ILLINOIS HOUSING DEVELOPMENT AUTHORITY
For the Year Ended June 30, 2011
Release Date: November 3, 2011
Summary of Findings:
Total this audit: 3
Total last audit: 6
Repeated from last audit: 3
State of Illinois, Office of the Auditor General
WILLIAM G. HOLLAND, AUDITOR GENERAL
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• The Authority has inconsistencies in the process for monitoring problem loans and in rating loans that are deemed uncollectible in the multi-family loan program.
• The Authority has loan balances in the multi-family program recorded in their financial statements that should be removed due to the loans being uncollectible.
• The Authority’s accounts payable master vendor list has duplicate vendors.
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
INCONSISTENCIES IN THE LOAN MONITORING AND LOAN RATING SYSTEM
The Illinois Housing Development Authority (Authority) had inconsistencies in the process for monitoring problem loans and inconsistencies in rating loans that are deemed uncollectible in the multi-family loan program.
The Authority has established a comprehensive loan rating system to establish appropriate loan loss reserve amounts for the multi-family loan program. We conducted three separate loan reviews testing current, delinquent and “watch list” loans. A total of 87 multi-family program loans were tested for compliance with the Authority’s loan rating policy.
During our tests we noted that 2 of the 87 (2%) loans reviewed were not properly reserved for in accordance with the Authority’s loan rating policy, resulting in an over reserve in the Administrative Fund of approximately $408,000. (Finding 1, Page 66) This finding was first reported in 2008.
We recommended that the Authority implement policies and procedures to ensure changes to loan ratings are updated consistently in order to ensure an accurate calculation of the allowance for loan loss.
Authority officials concurred with the recommendation and believe that the policies and procedures that were implemented during fiscal years 2010 and 2011 have helped to strengthen internal controls. (For the previous Authority response, see Digest footnote #1.)
LOAN RECEIVABLE ALLOWANCE FOR LOAN LOSS BALANCES OVERSTATED
The Illinois Housing Development Authority (Authority) has loan balances in the multi-family program recorded in their financial statements that should be removed due to the loans being uncollectible.
During our audit of the Authority’s allowance for loan loss estimate, we noted 38 loans totaling approximately $7.6 million were recorded on the Authority’s financial statements for which a 100% allowance reserve was recorded. The Authority anticipates that most of these loans will ultimately be written off. (Finding 2, Page 67) This finding was first reported in 2008.
We recommended that the Authority work with the Attorney General’s Office to get approval to write-off the uncollectible loan balances.
Authority officials concurred with the recommendation and stated that they continue to work with the Attorney General’s office to acquire timely approvals of submitted loan writeoff requests. (For the previous Authority response, see Digest footnote #2.)
DUPLICATE VENDORS IN THE ACCOUNTS PAYABLE MASTER VENDOR LIST
The Illinois Housing Development Authority’s (Authority) accounts payable master vendor list has duplicate vendors.
During our testing of the master vendor list, we noted of the 2,658 vendor records there were 502 duplicate records (19%) representing 52 vendors. The vendors had the same name but were given different vendor identification numbers in the accounts payable system. Below is a breakdown of instances of duplication:
• 2 vendors were in the system 10 times or more
• 15 vendors were in the system 5 to 9 times
• 167 vendors were in the system 2 to 4 times
Without adequate procedures to prevent multiple vendors from being created in the accounts payable system or to detect and purge multiple vendors in the accounts payable system, there exists the risk of an accounting error or a misappropriation of assets. (Finding 3, Page 68-69)
We recommended that the Authority implement procedures to assign one vendor identification number per vendor to prevent multiple vendors from being created on the system. We also recommended that the Authority implement procedures to review the master vendor list regularly and purge duplicate vendor names from the system.
Authority officials concurred with the recommendation and stated that they have established a procedure as of January 2011 that requires a form W-9 to be on file for new and existing vendors which requires a valid TIN. The TIN will be used as a unique number to identify active vendors within the accounts payable system and is required to add any new vendors to the master vendor list.
Our auditors state the June 30, 2011 financial statements of the Illinois Housing Development Authority are presented fairly in all material respects.
WILLIAM G. HOLLAND
SPECIAL ASSISTANT AUDITORS
McGladrey & Pullen LLP were our Special Assistant Auditors for this engagement.
#1 –Inconsistencies in the Loan Monitoring and Loan Rating System – Previous Authority Response
The Authority concurs with the recommendation. Management will review the current policies and procedures and make any revisions as needed to ensure that the “watch list” reports are complete and accurate for all loans. In addition management will review the policies and procedures for uncollectible loans to ensure that the amounts to be reserved are accurate and consistent with established policies for loan loss reserves.
#2 –Loan Receivable Balance and Allowance for Loan Loss Balance Overstated – Previous Authority Response
The Authority concurs with the recommendation and will continue to work with the Attorney General’s Office to get approval for write-off of uncollectible loan balances through periodic inquiries on the status of submitted requests.