REPORT DIGEST

 

 

DEPARTMENT OF LABOR

 

 

COMPLIANCE AUDIT

For the Two Years Ended:

June 30, 2003

 

Summary of Findings:

 

Total this audit                      6

Total last audit                      2

Repeated from last audit       2

 

Release Date:

March 18, 2004

 

 

 

 

 

 

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

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 auditorsí reports contained certain scope limitations, disclaimers, and other significant non-standard language regarding material findings of noncompliance that were disclosed by the special state compliance tests.
  • The Department lacked adequate documentation for amounts reported in the GAAP package.
  • The Department failed to document expenditure reconciliations.
  • The Department failed to perform timely revenue reconciliations.
  • The Department lacked supporting documentation for the Special Trust Fund.
  • The Department did not monitor the timely submission of current toxic substances data sheets by public employers in accordance with the Toxic Substances Disclosure to Employees Act (820 ILCS 255/5).

 

 

 

 

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

 

 

                                              DEPARTMENT OF LABOR

 

                                                   COMPLIANCE AUDIT

                                        For The Two Years Ended June 30, 2003

 

 

EXPENDITURE STATISTICS

FY 2003

FY 2002

FY 2001

! Total Expenditures (All Appropriated Funds)

$6,413,725

$6,654,761

$6,564,843

OPERATIONS TOTAL

      % of Total Expenditures

$5,625,471

88%

$5,843,801

88%

$5,717,719

87%

      Personal Services

            % of Operations Expenditures

      Average No. of Employees

$3,781,652

67%

93

$3,852,126

66%

101

$3,598,472

63%

103

      Other Payroll Costs (FICA, Retirement)

            % of Operations Expenditures

$816,098

14%

$823,282

14%

$765,726

13%

      Contractual Services

            % of Operations Expenditures

$260,436

5%

$287,744

5%

$288,807

5%

      All Other Operations Items

            % of Operations Expenditures

$767,285

14%

$880,649

15%

$1,064,714

19%

GRANTS TOTAL

      % of Total Expenditures

$788,254

12%

$810,960

12%

$847,124

13%

! Cost of Property and Equipment

$694,372

$673,283

$735,918

SELECTED ACTIVITY MEASURES

FY 2003

FY 2002

FY 2001

! Child Labor Violations Cited

1,796

3,830

7,121

! Carnival Rides Inspected

2,032

2,658

1,859

! Wage Claims Filed

9,283

3,079

8,326

! Settlements and Hearings

4,068

3,618

3,463

! Minimum Wage and Overtime Violations

12,611

6,122

17,567

AGENCY DIRECTOR

During Audit Period: Robert M. Healey (7/01 to 5/02)

Michael J. Fenger (2/03 to 10/03)

Currently: Esther Lopez

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Department lacked adequate documentation for amounts reported in the Agencyís GAAP Form packages submitted to the Office of the State Comptroller

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Department failed to document expenditure reconciliations and lacked adequate segregation of duties over expenditure functions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Department did not perform timely monthly revenue reconciliations and did not timely file receivable reports or maintain arbitration case files

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Department did not maintain adequate controls over the Special Trust Fund

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Department did not comply with the Toxic Substances Disclosure Act

 

 

 

 

INTRODUCTION

The auditorsí reports contained certain scope

limitations, disclaimers, and other significant non-standard language regarding material findings of noncompliance that were disclosed by the special State compliance audit tests.

Cash receipts information in the financial related

information section for FY2003 for the Special State Trust Fund and the Child Labor Enforcement Fund is not presented and considered unaudited because amounts could not be obtained from the agency due to lack of supporting documentation. The information cannot be relied upon because no support was available for agency amounts.

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

FINANCIAL REPORTING WEAKNESSES

The Department lacked adequate documentation for financial amounts reported to the Office of the State Comptroller. Agencies are required to report accounting information in accordance with generally accepted accounting principles (GAAP) to the Office of the State Comptroller. The following weaknesses were noted during our testing of the Agencyís FY2003 and FY2002 GAAP Form packages:

FY2003

  • No agency records were available to support:

    • Cash balances of $99,000, $1,200,000 and $132,000 for the General Revenue, Special Trust, and Child Labor Law funds respectively,
    • $174,000 reported as receivables in the Special Trust Fund,
    • $575,000 reported as interagency payables and receivables in the General Revenue and Special Trust funds,
    • $749,000 reported as other obligations in the Special Trust Fund.
  • Various amounts reported in the GAAP Form package were based on State Comptroller reports and the use of prior year percentages as estimates.
  • Current year grant revenue was overstated by $28,000 on SCO-563.

FY2002

  • Capital outlay expenditures of $37,145 were incorrectly reported.

Statewide Accounting Management System (SAMS) Procedure 27.10.10 requires careful examination of financial data in the preparation of the GAAP package. Additionally, the State Records Act (5 ILCS 160/8) requires the preservation of records containing adequate and proper documentation of information to protect the financial rights of those affected by agency activities.

Inaccurate reporting at agency levels distorts the Stateís financial statements and results in inefficient management of State resources. (Finding 1, pages 10-11)

We recommended the Department comply with the State Records Act and applicable SAMS procedures to ensure complete and accurate reporting, including the strengthening of controls over recordkeeping and fiscal reporting functions.

Department officials concurred with the finding and noted the FY2004 GAAP packages will be prepared with Department records and reconciled to State Comptroller reports.

 

INADEQUATE INTERNAL CONTROLS OVER EXPENDITURES

The Department failed to document expenditure reconciliations comparing Agency records with those of the State Comptroller and lacked adequate segregation of duties and compensating controls over the expenditure functions.

Reconciliations for expenditures had not been performed since October 2002. Agency records for FY2003 showed total expenditures of $7,284,673, which was $59,507 more than expenditures reflected by the Office of the State Comptroller. A review of internal controls revealed that the fiscal officer is primarily responsible for the preparation and approval of journal entries, the approval of vouchers for payment, as well as reconciliation of Agency records to Office of the State Comptroller reports.

SAMS Procedure 07.30.20 requires that agencies routinely ensure that their source documents have been properly recorded in SAMS and in the corresponding reports through reconciliation. Prudent business practice requires adequate segregation of duties in order to help ensure the safeguarding of assets through the prevention of improper expenditures. (Finding 2, pages 12-13)

We recommended the Department comply with established SAMS procedures regarding reconciliation of internal expenditure records with those of the Office of the State Comptroller to ensure the accuracy of information. The Agency should continue to make efforts to properly segregate duties in order to maintain effective internal control over the recordkeeping and accounting duties.

Department officials concurred with our recommendations and noted that reconciliations with adequate documentation are being prepared. Adequate segregation of duties is being achieved by having the Director sign all voucher requests greater than $1,000.

 

INADEQUATE INTERNAL CONTROLS OVER REVENUES AND RECEIVABLES

The Department failed to perform timely monthly

revenue reconciliations comparing Agency records with those of the State Comptrollerís office for FY 2003. In addition, the Department did not timely file receivable reports or maintain arbitration case files. The following exceptions were noted during the testing of revenues and receivables:

  • No reconciliations for revenues were performed for FY2003. SAMS procedure 25.40.20 requires monthly revenue reconciliations and Office of the State Comptroller notification of any irreconcilable differences.
  • 5 of 24 (21%) quarterly accounts receivable reports for three funds were not filed on a timely basis. SAMS procedure 26.30.20 states the Quarterly Summary of Accounts Receivable (C-97) is to be completed and submitted to the Office of the State Comptroller no later than the last day of the month following the end of the quarter.
  • Supporting documentation for 14 of 25 (56%) arbitration receipts selected for testing could not be located by the Department. The State Records Act (5 ILCS 160/8) states that the head of each agency shall cause to be made and preserved records containing adequate and proper documentation of the organization, functions, policies, decisions, procedures and essential transactions of the agency.

Department reconciliation is the primary control that

ensures the accuracy of data as it is submitted and processed. Failure to timely file reconciled reports and retain files increases the likelihood that financial reporting or other errors could occur and remain undetected in the normal course of business. (Finding 3, pages 14-15)

 

We recommend the Department comply with the SAMS procedures regarding the reconciliation of internal revenue records and timely file receivable reports. In addition, we recommend the Department comply with the State Records Act to make certain agency files are properly retained.

Department officials concurred with our recommendations and noted that reconciliations have been performed since July 1, 2003, records are being maintained effectively and efficiently, quarterly accounts receivable reports will be filed on a timely basis and adequate control over arbitration receipts has been implemented.

 

INADEQUATE CONTROLS OVER THE SPECIAL TRUST FUND

The Department lacked supporting documentation for the Special Trust Fund. The following exceptions were noted during the testing of the Special Trust Fund:

  • No detail of receipts was maintained for FY2003.
  • An unknown variance of $41,852 existed between the FY2002 listing of individual claimants balance and the Comptrollerís cash report.
  • Balances totaling $902 did not agree to the case file.
  • For FY2003, the listing of individual claimants had not been updated since 12/31/02.

Good business practices require that adequate documentation be maintained to support financial data. The State Records Act (5 ILCS 160/8) requires the preservation of records containing adequate and proper documentation of information to protect the financial rights of those affected by agency activities.

Failure to properly maintain records increases the likelihood that inaccurate records and financial reporting could occur. (Finding 4, pages 16-17)

We recommend the Department implement procedures to ensure that agency records are complete and accurate.

 

Department officials concurred with our recommendations and noted that the Special Trust fund records will be updated through December 31, 2003 by January 31, 2004. The Department has installed new software to maintain the fund balance, disbursements and cash receipts on a daily basis and will complete reconciliations by January 31, 2004 and every month thereafter.

 

NONCOMPLIANCE WITH TOXIC SUBSTANCES DISCLOSURE ACT

The Department did not implement adequate

procedures to monitor the timely submission of current toxic substances data sheets by public employers. Our review of case files revealed that 18 of 25 (72%) failed to contain a current listing of material safety data sheets.

 

The Toxic Substances Disclosure to Employees Act

(820 ILCS 255/5) requires that every manufacturer shall submit to the Director annually an alphabetized list of material safety data sheets for every product it produces, imports, or supplies. Further, every employer shall submit to the Director annually an alphabetized list of substances, compounds, and mixtures for which the employer has acquired material safety data sheets. Additionally, the Director is required to maintain the listings received from employers for a minimum of 5 years.

 

Failure to compile and maintain a current,

comprehensive listing of toxic substances could result in misinformation to employees regarding hazardous materials in the workplace. Lack of adequate information increases the potential for mishandling of these substances, which could result in employee injury. (Finding 5, pages 18-19)

 

           We recommend that Department comply with the Toxic Substances Disclosure to Employees Act which includes implementing specific procedures to provide for the timely collection of updated material safety data sheets from manufacturers.

           Department officials concurred with our recommendation and noted that they will increase their outreach to required filers. A requirement notice will be placed on the Departmentís website. All complaints are investigated immediately upon receipt.

OTHER FINDING

The remaining finding concerned inaccurate property reporting and is reportedly being given attention by the Department. We will review progress toward implementation of these recommendations during the Departmentís next compliance audit.

 

AUDITORS' OPINION

We conducted a compliance audit of the Center as required by the Illinois State Auditing Act. There were no financial statements requiring a financial audit leading to an opinion.

 

 

____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:JAW:pp

 

SPECIAL ASSISTANT AUDITORS

West & Company, LLC were our Special Assistant Auditors.