REPORT DIGEST

 

EASTERN ILLINOIS UNIVERSITY

 

FINANCIAL AUDIT AND

COMPLIANCE EXAMINATION

(In Accordance with the
Single Audit Act and OMB Circular A-133)

For the Year Ended:

June 30, 2007

 

Summary of Findings:

Total this audit                 11

Total last audit                   5

Repeated from last audit    3

 

Release Date:

May15, 2008

 

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

www.auditor.illinois.gov

 

 

 

 

 

SYNOPSIS

 

 

¨      The University did not have adequate controls over bank reconciliations.

¨      The University did not have adequate control over the reporting and reconciliation of financial aid information.

¨      The University did not have documentation to prove that students with Perkins loans were contacted during the grace period.

¨      The University did not require all employees to submit time sheets as required by the State Officials and Employees Ethics Act.

¨      The University did not have adequate controls over donations and price reductions of Union bookstore inventories.

¨      The University did not have adequate controls over receipts and refunds.

¨      The University’s Internal Auditing Department did not fully comply with the Fiscal Control and Internal Auditing Act.

 

 

 

 

 

 

 

 

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

 


                                                  EASTERN ILLINOIS UNIVERSITY

                             FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

                                                    For The Year Ended June 30, 2007

 

STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

FY 2007
FY 2006

OPERATING REVENUES

      Student tuition and fees, net..................................................................................................

..... Auxiliary enterprises, net........................................................................................................

      Grants and contracts...............................................................................................................

      Sales and services of educational departments..................................................................

      Other..........................................................................................................................................

            Total Operating Revenues..............................................................................................

OPERATING EXPENSES

      Instruction...........................................................................................................................

      Auxiliary enterprises..........................................................................................................

      Institutional support...............................................................................................................

      Student services......................................................................................................................

      Academic support..............................................................................................................

      Operations and maintenance of plant.............................................................................

      Depreciation expense........................................................................................................

      Public service......................................................................................................................

      Student aid..........................................................................................................................

      Research..............................................................................................................................

      Total Operating Expenses....................................................................................................

Operating Loss.............................................................................................................................

NONOPERATING REVENUES (EXPENSES)

      State appropriations................................................................................................................

      Payments on behalf of the University..................................................................................

      Other nonoperating revenues (expenses), net....................................................................

            Total Nonoperating Revenues (Expenses)...................................................................

Income Before Capital Contributions.......................................................................................

Capital appropriations, capital gifts and donated assets.......................................................

INCREASE IN NET ASSETS.....................................................................................................

Net assets, beginning of the year...............................................................................................

Net assets, end of the year..........................................................................................................

 

  $62,305,638

    37,943,403

    14,596,831

      4,221,724

      2,491,975 $121,559,571

 

  $75,436,556

    29,867,003

    17,730,818

    18,012,013

    13,509,570

    11,458,348

    11,774,221

      7,922,071

      6,083,286

      1,111,083 $192,904,969 $(71,345,398)

 

  $48,282,450

    27,545,752

      5,847,321

  $81,675,523

  $10,330,125

    18,567,108

  $28,897,233

  130,007,956 $158,905,189

 

  $56,480,594

    36,096,832

    14,137,808

      3,972,693

      2,493,714 $113,181,641

 

  $70,108,070

    27,178,279

    16,319,773

    17,606,275

    12,254,338

    10,895,526

    11,663,569

      7,758,929

      5,128,002

      1,171,032 $180,083,793 $(66,902,152)

 

  $47,609,499

    24,902,749

      4,041,387

  $76,553,635

    $9,651,483

    21,675,762

  $31,327,245

    98,680,711 $130,007,956

SELECTED ACCOUNT BALANCES

JUNE 30, 2007

JUNE 30, 2006

Cash and investments..................................................................................................................

Capital assets, net of accumulated depreciation......................................................................

Revenue bonds, notes payable, certificates of participation, and capital lease obligations

Accrued compensated absences................................................................................................

Net assets.......................................................................................................................................

  $45,858,409 $195,293,070

  $62,993,727

  $14,943,370 $158,905,189

  $34,954,253 $178,184,836

  $66,800,645

  $14,537,972 $130,007,956

SUPPLEMENTAL INFORMATION (unaudited)

FY 2007

FY 2006

Employment Statistics

      Faculty and Administrative....................................................................................................

      Civil Service................................................................................................................................

      Student Employees..................................................................................................................

              Total Employees..............................................................................................................

Enrollment Statistics

      Fall term enrollment – undergraduate...................................................................................

      Fall Term enrollment – graduate............................................................................................

      Fall term enrollment – extension............................................................................................

              Total.................................................................................................

 

938

839

353

2,130

 

9,937

1,243

1,169

12,349

 

937

837

352

2,126

 

9,825

1,194

1,110

12,129

UNIVERSITY PRESIDENT

During Audit Period: Mr. Louis V. Hencken

Currently:  Dr. William L. Perry (eff. 7-1-07)

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliations not timely

 

 

 

Checks outstanding more than 6 months

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Late reporting of financial aid payments

 

 

 

 

 

Incorrect enrollment status

 

 

 

 

 

 

 

 

Reconciliations not performed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No documentation of contacts made

 

 

 

 

 

 

 

 

 

 

 


Federal regulations require contacts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncompliance with State Officials and Employees Ethics Act

 

 

 

 

 

 

 

 

 

 

Use of negative time keeping system used by salaried employees

 

 

 

 

 

 

 

 


Inadequate basis for allocating expenditures between University and University Related Organizations

 

 

 

 

 

 

Percentage of time not supported

 

 

 

 

 

 

 

 

 

 

 

 

University officials do not concur

 

 

 

 

 

 

 

 

Auditor comment

 

 

 

 

 

 

 

 

 

State law requires employees to submit time sheets documenting time spent on official State business

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auditors believe positive time keeping system required by law

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bookstore inventory adjustments not adequately explained or recorded

 

 

 

 

 

 

 

 

 

 

 

Written policy needed for Bookstore donations and price reductions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Late deposits

 

 

 

 

Lack of documentation

 

 

 

 

 

No receipts log maintained

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No internal audits of grants

 

 

 

 

No internal audits of Banner System after implementation

 

 

 

 

 

 

 

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

INADEQUATE CONTROLS OVER BANK RECONCILIATIONS

 

      The University did not have adequate controls over bank reconciliations.  Each month, the University is reconciling four separate bank accounts:  the General Fund, the Foundation account, the Payroll disbursements account, and the Athletics account, therefore a total of 48 reconciliations are to be performed each year.

 

      During our review, we noted reconciliations were not timely completed.  The June 2007 reconciliation for the General Fund was completed 83 days after the month ended.  No reconciliations were prepared for the Payroll bank account from February through June 2007.  We also noted long outstanding checks were not promptly investigated and disposed.  As of the June 30, 2007 bank account reconciliations, 38 outstanding checks totaling $12,823 were more than 6 months from issuance date, some dating as far back as July 2006. 

 

      Effective internal control policies require all transactions be recorded in the accounting system and bank reconciliations be performed and reviewed in a timely manner.  Reconciling items should be investigated and disposed of promptly.  (Finding 1, pages 61-62 in Financial Audit Report)  This finding was first reported in 2005.

 

      University officials agreed and stated they had some difficulty in this area due to retirements and the training of new personnel.  They stated the situation will be corrected.  (For the previous University response, see Digest Footnote #1.)

 

INADEQUATE CONTROL OVER REPORTING AND RECONCILIATION OF FINANCIAL AID INFORMATION

 

      The University did not ensure timely and accurate reporting of information as required in the administration of the Federal Title IV programs.  In addition, the University did not ensure that direct loan information is reconciled on a monthly basis.  During our testing, we noted the following:

 

      In Fall 2006, 49 of 60 Pell disbursements to students tested were reported to the Department of Education 1 to 50 days late.

 

      The University reports changes in student status to the National Student Clearinghouse three times per semester.  The National Student Clearinghouse in turn reports student information to the National Student Loan Data System (NSLDS).  During our review, the University’s records of withdrawal dates of 2 of 40 students tested did not agree with the withdrawal dates per NSLDS records.  In addition, 4 of 40 students tested who were determined as withdrawn per University records were not reported as such per NSLDS records.

 

      Monitoring procedures were not performed to ensure that the direct loan reconciliation against the loan records of the Department of Education is made by a responsible employee for all months as required by federal regulations.  No reconciliation was performed for the months of August, September, and December 2006 and January 2007.

 

Late reporting of Pell disbursements may result in the delay of funds available to the University for drawdown.  In addition, because a student’s enrollment status determines eligibility for in-school status, deferment, grace periods, and repayments, as well as the governments’ payment of interest subsidies, accurate information provided to NSLDS is critical for effective administration of the Title IV student loan programs.  Failure to perform a reconciliation of direct loan information on a monthly basis may result in unreconciled balances not timely investigated for proper disposition.  (Finding 2, pages 18-19 in Compliance Examination Report)

 

We recommended the University establish procedures to ensure that reports are accurately and timely reported as required by the Federal Financial Aid Program.  We also recommended that the University establish monitoring procedures to ensure that the direct loan reconciliation is performed on a monthly basis.

 

University officials concurred with our recommendation.  They stated a delay in receiving regulations for two new Federal programs caused a delay in changes to the University’s software in the Fall of 2006.  Once the software was updated, the required reporting was done.  They said they have modified procedures and developed additional reports to insure accurate and timely reporting and reconciling.

 

NONCOMPLIANCE WITH FEDERAL PERKINS LOAN PROGRAM REQUIREMENT

 

      The University did not have documentation to prove that students with Perkins loans were contacted during the grace period.  During our review of 25 students’ files with Perkins loans under grace period, we noted that no documentation was maintained to prove that the students were contacted during the grace period.  As such, we cannot determine whether the University is in compliance with the requirements of the Code of Federal Regulations.

 

      The Code of Federal Regulations requires institutions to contact the borrower during the initial and post deferment grace periods as follows:

 

(1)(i)  For loans with a nine-month initial grace period, the institution shall contact the borrower three times within the initial grace period.

 

(2)(i)  The institution shall contact the borrower for the first time 90 days after the commencement of any grace period.  The institution shall at this time remind the borrower of his or her responsibility to comply with the terms of the loan and shall send the borrower the following information:  (a) the total amount remaining outstanding on the loan account, including principal and interest accruing over the remaining life of the loan; and (b) the date and amount of the next required payment.  (ii) The institution shall contact the borrower the second time 150 days after the commencement of any grace period.  The institution shall at this time notify the borrower of the date and amount of the first required payment.  (iii) The institution shall contact a borrower with a nine-month initial grace period a third time 240 days after the commencement of the grace period, and shall then inform the borrower of the date and amount of the first required payment.  According to University personnel, contacts are made to student borrowers but they are not aware of any specific requirement by the Federal Regulation to maintain documentation of contacts.  (Finding 3, pages 20-21 in Compliance Examination report)

 

      We recommended the University establish a policy to keep a record of contacts with borrowers during the grace period.  Although the Code of Federal Regulation does not specify the method of documentation, it is the responsibility of the University to provide proof of compliance.  This information gathered during the contacts with the Perkins borrower will also be useful if the borrower defaults and the loans are submitted for litigation.

 

      University officials agreed and stated they believed that they have been in compliance with the Federal regulations for notification of borrowers within the grace period.  In the future, they will maintain documentation to support the specific contacts made with the borrowers during the grace period.

 

TIME SHEETS NOT REQUIRED

 

      The University did not require all employees to submit time sheets as required by the State Officials and Employees Ethics Act.

 

      The Act required the Illinois Board of Higher Education (IBHE), with respect to State employees of public universities, to adopt and implement personnel policies.  The Act (5 ILCS 430/5-5(c) states, “The policies shall require State employees to periodically submit time sheets documenting the time spent each day on official State business to the nearest quarter hour.”  The IBHE adopted personnel policies for public universities on February 3, 2004 in accordance with the Act.  The University has not incorporated these policies into the University’s policies.

 

      We noted that the University’s salaried employees did not maintain timesheets in compliance with the Act.  Employees’ time is tracked using time rosters, which are filled out by each employee or each department’s Account Managers.  The time rosters used are effectively a “negative” timekeeping system whereby the employee is assumed to be working unless noted otherwise.  The employees documenting time to the nearest quarter hour were only Civil Service biweekly-paid and student employees, who record time on time sheets to the nearest quarter hour.

 

      Since timesheets are not maintained for all employees, there was no adequate basis for allocating expenditures between the University and the University Related Organizations (URO).  The UROs are the Foundation and the Alumni Association.  All URO personnel are University employees whose salaries are allocated between the University and the UROs at the end of each fiscal year.  Expenses such as rent, utilities and maintenance are also allocated in addition to salaries.  The allocation is based on an estimated percentage of time spent by these employees performing functions for both the University and UROs.  The percentage of time is not supported by a documented basis such as timesheets to identify the time spent by employees for URO related functions.  The master contracts between the University and the UROs state that the UROs shall maintain sufficient records, including cost allocation detail, time records, and records of supplies and material consumed, to enable a post audit review of the contracts.  For the fiscal year ended June 30, 2007, the University allocated expenses totaling $194,245 to the Foundation and $29,092 to the Alumni Association.  (Finding 4, pages 22-24 in Compliance Examination report)  This finding was first reported in 2005.

 

      We recommended the University amend its policies to require all employees to submit time sheets in compliance with the Act.

 

      University officials did not concur with this finding.  The University assumed compliance with the statute based upon guidance from the Executive Inspector General.  The University received a memo from the Executive Inspector General that stated that absence reporting would be an appropriate method of time keeping under the Ethics Act.  Under this system, an employee would only report time during their normal work schedule that was not spent at work and provide the category of leave taken for that time away.

 

       In an auditor comment we noted that the State Officials and Employees Ethics Act defines “State Agency” to include “public institutions of higher learning…” 5 ILCS 430/1-5.  Eastern Illinois University is defined as a “public institution of higher learning” in Section 2 of the Higher Education Cooperation Act… 110 ILCS 220/2.  Further, the State Officials and Employees Ethics Act defines “State employee” to be “any employee of a State agency.”  5 ILCS 430/1-5.

 

      As noted in the finding, the State Officials and Employees Ethics Act requires “State employees to periodically submit time sheets documenting the time spent each day on official State business to the nearest quarter hour…” 5 ILCS 430/5-5 (c).  This timekeeping requirement went into effect March 1, 2004.  The negative timekeeping system used for several categories of University employees requires those employees to report only time away from State business, not the time spent each day on State business. Further, it is logical to assume that, by adopting this language, the legislature meant to effect a change in the method used by State employees to record their time – that is, to adopt a positive timekeeping system.  Finally, the May 24, 2004, memorandum from the Office of Executive Inspector General upon which the University relied in maintaining its customary negative timekeeping system for several categories of its employees clearly states that it “is not a legal opinion.”

 

      Timesheets are also needed as a documented basis for allocating expenditures between the University and the University Related Organizations (UROs).  The master contracts between the University and the UROs state that the UROs shall maintain sufficient records, including cost allocation detail, time records, and records of supplies and materials consumed, to enable a post audit review of the contracts.

 

      The auditors continue to believe that a positive timekeeping system for State employees is required by the State Officials and Employees Ethics Act and necessary to provide a basis for allocating expenditures between the University and the UROs.  If the University disagrees with the application of the Act, we further recommend that it seek a formal, written opinion from the Attorney General’s Office on the requirements of this statutory provision.  (For the previous University response, see Digest Footnote #2)

 

INADEQUATE CONTROL OVER UNION BOOKSTORE INVENTORY TRANSACTIONS

 

      The University did not have adequate controls over donations and price reductions of Union bookstore (Bookstore) inventories.  Bookstore inventory items are regularly donated to University-sponsored campus events, partly as an advertising and marketing strategy of the Bookstore.  In addition, the Bookstore offers discounted sales prices for nonmoving inventory to clear these items.  The Bookstore Manager decides the discounted price structure, which is based on the nature of the merchandise.  Clothing and novelty items are first reduced by 25% then it goes to 50% and further down to 75% if items remain unsold.  Books are reduced by 25% and then the Bookstore would try to return the inventory or mark them down further to 50%.

 

      During our testing, we noted the following:

 

·        For fiscal year 2007, inventory adjustments for markups/markdowns totaling $73,982 could not be adequately explained and a shortage totaling $150,263 could not be accounted for because the University did not maintain adequate records of donated items and analyses of items sold at reduced prices.

 

·        The University has no written policy relating to selling inventory at reduced prices.  The price structure and timing established by the Bookstore Manager for selling inventory at reduced prices were not reviewed and approved by the appropriate department head.

 

Good business practice requires that internal controls be established to ensure that inventory adjustments such as donations and discount sales are properly approved, documented, monitored and accounted for.  Moreover, periodic analysis of inventory adjustments would assist in measuring the financial performance of the department.  (Finding 6, pages 26-27 in Compliance Examination report)

 

      We recommended the University establish a written policy relating to donations and selling bookstore inventory at reduced prices.  The University should maintain adequate records of donated items and analyses of items sold at reduced prices.

 

      University officials stated they have implemented this recommendation.  They said a system to track donations of merchandise has been developed. In addition, the supervisor will initial the gross margin analysis that is produced by the system after all sales price adjustments are made to indicate her approval.

 

 

INADEQUATE CONTROL OVER RECEIPTS AND REFUNDS

 

      The University did not have adequate control over receipts and refunds.

 

      During our testing of receipts from 7 departments and refunds received by the University, we noted the following:

 

      Twelve of 30 receipts tested totaling $528,310 were deposited 2 to 32 days late.

 

      Thirteen of 30 refunds tested totaling $7,426 were deposited 2 to 21 days late.

 

      Supporting documents of 2 of 30 receipts tested totaling $33,813 could not be found.

 

      Seven of 30 refunds tested totaling $1,457 had no documentation as to when the checks were received.

 

 ♦      One of the 7 departments tested with total receipts of $451,216 did not maintain a receipts log to account for its collections.

 

Failure to deposit collections in a timely manner may result in interest lost to the University.  Not properly maintaining supporting documents does not provide a good audit trail and without a receipts log there is a risk that collections are not properly accounted.  (Finding 7, pages 28-29 in Compliance Examination report)

 

University officials agreed with our recommendation and stated they will inform all departments that receipts over $50 must be transmitted to the Cashier’s Office by the next business day and that exceptions must be pre-approved by the Treasurer.

 

NONCOMPLIANCE WITH THE FISCAL CONTROL AND INTERNAL AUDITING ACT

 

      The University’s Internal Auditing Department did not ensure that its internal auditing program complies with the Fiscal Control and Internal Auditing Act (Act).

 

      We noted no audits were completed during the last two years relating to internal and administrative controls for grants received or made by the University.  We also noted a new Enterprise Resource Planning (ERP) System was implemented during fiscal year 2007 called the Banner System.  Internal Audit was part of the Banner Steering Committee and was involved in the design of controls during the planning phase of the project.  Subsequent to implementation, there was no review performed to ensure that controls were operating as designed.

 

      The Act (30 ILCS 10/2003) requires that the internal auditing program includes audits of major systems of internal and administrative control conducted on a periodic basis so that all major systems are reviewed at least once every two years.  The audits must include grants received or made by the agency to determine that the grants are monitored, administered, and accounted for in accordance with applicable laws and regulations.  Good internal control requires review of the design of the controls after systems have been put into production to ensure controls are operating as designed and the systems objectives and requirements were achieved.  (Finding 9, pages 32-33 in Compliance Examination report)

 

      University officials concurred.  They stated the internal audit staff was reduced to one person when the Director of Internal Auditing resigned in March, 2007.  Prior to leaving, the Department had been actively involved in the implementation of the new Banner system.  Involvement with Banner and the reduced staff size caused the grant audit not to get completed.  The University is currently searching for a new Director of Internal Auditing.

 

OTHER FINDINGS

 

      The remaining findings are reportedly being given attention by the University.  We will review the University’s progress toward the implementation of our recommendations in our next examination.

 

AUDITORS' OPINION

 

      Our auditors stated the University's financial statements as of and for the year ended June 30, 2007 are fairly presented in all material respects.

 

 

____________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:KMA:pp

 

SPECIAL ASSISTANT AUDITORS

 

      E.C. Ortiz & Co. LLP were our special assistant auditors on this engagement.

 

DIGEST FOOTNOTES

 

 

#1:  INADEQUATE CONTROLS OVER BANK RECONCILIATIONS – Previous University Response

 

We agree that the bank reconciliation process is an important element of the University’s system of internal controls.  We have had some difficulty in this area due to retirements and the training of new personnel.  With new personnel in place and trained, we believe that this situation will be remedied.

 

#2:  TIMESHEETS NOT REQUIRED – Previous University Response

 

The University assumed its procedures were in compliance with the time reporting requirements of the State Officials and Employees Ethics Act (the “Ethics Act”) based on guidance received from the Executive Inspector General.  The University received a memo from the Office of the Inspector General that states:  “it appears that a system of ‘absence reporting’ would be an appropriate method of time keeping under the Ethics Act.  Under this system, an employee would only report time during their normal work schedule that was not spent at work and provide the category of leave taken for that time away.”