Illinois State University 2001 Audit

REPORT DIGEST

ILLINOIS STATE UNIVERSITY

FINANCIAL AND COMPLIANCE AUDIT

(In accordance with the Single Audit Act and OMB Circular A-133)

For the Year Ended:
June 30, 2001

Summary of Findings:

Total this audit 4
Total last audit 4
Repeated from last audit 1

Release Date:
March 19, 2002

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
Attn: Records Manager
Iles Park Plaza
740 E. Ash Street
Springfield, IL 62703

(217)782-6046 or TDD (217) 524-4646

This Report Digest is also available on
the worldwide web at
http://www.state.il.us/auditor

SYNOPSIS

The University had not developed a documented disaster recovery plan for its computerized financial accounting system, nor did it maintain off-site backups of the system.

The University incorrectly deposited $1,375,000 in royalty receipts with the ISU Foundation, when the receipts should have been recorded and deposited directly into a University account.

{Financial Information is summarized on the reverse page.}

ILLINOIS STATE UNIVERSITY
FINANCIAL AND COMPLIANCE AUDIT
For The Year Ended June 30, 2001

FINANCIAL OPERATIONS (CURRENT FUNDS)	FY 2001	FY 2000
REVENUES Appropriations Student tuition and fees Laboratory Schools Grants, contracts, and gifts Sales and services of educational departments* Auxiliary enterprises Other* Payments on behalf of the University Total*	$ 87,764,156 72,391,775 7,446,888 24,589,434 1,762,490 51,119,929 17,376,122 32,184,171 $294,634,965	$ 83,324,456 69,677,747 7,183,548 18,604,912 6,769,723 49,152,818 16,247,232 28,700,945 $279,661,381
EXPENDITURES AND MANDATORY TRANSFERS Instruction Research Public Service Academic support Student services Institutional support* Operation of plant Student Aid Auxiliary enterprises Mandatory transfers Payments on behalf of the University Other Total* * FY 2000 amounts after prior period adjustment.	$ 88,302,348 12,042,792 10,042,991 12,874,730 23,052,410 20,992,054 21,320,872 16,680,543 40,352,471 11,718,915 32,184,171 5,356,933 $294,921,230	$ 81,422,514 11,835,459 8,931,398 12,654,923 22,538,794 18,576,982 21,808,267 16,228,265 37,497,766 11,330,761 28,700,945 1,486,903 $273,012,977
SELECTED ACCOUNT BALANCES (ALL FUNDS)	JUNE 30, 2001	JUNE 30, 2000
Cash and cash equivalents Investments Buildings, land, and equipment Accrued liability for compensated absences Fund balances (deficit): Unrestricted* Restricted Loan Plant * FY 2000 balance after prior period adjustment.	$ 21,459,064 34,981,020 456,793,265 21,657,504 7,321,083 1,057,008 10,761,772 422,703,220	$ 23,546,127 40,875,655 436,803,701 21,334,703 6,960,663 1,118,129 9,975,624 407,414,682
SUPPLEMENTARY INFORMATION	JUNE 30, 2001	JUNE 30, 2000
Employment Statistics (Full Time Equivalent) Faculty/administrative Civil service Student employees and miscellaneous contracts Total Employees	1,764.0 1,339.4 700.2 3,803.6	1,755.5 1,328.9 715.9 3,800.3
Selected Activity Measures Annual full-time equivalent students Cost per full-time equivalent student, based on education and general expenditures from current funds	18,175 $8,058	17,823 $7,854
UNIVERSITY PRESIDENT
During Audit Period: Dr. Victor J. Boschini, Jr. Currently: Dr. Victor J. Boschini, Jr.

The University had not developed a documented disaster recovery plan for its computerized financial accounting system

Data backups were not maintained off-site

The University incorrectly deposited $1,375,000 in royalty receipts with the ISU Foundation

The receipts should have been recorded and deposited directly into a University account

INTRODUCTION

Our audit of Illinois State University is issued in two reports. The Compliance Audit Report contains the audit findings and the supplementary financial information including the federal single audit disclosures. The Financial Audit Report contains the opinion on the financial statements.

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

LACK OF A DOCUMENTED DISASTER RECOVERY PLAN

The University had not developed a disaster recovery plan for its computerized financial accounting system, nor did it maintain off-site data backups for this system. The financial accounting system is an integrated accounting system that maintains all the University's financial information.

Considering the critical applications contained in this accounting system, the University should establish, document and test a disaster recovery plan to enable the University to continue its operations in the event of a disaster. In addition, system backups should be taken off-site at least weekly to ensure data would be available if a disaster occurred. (Finding 1, page 13)

We recommended that the University develop a written disaster recovery plan, test it at least annually, keep it updated for any changes in the processing environment, and ensure that off-site data backups will be available if needed.

University officials agreed with the recommendation and stated that effective December 2001, the University had completed a written, comprehensive disaster recovery plan addressing emergency essential hardware, and the creation of an off-site storage of an emergency system disk and backups specifically structured to restore the live database.

INCORRECT DEPOSIT OF ROYALTY RECEIPTS

During our review of University contracts, we noted the University entered into a 5-year agreement giving a financial services provider exclusive rights to market credit cards, charge cards, and travel and entertainment cards to alumni and students. In exchange, the University received $1,375,000 in royalty receipts.

According to the contract, these royalty payments should have been deposited and accounted for as operating revenue of the University’s local funds; instead, they were deposited into the Illinois State University Foundation and accounted for as operating revenue of the Foundation.

As a result of these cash royalties being inappropriately deposited and recorded by the Foundation, the University had understated the accrual-basis revenue of its local funds activities by $275,000 in fiscal year 2001 and $710,417 in prior fiscal years.

Correspondingly, the University’s deferred revenue was understated by $218,333 at June 30, 2001. This resulted in an overstatement of the Foundation’s cash-basis revenues by $171,250 in Fiscal Year 2001 and $1,032,500 in prior years.

The royalties earned by the University, along with any earned interest, should be reflected in the accounts and records of the University – rather than those of the Foundation.

According to University management, the royalties were deposited into the Foundation's accounts in order to segregate and maintain the funds for future use by Alumni services. (Finding 4, pages 17 - 18)

We recommended the University and Foundation correct the accounting treatment of this contract's royalty income, including any interest. We also recommended that the University review the stipulations of future contracts to determine proper accounting and depositing of the transactions.

University officials agreed with our recommendation to make the appropriate accounting entries to correct for the incorrect deposit of these funds into the University Foundation. These entries have been made and are fully incorporated into the Fiscal Year 2001 financial statements.

OTHER FINDINGS

The remaining findings and recommendations were less significant and are reportedly being given attention by University management. We will review progress toward implementation of our recommendations during our next audit.

Mr. Ron Jones, Associate Vice President and Comptroller, provided University responses.

AUDITORS' OPINION

Our auditors state the financial statements of Illinois State University as of June 30, 2001, and for the year then ended, are fairly presented in all material respects.

_____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:JHL:pp

SPECIAL ASSISTANT AUDITORS

Our special assistant auditors for this engagement were Clifton Gunderson LLP.