FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
INADEQUATE CASH MANAGEMENT PROCEDURES - PREPAYMENT OF UTILITY BILLS
The Secretary of State does not have a formalized system for managing utility bill
payments, resulting in the prepayment of utility bills of up to $1.8 million during fiscal
years 2000 and 2001. The Secretary of State pays for utility usage at the Capitol Complex
and at several of its Springfield locations on a level payment plan.
During our review of 16 level payment accounts, we noted that the Secretary of State
was prepaying its level payment plan utility bills several months in advance, thus
carrying a significant prepaid balance during most of both fiscal years. As of January 15,
2001, the Secretary of State had a prepaid balance of over $1.8 million for these 16
accounts, with $1.7 million coming from just three of these accounts. For each of these
three major accounts, the Secretary of State paid six monthly payments in September -
October, 2000, and five monthly payments in January 2001.
Good business practice would require the Secretary of State to maintain a cash
management system to ensure payments are made in a timely manner, and not sooner or later
than required. When the Secretary of State pays its level payment plan utility bills in
advance, the State in effect loses the interest it could have earned on the prepaid
balance. Using a 4% interest rate, we computed the State lost approximately $20,000 in
interest in fiscal year 2001 alone by not managing the utility bill payments. (Finding 1,
pages 16-17)
We recommended the Secretary of State implement cash management procedures to pay its
utility bills in a timely manner, soon enough to ensure continued service, and in a manner
that avoids large prepaid balances and a loss of interest to the State.
Agency officials responded that they accepted our recommendation and stated the
Secretary of State will process vouchers for utility payments in the term or near term for
which they are due to comply with proper cash management procedures.
CERTIFICATES OF DEPOSIT IN EXCESS OF FDIC COVERAGE
The Secretary of State accepted certificates of deposit with balances that exceeded
the $100,000 Federal Deposit Insurance Corporation (FDIC) coverage. The Office is
accepting certificates of deposit as guarantees of future installment payments. These
certificates of deposit are accepted as security from vehicle owners who elect to pay the
flat weight tax in semi-annual installments as provided by the Illinois Vehicle Code.
These securities are to be deposited with the State Treasurer and have a current market
value in the amount payable to the State of Illinois to guarantee the second tax
installment payment.
Large trucking companies often pay the flat weight tax for a large number of vehicles
and guarantee the second semi-annual installment with a large-value certificate of
deposit. At June 30, 2001, certificates of deposit totaled $4,305,602, with amounts
exceeding FDIC insurance coverage by $1,931,740. If a certificate of deposit exceeds the
federally insured threshold of $100,000, it leaves the State vulnerable should the
financial institution at which the certificate is held dissolve or become unable to redeem
the certificate. (Finding 2, pages 18-19)
We recommended the Secretary of State only accept surety bonds or certificates of
deposit that are fully collateralized or insured in order to avoid unnecessary exposure
for the State.
Agency officials accepted our recommendation and stated they will inform all applicants
who intend to utilize the installment option of the new requirements for certificates of
deposits used for collateral for the second installment payment, including the acceptance
of only certificates of deposit not exceeding $100,000 per financial institution.
INADEQUATE PROPERTY RECORDS AT DRIVER SERVICES AND MOTOR VEHICLE FACILITIES
The Secretary of State did not maintain adequate property records for a sample of
driver services and motor vehicle facilities tested. During our audit, we performed
testing at five driver services and motor vehicle facilities as follows: Jacksonville,
Chicago East, Chicago Central, Chicago South, and Chicago Heights.
We selected a sample of 50 property items listed on the most recent property control
report and noted that 11 of the 50 items (22%) could not be located or were found at
different locations. These items included a computer, a printer, scanners, and a three
panel display. We selected an additional sample of 60 property items located at the
facilities to trace back to the property control listings. We noted that 15 of the 60
items selected (25%) - including scanners, printers, a vision tester, a validator, a
vacuum cleaner, a floor scrubber, and a snow blower - were not included on the listing.
The facilities have a responsibility to ensure all appropriate paperwork is received
and that property records are up-to-date and accurate as required by the State Property
Control Act. Inadequate property control records increase the likelihood of
misappropriation of State assets. (Finding 3, pages 20-21)
We recommended the Secretary of State appoint property coordinators at each facility
and assign those coordinators the responsibility of ensuring that property records are
properly maintained at all times.
Agency officials responded that they accepted our recommendation and stated that all
discrepancies noted have been corrected. All driver and motor vehicle facilities have
personnel designated by the appropriate department director to ensure that property
control records are properly maintained at all times.
LACK OF INTERNAL AUDIT REVIEW OF MAJOR INFORMATION SYSTEM CHANGES
The Secretary of State completed several major system development and modification
projects during the audit period, including:
The Internal Audit Department did not actively participate in these projects, as
mandated by the Fiscal Control and Internal Auditing Act. Failure to perform adequate
reviews of new systems or major system modifications is a violation of the Act and could
lead to material deficiencies in the Office's information systems environment. (Finding 6,
pages 26-27)
We recommended the Secretary of State Internal Audit Department conduct detailed
reviews of significant system development and modification projects as required by
statute.
Agency officials accepted our recommendation and stated that the Internal Audit
Department will establish a new system of reviews of all major system changes with the
Department of Information Technology. This will ensure that information systems control
and reviews and audits will be conducted during the annual audit cycle.
OTHER FINDINGS
The remaining findings were less significant and are reportedly being given
attention by the Office of the Secretary of State. We will review progress toward
implementing all recommendations in our next audit.
Agency responses to the findings were provided by Mr. Al DiSilvestro, Chief Internal
Auditor for the Office of the Secretary of State.
AUDITORS' OPINION
Our auditors stated the financial statements of the Office of the Secretary of
State as of June 30, 2001, and for the year then ended are fairly presented in all
material respects.
___________________________________
WILLIAM G. HOLLAND, Auditor General
WGH:KMM:pp
SPECIAL ASSISTANT AUDITORS
Our special assistant auditors for this audit were Sikich Gardner & Co,
LLP.
