WESTERN ILLINOIS UNIVERSITY
For the One Year Ended June 30, 2010
Summary of Findings:
Total this audit: 2
Total last audit: 0
Repeated from last audit: 0
Release Date: February 16, 2011
State of Illinois, Office of the Auditor General
WILLIAM G. HOLLAND, AUDITOR GENERAL
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This Report Digest and Full Report are also available on the worldwide web at www.auditor.illinois.gov
This report contains only findings pertaining to the Financial Statement Audit.
The State Compliance Examination and Federal Single Audit Report will be issued at a later date.
• The University did not ensure adequate internal control over the acquisition of a public television station.
• The University had not established an adequate process for evaluating the estimated allowance for doubtful accounts receivable.
FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS
INADEQUATE CONTROLS OVER ACQUISITION OF PUBLIC TV STATION
The University did not perform adequate due diligence regarding the acquisition of a public television station (Station).
The University and a community college (College) entered into an agreement on October 16, 2009 to transfer the license and ownership of the Station to the University and its Foundation. The agreement included donation of assets, properties, interests and rights in connection with the operation of the Station. Upon approval of the license transfer by the Federal Communications Commission, the agreement was finalized on May 1, 2010. We noted the following control weaknesses over equipment acquired by the University:
• Schedules of the Station’s tangible personal property referenced in the original agreement were not provided until one month after closing. Before closing, the College disposed of analog Station equipment without the University’s written consent. Other equipment was loaned out without itemizing or tagging, making identification of Station property impossible.
• The University capitalized equipment at the incorrect value. The University also overstated non-operating revenue and depreciation expense accounts by $1.9 million.
• Equipment was not tagged and inventoried by the University upon closing in May 2010 or prior to physical transfer to a new location in June 2010.
• Physical inventory of fixed assets at the Station was not performed by the University until two months after closing. Based on the inventory, equipment transferred and recorded at $1.9 million was missing, and assets with a $0.2 million cost were found which had not been included in the schedule of transferred property.
• The University capitalized equipment without verifying whether the equipment existed or the accuracy of the property list.
• Prior to closing, 29 equipment items were transferred to another station in lieu of rent, unknown to the University and in violation of the terms of the agreement. Management stated the University did not seek recourse because the equipment was no longer used and this agreement would help sustain the Station’s budget.
• During our testing of equipment at the Station, we noted that one of 25 (4%) items tested, a system satellite valued at $77,977, could not be located. (Finding 1, pages 45-49)
University management stated they were not sufficiently aware of the complex steps involved in the acquisition process to ensure adequate controls were in place.
We recommended that the University implement a formal risk assessment process, perform thorough due diligence, and re-evaluate its financial reporting risk every time it undergoes an unusual, non-recurring, or other complex type of transaction such as acquisition of a business, so that management and the Board of Trustees can make informed decisions. We also recommended that the University implement comprehensive review procedures to ensure that the transactions and account balances are properly recorded in accordance with generally accepted accounting principles. Further, we recommended the University ensure that equipment records are accurately maintained and updated in a timely manner. Finally, the University should evaluate whether any legal remedies can and should be pursued.
University officials accepted the finding and stated that the Station acquisition was a complex, one-time transaction, compounded by the Station relocation, conversion from analog to digital transmission and the outsourcing of technological functions during the period of license transfer. Officials stated they will ensure that future new equipment is properly inventoried and timely tagged, and management will conduct a review of functions to ensure that appropriate business practices are followed. Management also stated the University has evaluated its options and does not plan to seek legal remedies.
INADEQUATE ALLOWANCE FOR DOUBTFUL ACCOUNTS EVALUATION PROCESS
The University did not establish an adequate process to evaluate the estimated allowance for doubtful accounts for financial reporting purposes.
The University estimated the allowance for doubtful accounts of the student accounts receivable to be $3.9 million at year-end, representing 51% of the ending balance. The University did not establish a process to evaluate the reasonableness of the estimates used. There was not sufficient data on which the estimates were based that were available for our review and testing. (Finding 2, pages 50-51)
We recommended that the University establish an adequate process to prepare annual accounting estimates including: sufficient, reliable supporting data; factors to consider; adequate review and approval by appropriate levels of authority; and presentation and disclosure in conformity with applicable accounting principles.
University officials agreed with the finding and stated they will develop a process to evaluate reasonableness of the accounting estimate.
Our auditors stated the financial statements of Western Illinois University as of June 30, 2010, and for the year then ended, are fairly stated in all material respects.
WILLIAM G. HOLLAND
AUDITORS ASSIGNED: Our special assistant auditors for this examination were E. C. Ortiz & Co. LLP.