exiting General Manager released the Commission from all known and unknown claims.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



                                              DUPAGE WATER COMMISSION

                         FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

                                           For The One Year Ended April 30, 2004

 

FINANCIAL OPERATIONS (All Funds)

FY 2004

REVENUES

 

 

      Operating revenues                                           

$52,287,410

 

 

 

 

EXPENSES

 

 

      Operating expenses                                           

    58,963,649

 

 

 

 

            Operating loss                                             

   ($6,676,239)

 

 

 

 

NONOPERATING REVENUES (EXPENSES)

 

 

Sales Tax                                                                

  $31,620,982

 

Investment Income                                                  

      2,321,233

 

Interest and other charges                                        

   (13,810,147)

 

      Net nonoperating revenues                                

  $20,132,068

 

 

 

 

SPECIAL ITEMS

 

 

      Payment  to DuPage County

($75,000,000)

 

      Payments for defined benefit pension plan

(1,381,301)

 

 

 

 

CHANGE IN NET ASSETS

($62,925,472)

 

 

 

 

NET ASSETS

 

 

Net Assets, May 1, 2003

$368,777,681

 

Net Assets, April 30, 2004

$305,852,209

 

OTHER SIGNIFICANT ACCOUNT BALANCES

AT APRIL 30,

2004

Cash and Investments                                              

Accounts Receivable                                               

Capital Assets and Construction in Progress            

Total Assets                                                          

Accounts Payable and Accrued Liabilities                

Accrued Interest Payable

Due to DuPage County                                           

Bonds Payable                                                        

Total Liabilities                                                    

Net Assets – Invested in capital assets                     

Net Assets – Unrestricted                                       

Total Net Assets                                                  

$189,039,636

$13,372,964

$376,662,534

$588,417,849

$4,145,964

$4,581,570

$60,000,000

$209,464,875

$282,565,640

$182,164,171

$95,116,176

$305,852,209

 

GENERAL MANAGER

During the audit period:     Mr. James Holzwart (through February 27, 2004)

                                         Mr. Robert L. Martin (effective April 7, 2004)

Currently:                          Mr. Robert L. Martin


 

 

 

 

 

 

 

The Commission’s linked electronic spreadsheets do not constitute an adequate accounting system

 

 

 

 

 

Internal control weaknesses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The Commission’s capital asset records lack sufficient detail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement Plan Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Resolution Pertaining to Bonuses

 

 

 

 

 

 

 

 

 


The Commission paid $1,381,301 to employees to assist them in converting to a new retirement plan pursuant to Resolutions passed

 

 

 

 

 

 

 

 

 

 

 


Retirement Incentive Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The Commission paid $239,744 to retiring employees in Fiscal Year 2004 for retirement incentives

 

 

 

 

 

 

 

 

 

 

 

 

Retirement Agreement

 

 

 

 

 


Consulting Agreement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Release From Known and Unknown Claims

 

 


The Commission paid $209,787 to the former General Manager pursuant to a retirement and consulting agreement in FY04

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

NEED TO IMPROVE ACCOUNTING SYSTEM

 

      The Commission has an inadequate accounting system.

 

      The Commission has created a series of linked electronic spreadsheets using Microsoft Excel, which function as its accounting system.  The Commission’s daily activity is manually entered as journal entries into these spreadsheets.  This does not constitute an adequate accounting system.

 

      Although the present system has certain advantages, it also has serious weaknesses in terms of maintaining an adequate system of internal control.  Management has the ability to manipulate the data.  The biggest risk is the potential to add erroneous data, delete or modify historical data, or create unsubstantiated journal entries.  In addition, within the current system, a formula change or error could be made and go undetected/uncorrected.

 

      According to Commission management, the Commission is considering purchasing a commercial accounting software package, but has not yet completed an investigation of their needs or assessed the various software packages available. (Finding No. 1, Page 9)

 

      We recommended, and Commission officials agreed to acquire an adequate accounting software package for all of its accounting transactions.

 

 

NEED TO IMPROVE CAPITAL ASSET RECORDS

 

      The Commission did not have detailed capital asset records.

 

      The Commission maintains records of the historical cost of capital assets by pools (similar assets constructed or purchased at once), but does not maintain records of the individual capital asset items within the pools.

 

      Good internal controls necessitate the need for detailed capital asset records.  Without such records, it is difficult to accurately account for deletions, replacements, depreciation and physical existence of capital assets.

 

      According to Commission personnel, the capital asset accounting records have been maintained this way for years, and significant research will need to be done to establish a detailed listing of individual capital assets.  (Finding No. 2, Page 10)

 

      We recommended, and Commission officials agreed to conduct a physical inventory of its capital assets, research the historical cost, acquisition date and accumulated depreciation, and then maintain the information, in detail, on an ongoing basis.

 

OTHER FINDING

 

      The remaining finding is less significant and is reportedly being given adequate attention by the Commission.

 

      Agency responses were provided by Mr. Robert L. Martin, General Manager of the Commission on September 1, 2004.

 

 

OTHER MATTERS

 

CHANGES TO EMPLOYEE BENEFITS DURING YEAR

 

      During the fiscal year ended April 30, 2004, the Commission enacted significant changes to its employee benefit programs.

 

Until April 19, 2003, the Commission had provided its employees with a Simplified Employee Pension - Individual Retirement Account (SEP-IRA), which was funded by the Commission at 8% of base pay.  A self-directed Individual Retirement Account was maintained for each participant, and each participant had a fully vested interest in his/her retirement account balance.  As of April 19, 2003, the Commission elected to have the Illinois Municipal Retirement Fund (IMRF) provide its retirement plan.  Consequently, contributions to the SEP-IRA were terminated, and a portion of each employee’s assets was rolled over from the SEP-IRA plan to the IMRF plan.  The remaining employee assets remain in each participant account to be drawn at retirement. 

 

Contributions to IMRF began on May 1, 2003.  The employer contribution to the plan, paid by the Commission in calendar year 2003 totaled $302,762.  On April 10, 2003, the Commission also passed a resolution to assist employees in funding the employee’s share of the cost of converting prior service with the Commission into IMRF creditable service.  The resolution permitted the Commission to pay up to $1,400,000 in bonuses to its current employees to reward them for meritorious performance and to assist them in funding the employee’s share of the cost of participating in the IMRF pension system.  The Commission also approved a resolution to allow employees who served in the armed forces to receive up to two years of service credit in the IMRF for their prior military service.  On September 11, 2003, the Commission approved a resolution that authorized the Commission to pick-up, including taxes and withholdings, the employee’s share of the cost of converting the military service credit into IMRF credit.   During fiscal year 2004, $1,381,301 was paid to current employees pursuant to these resolutions.  These employee bonuses were financed from the rate stabilization reserve sub-account of the General Account of the Water Fund. 

 

As a result of these resolutions, the five most senior employees of the Commission were immediately 100% vested with IMRF.  All remaining employees were 60% - 89% vested.  These remaining employees have a period of five years to buy back their remaining service credit.

 

On July 17, 2003, the Commission approved a resolution to adopt a retirement incentive program for the fiscal year ending April 30, 2004.  The resolution grants certain benefits to eligible employees whose effective date of retirement from the Commission occurred within fiscal year 2004.  Those employees were entitled to receive:

 

 

·        Approximately 23% of the eligible employees base salary, exclusive of overtime in the final year of employment, and

 

·        Approximately 2% of the eligible employees base salary, exclusive of overtime in the final year of employment, for each year of regular full-time employment with the Commission.

 

All retirement incentive benefits were to be paid to retiring employees no later than 91 days and no more than 120 in advance of the effective date of retirement.  Four Commission employees exercised their option to retire during fiscal year 2004, and consequently received the benefits of this resolution.  The cost of these benefits to the Commission was $239,744, which was paid in fiscal year 2004.  (Page 52)

 

 

AGREEMENT WITH FORMER GENERAL MANAGER

 

      The Commission entered into a retirement and consulting agreement with the former General Manager on September 11, 2003. 

 

      The retirement agreement provided for the payment of accrued unused personal leave days upon retirement, the receipt of 240 days of sick leave to be used (but not paid for) during the term of the contract, and retirement incentives in accordance with the resolution summarized above (Changes to Employee Benefits).

 

      The consulting agreement requires the former General Manager to provide basic consulting services to the Commission for a period of 10 years following retirement (February 27, 2004), as well as consulting services on specified projects during the 2 years immediately following retirement.  The agreement specifies the amount of compensation to be paid to the former General Manager for each type of service provided.

 

      The total payments to the former General Manager for the basic services and specified projects shall be an initial payment of $107,536 and an additional $5,000 per year (less applicable taxes), for up to 10 years.  For basic services and services on specified projects that exceed 410 hours in a year, the former General Manager will receive $135 per hour in the first year following retirement and $145 per hour in the second year following retirement.  The contract provides for termination of the agreement 1) by mutual agreement, 2) by either the former General Manager or the Commission under certain circumstances, or 3) in the event of the death of the former General Manager. 

 

      In the agreement, the exiting General Manager released the DuPage Water Commission from all known and unknown claims, including claims under the Age Discrimination Act of 1967 and the Americans with Disabilities Act of 1990.

 

      Total payments to the former General Manager in Fiscal Year 2004 under both the retirement and consulting portions of the agreement totaled $209,787, including $97,251 in retirement benefits.  (Page 53)

 

 

AUDITORS' OPINION

 

      Our auditors stated the April 30, 2004 financial statements of The DuPage Water Commission are fairly presented in all material respects.

 

 

 

___________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:KAL:pp

 

 

SPECIAL ASSISTANT AUDITORS

 

      McGladrey & Pullen, LLP were our special assistant auditors for this engagement.