REPORT DIGEST

UNIVERSITY OF ILLINOIS

FINANCIAL AND COMPLIANCE AUDIT
(In accordance with the Single Audit Act of 1984, and OMB Circular A-133)
For the Year Ended:
June 30, 1996

Summary of Findings:

Release Date:
May 15, 1997

State of Illinois
Office of the Auditor General

WILLIAM G. HOLLAND
AUDITOR GENERAL

Iles Park Plaza
740 E. Ash Street
Springfield, IL 62703
(217) 782-6046

SYNOPSIS

• The University did not follow the provisions of the Illinois Purchasing Act in obtaining hospital laboratory services.

• The University made improper payments to an employee for two pay periods after the person was terminated.

• The University had problems in the monitoring of subrecipients who receive federal funds and must submit audit reports. This condition has existed since 1993.

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

FY 1996

FY 1995

June 30, 1996

June 30, 1995

$506,990,000
$2,869,599,000
$171,877,000
$300,649,000

$437,833,000
$2,630,927,000
$149,016,000
$238,776,000

FY 1996

FY 1995

12,130
689
13,132
25,951

14,353
1,693
26,881
42,927


5,987
1,242
12,401
19,630
62,557

14,359
1,620
26,625
42,604


6,188
1,180
12,378
19,746
62,350

$4,942
6,747
5,455


$11,024
6,671
11,780

$4,662
6,510
5,237


$9,932
6,370
11,410

Bidding of Purchases

Terminated Employee receives paychecks

Subrecipient Audit Reports Were Late and Incomplete

INTRODUCTION

Our 1996 audit of the University of Illinois is presented in three parts. The financial part consists of four documents and includes the various financial statements of the University. Two other parts include the compliance findings disclosed by our audit tests. The State Compliance Audit document presents six findings. The Federal Compliance Audit report presents one finding.

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

FAILURE TO FOLLOW PURCHASING ACT

The Chicago campus did not comply with the Illinois Purchasing Act in a purchase of laboratory testing services in excess of $25,000. Purchases from one contract vendor included an additional expenditure in the amount of $100,000 for services that were not part of the services specified in the original bidding process and proposal. This was caused by the lack of knowledge of University procedures and by departmental personnel exceeding their authority.

For purchases over $25,000 the Illinois Purchasing Act states, "...all purchases, contracts and expenditures shall be awarded pursuant to a competitive selection procedure which may provide that contracts be awarded to the lowest possible bidder." Failure to follow this statute could lead to the University not using the lowest bidder and the possible loss of State funds. (Finding 3, page 12 in State report)

We recommended the University ensure that it follows the necessary competitive bidding procedures required by statute.

University officials concurred with the finding and stated the additional purchase was for testing of laboratory specimens for patients at the University Hospital. The order was issued for specific tests to be performed by an outside laboratory. Hospital staff incorrectly assumed that they could order tests that were not specified on the purchase order to the outside laboratory. Hospital staff have been informed that they can only order tests that are specified on the purchase order.

IMPROPER PAYMENTS TO TERMINATED EMPLOYEE

The payroll department at the Springfield campus did not remove a terminated employee from the payroll system in a timely manner.

A terminated employee was not removed from the payroll system for two subsequent pay periods. The employee was terminated on February 28, 1996, but received paychecks for the pay periods ending March 15, 1996 and March 31, 1996. The University has not recovered the $1,858 paid to the terminated employee. This was caused by a lack of communication between the terminated employee's department and the payroll department and resulted in the loss of State funds. (Finding 4, page 13 in State report)

We recommended the University inform its departments of the importance of timely communication of terminations of employees to the payroll department.

University officials concurred with the finding. The University has begun collection efforts in an attempt to recover the funds from the terminated employee.

PROBLEMS IN MONITORING SUBRECIPIENTS

The University did not have adequate procedures in its subrecipient monitoring system to ensure that all subrecipients of Federal funds were audited in accordance with Federal laws and regulations. During our testing of subrecipient monitoring at the Urbana and Chicago campuses, we noted two major problems:

• In tracking 78 subrecipient audit reports, we noted that 29 reports were received late or not received at all.

• In reviewing 20 audit reports received from subrecipients, we noted 10 instances in which the required auditors' report and the organizations' financial statements were missing.

The University is required to receive subrecipient audit reports no later than 13 months after the end of the recipient's fiscal year end. The University is also required to perform review procedures on such reports. Failure to properly monitor subrecipients could result in questioned costs and instances of material noncompliance with Federal laws and regulations. (Finding 1, page 30 in Federal report) This finding has been repeated since 1993.

We recommended the University update and implement procedures to adequately manage and monitor their subrecipients.

University officials concurred with the finding and stated they will revise their sub-award procedures to ensure that new or incremental funding will not be obligated on awards to subrecipients who have not submitted the required audit reports. (For the previous agency responses, see Digest Footnote 1.)

OTHER FINDINGS

The remaining findings were less significant and have been given appropriate attention by University management. We will review progress toward the implementation of our recommendations in our next audit. University responses were provided by Dr. Craig S. Bazzani, Vice President for Business and Finance, and Comptroller.

AUDITORS' OPINION

The financial report group contains four sets of financial statements in the Report of the Comptroller; the revenue bond financial statements in the Auxiliary Facilities System, the Willard Airport Facility, and the Construction Engineering Research Laboratory. Our auditors state the June 30, 1996 financial statements are fairly presented.

_____________________________________
WILLIAM G. HOLLAND, Auditor General

WGH:KMM:pp

SPECIAL ASSISTANT AUDITORS

Arthur Andersen LLP were our Special Assistant Auditors.

Digest Footnote

(1) Prior responses to Finding No. 1 in Federal report, repeated since 1993 - Subrecipient Audit Reports Late or Missing.

1995: For the Urbana campus -

We concur. The responsibility for submitting the A-133 audit within 13 months following the end of their fiscal year or for notifying the prime recipient of an approved extension for the report submission rests with the subrecipient. The University has been diligent in working with subrecipients to obtain copies of their audit reports and continues to follow up with subrecipients until all audits are received.

The University of Illinois supports the efforts by Federal agencies to revise OMB Circular A-133. The proposed revision issued in March 1995 raises the audit threshold to $300,000 and provides for a more reasonable report submission process.

1995: For the Chicago campus -

We concur. Continued emphasis will be placed on ensuring receipt and review of all reports in a timely fashion. It should be noted that receipt and follow-up on the audit requirement is dependent upon the time schedules of the subrecipients and their auditors. In all cases, efforts were undertaken to effect receipt of the missing reports within the required parameters.

1994: for the Urbana campus -

We concur. The University has been diligent in working with subrecipients to obtain copies of their audit reports. Delays in receiving audit reports from subrecipients are inevitable. The University of Illinois supports the efforts by Federal agencies to review OMB Circular A-133 to remove the requirement to distribute subrecipient audits, and has been encouraged to believe that this requirement will be removed shortly.

1994: For the Chicago campus -

We concur with the finding in that more formalized follow-up will be instituted to ensure appropriate receipt of the audit reports in a timely fashion. Additionally, we will request that each subrecipient clearly indicate whether any specific findings relate to UIC pass-through monies. This change will facilitate review of the reports when received.

1993: For the Urbana campus -

Fiscal year 1991 is the first year that universities not covered by OMB Circular A-128 were required to have a Single Audit performed under A-133 and to distribute the audits to prime recipients. Up to and including fiscal year 1992, these audit reports could be produced on either an annual or biennial basis. The University recognizes that there will be delays in receiving at least those audits produced biennially, and we are working with the subrecipients to receive the audits as soon as they are completed. The University recognizes that its subrecipient audit policy needs to be updated, and will work with the Office of Naval Research (ONR) to come into compliance with OMB Circular A-133.

1993: For the Chicago campus -

We concur. The Grants and Contracts Office will refine procedures to (1) ensure receipt of subrecipient audit reports and (2) allow for adequate review and follow-up on any findings affecting University operations.