REPORT DIGEST

ILLINOIS RACING BOARD

COMPLIANCE EXAMINATION
FOR THE TWO YEARS ENDED JUNE 30, 2016

Release Date:  MAY 3, 2018

FINDINGS THIS AUDIT:  22

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  4 -- 6 -- 10
Category 2:  8 -- 3 -- 11
Category 3:  0 -- 0 -- 0
TOTAL:  12 -- 9 -- 21

FINDINGS LAST AUDIT: 15

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

INTRODUCTION

Because of the significance and pervasiveness
of the findings described within the report,
we expressed an adverse opinion on the
Board’s compliance with the assertions which
comprise a State compliance examination.  The
Codification of Statements on Standards for
Attestation Engagements (AT-C § 205.72)
states a practitioner “should express an
adverse opinion when the practitioner, having
obtained sufficient appropriate evidence,
concludes that misstatements, individually or
in the aggregate, are both material and
pervasive to the subject matter.”

SYNOPSIS

• (16-02) The Board lacked control over its
personal services functions.
• (16-03) The Board did not exercise adequate
control over service organization controls
(SOC) reports received from the totalizator
companies during the examination period.
• (16-04) The Board lacked control over
physical access to the Board’s offices at the
racetracks.
• (16-05) The Board did not adequately
monitor a racetrack’s allocation of moneys
derived by the racetrack from simulcast
wagering and inter-track wagering.
• (16-07) The Board was unable to distribute
all inter-track wagering location admission
fees to the City of Chicago and Cook County.
• (16-08) The Board did not comply with, or
enforce compliance with, provisions of the
Illinois Horse Racing Act of 1975 (Act) and
the Illinois Administrative Code (Code) at
the racetracks.
• The Board disclosed noncompliance regarding
purse allocations at a racetrack after June
30, 2016.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INADEQUATE CONTROLS OVER PERSONAL SERVICES

The Illinois Racing Board (Board) lacked
control over its personal services functions.
We tested the Board’s payroll expenditures
for nine per diem and six full time employees
during six selected months during the
examination period. Due to the seasonal
nature of the Board’s operations and
separations, not all of the employees worked
during each month. The following are some of
the more significant issues we noted during
testing:

Documentation Problems

• For 9 of 59 (15%) leave days, the Board
either did not receive or did not retain
leave requests from 5 of 9 (56%) per diem
employees tested. As such, the Board did not
have documentation to support entries
recorded within the Central Time and
Attendance System (CTAS).

• For 2 of 59 (3%) leave days, the employee’s
supervisor did not approve the employee’s use
of vacation time until 5 and 23 days after
the day off.

• For 15 of 59 (25%) leave days, the
employee’s supervisor never approved the
employee’s use of benefit time.

Errors within Attendance Records

• We noted one employee who was sick on a day
where CTAS records indicated the individual
worked at a race, which resulted in the
employee’s sick leave balances being
overstated by one day.

• We noted one employee who did not have any
information records within CTAS where the
employee had taken a vacation day. It appears
the employee was underpaid by $162 and the
employee’s vacation leave balance is
overstated by one day.

• One employee was not paid for a double
shift, which resulted in an underpayment of
$162.

• One employee was not paid the correct
differential for holiday pay on Labor Day,
which resulted in an overpayment of $195.

• One employee was paid for a shift where the
employee did not work, which resulted in an
overpayment of $440.

Payroll Adjustments

• We noted the Board did not post payroll
adjustments in a timely manner. During
testing of six months of payroll, we noted
the Board posted 76 prior period adjustments
for five of the nine (56%) per diem
employees tested. As we considered
adjustments made for the immediately
preceding payroll period as timely, we noted
10 of the 76 (13%) adjustments were performed
between two to five pay periods after the pay
period covering the date with an adjustment.
Given this condition, each employee’s Monthly
Timekeeping Report for the period with the
adjusted day was inaccurate and they did not
certify all of their time spent on official
State business, as required by the State
Officials and Employees Ethics Act.

Monthly Timekeeping Reports

• For 22 of 60 (37%) Monthly Timekeeping
Reports tested, the Board either did not
receive or did not retain the employee’s
report.

• For 34 of the 60 (57%) Monthly Timekeeping
Reports tested, we noted the following
problems:

– Twenty-one of the 60 (35%) Monthly
Timekeeping Reports were not approved by the
employee within a reasonable period of time,
with reports approved between 1 and 326 days
late.

– Eight of the 60 (15%) Monthly Timekeeping
Reports were not reviewed by the employee’s
supervisor or certified by the timekeeper
within a reasonable period of time, with
reports signed off on between 1 and 25 days
late.

– One of the 60 (2%) Monthly Timekeeping
Reports tested was never approved by the
employee.

– Sixteen of the 60 (27%) Monthly Timekeeping
Reports tested were either not reviewed by
the employee’s supervisor, certified by the
timekeeper, or both.

– One of the 60 (2%) Monthly Timekeeping
Reports tested was certified by the
timekeeper prior to the employee approving
the report, indicating any adjustments noted
by the employee would not have been noticed
by the timekeeper.

– One employee reported errors on their
Monthly Timekeeping Report from CTAS on two
of the 60 (3%) monthly reports, which were
not investigated or resolved by the Board.

Due to all of the foregoing problems, we
concluded the Board did not ensure its
employees certified their time spent on
official State business.

Evaluations

• During testing of the 24 annual evaluations
required for the 15 employees tested, we
noted 20 of 24 (83%) evaluations were not
performed and 3 of 24 (13%) evaluations were
completed between 82 to 161 days late.
(Finding 2, pages 18-26)  This finding has
been repeated since 2010.

We recommended the Board review its payroll
process and make changes to ensure:
1) source documentation is obtained in a
timely manner;
2) leave requests are properly submitted and
approved in a timely manner;
3) records are retained for the duration of
the approved retention period;
4) payroll adjustments are minimized, with
any necessary adjustments entered into CTAS
promptly to facilitate the production of
complete and accurate Monthly Timekeeping
Reports;
5) employees promptly review Monthly
Timekeeping Reports to either certify an
accurate report or make notations of
incorrect information on the report so
corrections can be made before certifying a
revised report;
6) supervisors promptly review Monthly
Timekeeping Reports to certify they agree
with the employee’s time report; and,
7) the timekeeper certifies the close of the
monthly payroll cycle by certifying only
complete and accurate Monthly Timekeeping
Reports approved by the employee and the
employee’s supervisor.

Further, we recommended the Board implement
internal controls where the timekeeper has a
process to notate a source document has been
entered into CTAS and reviews of information
recorded in CTAS are performed by an
individual independent of the timekeeper.
Finally, the Board should ensure each
employee’s performance is timely reviewed in
accordance with the provisions of the Code.

Board officials agreed and noted they have
been taking steps to correct these errors and
manage the dissolution of the Administrative
and Regulatory Shared Services Center.  (For
the previous Board response, see Digest
Footnote #1.)
INADEQUATE CONTROL OVER TOTALIZATOR SOC
REPORTS

The Board did not exercise adequate control
over service organization controls (SOC)
reports received from the totalizator
companies during the examination period.

During the examination period, the Board had
three totalizator companies who provided the
computerized systems to run pari-mutuel
wagering systems, commonly known as
totalizators. The totalizator systems process
wagering transactions made by patrons either
at the racetracks or online through advance
deposit wagering (ADW) licensees, ensure the
correct pricing for each wagering
transaction, and handle distributions of
proceeds from the pools such as validating a
winning ticket. In addition, these
totalizator systems serve as the Board’s
primary source of information for verifying
the completeness and accuracy of pari-mutuel
tax receipts.

According to the Board’s annual reports, the
total value of wagering transactions
processed by the totalizator companies
(referred to as “handle”) within the State
was $623.98 million, $593.42 million, and
$570.51 million during Calendar Year
2014, Calendar Year 2015, and Calendar Year
2016, respectively.

During testing, we noted the following:

• The Board did not monitor the racetracks to
ensure the Complementary User Entity Controls
(CUECs) identified in the various SOC reports
covering the totalizator systems were
implemented and functioning during the
examination period. Further, the Board did
not monitor or document the operation of the
CUECs relevant to the Board's operations.

• The Board did not obtain or review SOC
reports for subservice organizations or
perform alternative procedures to satisfy
itself that the existence of the subservice
organization would not impact its internal
control environment.

• The Board needs to improve its monitoring
of SOC reports to ensure all significant
issues are reviewed with the totalizator
company to ascertain if a corrective action
plan exists and when it will be implemented,
any impacts to the data processed, and any
compensating controls. Further, the Board
needs to document this review and conclude as
to whether and why noted deviations were not
significant to the Board's operations or
regulatory responsibilities. (Finding 3,
pages 27-30)

We recommended the Board (1) monitor the
racetracks to ensure the CUECS are in place
and functioning, (2) monitor and document the
operation of the CUECs relevant to the
Board's operations, (3) either obtain and
review SOC reports for subservice
organizations or perform alternative
procedures to satisfy itself that the
existence of the subservice organization
would not impact its internal control
environment, and (4) document its review of
the SOC reports and review all significant
issues with the totalizator company to
ascertain if a corrective action plan exists
and when it will be implemented, any impacts
to the data processed, and any compensating
controls.

Board officials disagreed with the finding.
They stated, “The Board does analyze the SOC
reports as it had been instructed by a
previous IT auditor. Further analysis to
supplemental levels was never anticipated but
the Board will include that in future audits.
The tote companies are already paying major
CPA firms (Deloitte, Grant Thornton, etc.) to
conduct the audit, but then it is subject to
audit two-fold thereafter.”

In an accountant’s comment, we stated it is
the Board’s responsibility to assess the
impact of the sub-service organizations’
services on the processing of transactions
and financial information generated by the
totalizators and whether the sub-service
organization requires its own SOC report or
if the Board can apply alternative procedures
to understand and conclude the controls of
the sub-service organization were put into
place and operating effectively to ensure the
pari-mutuel betting system can be relied upon
to provide accurate financial data.

We also stated it is imperative for the Board
to review all significant issues reported by
the Independent Service Auditor. These types
of problems need to be considered by the
Board (1) in assessing the potential impact a
noted problem could have on the reliability
of financial information from the
totalizators and (2) as a component of its
regulation of pari-mutuel wagering. This type
of analysis is the responsibility of the
Board as a user of the Independent Service
Auditor’s report and is not a responsibility
of the Independent Service Auditor.

INADEQUATE PHYSICAL SECURITY CONTROLS

The Board lacked control over physical access
to the Board’s offices at the racetracks.

During testing, we noted the Board’s offices
at a racetrack were burglarized. Items
reported missing included a breathalyzer
stored in a box and an empty cash box bolted
into a desk used to store checks prior to
their delivery to the State Treasury. During
the police investigation, detectives noted
(1) there was no damage to the points of
entry into the Board’s offices and (2) the
lock on the door into the Board’s office was
a “master key” which approximately 30-50
racetrack employees have access to use.
(Finding 4, page 31)

We recommended the Board work with each of
the racetracks to limit the number of keys
outstanding to the minimum necessary to
ensure the Board’s operations can be
conducted and all individuals with access to
the Board’s offices are known to, and
approved in advance by, the Board.

Board officials agreed with the
recommendation.

FAILURE TO MONITOR A RACETRACK’S CASH
ALLOCATIONS

The Board did not adequately monitor a
racetrack’s allocation of moneys derived by
the racetrack from simulcast wagering and
intertrack wagering.

During testing, some of the problems noted
included:

• The Board did not monitor a racetrack’s
allocation of moneys derived by the racetrack
from simulcast wagering and inter-track
wagering.

• The Board did not monitor the racetrack’s
deposits of receipts into the Illinois Colt
Stakes Purse Distribution Fund (Fund), a
locally held fund of the Department of
Agriculture.  (Finding 5, pages 32-34)

While discussing these conditions with Board
officials on August 25, 2017, they stated the
Board had been unable to obtain these records
from the racetrack subsequent to the end of
the examination period to substantiate (1)
the allocations to the thoroughbred purse
account and the Fund and (2) whether payments
to the Fund were made timely.

We recommended the Board take action to
obtain required documentation from the
licensee and implement controls to monitor
the racetrack’s allocation of moneys derived
from simulcast wagering and inter-track
wagering.  Further, we recommended the Board
work with the Governor and the General
Assembly to ensure the Act provides for an
allocation of funds in all foreseeable
situations.

Board officials agreed with the
recommendation, noting the Board has not had
the resources or staff to arrive at the
purses earned calculation as the calculation
is extremely complicated and a time-consuming
task.

UNABLE TO DISTRIBUTE COLLECTED LOCAL TAXES

The Board was unable to distribute all inter-
track wagering location admission fees to the
City of Chicago and Cook County.

During the Board’s examination for the two
years ended June 30, 2012, we noted the Board
had ceased activity within the Illinois
Racing Board Grant Fund at the close of
Fiscal Year 2012 and began depositing inter-
track wagering location admission fees into
the Horse Racing Fund. However, as a result
of prior period fund transfers into the
General Revenue Fund, the Board lacked
sufficient cash after ceasing activity within
the Illinois Racing Board Grant Fund to pay
its remaining obligations due to Cook County,
totaling $43,809, and the City of Chicago,
totaling $1,118.

During the current examination, we noted the
Board still had not paid these obligations
due to Cook County and the City of Chicago.
Further, we noted the Board still had not
reported these liabilities to the Office of
the State Comptroller for consideration in
preparing the State’s Comprehensive Annual
Financial Report.  (Finding 7, pages 38-39)
This finding has been repeated since 2012.

We recommended the Board work with the
Governor and General Assembly to seek a
legislative remedy to pay the outstanding
obligations due to Cook County and the City
of Chicago. Further, the Board should ensure
all liabilities are reported to the Office of
the State Comptroller.

Board officials agreed with the
recommendation.  (For the previous Board
response, see Digest Footnote #2.)

NONCOMPLIANCE WITH RACING LAWS AND
REGULATIONS

The Board did not comply with, or enforce
compliance with, provisions of the Illinois
Horse Racing Act of 1975 (Act) and the
Illinois Administrative Code (Code) at the
racetracks.  The following are some of the
more significant issues we noted during
testing:

• The Board did not ensure race officials at
the racetrack had active licenses prior to
the first race day at the racetrack. These
individuals oversee certain race-related
functions at the racetracks, with some of the
functions with exceptions noted during
testing including individuals serving as the
racetrack’s general manager, racing
secretary, Association Steward, security
managers, placing judges, and outriders not
having a license at the start of their
racetrack’s meet. Specifically, we noted:
– Fourteen of 25 (56%) race officials at one
thoroughbred racetrack obtained their annual
occupation license from the Board between 3
to 82 days late.
– Sixteen of 27 (59%) race officials at a
racetrack which runs both thoroughbred and
standardbred races obtained their annual
occupation license from the Board between 3
to 251 days late.
– Five of 14 (36%) race officials at one
thoroughbred racetrack obtained their annual
occupation license from the Board between 3
and 27 days late.

• One of three (33%) racetracks did not
accurately report its racing officials to the
Board. We noted one individual, an outrider,
did not obtain a license for its 2016 meet.
In following up on this exception with the
Board, it appears the racetrack actually had
three individuals acting in an official
racing capacity as outriders without being
approved by the Board.

• One of three (33%) racetracks tested had
two individuals acting in an official racing
capacity without being approved by the Board.
The Board eventually obtained all of the
necessary documentation to approve these
persons 13 days after the start of the
racetrack’s meet, which was 73 days after the
deadline established within the Code.

• At one of three (33%) racetracks tested,
the Board did not maintain adequate control
over the collection and processing of urine
and blood samples taken from each race’s
winning horse and any other selected horse(s)
by the stewards for laboratory testing. At
the standardbred racetrack, we noted the
Board did not require the horse’s owner,
trainer, or representative to remain to
witness the collection or sealing of the
horse’s urine and blood samples.

• At three of three (100%) racetracks tested,
the racetracks were not requiring individuals
in the stable area to have their Board-issued
photo identification.

• We noted the Board has not adequately
defined what an entrance, exit, or credit
location is under the Act through its
regulations. Under the Act, each racetrack
must post signage at each entrance, exit, and
credit location with (1) a statement provided
by the Department of Human Services regarding
obtaining assistance with gambling problems
and (2) a statement provided by the
Department of Healthcare and Family Services
about involuntary withholding of delinquent
child support, respectively. During testing,
we noted disputes about whether the entrances
or exits meant the initial ticket/admission
gate to the grounds of the racetrack, the
points of ingress and egress of only the
building where wagers are placed, or any
entrances or exits to external areas where
wagers can be made on automated machines.
Additionally, the terminology of a credit
location is ambiguous and may include certain
types of automated teller machines (ATMs).

• At three of three (100%) racetracks tested,
we noted the Board did not adequately monitor
the Association Steward as follows:
– At two of two (100%) thoroughbred
racetracks tested, the Board is not
monitoring the arrival time of the
Association Steward to determine they arrive
at least three hours prior to the first race.
– The Board does not appear to have any rules
or regulations governing the time when the
Association Steward is required to be
performing their duties at the standardbred
racetrack.  (Finding 8, pages 40-46)

We recommended the Board take action to
ensure compliance by its employees and
licensees with State laws, rules, and
regulations governing horse racing, including
developing an appropriate process to monitor
racetrack operations for instances of
noncompliance and appropriately address any
identified noncompliance.

Board officials agreed with the
recommendation.

BOARD DISCLOSED NONCOMPLIANCE OCCURRING AFTER
JUNE 30, 2016

Board officials included the following
statement within their Management Assertion
Letter (pages 4-5):

On and after January 1, 2017, no live
thoroughbred racing has occurred within the
State during the period from January 1
through the third Friday in February. As
such, allocations of purse moneys collected
from interstate simulcast wagers should have
been allocated pursuant to § 26(g)(7)(B) of
the Illinois Horse Racing Act of 1975 at one
racetrack. This subparagraph states the
allocation must be made pursuant to § 26(g)
(10) of the Illinois Horse Racing Act of
1975, which reads “(Blank).” We are aware the
racetrack in question continued to allocate
its purse moneys collected from interstate
simulcast wagers assuming live thoroughbred
racing had occurred during the period from
January 1 through the third Friday in
February.

OTHER FINDINGS

The remaining findings pertain to (1)
inadequate control over cash receipts,
accounts receivable, voucher processing, and
the laboratory; (2) failure to enforce
withholding of child support due; (3) failure
to monitor handle allocations; (4)
noncompliance with certain non-live racing
requirements and inadequate monitoring of
certain racing requirements; (5) excess
commuting mileage and noncompliance with the
Illinois Vehicle Code; (6) an outdated
records retention schedule; (7)
reconciliation problems; (8) inaccurate
Agency Fee Imposition Reports; and, (9)
failure to report grant information and
noncompliance with the Illinois Grant Funds
Recovery Act.  We will review the Board’s
progress towards the implementation of our
recommendations in our next compliance
examination.

ACCOUNTANT’S OPINION

The accountants conducted a compliance
examination of the Board for the two years
ended June 30, 2016, as required by the
Illinois State Auditing Act.   Because of the
effect of the noncompliance described in
Finding 2016-001 through Finding 2016-011,
the accountants stated the Board did not
comply 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

FJM:djn

DIGEST FOOTNOTES

#1 – Inadequate Control over Payroll
Expenditures – Previous Board Response
The Board will continue to streamline
processes for gathering documents from field
employees to address these issues.
Additionally, the timekeeping software
utilized by Shared Services is incompatible
with the timekeeping needs for per diem
employees, which requires all timekeeping to
be entered manually. The Board will continue
to seek more suitable timekeeping software
within its affordability range that will
allow for the timely recording and review of
all timekeeping data with less need for
manual input, thus reducing human error. This
will address the remaining issues around
adjustments, timeliness of entries and the
ability of staff to review and return
timekeeping reports.

The Board no longer utilizes the one-hour
placeholder. It should be noted that the
practice was put in place to adhere to the
payroll cutoff dates. The Board is working to
change the cutoff dates.

#2 – Unable to Distribute Local Government
Tax Collections – Previous Board Response
The Board will continue to work with the
General Assembly and the Governor’s Office of
Management and Budget to recover the
transferred funds and direct them to the
proper local governments.