REPORT DIGEST

 

UNIVERSITY OF ILLINOIS

 

FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

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

For the Year Ended:

June 30, 2004

 

Summary of Findings:

Total this audit                        8

Total last audit                        7

Repeated from last audit         2

 

Release Date:

March 24, 2005 

 

 

 

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 TTY (888) 261-2887

 

This Report Digest is also available on

the worldwide web at

http://www.state.il.us/auditor

 

 

 

 

 

 

 

SYNOPSIS

 

¨      One bank reconciliation had reconciling items left unresolved and another account was not reconciled on a timely basis.

 

¨      A donation of land in fiscal year 2002 was not recorded in the accounting system until fiscal year 2004.

 

¨      Statement of Appointment Trainee forms were not completed properly as required by a federal grant from the Department of Health and Human Services.

 

¨      An unauthorized storeroom was operated by the biochemistry department which did not follow University policies and procedures and resulted in federal questioned costs.

 

¨      All real estate leases did not contain required disclosures and were not filed with the State Comptroller on a timely basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 


UNIVERSITY OF ILLINOIS

 

FINANCIAL OPERATIONS

FY 2004

FY 2003

OPERATING REVENUES

 

 

        Tuition and fees, net..........................................................

                    $448,476,000

                    $384,981,000

        Federal grants, contracts and appropriations................

                      589,414,000

                      569,524,000

        State and private gifts, grants and contracts.................

                      138,176,000

                      198,170,000

        Hospital and medical activities.........................................

                      453,400,000

                      423,368,000

        Auxiliary enterprises, net...................................................

                      262,058,000

                      260,964,000

        Other.....................................................................................

                      400,737,000

                      285,679,000

                Total Operating Revenues........................................

                 $2,292,261,000

                 $2,122,686,000

OPERATING EXPENSES

 

 

        Instruction...........................................................................

                    $602,025,000

                    $608,250,000

        Research...............................................................................

                      548,969,000

                      520,574,000

        Public service......................................................................

                      250,534,000

                      297,558,000

        Academic support..............................................................

                      187,290,000

                      212,025,000

        Hospital and medical activities.........................................

                      353,861,000

                      319,795,000

        Auxiliary enterprises..........................................................

                      213,740,000

                      192,163,000

        On behalf payments for fringe benefits...........................

                      937,354,000

                      282,151,000

        Operation of plant...............................................................

                      176,682,000

                      171,418,000

        Institutional support..........................................................

                      129,114,000

                      148,430,000

        Depreciation........................................................................

                      153,022,000

                      140,106,000

        Scholarships and fellowships...........................................

                      160,673,000

                      138,733,000

        Other.....................................................................................

                        84,739,000

                        79,101,000

                Total Operating Expenses.........................................

                 $3,798,003,000

                 $3,110,304,000

Operating Income (Loss)...........................................................

            $(1,505,742,000)

               $(987,618,000)

NONOPERATING REVENUES (EXPENSES)

 

 

        State appropriations...........................................................

                    $639,227,000

                    $681,953,000

        Capital appropriations, gifts and grants..........................

                      127,514,000

                      111,782,000

        Private gifts and endowments..........................................

                        98,592,000

                      121,524,000

        On behalf payments for fringe benefits...........................

                      765,951,000

                      227,961,000

        Other, net.............................................................................

                          8,967,000

                        (1,745,000)

INCREASE IN NET ASSETS...................................................

                    $134,509,000

                    $153,857,000

Net assets, beginning of year...................................................

                 $2,143,869,000

                 $1,990,012,000

Net assets, end of year..............................................................

                 $2,278,378,000

                 $2,143,869,000

SELECTED ACCOUNT BALANCES

June 30, 2004

June 30, 2003

Cash and Investments...............................................................

$939,830,000

$967,896,000

Capital Assets, net.....................................................................

$2,746,524,000

$2,547,063,000

Accrued Compensated Absences...........................................

$171,533,000

$192,524,000

Revenue Bonds Payable............................................................

$695,300,000

$697,614,000

SUPPLEMENTAL INFORMATION (Unaudited)

FY 2004

FY 2003

Employment Statistics

        Chicago................................................................................

 

13,321

 

13,204

        Springfield............................................................................

800

788

        Urbana-Champaign.............................................................

14,865

14,369

                                Total..............................................................

28,986

28,361

Enrollment Statistics

        Undergraduate --

                Chicago........................................................................

 

 

16,012

 

 

16,543

                Springfield....................................................................

2,569

2,445

                Urbana-Champaign.....................................................

29,226

28,947

                        Subtotal................................................................

47,807

47,935

        Graduate –

                Chicago........................................................................

 

9,752

 

9,595

                Springfield....................................................................

2,005

2,006

                Urbana-Champaign.....................................................

11,232

11,052

                        Subtotal................................................................

22,989

22,653

                                  Total............................................................

70,796

70,588

UNIVERSITY PRESIDENT

 

 

During Audit Period:  Dr. James Stukel

Currently:  Dr. B. Joseph White (effective January 31, 2005)

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Reconciling items not resolved timely

 

 

 

 


Account not reconciled timely

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$2,400,000 land gift not recorded timely

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Statement of Appointment Trainee forms were not properly completed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Biochemistry department operated an unauthorized storeroom

 

 

 

 

 

 

 


Federal questioned costs total $192,796

 

 

 

 

 

 

 


Federal questioned costs range from $32,741 to $275,566

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auditor's Comment

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Real estate leases not complete or filed timely

 

 

 

 

 

 

 

 

 

Requirements set forth in Illinois Procurement Code

 

 

INTRODUCTION

 

      Our 2004 audit and examination 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 Examination report contains the compliance findings disclosed by our tests.

 

 

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

 

NEED TO IMPROVE BANK RECONCILIATION PROCESS

 

      The University had numerous reconciling items on a student loan collection account that were left unresolved and a payroll bank account was not reconciled on a timely basis.  The fiscal year end bank account reconciliation for the student loan collection account contained several reconciling items with a net value of $2,079,478.  These reconciling items should have triggered adjustments to the accounting system.  Instead they were carried forward as reconciling items from month to month, with items dating back to July 2003.  In addition, the fiscal year end consolidated payroll account reconciliation with a book balance of ($6,605,640) was not reconciled until September 2004.

 

      Effective internal control policies require all transactions be recorded in the accounting system in a timely manner and bank account reconciliations be performed and reviewed on a timely basis.  Failure to do so may result in inaccurate financial statement information and may mislead management in analyzing cash flow and cash availability of the University.  (Finding 1, page 10)

 

      We recommended the University research and resolve all reconciling items on a timely basis.  Further, the University should establish procedures to review reconciliations in a timely manner to ensure they are being performed on a timely basis and to assist in resolving reconciling items as they occur.

 

      University officials concurred and stated University staff have identified the procedural problems that created the reconciling items on the student loan collection account and implemented new procedures to accurately post all transactions.  Further, procedures are in place that require timely reconciliation of all bank accounts and the subsequent resolution of all reconciling items.

 

NEED TO RECORD GIFTS ON A TIMELY BASIS

 

      University personnel did not record a land donation on a timely basis.  We noted a $2,400,000 land gift to the University, which occurred in fiscal year 2002, was not recorded on the University's accounting system until fiscal year 2004.

 

      Generally accepted accounting principles require that gifts in kind be recorded at fair market value on the date of the transfer of economic benefit.  According to University management, the failure to record the land donation in the appropriate fiscal year was due to untimely filing of supporting information which was an oversight.  Failure to properly record gifts on a timely basis results in inaccurate financial statement information being reported.  (Finding 2, page 11)

 

      University officials concurred with our finding and stated the Real Estate Planning and Services Offices understand the requirements for timely recording of all acquisitions of real estate and will coordinate their efforts with Accounting to ensure timely recording of real estate gifts and other acquisitions.

 

 

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 (DHHS) 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.

 

      We reviewed the Statements of Appointment for all students included in the University's November 19, 2003 report submitted to the Centers for Disease Control and Prevention, DHHS.  Of the 49 students required to file a Statement of Appointment form, we noted 25 students did not have a form completed and 20 students did not have a form completed timely.

 

      Failure to comply with federal requirements could jeopardize future funding.  (Finding 3, pages 12-13)  This finding was first reported in 2003.

 

      We recommended the University follow through with the procedures developed to ensure that all Statements of Appointment follow the guidelines set by the federal grant.

 

      University officials concurred and stated they will continue to follow up to ensure adherence to grant guidelines.  (For previous University response, see Digest Footnote #1.)

 

 

OPERATION OF UNAUTHORIZED STOREROOM

 

      The biochemistry department was operating a storeroom that was not approved by the University and was not following University policies and procedures.

 

      In June 2003, the University was notified of the unauthorized storeroom which had different procedures for the biochemistry department and other non-biochemistry departments.  We analyzed the procedures separately for the fiscal years ended June 30, 2001 through June 30, 2004.

 

      For the non-biochemistry departments, the storeroom manager would accumulate the total dollar amount of items removed from the storeroom by department, charge them a 15% mark-up, and prepare an internal billing sheet for the individual departments.  Based upon the financial information provided by the University, the questioned costs are the 15% mark-up and the indirect costs associated to those mark-ups which total $192,796.

 

      The process used by the storeroom for biochemistry staff was to maintain a handwritten log of storeroom activity by principal investigator.  Purchases made to stock the storeroom were recorded as an expense by grant in the University's accounting system; however, items signed out from the storeroom were recorded in the handwritten log and not entered into the University's accounting system.  We compared the accounting system charges per principal investigator to the handwritten log and the indirect costs related to these charges.  Potential questioned costs for biochemistry staff use of the storeroom ranged from $32,741 to $275,566.

 

      University policies require approval from proper officials prior to creating a storeroom, using proper accounting controls, and following the University's established policies and procedures manual.  According to University personnel, the storeroom was started to allow greater purchasing power by buying in bulk.  The storeroom had been operating for over 10 years but was shut down effective July 1, 2003.  (Finding 4, pages 14-16)

 

      We recommended the University review their current accounting policies and procedures related to storerooms, provide training to ensure departments are following the policies and procedures correctly, and determine if any other unauthorized storerooms may be operating.  The University should report the unauthorized storeroom financial information to the affected federal agencies and return any documented questioned costs.

 

      University officials concurred with our recommendation but stated their calculation of questioned costs is $32,741.  They indicated that costs to operate the storeroom, charges for supplies and related indirect costs should be allowable.

 

      In an auditor's comment it was noted that we did not consider the operating costs of the storeroom as a reduction of questioned costs since the storeroom was not authorized by the University.  We continued to recommend the University work with the applicable federal agencies to reach an agreement on the amount of the questioned costs.

 

 

NEED TO PREPARE REAL ESTATE LEASES IN ACCORDANCE WITH GUIDELINES

 

      The University's real estate leases were not all prepared in accordance with guidelines nor were they all filed with the State Comptroller on a timely basis.

 

      We examined 25 real estate leases from all areas of the University and noted that 15 leases were not filed with the State Comptroller on a timely basis.  The leases were filed from 3 months to 21 months late.  We also noted that several leases:  were executed after the lease term began; did not contain an option to purchase the building; did not include the Real Estate Ownership Disclosure; did not include the FEIN, TIN or Legal Status Disclosure; did not include the Environmental Barriers Act/Handicapped Accessibility Disclosure; or did not include a certification that the lessor is not barred from contracting with State agencies due to violations of the Environmental Protection Act.

 

      Requirements for the preparation and filing of real estate leases can be found in the Illinois Procurement Code, the Statewide Accounting Management System and the University's Business and Financial Policies and Procedures.  (Finding 5, pages 17-18)  This finding was first reported in 2003.

 

      We recommended the University implement appropriate procedures to ensure all appropriate clauses and certifications are obtained prior to execution for all real estate leases and that they be filed with the State Comptroller as required by State guidelines.

 

      University officials concurred and stated they have taken steps to ensure compliance.  (For the previous University response, see Digest Footnote #2.)

 

OTHER FINDINGS

 

      The remaining findings are less significant and are being addressed by University management.  We will review the University's progress toward the implementation of our recommendations in our next examination.  University responses were provided by Kathe Shinham, Assistant Vice President for Business and Finance at Urbana-Champaign.

 

 

AUDITORS’ 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, 2004 financial statements are fairly presented in all material respects.

 

 

 

_____________________________________

WILLIAM G. HOLLAND, Auditor General

 

WGH:KMA:pp

 

SPECIAL ASSISTANT AUDITORS

 

      Clifton Gunderson LLP were our special assistant auditors.

 

DIGEST FOOTNOTES

 

#1 - NONCOMPLIANCE WITH FEDERAL GRANT AGREEMENT - Previous University Response

 

2003:  We concur.  An oversight committee has been established within the School of Public Health to examine all administrative requirements under the program to ensure overall compliance and to upgrade internal processes and communication.

 

#2 - NEED TO PREPARE REAL ESTATE LEASES IN ACCORDANCE WITH GUIDELINES - Previous University Response

 

2003:  We agree.  The University's Real Estate offices will implement enhanced procedures to ensure appropriate and consistent state clauses and certifications are included in all real estate lease agreements.  We will continue to take steps to improve staff review of lease agreements to assure documents are completed and in full compliance.  We will implement procedures to ensure that all existing real estate leases in excess of $10,000 have been filed with the Comptroller's Office in accordance with state guidelines.