REPORT DIGEST
DEPARTMENT OF TRANSPORTATION
FINANCIAL AUDIT AND COMPLIANCE EXAMINATION
For the Year Ended June 30, 2010
Summary of Findings:
Total this audit: 23
Total last audit: 20
Repeated from last audit: 15
Release Date: June 9, 2011
State of Illinois, Office of the Auditor General
WILLIAM G. HOLLAND, AUDITOR GENERAL
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Office of the Auditor General, Iles Park Plaza, 740 E. Ash Street, Springfield, IL 62703
(217) 782-6046 or TTY (888) 261-2887
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SYNOPSIS
• The Department maintained inaccurate commodities inventory
records for the year ended June 30, 2010.
• The Department did not accurately report capital assets to
the Illinois Office of the Comptroller for fiscal year 2010.
• The Department did not accurately report deferred revenues
to the Illinois Office of the Comptroller for fiscal year 2010.
• The Department failed to report certain significant
financial information in fiscal year 2009, resulting in a prior period
adjustment affecting the fiscal year 2010 financial statements.
• The Department failed to comply with an interagency
agreement and Illinois Commerce Commission Order.
• The Department did not maintain controls to ensure
employees’ overtime hours were appropriately documented, reasonable, and agreed
to the timekeeping system.
• The Department did not exercise adequate controls over
employee attendance to ensure employees’ work hours and benefit time were
properly recorded and documented.
• The Department did not provide supporting documentation
for vouchers tested. In addition,
vouchers were overpaid and a voucher for services provided in a previous fiscal
year was inappropriately paid from a fiscal year 2010 appropriation.
• The Department did not have adequate controls to prevent inappropriate payments to vendors.
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
NEED TO IMPROVE COMMODITIES INVENTORY RECORDS
The Department of Transportation (Department) maintained
inaccurate commodities inventory records for the year ended June 30, 2010.
During our physical inventory counts, we counted 183
inventory items and noted discrepancies between audit test counts and
Department inventory counts for 30 (16%) items.
The errors resulted in an overstatement of the year-end inventory
balance of $95,000 which, when extrapolated over the entire inventory
population, resulted in an estimated overstatement of $2,840,000. The Department was not able to reconcile
between audit test counts and Department physical inventory counts for these
differences. We further noted one
location erroneously reported 7,000 tons of salt rather than the actual
quantity on-hand of 7,000 pounds resulting in an additional overstatement of
$2,793,000.
During our price testing, we sampled 60 inventory
items. We were not provided with price
documentation for 1 (2%) item in our sample.
Of the documentation provided, 20 (33%) items contained an inaccurate
price. It was determined that certain
commodities were given equal pricing across the State although actual commodity
costs varied by location. In other
instances, the inventoried commodities costs did not agree to the actual
invoice at the time the commodities were purchased. The discrepancies between final inventory
prices and invoice prices, including the item for which no documentation was
provided, resulted in an overstatement of the year-end inventory amount of $41,000. When extrapolated over the entire inventory
population, this discrepancy resulted in an estimated overstatement of
$455,000. (Finding 2, pages 15-17) This finding was first reported in 1994.
We recommended the Department strongly emphasize the
importance of maintaining accurate inventory quantity and cost records
throughout the year. Additionally, the
Department should perform periodic physical inventory counts throughout the
year and reconcile those to Department records.
Finally, we recommended the Department implement a more thorough review
at year-end to compare costs assigned per inventory listings to the most recent
inventory amounts to ensure accurate unit costs.
Department officials agreed with the recommendation and
stated the Department has made great strides to improve procedures to produce
an accurate count and pricing of their commodity inventory and will continue to
make improvements to the year-end commodity inventory process. They will strongly emphasize the importance
of maintaining accurate inventory quantity and cost records in planning and
conducting the June 30, 2011 commodity inventory count and pricing. (For the previous Department response, see
Digest Footnote #1)
NEED TO IMPROVE REPORTING OF CAPITAL ASSETS
The Department did not accurately report capital assets to
the Illinois Office of the Comptroller for fiscal year 2010.
We noted the following errors and weaknesses in the
Department’s capital asset reporting process:
• The Department failed to identify easements required to be
reported as intangible assets under Governmental Accounting Standards Board
(GASB) Statement No. 51, Accounting and Reporting for Intangible Assets. The Illinois Office of the Comptroller developed
implementation guidance for State agencies and established a $25,000 threshold
for intangible assets which are not internally generated. During our testing, we noted the Department
did not originally record intangible assets in compliance with GASB 51. We noted there were permanent and temporary
easement costs included in the Right of Way land balance that met this
reporting criteria. As a result, the
Department subsequently removed $30.8 million of easement costs from the land
balance and reported an adjusted basis of $4.1 million in easement related
intangible assets at June 30, 2010.
• Our testing of capital asset additions noted the
Department has not been properly capitalizing demolition related costs as land
improvements. The Department estimated
total demolition related costs for the past five years that should have been
reported as land improvements to be approximately $5 million. The Department did not adjust its financial
statements for the $5 million understatement to land improvements as it was
considered immaterial to the Department’s overall financial statements.
• In our testing of construction-in-progress, we noted that
additions and deletions were not being reported at the total amount of
expenditures incurred and costs removed.
Specifically, costs incurred during the current year on projects
completed during the current year were not included in the additions and
deletions balances. Further, we noted
all projects completed were treated as deletions resulting in the recognition
of a loss. No amounts were capitalized resulting in an understatement of the
capital assets balance at June 30, 2010 of approximately $2.1 million. The Department did not adjust its financial
statements for this as it was considered immaterial to the Department’s overall
financial statements.
• We noted the Department was not properly analyzing repair
and maintenance expenditures for costs that should be capitalized. During our testing of repairs and
maintenance, we noted one expenditure which included the installation of
equipment at two rest stops totaling $18,500 which was not capitalized.
• Accounts payable were understated by $1.6 million due to
errors in calculating June 30, 2010 accounts payable for
construction-in-progress. As a result,
construction in progress was understated by $1.6 million at June 30, 2010. The Department did not adjust its financial
statements for this as it was considered immaterial to the Department’s overall
financial statements. (Finding 3, pages
18-20) This finding was first reported
in 2008.
We recommended the Department devote sufficient resources to
its financial accounting function such that the capital asset information is
properly recorded and accounted for to permit the preparation of reliable
financial information and reports to the Office of the Comptroller.
Department officials agreed with the recommendation and
stated they continued to experience staff turnover during the audit
period. They further stated reporting
requirements for the implementation of new pronouncements are being addressed
in a timely manner. They also stated the
process of identifying expenditure classification will be reviewed to determine
a method that will promote the proper classification of future expenditures,
and written procedures will be reviewed to ensure the proper recording of the
capital assets. (For the previous
Department response, see Digest Footnote #2)
NEED TO IMPROVE REPORTING OF DEFERRED REVENUES
The Department did not accurately report deferred revenues
to the Illinois Office of the Comptroller for fiscal year 2010.
We noted the following errors and weaknesses in the
Department’s deferred revenue reporting process:
• The Department failed to defer as unavailable revenue a
$20 million lawsuit settlement that was not due to be received until February
2011. This resulted in an understatement
of deferred revenue and an overstatement of revenue at June 30, 2010. The Department corrected this error in its
revised financial statements.
• The Department failed to accurately determine the amount
of deferred – unavailable revenues in the Road Fund due to the calculations
being completed soon after year end.
Some of the service dates entered into the Fiscal Operations and Administration
system were not final when the data was pulled and were later revised for
accuracy after the Department had completed the calculation of deferred –
unavailable revenue. These errors
resulted in a $7.4 million overstatement of deferred revenue and an
understatement of revenue at June 30, 2010.
The Department corrected this error in its revised financial statements.
• In determining the deferred – unavailable revenues for
amounts due from local municipalities related to joint improvement programs in
the Road Fund, the Department failed to properly account for all lapse period
receipts on these accounts. These errors
resulted in an $8.5 million overstatement of deferred revenue and an
understatement of revenue at June 30, 2010.
The Department corrected this error in its revised financial statements.
• The Department failed to accurately record a significant
amount of revenues in the Federal Local Airport Fund. These errors resulted in a $9.3 million
overstatement of deferred revenue and an understatement of revenue at June 30,
2010. The Department corrected this
error in its revised financial statements.
As a result of this error, the Department also determined that the
related payables were incorrectly allocated between the local and Federal
portions. While total payables were reported
correctly, the error in the allocation resulted in a $9.3 million overstatement
of Federal revenues and an overstatement of Federal receivables at June 30,
2010. The Department corrected this
error in its revised financial statements.
(Finding 4, page 21-22)
We recommended the Department devote sufficient resources to
its financial accounting function such that the deferred revenues are properly
accounted for to permit the preparation of reliable financial information
submitted to the Office of the Comptroller.
Department officials agreed with the recommendation and
stated additional staff had been added to the Fiscal Operations Unit. They further stated this will allow the
Department to complete a more thorough review of the financial information
prior to submission in order to ensure the necessary financial reports are
accurate and timely.
FAILURE TO REPORT CERTAIN FINANCIAL INFORMATION
The Department failed to report certain significant
financial information in fiscal year 2009, resulting in a prior period
adjustment affecting the fiscal year 2010 financial statements.
During fiscal year 2009, the Department failed to report a
$61.629 million receivable and $119.631 million payable in the Road Fund due
from/to the Illinois Toll Highway Authority for intergovernmental construction
contracts. This resulted in the net
assets of the Department being restated by $58.002 million at June 30,
2009. (Finding 5, page 23)
We recommended the Department implement procedures to
identify and record receivables/payables between the Department and the
Illinois Toll Highway Authority at June 30 each year. This should include allocating sufficient
staff resources and the implementation of formal procedures to ensure financial
information is prepared accurately and completely.
Department officials agreed with the recommendation and
stated they will continue to work with the Illinois State Highway Authority to
ensure the proper accounting for the receivable/payable. The Department will also continue to update
and revise written procedures as necessary to ensure accurate and timely
reporting.
FAILURE TO COMPLY WITH INTERAGENCY AGREEMENT AND ORDER
The Department did not comply with certain requirements of
an interagency agreement and an Illinois Commerce Commission (ICC) Order when
disbursing payments for a Grade Crossing Protection Fund (GCPF) Project.
The Department entered into an interagency agreement with
the ICC on March 21, 2005 to administer GCPF safety improvement projects. The
agreement assigns certain responsibilities to the ICC and the Department. The ICC issued an Order on December 3, 2008
for improving safety by the installation of automatic flashing light signals
and gates with light emitting diode (LED) lights and constant warning time
control circuitry at several locations in Illinois. The estimated cost was $765,002 with 50% or
$382,501 to be paid by GCPF and the railroad carrier paying the remaining 50%.
The interagency agreement and Order assigns the Department
the responsibility to ensure the rail carrier provided sufficient documentation
for all reimbursements and provided for minimum documentation
requirements. The agreement further
requires the Department to conduct audits of all GCPF projects. As of June 30, 2010, Department management
stated the last such audit was conducted in FY07.
We reviewed payments totaling $87,334 made by the Department
to the railroad carrier during FY10 and noted the invoices did not contain
sufficient documentation. The following
problems were noted:
• The Department was unable to provide adequate supporting
documentation for a total of $27,673 paid for labor charges including
engineering and supervision and the overhead additive percentage of 82.1%. The interagency agreement and Order require
copies of all work hours charged to the project to be provided.
• The Department was unable to provide adequate supporting
documentation for a total of $1,586 paid for equipment charges. The interagency agreement and Order require
copies of all equipment rental agreements including the number of hours the
equipment was used and the railroad account code.
• We were unable to determine whether expenditures related
to travel totaling $17,176 were related to the GCPF project. The travel expenses included meals, lodging,
and mileage reimbursements and lacked supporting documentation for the charges
and per diem amounts. (Finding 6, pages
24-25)
We recommended the Department ensure all payments are
adequately supported and in compliance with the Order and interagency
agreement. We further recommended the
Department conduct audits as required by the interagency agreement.
Department officials agreed with the recommendation and
stated they are currently conducting billing reviews for railroad force account
projects. They also stated they will
continue to work to identify ways to improve the process for assuring that all
railroad payments are adequately supported, and that the payments are made in
compliance with the ICC Order and Interagency Agreement. The Department further stated they have now
secured personnel which will now allow auditing of railroad force account
projects to resume.
INADEQUATE CONTROLS OVER EMPLOYEE OVERTIME
The Department did not maintain controls to ensure
employees’ overtime hours were appropriately documented, reasonable, and agreed
to the timekeeping system.
According to Department records, the Department expended
$33,248,173 in overtime during FY10.
We tested a sample of 15 employees who received between
$13,608 and $67,027 in overtime pay during FY10 and reviewed three months of
their sign out sheets, overtime cards, when applicable, and the timekeeping
system (TKS) balances. We noted the
following during our review:
• One of 15 (7%) employees tested did not have documentation
to substantiate the overtime paid. No
documentation was provided for an employee who was paid for 385 hours of
overtime during the three months reviewed.
• Two of 15 (13%) employees’ tested overtime cards did not
agree with TKS. The employees were paid
for 45 overtime hours when no overtime hours were recorded on the overtime
cards. In addition, one of the employees
checked compensatory hours but was instead compensated for 6 hours at double
time and 6.5 hours at time and one-half.
• For 3 of 15 (20%) employees tested who collectively worked
1,287 overtime hours during the three months tested, we could not determine
whether the overtime worked was reasonable because there was either no
explanation listed in the purpose for overtime worked on the overtime cards or
the purpose given did not appear reasonable.
• One of 15 (7%) employees tested accrued significant
overtime hours in short periods of time including one month in which the
employee worked 24 hours consecutively and another month in which the employee
worked 32 hours consecutively.
During our regular testing of personnel files and
timekeeping records we noted 8 of 35 (23%) employees tested accrued 43 hours of
overtime or EET time that was not supported by sign out sheets or overtime
cards. (Finding 7, pages 26-28) This finding was first reported in 2007.
We recommended the Department implement controls to ensure
employee overtime is adequately documented and all amounts paid are reasonable.
Department officials agreed with the recommendation and
stated a memorandum will be distributed detailing the levels of responsibility
in regards to documenting overtime. (For
the previous Department response, see Digest Footnote #3)
INADEQUATE CONTROLS OVER EMPLOYEE ATTENDANCE
The Department did not exercise adequate controls over
employee attendance to ensure employees’ work hours and benefit time were
properly recorded and documented.
During testing, we noted the following:
• The Department could not locate all employee sign-in
sheets for 9 of 35 (26%) employees tested.
The Department had no FY10 sign-in sheets or timekeeping records for one
employee for the months sampled. We
further noted although the employee was being paid, there were no hours entered
into the timekeeping system (TKS) during those periods.
• Six of 35 (17%) employees tested had leave requests and
sign out sheets that did not agree to TKS.
As a result, we noted 4 employees with vacation time discrepancies
resulting in an overstatement of 24.75 hours, 2 employees with equivalent
earned time (EET) discrepancies resulting in an understatement of 4.5 hours, 2
employees with personal business time discrepancies resulting in an
overstatement of 10 hours, and two employees with sick time discrepancies
resulting in an overstatement of 9 hours.
In addition, one employee recorded a furlough day on the sign out sheet;
however, the timekeeping system and the payroll system were not adjusted.
• For 5 of 35 (14%) employees tested, the Department was
unable to provide leave slips for 67 hours of benefit time taken. We noted one of these employees’ vacation
balance was overstated 7.5 hours.
• Eight of 35 (23%) employees tested were arriving and
departing at different times other than their official schedules as reported on
TKS.
• Fourteen of 35 (40%) employees’ tested supervisors did not
approve their timesheets. (Finding 8,
pages 29-30) This finding was first
reported in 2007.
We recommended the Department implement controls to ensure
employees complete leave requests for time off, accurately complete the sign-in
sheets and agree those records to the timekeeping system to ensure accrued
absence balances are accurate. We
further recommended the Department ensure employees are arriving and departing
in accordance with their documented work schedules and employee time records
are complete and approved by their supervisor.
In addition, we recommended the Department correct any employee’s
accrued balance noted as incorrect and recover any amounts owed by employees.
Department officials agreed with the recommendation and
stated a memorandum will be distributed detailing the levels of responsibility
in regards to completion of Leave Requests and sign-in/sign-out sheets. In addition, the memo will clarify proper
sign-in/sign-out procedures. The
Department will review the documentation provided by the auditors and will
ensure the employees’ absence balances are corrected and recover amounts owed. (For the previous Department response, see
Digest Footnote #4)
LACK OF SUPPORTING DOCUMENTATION AND OVERPAYMENTS
The Department did not provide supporting documentation for
vouchers tested. In addition, vouchers
were overpaid and a voucher for services provided in a previous fiscal year was
inappropriately paid from an FY10 appropriation.
During testing, we noted the following:
• For 13 of 453 (3%) voucher tested, totaling $194,060, we
were not provided adequate documentation, so we could not determine if the
payments were proper.
• Five of 428 (1%) voucher tested, totaling $380,663, were
overpaid by $17,227. Two invoices for
salt shipments were noted by Department employees to be short in quantity but
were still paid in full. In addition,
the Department failed to withhold a 10% retainer on payments for professional
services for an airport project. The
grant agreement required the 10% retainer to be held until all agencies
approved the plan.
• A payment totaling $95,696 for professional services on an
airport project performed during FY08 was inappropriately paid from an FY10
appropriation. (Finding 10, pages 33-34)
We recommended the Department implement internal controls to
ensure adequate supporting documentation is maintained for all expenditures and
all invoices paid are accurate and in accordance with written agreements. We also recommended the Department ensure all
payments are paid out of the proper fiscal year appropriations. We further recommended the Department recoup
any overpayments.
Department officials agreed with the recommendation and
stated they are in the process of re-organizing the filing system related to
the voucher processing department. The
process is expected to be complete by January 2012. In addition, the Department will recoup any
overpayments as identified.
INADEQUATE CONTROLS TO PREVENT INAPPROPRIATE PAYMENTS TO
VENDORS
The Department did not have adequate controls to prevent
inappropriate payments to vendors.
During testing, we noted ten instances where the Department issued
$741,324 in duplicate payments to vendors during FY10.
We obtained a report of potential duplicate vouchers using
auditing software and the following 2 of 25 (8%) payments tested were issued
twice by the Department:
• $513,765 to a vendor for railroad improvement project;
• $188,631 to a local government as reimbursement for its
share of construction costs on a joint improvement. The Department later noted this duplicate
payment and adjusted a subsequent invoice.
We also noted 8 of 25 (32%) refunds tested, totaling $38,928
were a result of duplicate or erroneous payments:
• The Department received checks totaling $5,129 that were
paid to the wrong vendor;
• Four vendors returned duplicate checks totaling $33,799.
The Department’s accounting system invokes a warning for
duplicate payments for invoices if the invoice number already exists or if the
payee identification and invoice dollar amount are the same, but the same
individual who enters the voucher can override the alert. In addition, there is no centralized report
to allow management to review all employee overrides for reasonableness. Further, the system only warns for duplicates
within the same accounting entity and fiscal year, and the Department has 35
accounting entities entering vouchers and also has reappropriated accounts that
do not lapse at the end of the fiscal year.
(Finding 12, pages 38 – 39) This
finding was first reported in 2007.
We recommended the Department implement controls to review
the employee override for duplicate payments.
In addition, controls should be implemented to prevent duplicate
payments between accounting entities and over different fiscal years for the
reappropriated accounts. We further
recommended the Department obtain reimbursement for the duplicate payment.
Department officials agreed with the recommendation and
stated they held training on the Fiscal Operations and Administration (FOA)
system in May 2011. Duplicate payments
were addressed and staff was informed that FOA does warn of duplicate payments
across all accounting entities, staff were also reminded of the responsibility
to verify accuracy of the invoicing when a duplicate payment warning
occurs. The Department does invoice the
vendors for reimbursement when duplicate payments are made. (For the previous Department response, see
Digest Footnote #5)
OTHER FINDINGS
The remaining findings are reportedly being given attention
by the Department. We will review the
Department’s progress toward implementation of our recommendations in our next
examination.
AUDITORS’ OPINION
Our auditors state the basic financial statements of the
Department as of and for the year ended June 30, 2010 were fairly presented in
all material respects.
STATE COMPLIANCE EXAMINATION – ACCOUNTANT’S REPORT
The auditors qualified their report on State Compliance for
findings 10-4 through 10-7. Except for
the noncompliance described in these findings, the auditors state the
Department complied, in all material respects, with the requirement described
in the report.
WILLIAM G. HOLLAND
Auditor General
WGH:PH:pp
AUDITORS ASSIGNED
The compliance examination was performed by the Auditor
General’s staff. Sikich, LLP performed
the financial audit as special assistant auditors.
DIGEST FOOTNOTES
#1 – INACCURATE COMMODITIES INVENTORY RECORDS
2009: The Department
agreed with the recommendation and stated the Department was committed to
resolving the issues involved with the commodities inventory process.
# 2 – INACCURATE REPORTING OF CAPITAL ASSETS
2009: The
Department agreed with the recommendation and stated they had identified errors
in the prior year capital reporting and as a result had significant corrections
to the capital assets balance during FY 2009.
They stated appropriate staff had been assigned to the reporting process
and written procedures were being drafted in order to ensure accurate and
timely reporting to the Office of the Comptroller.
#3 – INADEQUATE CONTROLS OVER EMPLOYEE OVERTIME
2009: The Department
agreed with the recommendation and stated the Personnel Policy Manual had been
updated to clarify Employee Overtime and Earned Equivalent Time.
#4 – INADEQUATE CONTROLS OVER EMPLOYEE ATTENDANCE
2009: The Department
agreed with the recommendation and stated the Personnel Policy Manual had been
updated to state the employees are responsible for submitting leave requests to
their supervisors in advance when possible, but no later than one week after
the absence.
#5 – INADEQUATE CONTROLS TO PREVENT INAPPROPRIATE PAYMENT TO
VENDORS
2009: The Department
agreed with the recommendation and stated for FY10 the Department required all
Accounting Entities to keep copies of invoices received and sent to the
accounting unit.