REPORT DIGEST

 

DEPARTMENT OF EMPLOYMENT SECURITY

 

FINANCIAL AUDIT

For the Year Ended:

June 30, 2007

 

 

 

Release Date:

February 20, 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

 

 

 

 

 

INTRODUCTION

 

This report covers our financial audit of the Department of Employment Securityís Non-Shared Funds for the years ended June 30, 2007.A State compliance examination covering the two years ended June 30, 2007 will be issued in a separate report.

 

 

 

SYNOPSIS

 

®      The Department did not obtain an independent internal control review of its bank trustee involved in the processing of cash receipts and other data for the Department.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

ILLINOIS DEPARTMENT OF EMPLOYMENT SECURITY

FINANCIAL AUDIT

For the Year Ended June 30, 2007

 

STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

Unemployment Compensation Trust Fund (in thousands)

 

2006

 

2006

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.................................

 

NET ASSETS, July 1,....................................................................

 

NET ASSETS, June 30,................................................................

 

$2,334,077

25,730

2,359,807

 

 

1,795,169

†††††††††††††††††††††††††    564,638

 

 

64,279

†††††††††††††††††† -

†††††††††††††††††† -

†††††††††††††††††† -

64,279

 

628,917

 

(22,205)

†††††††††††† 606,712

 

††††††††† 1,671,032

 

††††††† $2,277,744

 

 

$2,647,627

31,013

2,678,640

 

 

1,719,571

††††††† 959,069

 

 

33,865

†††††††††††††††††† -

††††††††† (6,731)

††††††††† (4,960)

22,174

 

981,243

 

(17,289)

†††††††††††† 963,954

 

†††††††††††† 707,078

 

††††††† $1,671,032

STATEMENT OF NET ASSETS (at June 30)

Unemployment Compensation Trust Fund (in thousands)

 

2006

 

2006

ASSETS:

Cash and cash equivalents...................................................

Investments.............................................................................

Receivables, Net:

Taxes.................................................................................

Intergovernmental..........................................................

Others...............................................................................

††††††† Other assets.............................................................................

††††††††††††††††† Total Assets..................................................................

LIABILITIES:

Benefit payments payable.....................................................

Intergovernmental payables.................................................

Due to other state funds........................................................

Total Liabilities

NET ASSETS...................................................................................

 

$2,778

1,765,139

 

476,759

28,974

90,872

4,065

$2,368,587

 

$81,946

4,717

4,180

90,843

$2,277,744

 

$10,000

1,137,136

 

505,595

27,844

75,405

3,714

$1,759,694

 

$75,840

7,526

5,296

88,662

$1,671,032

AGENCY DIRECTOR

During Audit Period:Mr. James P. Sledge (3/5/07 to current); Ms. Brenda A. Russell (7/1/06 to 3/5/07)

Currently:Mr. James P. Sledge

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Internal control review of bank trustee not obtained

 

 

 

 

 

 

For receipts totaling $800 million the Department relies on the controls within the Bank

 

 

 

 

 

 

 

 

 

According to the Department the review was not completed by the bankís auditors in a timely manner

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINDING, CONCLUSION, AND RECOMMENDATIONS

 

FAILURE TO REVIEW COMPUTERIZED INFORMATION SYSTEMS OF THIRD PARTY BANK TRUSTEE

 

The Department did not obtain an independent internal control review of its bank trustee involved with the processing of cash receipts and other data for the Department.Without a review, the Department did not have assurance that information system controls to prevent errors or irregularities were established.

 

The Department contracts for computer services with an outside commercial bank to process cash receipts and other data submitted by employers.Substantially all of the Departmentís Insurance tax receipts are processed by the bank.For approximately 35% of the Departmentís Unemployment Insurance tax receipts totaling $800 million, the Department relies primarily on the controls within the Bank to ensure the receipts and other data are processed accurately.

 

Good internal controls require that third party service providers arrange to have a periodic independent review of internal controls placed in operation and issue a report on the results of this review commonly known as a SAS 70 report.

 

According to the Department, as a result of the prior compliance finding, it included a SAS 70 review in the fiscal year 2007 contract requirements for the bank trustee; however, the review was not completed by the bankís auditors in a timely manner.(Finding 1, pages 47-48)

 

We recommended the Department periodically obtain and review a SAS 70 review from the third party bank trustee processing cash receipts and other data for the Department.

 

Department officials accepted our recommendation and stated the testing for the Type I SAS 70 review was completed in December 2007 and the corresponding final report will be issued in February 2008.

 

 

AUDITORSí OPINION

 

Our auditors stated the financial statements present fairly, in all material respects, the financial position of the Non-Shared Funds of the Department of Employment Security as of June 30, 2007, and the changes in financial position and cash flows, where applicable, thereof for the year then ended.

 

 

 

 

 

 

___________________________________

WILLIAM G. HOLLAND, Auditor General

 

 

WGH:JAF:pp

 

SPECIAL ASSISTANT AUDITORS

 

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