REPORT DIGEST UNIVERSITY OF ILLINOIS FINANCIAL AUDIT FOR THE YEAR ENDED JUNE 30, 2018 Release Date: January 23, 2018 FINDINGS THIS AUDIT: 4 CATEGORY: NEW -- REPEAT -- TOTAL Category 1: 0 -- 0 -- 0 Category 2: 1 -- 3 -- 4 Category 3: 0 -- 0 -- 0 TOTAL: 1 -- 3 -- 4 FINDINGS LAST AUDIT: 5 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 The University’s financial audit report consists of three sets of financial statements as follows – the financial statements of the University, and the revenue bond financial statements of the Auxiliary Facilities System and the Health Services Facilities System. This digest covers the University of Illinois’s Financial Audit as of and for the year ended June 30, 2018. The University’s Compliance Examination (including Single Audit) will be issued in a separate report at a later date. SYNOPSIS • (18-1) The University has not established adequate internal controls over accurately identifying and recording deferred expense transactions and reporting prepaid expenses at fiscal year-end for financial reporting purposes. • (18-3) The University has not complied with University policies and internal controls over procurement card transactions. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS INADEQUATE PROCEDURES OVER EXPENSE DEFERRALS AND OTHER CUT-OFF RELATED ISSUES The University has not established adequate internal controls over accurately identifying and recording deferred expense transactions and reporting prepaid expenses at fiscal year-end for financial reporting purposes. In relation to our test work over expense transactions, we reviewed 225 cash disbursement transactions (totaling $49,784,822), 60 P-Card expense transactions (totaling $310,833), and 60 T- Card expense transactions (totaling $303,612) recorded during the fiscal year. In relation to our test work over revenue transactions, we reviewed 60 cash receipt transactions recorded during the fiscal year (totaling $85,984,379). We also reviewed 20 cash disbursements occurring subsequent to year-end (totaling $65,180,107). Additionally, we separately reviewed 20 internal journal voucher transactions recorded during the fiscal year (totaling $388,226,298). During our review of these transactions, some of the items that were not recorded in the proper accounting period are as follows: • Three general and service expense cash disbursements (totaling $50,396) that were recorded as expenses for fiscal year ended June 30, 2018, should have been partially deferred as of June 30, 2018 at an amount of $30,137, and then recognized as expenses for the fiscal year ending June 30, 2019. • One cash receipt (totaling $748,497) that was recorded as operating revenue for the fiscal year ended June 30, 2018, should have been fully accrued as of June 30, 2017. • Two cash receipts (totaling $3,688,224) that were recorded as operating revenue for the fiscal year ended June 30, 2018, should have been partially deferred as of June 30, 2018 at an amount of $2,756,527, and then recognized as operating revenue for the fiscal year ending June 30, 2019. • Six general and service expenses charged on P-cards (totaling $25,658) that were recorded as expenses for the fiscal year ended June 30, 2018, should have been partially deferred as of June 30, 2018 at an amount of $19,032 and then recognized as expenses for the fiscal year ending June 30, 2019. (Finding 1, Pages 5-7) This finding has been repeated since 2009. We recommended the University continue to review its process to assess the existence of current period revenues and expenses and consider changes necessary to ensure they are accurately identified and recorded for presentation in the University’s financial statements. University officials agreed with the finding. (For the previous University response, see Digest Footnote #1.) INADEQUATE CONTROLS OVER UNIVERSITY PROCUREMENT CARD TRANSACTIONS The University has not complied with University policies and internal controls over procurement card transactions. During our test work over 96 procurement card transactions totaling $361,179, we noted the following: • Twenty nine (30%) transactions (totaling $23,294) were for charges such as professional services, lodging, business meals and refreshments, pharmaceutical and drugs, furniture with a unit cost of $500 and above, and advertising expense, all of which were prohibited by the University’s procurement card policies. • Six (6%) transactions (totaling $52,116) were paid in two or more installments, circumventing the card holder’s single transaction limit of $4,999. • Fifteen (16%) transactions (totaling $90,716) were not reconciled within seven days of appearance on the P-Card software, as required. The reconciliations were completed two to 178 days late. • Three (3%) transactions (totaling $13,151) were purchases of equipment that were not tagged in accordance with University’s policies and procedures. (Finding 3, pages 10-11) This finding has been repeated since 2008. We recommended the University continue to review and improve its internal controls over procurement card transactions to ensure compliance with University policies so that erroneous or fraudulent transactions are not recorded in the general ledger system. University officials agreed with the finding. (For the previous University response, see Digest Footnote #2.) OTHER FINDINGS The remaining findings pertain to inadequate controls over self-approved timesheets and review of service provider controls and are reportedly being given attention by the University. We will review the University’s progress towards implementation of our recommendations in our next engagement. AUDITOR’S OPINION Our auditors stated the financial statements of the University, the Auxiliary Facilities System and the Health Services Facilities System as of June 30, 2018, and for the year then ended, are fairly stated in all material respects. This financial audit was conducted by CliftonLarsonAllen LLP. 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:TLK DIGEST FOOTNOTES #1 – Inadequate Procedures over Expense Deferrals and Other Cut-off Related Issues – Previous University Response 2017 Accepted. The University will continue taking corrective action to address the recommendation in this finding. Regarding the P-card related cut-off exceptions, the University believes that the small size of individual card transactions represents an expense population in which the probability of a material financial statement error would be extremely remote. #2 – Inadequate Controls Over University Procurement Card Transactions – Previous University Response 2017 Accepted. While the procurement card is an efficient purchasing mechanism, the University recognizes the importance of procurement card controls, training, and transaction monitoring. The University will implement the necessary corrective action related to the recommendation made in this finding.