REPORT DIGEST

STATE OF ILLINOIS

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2020

Release Date:  AUGUST 19, 2021

FINDINGS THIS AUDIT:  7

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  2 -- 3 -- 5
Category 2:  0 -- 0 -- 0
Category 3:  0 -- 2 -- 2
TOTAL:  2 -- 5 -- 7

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 Illinois Office of Comptroller
prepares the State of Illinois’
Comprehensive Annual Financial Report.
The Comprehensive Annual Financial
Report is the State’s official annual
report, which provides the readers
with the financial position of the
State as of June 30, 2020, and its
results of operations during the
fiscal year.

The financial section of the
Comprehensive Annual Financial Report
includes the Independent Auditor’s
Report on the basic financial
statements, management’s discussion
and analysis, the basic financial
statements, required supplementary
information, and individual fund
statements and schedules.

AUDITOR’S OPINION

The auditors qualified their opinion
on the Aggregate Discretely Presented
Component Units, Unemployment
Compensation Trust Fund, and Business-
Type Activities opinion units of the
financial statements of the State of
Illinois.  All other opinion units of
the financial statements of the State
of Illinois are fairly presented in
all material respects.

The financial statements at June 30,
2020, reflect the following:
• The net position of governmental
activities continued to deteriorate
and the deficit increased by $4.7
billion from June 30, 2019, to June
30, 2020.  Overall, the net position
of governmental activities is reported
as a deficit of $197.8 billion.
(Exhibit 1)
• The General Fund deficit decreased
by $1.1 billion from June 30, 2019, to
June 30, 2020.  The General Fund
deficit is $6.4 billion. (Exhibit 2)


REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING AND ON COMPLIANCE

In accordance with Government Auditing
Standards, a report on our
consideration of the State of
Illinois’ internal control over
financial reporting and our tests of
its compliance is also issued as part
of our financial statement audit.
This report is a separate document and
is summarized in this document.  Our
report noted that the State’s
decentralized internal control system
is not adequate.  We also reported
significant financial reporting
deficiencies at several State
agencies.

STATE OFFICIALS
As of June 30, 2020

Governor:  JB Pritzker

Comptroller:  Susana A. Mendoza

Speaker of the House:  Michael J.
Madigan

President of the Senate:  Don Harmon

House Republican Leader:  Jim Durkin

Senate Republican Leader:  William E.
Brady

FINANCIAL ANALYSIS OF THE STATE

The net position of the State’s
governmental activities declined $4.7
billion.  The following condensed
financial information was derived from
the government-wide Statement of Net
Position and reflects the State’s
governmental activities financial
position as of June 30 for Fiscal
Years 2013 through 2020. (See Exhibit
1 in the PDF version of this digest)

The deficits reflected in Exhibit 1
are presented on an accrual basis and
represent the excess of total
liabilities and deferred inflows of
resources over total assets and
deferred outflows of resources at a
given point in time.  These deficits
represent the deferral of current and
prior year costs to future periods.

GENERAL FUND

Many programs are accounted for in the
General Fund.  The GAAP basis
financial position of the General Fund
deficit decreased at June 30, 2020,
from June 30, 2019.  The fund balance
deficit in the State’s General Fund
decreased by $1.1 billion on a GAAP
basis.  The June 30, 2020, deficit was
$6.4 billion.  Exhibit 2 reflects the
General Fund deficit for Fiscal Years
2013 through 2020.  (See Exhibit 2 in
the PDF version of this digest)

STATE COMPARISON

Exhibit 3 provides an analysis of the
State’s governmental activities net
position at June 30, 2020, compared to
other States.  (See Exhibit 3 in the
PDF version of this digest)

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

INADEQUATE FINANCIAL REPORTING PROCESS

The State of Illinois’ current
financial reporting process does not
allow the State to prepare a complete
and accurate Comprehensive Annual
Financial Report in a timely manner.
Reporting issues at various individual
agencies caused delays in finalizing
the financial statements.  The lack of
timely financial reporting limits
effective oversight of State finances
and may adversely affect the State’s
bond rating.

Accurate and timely financial
reporting problems continue to exist
even though the auditors have (1)
continuously reported numerous
findings on the internal controls
(material weaknesses and significant
deficiencies), (2) commented on the
inadequacy of the financial reporting
process of the State, and (3)
regularly proposed adjustments to the
financial statements year after year.
These findings have been directed
primarily towards major State agencies
under the organizational structure of
the Office of the Governor (Governor)
and towards the Office of Comptroller
(Comptroller).

The Comptroller has made significant
changes to the system used to compile
financial information; however, the
State has not solved all the problems
to effectively remediate these
financial reporting weaknesses.  The
State has a highly decentralized
financial reporting process due to the
use of numerous financial reporting
systems, many of which are not
interrelated and require manual
intervention to convert data.  The
process is also overly dependent on
the post audit program, even though
the Office of the Auditor General has
repeatedly informed State agency
officials that the post audit function
is not a substitute for appropriate
internal controls at State agencies.

Annual financial reporting to the
Comptroller requires the State’s
agencies to prepare a series of
financial reporting forms (SCO forms)
designed by the Comptroller, which are
utilized to prepare the Comprehensive
Annual Financial Report.  Although
these SCO forms are subject to review
by the Comptroller’s financial
reporting staff during the
Comprehensive Annual Financial Report
preparation process and there are
recommended minimum qualifications for
all new generally accepted accounting
principles (GAAP) coordinators who
oversee the preparation of the SCO
forms, the current process still lacks
sufficient internal controls at
individual agencies.  (Finding 1,
pages 7-9)  This finding has been
repeated since 2007.

We recommended the Governor and the
Comptroller continue to work together
to resolve the State’s inability to
produce timely and accurate GAAP-basis
financial information.

The Office of the Governor agreed with
the recommendation and stated they
will continue to work together with
the Office of Comptroller, and
together with the individual agencies
that have the most pressing
challenges, to address the core issues
of the State’s inability to produce
timely and accurate GAAP-basis
financial information. The Office of
the Governor also stated the State is
in the midst of a multi-year
implementation of an Enterprise
Resource Planning (ERP) system—an
integrated enterprise-wide application
system for financial accounting—which
is intended to transform Illinois’ IT
system to be more inter-related among
agencies and responsive to the needs
of the State, its employees and those
it serves.

According to the Office of the
Governor, new challenges have arisen
as State agencies have been making the
transition from old systems to new,
but a fully-operational ERP system and
grants management system will improve
internal controls and will better
support the production of accurate
financial statements in a timely
manner in agencies throughout State
government.

The Office of Comptroller accepted our
recommendation and stated the State
still faces several roadblocks in the
timely completion of the Comprehensive
Annual Financial Report due to the
General Assembly enacting various
Public Acts which extend the lapse
period thus delaying the financial
reporting process.  The Office of the
Comptroller also stated the
Comprehensive Annual Financial Report
(Report) completion continues to be
delayed because of financial reporting
issues identified during individual
State agency financial and compliance
audits and the Report cannot be
finalized until these issues are
resolved at the individual State
agency reporting level.

Lastly, the Office of Comptroller
stated they will continue to work with
the Governor’s Office, the Auditor
General’s Office, and agency GAAP
coordinators to improve the
timeliness, quality, and processing of
financial reporting for the State.

FINANCIAL REPORTING WEAKNESSES

The State of Illinois did not have
adequate controls to assess the risk
that information reported by
individual agencies of the primary
government would not be fairly stated
and compliant with generally accepted
accounting principles (GAAP).  The
Office of the Auditor General
performed 29 audits at agencies of the
primary government, including the five
pension systems and the Illinois State
Board of Investment.  During these
audits, we noted a total of 34
material weaknesses and 15 significant
deficiencies related to the internal
controls over the financial reporting
process at 17 of the agencies.

Specifically, some of the more
significant issues noted included the
following:
• The Department of Healthcare and
Family Services and the Department of
Human Services failed to execute
adequate internal controls over the
Integrated Eligibility System.
• The Department of Healthcare and
Family Services, the Department of
Human Services, and the Department of
Children and Family Services failed to
execute adequate internal controls
over the Illinois Medical Program
Advanced Cloud Technology system.
• The Department of Corrections did
not have adequate controls over
capital assets.
• The Department of Employment
Security did not have adequate
controls over financial reporting.

Material weaknesses and significant
deficiencies further extend financial
reporting timelines since additional
measurements and reporting are
required.  Completion or substantial
completion of these audits is
necessary for the Auditor General to
issue an opinion on the State’s basic
financial statements.

In addition to the deficiencies noted
above, material misstatements were
identified by the auditors at one
agency.  The adjustments totaled $58
million for the Business-Type
Activities and Unemployment
Compensation Trust Fund. (Finding 2,
pages 10-16)  This finding has been
repeated since 2002.

We recommended the State continue its
efforts to improve internal control
procedures in order to assess the risk
of material misstatements to the
financial statements and to identify
such misstatements during the
financial statement preparation
process.  We further recommended the
internal control procedures include a
formal evaluation of prior problems
and implementation of procedures to
reduce the risk of these problems
reoccurring.

The Office of the Governor agreed with
our recommendation and stated they
will continue to work together with
the Illinois Office of Comptroller,
and together with the State agencies
facing the greatest challenges, to
improve internal control procedures
and reduce the likelihood of material
misstatements to the financial
statements.

The Office of Comptroller accepted our
recommendation and stated they will
continue to assist the Governor’s
Office in their efforts to increase
the quality of GAAP packages by
providing enhanced training and
technical assistance to State
agencies.


INADEQUATE CONTROLS OVER PANDEMIC
UNEMPLOYMENT ASSISTANCE

The Illinois Department of Employment
Security (IDES) failed to maintain
adequate controls over Pandemic
Unemployment Assistance systems,
eligibility, and financial reporting.
We noted the following problems
related to the COVID-19 Pandemic:

• The IDES contracted with a service
provider for a system for issuing
Pandemic Unemployment Assistance
(PUA). As of June 30, 2020, the IDES
has issued $1.1 billion through the
system. The IDES did not obtain a
System and Organization Controls (SOC)
review of the system from the service
provider; therefore, we conducted
testing over the general Information
Technology (IT) controls of the
system.  During testing, we noted the
system had weaknesses regarding change
control and user access. Further, the
IDES had not developed a disaster
recovery plan in order to recover the
system in the event of a disaster.

• The IDES failed to ensure PUA
claimants met eligibility
requirements. Some of the more
significant issues noted included:
– The IDES did not validate wages for
all claimants receiving more than the
minimum weekly payment. The total
amount paid for PUA above the minimum
was $96.9 million.
– The IDES failed to validate 4,579
claimants’ identities, but still paid
$41.7 million dollars in payments to
these claimants.
– The IDES paid benefits of $344
thousand to 35 deceased individuals.

• The IDES failed to implement
adequate controls over the PUA
processes. Some of the more
significant issues noted included:
– 164 claimants were between ages of
birth and 13 years resulting in $1.5
million in payments.
– 31 claimants were either assigned
more than one claimant ID or had more
than one Social Security number
associated with their ID.

• The IDES did not have sufficient
internal controls over the
determination of PUA accruals and
eligibility related to the accruals.
IDES management was unable to
determine when claimants met all
eligibility requirements as
limitations within the system did not
track all necessary data for this
analysis. Additionally, there was a
large backlog of unprocessed paperwork
filed by claimants which would need to
be considered to determine when a
claimant became eligible. The large
increase in volume of claims led to
this backlog not being processed
timely, compounding the issue.
(Finding 6, pages 23-25).

We recommended IDES work to improve
its controls over Pandemic
Unemployment Assistance systems,
eligibility, and financial reporting.

The Office of the Governor accepted
our recommendation and stated
implementing responses to the
unprecedented COVID-19 public health
emergency strained the resources of
IDES, as well as those of other
federal and state unemployment
agencies.  According to the Office of
the Governor, the United States
Department of Labor (DOL) Office of
Inspector General has noted that both
DOL and states struggled to implement
federal pandemic unemployment
programs, and specifically noted that
the DOL guidance and oversight failed
to ensure states implemented the
programs promptly and accurately. The
Office of the Governor also stated
they will continue to work with IDES
and the General Assembly to improve
the implementation of federal pandemic
Unemployment Insurance programs.

OTHER FINDINGS

The remaining findings pertain to late
payment of statutorily mandated
transfers, debt covenant violations,
insufficient controls over finances,
and lack of controls over census data.
We will review the State’s progress
towards the implementation of our
recommendations in our next financial
audit.

This financial audit was conducted by
the Office of the Auditor General’s
staff.

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

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