REPORT DIGEST

 

DUPAGE WATER COMMISSION

 

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

For the One Year Ended:

April 30, 2005

 

Summary of Findings:

Total this audit†††††††††††††             2

Total last audit†††††††††††             3

Repeated from last audit ††††††††† 2

 

Release Date:

September 8, 2005 

 

 

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 Commissionís accounting system needs improvement.

 

        The Commission needs to improve internal controls and accountability for capital assets.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

{Financial Operations and Account Balances are summarized on the next page}

 

 



DUPAGE WATER COMMISSION

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

For The Year Ended April 30, 2005

 

FINANCIAL OPERATIONS

FY 2005

FY 2004

Operating revenues.................................................

$51,405,671

$52,287,410

 

 

 

 

 

Operating expenses................................................

††† 59,171,861

58,963,649

 

 

 

 

 

††††††††††† Operating loss.............................................

†† ($7,766,190)

†† ($6,676,239)

 

 

 

 

 

Nonoperating revenues (expenses)

 

 

 

Sales tax....................................................................

$34,384,906

$31,620,982

 

Investment income......................................................

††††† 2,856,461

2,321,233

 

Interest and other charges...........................................

††† (9,262,718)

(13,810,147)

 

††††† Net nonoperating revenues...................................

$27,978,649

$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...............................................

$20,212,459

($62,925,472)

 

 

 

 

 

Net assets

 

 

 

Net Assets, beginning of the fiscal year.......................

$305,852,209

$368,777,681

 

Net Assets, end of the fiscal year................................

$326,064,668

$305,852,209

 

 

 

 

 

OTHER SIGNIFICANT ACCOUNT BALANCES

AT APRIL 30, 2005

AT APRIL 30,

2004

Cash and Investments..................................................

Accounts and Loans 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 Ė Invested in capital assets.........................

Net Assets - Restricted................................................

Net Assets Ė Unrestricted............................................

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

$166,359,906

$20,605,205

$383,980,620

$572,517,663

$4,450,156

$3,770,494

$45,000,000

$188,919,672

$246,452,995

$213,534,114

$31,551,651

$80,978,903

$326,064,668

$189,039,636

$17,344,664

$376,662,534

$588,417,849

$4,145,964

$4,581,570

$60,000,000

$209,464,875

$282,565,640

$182,164,171

$28,571,862

$95,116,176

$305,852,209

 

GENERAL MANAGER

 

During the audit period: ††† Mr. Robert L. Martin

Currently: †††††††††††††††††††††††† Mr. Robert L. Martin


 

 

 

 

 

 

 

 

 

 

The Commissionís linked electronic spreadsheets do not constitute an adequate accounting system

 


The Commission purchased accounting software, but has not implemented many of its functions

 

 


The current accounting system has internal control weaknesses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Commissionís capital asset records lack sufficient detail

 

 

 

 

Assigned duties over capital assets are not segregated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

ACCOUNTING SYSTEM NEEDS IMPROVEMENT

 

††††† The Commissionís accounting system needs improvement.

†††††

††††† In the prior year, it was noted that the Commission had created a series of linked electronic spreadsheets, which function as its accounting system.The Commissionís daily activity is manually entered as journal entries into these spreadsheets.This does not constitute an adequate accounting system.In the current year the Commission purchased software, but has not yet implemented many of the program functions.

 

††††† 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.

 

††††† Commission management stated that they have purchased a commercial accounting software package for specific use of all accounting and financial reporting functions.However due to changes in management, all of the functions have not been implemented. (Finding No. 1, page 9)This finding was first reported in 2004.

 

††††† We recommended the Commission install all of the functions of the new accounting software package to improve reliability and internal control over the Commissionís accounting system.

 

††††† The Commission agreed with our recommendation and indicated that they have installed the accounts payable and payroll portion of the program and intend to install the remaining function in the next fiscal year.(For the previous Commission response, see Digest Footnote #1.)

 

 

NEED TO IMPROVE INTERNAL CONTROLS AND ACCOUNTABILITY FOR CAPITAL ASSETS

 

††††† The Commission does not have detailed capital asset records and there is not an adequate segregation of duties in accounting for capital assets.

 

††††† The Commission has $447 million in capital assets, $12 million of which are moveable capital assets.During the audit we noted the following:

 

        The Commission maintains records of the historical cost of capital assets by pool (similar assets constructed at once), but does not maintain records of the individual capital asset items within the pools.The Commission purchased a new accounting software package in the current fiscal year, but has not implemented the capital asset functions of the new software program.

        The individual assigned the duty of conducting the physical inventory of capital asset records also reconciles the capital asset inventory records.

 

††††† 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.The lack of an adequate segregation of duties in accounting for capital assets increases the risk of misappropriation or erroneous reporting of capital assets.

 

††††† According to Commission personnel, they have purchased a commercial accounting software package for specific use of all accounting and financial reporting functions.However, due to changes in management, all of the functions have not been implemented.Commission management stated that they were unaware that a segregation of duties weakness existed in the accounting for capital assets.(Finding No. 2, pages 10-11)This finding was first reported in 2004.

 

††††† We recommended that the Commission install the new accounting software, and continue to recommend that they conduct a full physical inventory of capital assets, research the historical cost, acquisition date, and accumulated depreciation, and maintain the information, in detail, on an ongoing basis.We also recommended that the person maintaining the capital asset records should be different from the person conducting the physical inventory.

 

††††† The Commission agreed with the finding and indicated that a capital asset inventory would be conducted and that they had segregated the capital asset responsibilities.(For previous Commission response, see Digest Footnote #2.)

 

 

 

AUDITORS' OPINION

 

††††† Our auditors stated the April 30, 2005 financial statements of The DuPage Water Commission are fairly presented in all material respects.

 

 

___________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:JAF:pp

 

 

SPECIAL ASSISTANT AUDITORS

 

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

 

DIGEST FOOTNOTES

 

#1 Ė ACCOUNTING SYSTEM NEEDS IMPROVEMENT

 

2004:We agree with this finding.We are currently evaluating accounting systems and plan on implementing the new system no later than May 1, 2005.

 

#2 Ė NEED TO IMPROVE INTERNAL CONTROLS AND ACCOUNTABILITY FOR CAPITAL ASSETS

 

2004:We agree with this finding.We are currently evaluating accounting systems and plan on implementing a new system no later than May 1, 2005.The system will include a fixed asset module and all fixed asset records will be updated when this module is installed.