REPORT DIGEST

DEPARTMENT OF MILITARY AFFAIRS

COMPLIANCE EXAMINATION
FOR THE TWO YEARS ENDED JUNE 30, 2019

Release Date:  March 10, 2020

FINDINGS THIS AUDIT:  16

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  1 -- 4 -- 5
Category 2:  7 -- 4 -- 11
Category 3:  0 -- 0 -- 0
TOTAL:  8 -- 8 -- 16

FINDINGS LAST AUDIT: 11

Category 1: Findings that are material
weaknesses in internal control and/or a
qualification on compliance with State laws
and regulations (material noncompliance).
Category 2: Findings that are significant
deficiencies in internal control and
noncompliance with State laws and regulations.
Category 3: Findings that have no internal
control issues but are in noncompliance with
State laws and regulations.

State of Illinois, Office of the Auditor
General
FRANK J. MAUTINO, 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 TTY (888) 261-2887

This Report Digest and Full Report are also
available on the worldwide web at
www.auditor.illinois.gov

SYNOPSIS

• (18-1) The Department did not maintain
sufficient controls over its property and
related fiscal records.
• (18-2) The Department did not adhere to the
internal auditing provisions of the Fiscal
Control and Internal Auditing Act.
• (18-3) The Department did not provide
adequate documentation or support for testing
in multiple areas.
• (18-4) The Department did not exercise
adequate internal control over its commodities
inventories.
• (18-5) The Department did not exercise
adequate control over monthly reconciliations.
• (18-6) The Department did not exercise
adequate control over receipts and refunds.
• (18-7) The Lincoln’s Challenge Academy
within the Department did not maintain
documentation to support compliance with the
National Guard Challenge Program’s Cooperative
Agreement.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

PROPERTY CONTROL WEAKNESSES

The Department did not maintain sufficient
controls over its property and related fiscal
records.

During testing, we noted the Department did
not maintain detailed supporting documentation
for its quarterly Agency Report of State
Property (Form C-15) filed with the Office of
the State Comptroller (Comptroller).  Due to
the lack of detailed documentation, the
following compliance examination procedures
could not be performed:

• Annual addition and deletion reports
provided by the Department could not be agreed
to activity reported in the quarterly Form
C-15 reports submitted to the Comptroller.

• Property additions during the examination
period could not be reconciled to the
Comptroller’s records reflected on the Object
Expense/Expenditures by Quarter Report (SA02).

Due to these conditions, the accountants were
unable to conclude whether the Department’s
population records were sufficiently precise
and detailed under the Attestation Standards
promulgated by the American Institute of
Certified Public Accountants (AT-C § 205.35)
to test the Department’s equipment.

Even given the population limitations noted
above which hindered the ability of the
accountants to conclude whether selected
samples were representative of the population
as a whole, the accountants performed testing
of what records were available.

Some of the more significant issues noted by
the accountants included the following:

• Eight of eight (100%) C-15 Reports were not
submitted timely. The reports were submitted
between 2 and 297 days late.

• Thirty-eight of 44 (86%) equipment additions
tested, totaling $245,293, were added to the
Department’s property listing records between
31 and 595 days late.

• Eighteen of 60 (30%) equipment deletions
tested, totaling $33,338, were removed from
the Department’s property listing records
between 14 and 42 days late.

• The Department did not submit its annual
inventory certifications to Department of
Central Management Services (CMS) on a timely
basis. The Fiscal Year 2017 and Fiscal Year
2018 certifications were filed 90 and 65 days
late, respectively.

• During list to floor testing, we noted two
of 25 (8%) historical artifacts were listed as
being in Building 41, which has been
nonexistent for several years. Upon further
review of the historical artifacts listing, we
noted many other artifacts as being located in
Building 41. (Finding 1, pages 11-14)  This
finding has been repeated since 2004.

We recommended the Department take actions to
strengthen its internal controls over
recording and reporting its State property and
equipment transactions.  Further, we
recommended the Department implement a
corrective action plan to complete a full
inventory to identify and correct its
accumulated property and equipment errors.

Department officials agreed with the finding.

NONCOMPLIANCE WITH THE FISCAL CONTROL AND
INTERNAL AUDITING ACT

The Department did not comply with the Fiscal
Control and Internal Auditing Act (Act).

During testing, we noted the Department did
not have a full-time program of internal audit
and the Adjutant General did not appoint a
Chief Internal Auditor at the Department
during the examination period. (Finding 2,
pages 15-16) This finding has been repeated
since 2012.

We recommended the Department establish a
full-time internal audit program with a duly
appointed Chief Internal Auditor in accordance
with the provisions of the Act.

Department officials agreed with the finding.

LACK OF DOCUMENTATION FOR TESTING

The Department did not provide adequate
documentation or support for testing in
multiple areas.

During testing, we noted the following:

• Forty of 40 (100%) Federal Reimbursement
packages and support were not provided for
testing. Therefore, no conclusions could be
reached about the Department’s federal
reimbursement process and compliance with laws
rules, and regulations related to the federal
reimbursements.

• For 6 of 30 (20%) employees tested, the
Department did not provide support to verify
the employees were on the payroll system.

• For 2 of 30 (7%) employees tested, the
Department did not provide adequate support
for the absence of the employee indicating
leave was approved and the type of leave
taken.

• The Department failed to provide six (100%)
requested contracts selected for testing.

• During permanent improvement expenditure
testing, the Department failed to provide
documentation of supporting calculations for
the SCO-537/538 forms, and therefore, auditors
were unable to test if the Department
appropriately recorded the purchase as a
building improvement, land improvement, or
site improvement.

• During testing of Capital Development Board
(CDB) transfers, the Department failed to
provide requested documentation for seven
(100%) CDB transfers, including documentation
to show that the CDB project was properly
authorized, that CDB transfers-in were added
to the Department’s property control records
or expensed in the period of the transfer-in,
any repair and maintenance charges, and the
tag number for each project. (Finding 3, pages
17-18)

We recommended the Department comply with the
State Auditing Act and provide the Auditor
General with requested documentation without
delay.

Department officials agreed with the finding.

INADEQUATE INTERNAL CONTROL OVER COMMODITIES

The Department did not exercise adequate
internal control over its commodities
inventories.

During testing, we noted the following:

• The Department did not establish two parts
of the transaction cycle, including
recordkeeping by maintaining a record of
current items on hand or performing formal
inventory counts and reconciliation by
preparing reconciliations to the State
Comptroller’s records to verify each
transaction’s validity, proper authorization,
and entry into the Department’s accounting
records.

Due to these conditions, the accountants were
unable to conclude whether the Department’s
population records were sufficiently precise
and detailed under the Attestation Standards
promulgated by the American Institute of
Certified Public Accountants (AT-C § 205.35)
to test the Department’s commodities
inventories. (Finding 4, pages 19-20)  This
finding has been repeated since 2012.

We recommended the Department implement
procedures to maintain records of its
commodities inventory, perform periodic
inventory counts, and reconcile its records to
the State Comptroller’s records.

Department officials agreed with this finding.

INADEQUATE CONTROLS OVER MONTHLY
RECONCILIATIONS

The Department did not maintain adequate
controls over its monthly appropriation
balance reconciliations

During testing of reconciliations between the
records maintained by the Comptroller and the
Department’s records during the examination
period, we noted the following:

• The auditors noted differences of $1,353,466
and $3,127,670, respectively between the
Department’s Fiscal Year 2017 and Fiscal Year
2018 expenditure records and the Comptroller’s
final Monthly Appropriation Status Report
(SB01). The Department could not reconcile
these differences.

• The Department failed to perform monthly
reconciliations during Fiscal Year 2017 of its
expenditure records for Fund 686, Budget
Stabilization Fund, to the Comptroller’s SB01.

• The Department failed to perform
reconciliations of its expenditure records to
the Comptroller’s SB01 during the September
Fiscal Year 2018 lapse period. (Finding 5,
pages 21-22)  This finding has been repeated
since 2014.

We recommended the Department ensure required
reconciliations to the Comptroller’s records
are performed, reviewed, and any differences
are appropriately handled timely.

Department officials disagreed with the
assertion that the SB01 reconciliations for
FY17 and FY18 were not reconciled.  The SB01
expenditures were reconciled with agency
records each month with the vouchers in
transit identified which represented the
differences between IOC and agencies
expenditure totals. Department officials
agreed with the finding that Fund 686 was not
reconciled to the Comptroller’s SB01.
Department officials disagreed with the
failure to provide reconciliations of
expenditure records to the SB01 for September.

The accountant’s commented that differences
between Department records and Comptroller
records were not reconciled or explained.  If
reconciliations had been done properly, the
differences would have already been identified
by the Department and should have been readily
available upon request.  The Department did
not provide support these reconciliations had
been performed and differences reconciled.  In
addition, the accountants maintain the Fiscal
Year 2018 September lapse period
reconciliation was not provided.

INADEQUATE CONTROLS OVER RECEIPTS AND REFUNDS

The Department did not maintain adequate
controls over its receipts and refunds.
During testing, we noted the following:

• One of 60 (2%) receipts tested, totaling
$58,205, as well as one of six (17%) refunds
tested, totaling $212, did not include a date
stamp. Therefore, timeliness of the deposits
could not be determined.

• Two of 60 (3%) deposits chosen by the
auditors for testing were not maintained by
the Department. Therefore, auditors were
unable to test compliance with applicable laws
and standards.

• One of 60 (2%) receipts tested resulted in
an adjustment, which was not properly updated
in the Department’s receipt records.

• Six of six (100%) refunds tested, totaling
$5,853, did not contain sufficient support for
testing. The refund support lacked
corresponding voucher numbers of expenditures
being offset, no details if the amount was a
current or prior year refund, details for how
much and what the refund was for.

• Six of six (100%) refunds tested, totaling
$5,853, were submitted using a Receipt Deposit
Transmittal instead of an Expenditure
Adjustment Transmittal as required for
refunds. (Finding 6, pages 23-25) This finding
has been repeated since 2014.

We recommended the Department retain all
receipts and adequate supporting documentation
and follow up on the returned check.  Further,
we recommended the Department implement
controls to ensure current year refunds are
submitted using an Expenditure Adjustment
Transmittal (EAT) in according with SAMS
(Procedure 25.20.20).

Department officials agreed with the finding
relative to the lack of a date stamp on one
deposit resulting in the inability of the
auditors to determine timeliness. Department
officials agreed with the finding that it was
not communicated effectively when two
overlooked deposits were available for testing
of compliance with applicable laws and
standards. The Department agrees partially
with the finding that 6 of 6 refunds tested
did not contain sufficient support for testing
and those six were incorrected submitted using
a Receipt Deposit Transmittal. The Department
asserts that four of these six items were
salary reversals resulting in a refund. These
types of transactions differ from typical
refunds and have substantially different
documentation of the refund transaction;
however, the Department acknowledges this
information was not communicated with the OAG
effectively.

The accountant’s commented the supporting
documentation lacked sufficient information
needed for testing.  The accountants agree
different types of refunds will have different
support; however, the support provided to the
accountants lacked the basic information
needed for testing, as noted in the finding.

LACK OF DOCUMENTATION FOR LINCOLN’S CHALLENGE
CADETS

The Lincoln’s Challenge Academy (LCA) within
the Department did not maintain documentation
to support compliance with the National Guard
Challenge Program’s Cooperative Agreement
(Agreement).

During testing at LCA, we noted the following:

• Ten of 60 (17%) Pre-challenge Phase cadet
files tested indicated on the Applicant
Interview Questionnaire that the applicant
used marijuana or another illegal drug within
the last 30 days.

• Twenty-one of 60 (35%) Pre-challenge Phase
cadet files tested indicated on the Applicant
Interview Questionnaire that the cadet marked
no or did not answer the question if they were
unemployed or underemployed.

• Seven of 60 (12%) Pre-challenge Phase cadet
files tested had instances where drug tests
were not administered within 40 days of
starting the program. These drug tests were
completed between 24 and 83 days late for four
of the seven, and drug tests were not
performed at all for three of the seven.
(Finding 7, pages 26-27).  This finding has
been repeated since 2012.

We recommended the Department comply with the
Agreement by ensuring cadets meet all required
criteria for entry into LCA program and
maintaining documentation to substantiate
cadet qualifications and compliance during
each phase of the LCA.

Department officials agreed with this finding.

OTHER FINDINGS

The remaining findings pertain to inadequate
controls over Agency Fee Imposition Reports,
contractual services, employee records,
payroll vouchers, permanent improvements and
voucher processing, failure to file required
reports, failure to develop a Formal Fraud
Risk Assessment Program, and failure to submit
required reports,  We will review the
Department’s progress towards the
implementation of our recommendations in our
next compliance examination.

ACCOUNTANT’S OPINION

The accountants conducted a compliance
examination of the Department for the two
years ended June 30, 2018, as required by the
Illinois State Auditing Act.  The accountants
qualified their report on State compliance for
Findings 2018-001 through 2018-005.  Except
for the noncompliance described in these
findings, the accountants stated the
Department complied, in all material respects,
with the requirements described in the report.

This compliance examination was conducted by
the Office of the Auditor General’s staff.

JANE CLARK
Division Director

This report is transmitted in accordance with
Section 3-14 of the Illinois State Auditing
Act.

FRANK J. MAUTINO
Auditor General

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