REPORT DIGEST

ILLINOIS INDUSTRIAL COMMISSION

FINANCIAL AND COMPLIANCE AUDIT

For the Two Years Ended:
June 30, 1999

Summary of Findings:

Total this audit 4
Total last audit 7
Repeated from last audit 3

Release Date:
August 2, 2000

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 Commission did not determine that employer contributions paid to various funds were in compliance with State law. This finding has existed since 1977.

• Assessments due to the Rate Adjustment Fund were not paid timely in accordance with statutory requirements. This finding has existed since 1989. Further, assessments have not been adequate to meet benefit payments.

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

EXPENDITURE STATISTICS

FY 1999

FY 1998

FY 1997

Total General Revenue Fund Expenditures (All Appropriated Funds)

$10,184,279

$9,637,793

$9,132,673

OPERATIONS TOTAL

$10,184,279

$9,637,793

$9,132,673

% of Total Expenditures

100%

100%

100%

Personal Services

$7,281,537

$7,072,707

$6,809,246

% of Operations Expenditures

71.5%

73.4%

74.6%

Average No. of Employees

185

179

178

Other Payroll Costs (FICA, Retirement)

$1,487,732

$1,229,003

$1,072,014

% of Operations Expenditures

14.6%

12.7%

11.8%

Contractual Services

$553,016

$499,561

$478,370

% of Operations Expenditures

5.4%

5.2%

5.2%

All Other Operations Items

$861,994

$836,522

$773,043

% of Operations Expenditures

8.5%

8.7%

8.4%

• Cost of Property and Equipment

$1,557,271

$1,349,568

$1,305,553

SELECTED ACTIVITY MEASURES

FY 1999

FY 1998

FY 1997

Workers’ Compensation Case Load Volume:

Cases Pending at Beginning of Year

122,037

124,578

124,891

Add: New Cases (+ reinstated)

70,861

70,033

70,543

Total Cases to be Processed

192,898

194,611

195,434

Less: Cases Closed

(75,212)

(72,574)

(70,856)

Cases Pending at Year End

117,686

122,037

124,578

AGENCY DIRECTOR
During Audit Period: John W. Hallock, Jr.
Currently: John W. Hallock, Jr.

On-site audits need to be performed to verify accuracy of employer contributions

Rate Adjustment Fund resources inadequate to meet benefit payments

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

FAILURE TO DETERMINE THAT EMPLOYER CONTRIBUTIONS WERE IN COMPLIANCE WITH STATUTE

The Commission did not determine if employer contributions to various funds were in compliance with the Workers’ Compensation Act. This finding has been repeated since 1977.

Administrative procedures such as cross-checks with data from other State agencies to help verify the accuracy of these contributions are performed. However, there is no statutory authority given to the Commission to perform on-site audits to verify the accuracy of these contributions. Since the Commission lacks the authority and resources to perform such audits, revenue from these funds could be lost. (Finding 2, pages 13-14)

Commission officials agreed with our recommendation to continue administrative procedures to ensure payments are made. They stated they will seek ways to improve their ability to verify accuracy of assessment payments and will support legislation to perform audits. (For previous agency responses, see Digest Footnote 1.)

STATUTORY ASSESSMENTS SHORT OF MEETING BENEFIT PAYMENTS

Assessments due to the Rate Adjustment Fund were not paid timely in accordance with statutory requirements. No penalties or interest charges were assessed for late payments. Further, the assessments were not adequate to meet benefit payments. This finding has been repeated since 1989.

The financial position of the Rate Adjustment Fund has worsened dramatically during FY 1998 and FY 1999. The Commission is borrowing from the General Revenue Fund in excess of $8 million each year to meet its operational needs. (See page 51) The Fund deficit increased to approximately $6 million as of the end of FY 1999 because expenditures were greater than available resources. (See page 40) Since FY 1996, the benefit payments have exceeded the statutory assessments by approximately $3.5 million. (Finding 3, pages 15-16, Also see pages 34, 40, 41 and 51)

Commission officials agreed with our recommendation to continue their procedures to monitor and enforce timely collection of assessments and stated they will support legislation to require assessments paid after the due date to automatically include interest. (For previous agency responses, see Digest Footnote 2.)

OTHER FINDINGS

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

AUDITORS’ OPINION

Our auditors state the financial statements of the Industrial Commission as of June 30, 1999 and 1998, and for the two years then ended are fairly presented in all material respects.

____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:SES:pp

SPECIAL ASSISTANT AUDITORS

Hill, Taylor LLC were our special assistant auditors for this audit.

DIGEST FOOTNOTES

#1 DETERMINATION THAT EMPLOYER CONTRIBUTIONS ARE IN COMPLIANCE WITH STATUTES - Previous Agency Responses (Since 1987)

1997: "The Agency agrees with the recommendation. We will continue to seek ways to improve our ability to verify the accuracy of assessment payments. We will continue to support legislation which would give the agency the authority to audit insurance carriers and employers to verify benefit payments."

1995: "The Commission agrees. We will propose to the Workers’ Compensation Advisory Board that legislation be pursued to give us the authority and the funds to perform audits to verify the accuracy of employer contributions. We will continue to perform such cross-matches as are available and will attempt to determine additional administrative procedures as may be useful in making such determination."

1993: "The Commission agrees. The new automated systems will provide the required information to insure accurate payments into the funds. Appropriate procedures will be established to permit staff to monitor the compliance of employer contributions."

1991: "The Commission agrees. The Agency’s new computer system will provide the required information to assure accurate payments into the various funds."

1989: "The Agency agrees with this recommendation. New legislation, signed by the Governor on December 18, 1989, imposes penalties on employers who do not pay (or underpay) the assessments into the Rate Adjustment Fund and the Second Injury Fund. In addition, it requires the Department of Insurance to verify the accuracy of the amounts paid by the insurance companies into the Funds. The additional staff and resources referred to in our response to recommendations 1 through 5, will permit the Commission to perform both computer verifications and some limited auditing of self-insured employers’ records for assessment verification purposes."

1987: "The Commission will require all future assessment payments to be accompanied by an affidavit signed by an officer of the company affirming the accuracy of the information in the transmitted form and the amount tendered."

#2 TIMELY COLLECTION OF ASSESSMENTS - Previous Agency Responses

1997: "The agency agrees with this recommendation. The commission will continue its efforts to seek out insurance carriers and employers willing and capable of submitting accident report information electronically. Further, we will seek funds to expand our current system to accept electronic filing of paid benefit costs and specific injury data."

1995: "We agree with the recommendation. We will continue our efforts to secure timely payments into these funds and we will propose to the Workers’ Compensation Advisory Board that we pursue a statutory amendment which would permit the charging of interest for late payments to be deposited along with any penalties into the Rate Adjustment Fund."

1993: "The Commission agrees with #2. Due to loss of staff in the fiscal office, individual assessment transmittal forms are no longer filed in individual files, but are batched together by date of receipt.

The Commission disagrees with #1. Based on the opinion of our legal counsel, penalties cannot be automatically imposed by the Commission. Imposition of penalties for late payment would require that the Commission make a finding that the payment in question was willfully and knowingly late."

1991: "The Agency disagrees. The Agency has procedures to monitor and collect assessments due to the Rate Adjustment Fund and Second Injury Fund. Further, based on opinions of our counsel, penalties cannot be automatically imposed, but can only be required "upon a finding by the Commission" that the payment was willfully and knowingly late."

1989: "The Agency has procedures to monitor and collect assessments due to the Rate Adjustment Fund and Second Injury Fund. During the period of the audit, however, the agency did not have enforcement powers adequate to ensure payment into the funds. On December 18, 1989, the Governor signed into law a major amendment to the Workers Compensation Act which included a provision that significant penalties will be assessed in the event of late or non-payment into the Rate Adjustment and Second Injury Funds."