REPORT DIGEST

 

 

UNIVERSITY OF ILLINOIS

 

FINANCIAL AND COMPLIANCE AUDIT

(In accordance with the Single Audit Act and OMB Circular A-133)

 

 

For the Year Ended:

June 30, 2003

 

Summary of Findings:

 

Total this audit                       7

Total last audit                       6

Repeated from last audit        1

 

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

 

  • Capital assets were initially not included in the appropriate bond entity financial statements. As a result prior period adjustments to financial statements were necessary.
  • Accounts receivable were overstated by $2,879,177 at June 30, 2003.
  • Statement of Appointment Trainee forms were not completed properly as required by a federal grant from the Department of Health and Human Services.
  • Excess interest totaling $72,000 was returned to the federal government.
  • The Hospital's estimation procedures for contractual allowances on patient accounts should be strengthened. The Hospital should review and improve its processes related to calculating and posting the net realizable value of active patient accounts receivable.

 

 

 

 

 

 

 

{Financial Information and Activity Measures are summarized on the next page.}

                                                    UNIVERSITY OF ILLINOIS

FINANCIAL OPERATIONS

FY 2003

FY 2002

OPERATING REVENUES

 

 

      Tuition and fees, net

$384,981,000

$329,049,000

      Federal grants, contracts and appropriations

569,524,000

480,760,000

      State and private gifts, grants and contracts

198,170,000

205,731,000

      Hospital and medical activities

423,368,000

377,449,000

      Auxiliary enterprises, net

260,964,000

231,461,000

      Other

285,679,000

276,046,000

                  Total Operating Revenues

$2,122,686,000

$1,900,496,000

OPERATING EXPENSES

 

 

      Instruction

$608,250,000

$610,799,000

      Research

520,574,000

472,278,000

      Public service

297,558,000

282,293,000

      Academic support

212,025,000

223,902,000

      Hospital and medical activities

319,795,000

292,171,000

      Auxiliary enterprises

192,163,000

185,723,000

      On behalf payments for fringe benefits

282,151,000

256,038,000

      Operation of plant

171,418,000

162,432,000

      Institutional support

148,430,000

144,190,000

      Depreciation

140,106,000

132,969,000

      Scholarships and fellowships

138,733,000

117,300,000

      Other

79,101,000

77,784,000

                  Total Operating Expenses

$3,110,304,000

$2,957,879,000

Operating Income (Loss)

$(987,618,000)

$(1,057,383,000)

NONOPERATING REVENUES (EXPENSES)

 

 

      State appropriations

$681,953,000

$745,599,000

      Capital appropriations, gifts and grants

111,782,000

80,072,000

      Private gifts and endowments

121,524,000

127,105,000

      On behalf payments for fringe benefits

227,961,000

211,716,000

      Other

(1,745,000)

(32,009,000)

INCREASE IN NET ASSETS

$153,857,000

$75,100,000

Net assets, beginning of year

$1,990,012,000

$1,914,912,000

Net assets, end of year

$2,143,869,000

$1,990,012,000

SELECTED ACCOUNT BALANCES

June 30, 2003

June 30, 2002

Cash and Investments

$967,896,000

$909,877,000

Campus Plant Facilities, net

$2,547,063,000

$2,328,565,000

Accrued Compensated Absences

$192,524,000

$199,163,000

Revenue Bonds Payable

$697,614,000

$628,337,000

SUPPLEMENTAL INFORMATION

FY 2003

FY 2002

Employment Statistics Ė

            Chicago

13,204

13,105

            Springfield

788

827

            Urbana-Champaign

14,369

14,505

                        Total

28,361

28,437

Enrollment Statistics Ė

      Undergraduate --

            Chicago

 

16,543

 

15,887

            Springfield

2,445

2,300

            Urbana-Champaign

28,947

28,746

                        Subtotal

47,935

46,933

      Graduate Ė

            Chicago

9,595

9,068

            Springfield

2,006

1,988

            Urbana-Champaign

11,052

10,545

                        Subtotal

22,653

21,601

                                    Total

70,588

68,534

UNIVERSITY PRESIDENT

 

 

During Audit Period and Currently: Dr. James Stukel

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital assets not included in appropriate bond entity financial statements

 

 

 

Prior period adjustment totaling $11,271,146

 

 

 

 

Prior period adjustment of $7,987,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivables were overstated $2,879,177 at June 30, 2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Statement of Appointment Trainee forms were not properly completed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chicago campus could have retained $72,000 in interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current estimation procedures should be strengthened

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTRODUCTION

Our 2003 audit of the University of Illinois is presented in three reports. The financial part consists of two reports which include the various financial statements of the University and other supplementary information. The Compliance Audit report contains the compliance findings disclosed by our audit tests.

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

CAPITAL ASSET REPORTING

During the current year audits, University management and the auditors noted problems in the reporting of capital assets to appropriate financial statement entities.

The 1997-A and 1997-B bond indenture agreements specified buildings that were to be capitalized as part of the Health Services Facilities System (System). During the year ended June 30, 2003, management of the System and the University discovered that the appropriate buildings were not recorded on the Systemís financial statements. The School of Public Health West building was originally recorded on the Systemís financial statements in 1998, but should not have been. Another building, the Magnetic Resonance Imaging Facility, was originally recorded on the Systemís financial statements but was mistakenly reclassified to the Universityís financial statements in 2000. The discovery of these errors resulted in a prior period adjustment to the Systemís financial statements totaling $11,271,146.

The financial statements for the Auxiliary Facilities System (System) had to be adjusted for construction of the Lincoln Residence Hall in Springfield, in the amount of approximately $7,037,000, which had been expensed in 2001 and 2002. It was also discovered that this Systemís financial statements did not include approximately $4,809,000 of capital assets and $3,859,000 in accumulated depreciation related to items used in its activities. The discovery of these errors resulted in a net prior period adjustment to the Systemís financial statements of $7,987,000.

University management attributed the above errors in part to system weaknesses in the general ledger, which does not support comprehensive balance sheets by bonded entity. All data related to bonded entities must be retrieved from the Property Accounting System. Proper coding and reconciliation of the additions to entity assets is necessary to ensure accurate reporting of capital assets in the appropriate financial statement entities. (Finding 1, pages 12-13)

We recommended the University review its process and procedures for coding capital assets in the Property Accounting System and implement additional procedures to provide for a periodic reconciliation of amounts contained in the Property Accounting System to the amounts in the underlying records used to prepare the financial statements.

University officials concurred with our finding and stated they have implemented a new General Ledger and Fixed Asset System. As part of that implementation they will be initiating procedures to reconcile fixed asset records to the capital asset balances in the General Ledger.

OVERSTATEMENT OF ACCOUNTS RECEIVABLE

Two instances were noted where accounts receivable balances at June 30, 2003 were overstated in the Universityís financial statements. Accounts receivable for the College of Dentistry were overstated by $1,591,163 due to a miscalculation by departmental accounting personnel. In another area, parking accounts receivable were initially overstated by $1,288,014. The error resulted from the University recording a receivable for all unpaid citations issued since July 1, 1998 with no allowance made for the portion of these citations deemed to be uncollectible. (Finding 2, page 14)

We recommended the University implement procedures to facilitate proper recording of receivables and ensure the procedures are clearly understood by responsible personnel.

University officials concurred. They stated the College of Dentistry administrative staff has added additional review procedures into their year-end closing procedures to assure the receivables and revenues are correctly stated in the financial statements. They stated the Accounting Division will continue to refine closing interactions and communications with units to assure correct entries are recorded.

NONCOMPLIANCE WITH FEDERAL GRANT AGREEMENT

Statements of Appointments were not completed properly as required by a federal grant agreement. The Department of Health and Human Services requires the completion of a Statement of Appointment Trainee form for each trainee receiving grant support. The form must be completed and submitted within 30 days of the appointment. In addition, trainee appointments can be made for no more than 12 months nor less than 9 months.

We originally noted two instances of six tested in which the regulations were not complied with. In one instance, the Statement was completed and signed after the appointment period had ended. In the other instance, the period of appointment exceeded the 12-month limitation.

Based upon the results of the review of the original sample of six appointments, the scope was expanded to include an additional eight specific Statements of Appointment. While coordinating the gathering of the eight additional forms, the Universityís Principal Investigator (PI) discerned that there had been a misunderstanding related to the record keeping requirements on the Statements of Appointment, and that of the six statements originally provided to the auditors, four had been only recently prepared for submission in response to the audit request. The PI informed University officials of the misrepresentation, who in turn notified the audit firm and the Auditor Generalís Office. Regarding the additional eight forms that were requested, only three were provided by the University. Of the three provided, one of the forms was signed more than 30 days after the appointment began.

Failure to comply with federal requirements could jeopardize future funding. (Finding 4, pages 16 - 17)

We recommended the University develop oversight procedures to ensure that all Statements of Appointments follow the guidelines set by the federal grant.

University officials concurred and stated an oversight committee has been established to examine all administrative requirements under the program to ensure overall compliance and to upgrade internal processes and communication.

 

CALCULATION OF EXCESS INTEREST EARNED ON FEDERAL FUNDING

The calculation of excess interest earned on federal funds for the Chicago Campus resulted in more funds being sent back to the Department of Health and Human Services than was required.

The University is required to calculate how much interest they earn on federal grant funds and return any interest earned over $250 per year. The University calculates the interest earned on federal grant funds by campus with the Chicago and Urbana campuses using different methods. The Urbana Campus determines the average daily cash balance for all federal funds and calculates an average quarterly balance to determine interest earned on federal funds. The Chicago Campus determines an average quarterly balance by federal agency. From those totals they calculate interest earned on any positive balances. They do not net the negative balances with the positive balances in determining interest earned. Based upon the Urbana Campus' method of calculation, the Chicago Campus could have saved approximately $72,000.

The criteria used for calculating interest earned on federal funds is included in regulations contained in the OMB Circular A-110, Uniform Administrative Requirements for Grants and Other Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations. However, the guidelines do not specify a specific method of calculation as long as the method used is reasonable. (Finding 5, page 18)

We recommended the Chicago Campus update their method of tracking federal cash balances and calculating excess interest earned on federal funds to match the method used by the Urbana Campus to maximize the amount of interest that may be retained by the University.

University officials concurred and stated effective FY 2004 the calculation methodology for excess interest earned will be consistent across campuses.

CONTRACTUAL ALLOWANCES ON PATIENT ACCOUNTS

The current process used by the Hospital to calculate and post contractual allowances to active patient accounts should be strengthened. Our review indicated the following procedures were not adequately addressed by the Hospital on a monthly basis:

  • Specific analysis of large balance accounts
  • Analysis of credit balances
  • Analysis of discharged not final billed accounts
  • Analysis of capitated accounts
  • Analysis of accounts greater than 271 days
  • Annual review and update of percentages used in the allowance calculation

The procedures listed above are necessary to ensure that all factors that may impact the estimate for contractual allowances are properly considered. Generally accepted accounting principles require reporting patient accounts receivable at net realizable value. Strong internal controls require that a reasonable process be used to determine the amount of estimates to be recorded in the financial statements.

Failure to adequately implement procedures for estimating contractual allowances on active patient accounts could result in the untimely or inaccurate recording of those allowances which may misstate the Hospitalís periodic operating statement. (Finding 7, pages 21 - 22)

We recommended the Hospital review its process for calculating and posting contractual allowances and consider implementing additional procedures as listed in the finding.

University officials concurred and stated the Hospital is currently implementing a contract management system that will significantly enhance its ability to monitor its many different contracts to ensure appropriate payment and an accurate recording of contractual allowances.

OTHER FINDINGS

The remaining findings are less significant and are reportedly being addressed by University management. We will review progress toward the implementation of our recommendations in our next audit. University responses were provided by Michael B. Bass, Assistant Vice President for Business and Finance.

 

AUDITORSí OPINION

The financial audit report contains four sets of financial statements in the Annual Financial Report; and the revenue bond financial statements of the Auxiliary Facilities System, the Willard Airport Facility, and the Health Services Facilities System.

Our auditors state the June 30, 2003 financial statements are fairly presented in all material respects.

 

_____________________________________

WILLIAM G. HOLLAND, Auditor General

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SPECIAL ASSISTANT AUDITORS

Clifton Gunderson LLP were our special assistant auditors.