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REPORT DIGEST
DEPARTMENT OF EMPLOYMENT
SECURITY
FINANCIAL AUDITFor the One Year Ended: June 30, 2005 COMPLIANCE
EXAMINATION
For the Two Years Ended: June 30, 2005 Summary of Findings:
Release Date: June 20, 2006
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 is also available on the worldwide web at |
SYNOPSIS
¨ The Department did not have consistent policies and procedures for local branch offices and needs to improve controls over the unemployment insurance claim intake process and other administrative matters. ¨ The Department has several weaknesses in the control procedures relating to the social security number verification for new claimants process. ¨ The Department lacked adequate controls over personnel forms and records. ¨ The Department did not obtain independent internal control reviews of all bank trustees involved with the cash receipts, bond transactions and other data for the Department.
{Expenditures and Activity Measures are summarized on the next page.} |
ILLINOIS DEPARTMENT OF EMPLOYMENT SECURITY
FINANCIAL AUDIT AND COMPLIANCE EXAMINATION
For the Two Years Ended June 30, 2005
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STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS Unemployment
Compensation Trust Fund (in thousands) |
2005 |
2004* |
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OPERATING
REVENUES: Unemployment taxes.............................................................. Federal government................................................................ Total Operating Revenues............................................ OPERATING EXPENSES: Benefit Payments and Refunds............................................ Operating Income........................................................... NONOPERATING
REVENUES (EXPENSES): Interest and investment income........................................... Other revenue.......................................................................... Interest and investment expenses........................................ Other expenses........................................................................ Total nonoperating revenues
(expenses)................... Income (loss) before transfers........................................ TRANSFERS IN (OUT) Increase (Decrease) in net
assets................................. |
$ 2,578,835 23,912 2,602,747 1,945,631 657,116 15,946 79 (34,413) (2,512) (20,900) 636,216 (15,910) $ 620,306 |
(336,249)
(335,423) (9,074) $
(344,497) |
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STATEMENT
OF NET ASSETS (at June 30) Unemployment
Compensation Trust Fund (in thousands) |
2005 |
2004* |
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ASSETS: Cash and cash equivalents................................................... Investments............................................................................. Receivables, Net: Taxes................................................................................. Intergovernmental.......................................................... Others............................................................................... Other assets............................................................................. Total Assets.................................................................. LIABILITIES: Benefit payments payable..................................................... Intergovernmental payables................................................. Other payables........................................................................ Bonds and notes payable...................................................... Total Liabilities NET
ASSETS................................................................................... |
$ 208,231 631,317 513,748 29,420 74,755 9,214
1,466,685 72,618 5,010 4,681 677,298 759,607
$ 707,078 |
$ 907 206,164
398,256
31,317 74,384
90,833 801,861 48,339 7,003 74,572
585,175 715,089 $ 86,772 |
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SUPPLEMENTARY
INFORMATION |
**FY 2005
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FY 2004
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FY 2003 |
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·
Average Quarterly
State Unemployment Rate (not examined) |
5.83
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6.20
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6.65 |
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Average Quarterly
National Unemployment Rate (not examined) |
5.13
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5.53
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6.08 |
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·
Initial Claims –
Unemployment Insurance (not examined) |
731,100
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814,100
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852,500 |
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·
Average Number of
Department Employees |
1,899
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1,933
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2,055 |
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**Calculation does not include fourth quarter. |
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AGENCY
DIRECTOR |
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During Audit Period: Brenda A. Russell Currently: Brenda A. Russell |
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* The 2004 Master Bond Fund has been
combined with the 2004 Unemployment Compensation Fund to conform to the 2005
financial statement presentation. |
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Inconsistent policies and procedures for
local branch offices Current policy did not require copies of
claimant identification be kept Unapproved “drop off process” was allowed
for application Supervisors do not generally review
claims files
Deficiencies in administrative matters
A manual adjustment to the claimant’s
record must be made to stop unemployment compensation
In 12 of 60 invalid social security
numbers tested the Department failed to stop payment
For fiscal year 2005, 411 claims with
invalid social security numbers were paid $1.1 million
38 of 58 (67%) personnel files tested did
not include a timely performance evaluation; evaluations ranged from 37 to
658 days late Independent internal control review not
obtained for bank trustees processing critical transactions Unemployment Insurance tax receipts
totaling $2.5 billion are processed by the bank
Independent reviews would provide the
Department assurances regarding security, integrity and recovery capability
of computer systems |
FINDING, CONCLUSION, AND RECOMMENDATIONS LOCAL OFFICE CONTROLS NEED IMPROVEMENT The Department does not have consistent policies and procedures for local branch offices and needs to improve controls over the unemployment insurance claim intake process and other administrative matters. The Department processed over 440,000 new unemployment insurance claims totaling $1.9 billion in fiscal year 2005 and operated 54 branch offices, 6 regional offices and 12 training centers at June 30, 2005. During our local office visits, we noted several areas that need improvement within the Department’s claims intake procedures at branch locations. In our audit process, we visited 12 different branch locations and noted procedures varied considerably among locations. Current
policies and procedures are not consistent among branch offices. We noted the following areas related to
the claims intake process that are not consistent and that need improvement: · The Department’s current policy does not require that copies of claimant identification be kept. · One branch location adopted a “drop off process” which was not a policy approved by the central office. This policy allowed for the claimant to simply drop off the application without a face-to-face meeting. · We observed that supervisors do not generally review claims files but rely on other control procedures such as daily edit reports to monitor the claims process. The following additional deficiencies were noted
relating to other administrative matters: ·
Department employees at the local offices made
multiple directory-assisted calls. ·
The Field Office Supervisor is performing both the
ordering and receiving functions. ·
Staff members submit their travel vouchers to the
Regional Office without obtaining supervisory approval. (Finding 1, pages
10-12) We recommended the Department develop uniform claims intake procedures for all branch locations. In addition, we recommended the following: · Copies of identification, work history and other support provided by claimants at intake should be kept and placed in a file or scanned for future review. · The “drop off process” should be discontinued. Claimants should be required to provide proof of identification, which should include a photo identification card, at the time of application. · The Department should implement a random supervisory check of claimant files on a limited basis to ensure the files contain the required documentation and to ensure the claims were properly entered into the benefit information system. ·
With respect to the administrative deficiencies
noted, the Department should take steps to reduce the number of directory
assisted calls, segregate the duties of ordering and receiving and ensure all
travel vouchers are properly approved. Department officials accepted our recommendation
and stated the “drop off process” was discontinued, random supervisory checks
will be implemented and steps would be taken to reduce the noted
administrative deficiencies. WEAKNESSES IN CONTROL
PROCEDURES RELATING TO SOCIAL SECURITY NUMBER VERIFICATION The Department has several weaknesses in the control procedures relating to the social security number verification for new claimants. Once the Department has identified an invalid social security number as a result of the Social Security Administration match process, a manual adjustment to the claimant’s record must be made to stop the unemployment compensation payments. A clerical employee of the Department is required to access the claimant’s computerized record and manually input a stop payment code to stop payment on the account and enter a date to specify the length of time the stop payment is to continue. We also noted during our testing that the code entered into the system to stop payment due to a social security code mismatch is not unique. In our testing of this control procedure, we sampled 60 claimants whose social security numbers were initially identified as invalid. Of the 60 items tested, we noted 12 (20%) instances in which the system failed to stop payment. Of the 12 instances noted, 3 were due to data entry errors and 9 where no apparent action was taken to stop unemployment benefit payments. Because of the frequency of errors noted in our sample testing, we expanded our procedures to obtain information on all of the 1,364 claims with invalid social security numbers. The additional testing indicated the Department paid 411 claimants (30%) with invalid social security numbers benefits totaling $1.1 million. (Finding 3, pages 15-16) We recommended the Department eliminate the need for human intervention and look for a potential automated approach to stopping claim payments to recipients with invalid social security numbers. In the meantime, under the current manual data entry system, we recommended the Department strengthen the supervisory review of this key internal control to improve the timeliness and accuracy of data entered into the benefit payment system. Further, we recommended the code entered into the system to create the stop payment should be unique to the social security number mismatch and contain an indefinite stop, which would eliminate the necessity to enter stop payment dates into the system. Department officials accepted our recommendation and stated the process of identifying invalid social security numbers would be automated and it would establish a unique code to identify social security number discrepancies. INADEQUATE CONTROLS OVER
PERSONNEL FORMS AND RECORDS The Department lacked adequate controls over personnel forms and
records. During our review of 58 personnel files we found the following: · Two files (3%) did not have an updated and approved performance evaluation form included in the personnel file; · Thirty-eight files (67%) did not contain timely performance evaluations; the evaluations performed ranged from 37 to 658 days late; · Nine applications for leave (16%) were missing from the file; and ·
Five files (9%) included discrepancies on the
signature cards and the computerized verification form. (Finding 5, pages 18-19) We
recommended the Department allocate the resources necessary to strengthen
controls over personnel forms and files.
Also, the Department should ensure performance evaluations are
performed timely, supervisors sign leave forms authorizing employee leave and
employee personnel files contain all the appropriate forms authorizing
payroll and personnel transactions. Department officials accepted our recommendation and indicated notifications are sent to management in advance of performance evaluation due dates and other steps were being taken to address the auditors’ other recommendations. FAILURE TO REVIEW COMPUTERIZED INFORMATION SYSTEMS OF THIRD PARTY BANK TRUSTEES The Department did not obtain independent
internal control reviews of all bank trustees involved with the processing of
cash receipts, bond transactions and other data for the Department. The Department utilizes several commercial
banks to process bond transactions and to process cash receipts and other
data submitted by employers.
Substantially all of the Departments Unemployment Insurance tax
receipts totaling $2.5 billion are processed by the banks. The Department issued $700 million in
bonds during fiscal year 2005 managed by third party bank trustees. The contracting for computer
services with outside banks may pose internal control and security risk
similar to those encountered in an agency’s internal computer
environment. Independent reviews
would provide the Department assurances regarding the security, integrity,
and recovery capability of computer systems of the third party
processors. Additionally, the reviews
would specify procedures necessary to be performed at the Department to
ensure controls are working effectively.
(Finding 7, page 21) We recommended the Department obtain and
adequately review a copy of an independent review of computer systems
maintained by third party vendors processing critical data for the Department. Department officials accepted our recommendation and indicated that future request for proposals for third party vendors processing critical data for the Department would include independent reviews as a requirement. OTHER FINDINGS The remaining findings are reportedly being given
attention by the Department. We will
review progress toward implementation of all recommendations during the next
State compliance examination. AUDITORS’ OPINION Our auditors stated the Department of Employment
Security’s financial statements (Nonshared Governmental Funds) present
fairly, in all material respects, the financial position and changes to the
financial position as of June 30, 2005.
Further, our auditors stated that the financial position of the
Unemployment Compensation Trust Fund of the Department as of June 30, 2005,
and changes in financial position and its cash flows for the year then ended
are presented fairly 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 audit. |
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