GOVERNOR’S OFFICE OF MANAGEMENT AND BUDGET

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

FOR THE TWO YEARS ENDED JUNE 30, 2007

EXPENDITURE STATISTICS

FY07

FY06

FY05

Total Expenditures

(All Treasury Held Funds).........................

$308,465,060

$307,569,832

$284,463,135

· Total Appropriated Funds......................

% of Total Expenditures.................

Personal Services.....................................

% of Total Appropriated Funds...........

Average No. of Employees.................

$305,487,949

99.03%

$1,956,711

.64%

$306,255,969

99.58%

$2,025,764

.66%

$283,977,134

99.80%

$1,918,465

.67%

Other Payroll Costs (FICA, Retirement)....

% of Total Appropriated Funds...........

$377,273

.12%

$307,738

.10%

$448,048

.16%

General and Administrative Expenditures...

% of Total Appropriated Funds...........

$521,033

.17%

$430,488

.14%

$563,929

.20%

Expenditures necessary for sale of

State bonds........................................

% of Total Appropriated Funds...........

$909,788

.30%

$1,162,984

.38%

$1,106,866

.39%

Expenditures pursuant to the Build

Illinois Bond Act.................................

% of Total Appropriated Funds...........

$287,871,318

94.23%

$288,480,514

94.20%

$266,084,415

93.70%

Principle, interest premium on limited

obligation revenue bonds

% of Total Appropriated Funds...........

$13,851,826

4.54%

$13,848,481

4.52%

$13,855,411

4.88%

· Total Non-Appropriated Funds..............

% of Total Expenditures.................

Interest liability on federal funds................

% of Total Non-Appropriated Funds....

$2,977,111

.97%

$2,977,111

100%

$1,313,863

.42%

$1,313,863

100%

$486,001

.20%

$486,011

100%

Cost of Property and Equipment................

$338,535

$334,645

$398,672

SELECTED ACTIVITY MEASURES (Not Examined)

FY 2007

FY 2006

Amount of General Obligation and Build Illinois Bonds Issued.......................................................................

$1,487,000,000

$2,414,950,000

AGENCY DIRECTOR

During Audit Period: Mr. John Filan (through 1/17/07); Ms. Ginger Ostro (effective 1/18/07)

Currently: Ms. Ginger Ostro

Problems with contracts tested totaling $7,256,194

Inadequate documentation maintained

Agency improperly paid $29,330

Contract Documents were not properly completed

Contracts not filed with State Comptroller’s Office

GOMB agrees with auditors

Employees reimbursed for travel expenses totaling $5,093 that should have been reimbursed by other State agencies

Interagency agreements not signed or signed timely

GOMB agrees with auditors

Lack of control over travel expenditures resulted in overpayment of $1,579

GOMB agrees with auditors

Performance evaluations not documented

Salary adjustments not properly documented and/or authorized

GOMB agrees with auditors

$64,700 of transfers reported as deletions

Items totaling $10,129 not reported

GOMB agrees with auditors

Office did not submit financial statements as required

GOMB agrees with auditors

Investment information not posted online

GOMB agrees with auditors

Supporting documentation not maintained for direct cost claims

GOMB agrees with auditors

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INADEQUATE CONTROL OVER CONTRACTUAL AGREEMENTS

The Office did not exercise adequate controls over contractual agreements.

We tested 21 contracts totaling $7,256,194 and noted in certain instances the Office did not bid out professional services contracts in excess of $20,000, failed to publish its notices of intent to enter into sole source contracts, and did not timely publish notices of contracts let or awarded in the Illinois Procurement Bulletin.

Of the 21 contracts tested, 15 were awarded through the competitive selection process and we noted the Office did not maintain adequate documentation of its request for proposal and contract award processes. We noted the Office did not award contracts to the bidders with the highest scores based on criteria set forth in the RFP, scoring sheets could not be located or did not contain all pertinent information, proposals were not scored in a consistent manner and in one instance, a proposal was given higher than the maximum allowable points for a specified criterion.

The Office entered into interagency agreements for 11 of the 21 contracts tested and we noted in certain instances interagency agreements were not signed by all parties prior to the performance of services under the associated contract. In one instance, the Office reimbursed a contractor for expenses incurred totaling $29,330 although another State agency was responsible for the costs incurred by the contractor.

We also noted 17 of 21 Contract Obligation Documents (COD) were not properly completed as the CODs included inaccurate award code information, were prepared with inaccurate or missing compensation information, were not submitted timely, did not contain an authorization signature and date and did not include the correct inception date of the contract.

Lastly, we were unable to determine if 7 of 21 contracts tested, totaling $377,495, were approved prior to the performance of services under the contract as the signature dates were absent. In addition, we noted 2 of 21 contracts, totaling in excess of $45,002, were not filed with Illinois Office of the Comptroller and we were unable to determine if the Office should have obtained additional signatures and approval for 1 of 21 contracts tested as the contact was for services to be rendered on an hourly basis, but the contract did not specify a maximum number of hours or dollar amount for the services. (Finding 1, pages 12-15)

We recommended the Office strengthen controls to ensure contractual agreements are signed and dated prior to the beginning of services and that contacts are reduced to writing and filed with the State Comptroller’s Office in a timely manner. We also recommended the Office procure contracts in accordance with the Illinois Procurement Code and publish its notice of intent to enter into sole source contacts in the Illinois Procurement Bulletin. Lastly, we recommended the Office review their procurement documentation policies to ensure proper documentation is retained to support contract award decisions.

Office officials agreed with our recommendation and stated GOMB has strengthened its contracting procedures to ensure that no awards are posted until a legal review has been completed that indicates all necessary procurement procedures have been followed, including competitive bidding if required by the Procurement code. Moreover, procedures have been strengthened to ensure interagency agreements are signed in a timely fashion, contract obligation documents are accurate, and all appropriate steps are taken in the execution and filing of contracts.

INADEQUATE CONTROL OVER INTERAGENCY AGREEMENTS

The Office did not exercise adequate control over its interagency agreements and related travel expenditures. The Office reimbursed two employees for travel expenses during the effective periods of their interagency agreements; however, these agreements specifically stated other agencies retained responsibility for such travel expenses. These employees covered by interagency agreements were reimbursed $2,959 and $2,134 by the Office for travel expenses incurred during Fiscal Year 2007. Per the related interagency agreements, those travel reimbursements should have been paid by the Department of Revenue and the Department of Corrections, respectively.

We also noted 5 of 9 interagency agreements tested were not signed or were not signed timely. We noted two interagency agreements were signed from 44 to 429 after the effective date of the agreements. We also noted two interagency agreements were signed but not dated, and one interagency agreement was not signed by the required individuals. (Finding 2, pages 16-17)

We recommended the Office carefully examine travel vouchers to ensure the correct agency is paying reimbursements in accordance with interagency agreements. Further, we recommended the Office ensure interagency agreements are approved prior to the effective date of the agreement and prior to services being rendered.

Office officials agreed with our recommendation and stated GOMB has created a new travel voucher tracking system and therefore now has in place controls to ensure that travel vouchers are paid in accordance with interagency agreements and interagency agreements are approved prior to the effective date and services being rendered.

INADEQUATE CONTROL OVER TRAVEL EXPENDITURES

The Office did not exercise adequate control over its travel functions. We noted the following:

· Eleven of 25 (44%) travel vouchers tested, totaling $8,559, were submitted from 42 to 171 days after the completion of the first instance of travel had taken place.

· One employee was reimbursed for the same travel expenditure on two different travel vouchers, resulting in an overpayment of $1,579 to the employee.

· One of 25 (4%) travel vouchers tested, totaling $1,000, was improperly completed. The employee’s headquarters was erroneously reported as Springfield, instead of Chicago.

· Three of 23 (13%) employees tested did not submit a certification of licensure and automotive liability coverage for each fiscal year. In addition, one employee who was assigned a State vehicle during the period was unwilling or unable to provide certification he was a licensed driver or had liability coverage.

· One of 25 (4%) travel vouchers tested, totaling $1,329, was not approved in advance by the agency head for out-of-state travel.

· Two of 25 (8%) travel vouchers tested, totaling $546, did not include itemized travel expenses billed directly to the State.

· One of 25 (4%) travel vouchers tested, totaling $2,150, included reimbursement for lodging which was not in accordance with travel regulations. Lodging costs were $142, while the State rate for lodging in the area was $70 and this voucher was not subsequently submitted to the Travel Control Board for approval.

· One of 25 (4%) travel vouchers tested, totaling $1,329, did not agree to supporting documentation. Transportation costs totaled $453 but the traveler only submitted receipts to justify $422 in transportation costs.

· Five of 10 (50%) Employee Controlled Housing Quarterly Reports, totaling $8,058, submitted by the Office to the Travel Control Board contained errors in calculations and did not include all months where travel and employee controlled housing reimbursements occurred. The reports were submitted containing errors in calculations ranging from $105 to $998. (Finding 5, pages 21-24)

We recommended the Office exercise adequate control over travel expenditures and require employees to submit travel vouchers in accordance with Office policies and exercise adequate control over travel expenditures. Additionally, we recommended the Office ensure personnel using a private vehicle for State business or assigned a State vehicle file a certification of licensure and insurance with the Office annually. Lastly, we recommended the Office request reimbursement from the overpaid employees.

Office officials agreed with our recommendation and stated GOMB has implemented a new travel voucher tracking system and has reiterated to staff that travel regularly the requirements that they submit travel vouchers in a timely manner. The tracking system has also strengthened internal controls over travel expenditures to prevent errors in payments and ensure accuracy in reporting. Office officials also stated in the instance cited, GOMB has already requested and received reimbursement from the employee who had been mistakenly overpaid. GOMB has further put in place controls to ensure that all relevant personnel annually file a certification of licensure and insurance with GOMB.

INCOMPLETE PERSONNEL FILES

The Office’s personnel files did not contain all required information. We noted the following:

· Probationary and/or annual performance evaluations were not documented for 11 of 12 (92%) employees tested.

· Salary adjustments were not properly documented and/or authorized for 6 of 12 (50%) employees tested. For three of these employees, we were unable to locate documentation for gross pay amounts on corresponding payroll vouchers. For the other three employees, the documentation noting a salary adjustment had been posted lacked proper approval. (Finding 6, pages 25-26)

We recommended the Office retain documentation of all probationary and annual performance evaluations performed. We also recommended the Office retain documentation of properly authorized salary adjustments to support gross pay amounts.

Office officials agreed with our recommendation and stated GOMB is implementing procedures to ensure employee evaluations and salary adjustments are properly documented and retained in employee personnel files, including instituting a salary adjustment record and a quality assurance review of personnel files.

INSUFFICIENT CONTROLS OVER THE RECORDING AND REPORTING OF STATE PROPERTY

The Office did not maintain sufficient controls over the recording and reporting of State property. We noted the following:

· Transfers of surplus property, totaling $64,700, were incorrectly classified as deletions on the Fiscal Year 2006 Quarterly Fixed Asset Report (C-15).

· Nine equipment items acquired during the examination period, totaling $10,129 were not reported on the C-15 report.

· Five equipment items purchased during the year, totaling $3,653, and shipping and handling charges, totaling $920, were included on the C-15 report, however, the amounts were not separately identified as prior year additions.

· The description of one item contained in the Office records did not match the physical item.

· The Office did not accurately correct errors noted during the previous period. $142 of shipping and handling were not corrected. (Finding 8, pages 29-30)

We recommended the Office strengthen controls over the recording and reporting of State property by reviewing their inventory and recordkeeping practices to ensure compliance with statutory and regulatory requirements. We also recommended the Office ensure all equipment is accurately and timely recorded on the Office’s property records. Lastly, we recommended the Office thoroughly review all reports prepared from internal records for accuracy before submission to the State Comptroller.

Office officials agreed with our recommendation and stated they will add another layer of supervisory review to assure more accurate recording and reporting of State property.

NONCOMPLIANCE WITH CONTINUING DISCLOSURE UNDERTAKINGS

The Office did not fully comply with annual financial reporting requirements set forth by continuing disclosure undertakings. The Office did not submit audited or unaudited financial statements with their annual financial information to repositories as required by the continuing disclosure undertakings for 18 (100%) of the bond issues tested during the audit period. (Finding 10, pages 34-35)

We recommended the Office file appropriate financial statements with repositories within the required timeframe.

Office officials agreed with our recommendation and stated they will make concerted efforts to obtain the relevant information from third parties in order to properly file the relevant financial statements.

INFORMATION REGARDING THE INVESTMENT OF PUBLIC FUNDS WAS NOT MADE AVAILABLE ONLINE

The Office did not comply with provisions of the Accountability for the Investment of Public Funds Act (30 ILCS 237/10).

The Office has statutory authority to invest public funds, and the Office held $49,215,000 in investments in the Build Illinois Bond Retirement and Interest Fund (Fund 970) as of June 30, 2007. The Office has not included any information regarding the investments held in this fund on its website. (Finding 11, pages 36-37)

We recommended the Office include the investment information required by the Accountability for the Investment of Public Funds Act on the Internet and update the information monthly by the 15^th of each month.

Office officials agreed with our recommendation and stated GOMB will institute procedures and controls to ensure the relevant information is made available on its website by the 15^th of each month.

CASH MANAGEMENT IMPROVEMENT ACT

The Office did not exercise adequate control over its Cash Management Improvement Act (CMIA) Annual Report (Report). We noted the following:

· During Fiscal Years 2005 and 2006, the Office either did not maintain supporting documentation for individual State agencies’ direct cost claims or the documentation was not provided timely to the auditors.

· Two of 26 Major Federal Assistance Programs were not included in the Fiscal Year 2005. In addition, one of 27 Major Federal Assistance Programs required to be excluded from the report was in fact included in the Fiscal Year 2006 report.

· The Fiscal Year 2005 report was filed 13 days late with the Financial Management Services (FMS). (Finding 12, pages 38-39)

We recommended the Office ensure supporting documentation for individual agencies’ direct cost claims be retained. We also recommended the Office ensure all programs are appropriately included or excluded from the CMIA Annual Report in accordance with the TSA (U.S. Treasury – State Agreement) and ensure the report is submitted timely to Financial Management Services.

Office officials agreed with our recommendation and stated GOMB has updated its procedures to ensure that documentation regarding agency direct cost claims is properly retained, that all programs are appropriately included or excluded from the CMIA Annual Report, and that the report is submitted to Financial Management Services in a timely fashion.

OTHER FINDINGS

The remaining findings pertain to 1) noncompliance with the Regional Transportation Authority Act, 2) inadequate documentation for Regulatory Sunset Act, 3) required reports not filed or filed timely, and 4) inadequate controls over cash receipts records and untimely deposits. We will follow up on these findings during our next examination of the Office.

AUDITORS' OPINION

The auditors stated that the Build Illinois Bond Retirement and Interest Fund financial statements of the Governor’s Office of Management and Budget as of and for the years ended June 30, 2007 and June 30, 2006 are fairly stated in all material respects.

____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:JSC:pp

AUDITORS ASSIGNED

The financial audit and compliance examination was conducted by the Auditor General’s staff.