REPORT DIGEST

STATE OF ILLINOIS

FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2022

Release Date:  August 22, 2023

FINDINGS THIS AUDIT: 6

CATEGORY:  NEW -- REPEAT -- TOTAL
Category 1:  1 -- 4 -- 5
Category 2:  0 -- 0 -- 0
Category 3:  0 -- 1 -- 1
TOTAL:  1 -- 5 -- 6

FINDINGS LAST AUDIT: 6

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’ Annual
Comprehensive Financial Report.  The
Annual Comprehensive Financial Report
is the State’s official annual report,
which provides the readers with the
financial position of the State as of
June 30, 2022, and its results of
operations during the fiscal year.

The financial section of the Annual
Comprehensive 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 issued a disclaimer of
opinion on the Unemployment
Compensation Trust Fund Statements of
Revenues, Expenses, and Changes in Net
Position and Cash Flows and qualified
their opinion on the Unemployment
Compensation Trust Fund Statement of
Net Position 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,
2022, reflect the following:
• The net position of governmental
activities started to improve and the
deficit decreased by $14.4 billion from
June 30, 2021, to June 30, 2022.
Overall, the net position of
governmental activities is reported as
a deficit of $184.8 billion. (Exhibit
1)
• The fund balance of the General Fund
improved by $4.6 billion from June 30,
2021, to June 30, 2022.  The General
Fund no longer has a deficit fund
balance.  The fund balance is $1.5
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 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, 2022

Governor:  JB Pritzker

Comptroller:  Susana A. Mendoza

Speaker of the House:  Emanuel Chris
Welch

President of the Senate:  Don Harmon

House Republican Leader:  Tony McCombie

Senate Republican Leader:  John Curran

FINANCIAL ANALYSIS OF THE STATE

The net position of the State’s
governmental activities improved $14.4
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
2015 through 2022. 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.  (Please see PDF
version of this digest to view Exhibit
1.)

GENERAL FUND

Many programs are accounted for in the
General Fund.  The GAAP basis financial
position of the General Fund improved
at June 30, 2022, from June 30, 2021.
The fund balance in the State’s General
Fund improved by $4.6 billion on a GAAP
basis.  The June 30, 2022, balance was
$1.5 billion.  Exhibit 2 reflects the
General Fund balance for Fiscal Years
2015 through 2022.  (Please see PDF
version of this digest to view Exhibit
2.)

STATE COMPARISON

Exhibit 3 provides an analysis of the
State’s governmental activities net
position at June 30, 2022, compared to
other States.  (Please see PDF version
of this digest to view Exhibit 3.)

FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS

INADEQUATE FINANCIAL REPORTING PROCESS

The State of Illinois’ (State) current
financial reporting process does not
allow the State to prepare a complete
and accurate Annual Comprehensive
Financial Report (ACFR) 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.

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 Governor and towards
the 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 ACFR.  Although
these SCO forms are subject to review
by the Comptroller’s financial
reporting staff during the ACFR
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 reported 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 with the
Comptroller and individual state
agencies that have the most pressing
challenges to produce timelier and more
accurate GAAP-basis financial
information. The state agencies under
the Governor are completing the multi-
year implementation of an Enterprise
Resource Planning (ERP) system—an
integrated enterprise-wide system that
includes a financial accounting
component. As of July 2022, all 73
state agencies under the Governor’s
purview are using the financial
accounting component of the ERP system.
Further, the Governor anticipates that
all state agencies subject to the Grant
Accountability and Transparency Act
will join, in Fiscal Year 2024, the
Statewide grants management system,
currently under development. The grants
management system will pull data from
the ERP system, promoting consistency
across state systems. Upon full
implementation, the two systems are
expected to improve internal controls
and will better support the agencies’
production of accurate and timely
financial statements. The Governor
notes that he has no authority to
direct or control the financial
reporting processes employed by other
constitutional offices.

The Comptroller accepted the
recommendation and stated the State
still faces several roadblocks in the
timely completion of the Annual
Comprehensive Financial Report. The
General Assembly enacted Public Act
96-1501, which extended the lapse
period to October 31 for fiscal year
2021 and future fiscal years for
medical payments of the Department of
Veterans’ Affairs and medical,
childcare, and substance abuse
treatment payments of the Department of
Human Services.  Public Act 102-0291
extended lapse period from August 31 to
October 31 for fiscal year 2022 and
future fiscal years for medical
assistance payments of the Department
of Healthcare and Family Services.
More importantly, the Annual
Comprehensive Financial Report
completion continues to be delayed
because of financial reporting issues
identified during individual State
agency financial and compliance audits.
The report cannot be finalized until
these issues are resolved at the
individual State agency reporting
level.

The Comptroller will continue to work
with the Governor’s Office, the Auditor
General’s Office, and agency GAAP
coordinators to improve the timeliness
and quality of reporting, including
alternative options for the completion
of the financial reporting process of
the State.

FINANCIAL REPORTING WEAKNESSES

The State of Illinois (State) 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
26 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 32 material weaknesses
and 13 significant deficiencies related
to the internal controls over the
financial reporting process at 14 of
the agencies. (Please see PDF version
of this digest to view Exhibit.)

 Specifically, some of the more
 significant issues noted included the
 following:
• The Department of Healthcare and
Family Services did not have adequate
internal controls to ensure all
eligible expenditures initiated by
other State agencies were included in
its Medicaid federal financial
participation (FFP) reimbursement
claims.
• The Department of Healthcare and
Family Services and the Department of
Human Services failed to execute
adequate internal controls over the
operation of the Illinois Medical
Program Advanced Cloud Technology
system.
• The State Board of Education did not
exercise adequate internal control over
the State’s Evidence-Based Funding
Formula.

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 three
agencies. The adjustments totaled $636
million for the Governmental Activities
and General Fund; $222.7 million for
the Business-Type Activities and
Unemployment Compensation Trust Fund;
and $8.8 million for Fiduciary Funds
(Finding 2, pages 10-14). This finding
has been reported 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
Office of Comptroller and the State
agencies under its jurisdiction to
improve Statewide internal control
procedures and reduce the likelihood of
material misstatements to the financial
statements.  The state agencies under
the Governor are completing the multi-
year implementation of an Enterprise
Resource Planning (ERP) system—an
integrated enterprise-wide system that
includes a financial accounting
component. As of July 2022, all 73
state agencies under the Governor’s
purview are using the financial
accounting component of the ERP system.
Agencies will continue to assess how
ERP can support them, assist in
assessing the risk of material
misstatements, and identify such
misstatements during the reporting
process. Further, the Governor
anticipates that all agencies subject
to the Grant Accountability and
Transparency Act will join, in Fiscal
Year 2024, the Statewide grants
management system, currently under
development. The grants management
system will pull data from the ERP
system, promoting consistency across
state systems. Upon full
implementation, the two systems are
expected to improve internal controls
and will better support the ability of
agencies to avoid misstatements in the
financial reporting process. In
addition, DHFS has implemented a
corrective action plan to reassess and
reinforce internal controls over the
Medicaid FFP claim process. Finally,
the Governor will work with DHFS and
DHS to ensure necessary interagency
agreements are timely executed and to
strengthen internal controls over the
IMPACT system. The Governor notes that
he has no authority to direct or
control the accounting policies and
processes employed by other
constitutional offices.

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 and
encouraging more stringent internal
controls at the agency level.

INADEQUATE CONTROLS OVER PANDEMIC
UNEMPLOYMENT ASSISTANCE

The Illinois Department of Employment
Security (IDES) failed to maintain
adequate controls over the Pandemic
Unemployment Assistance system. During
the audit of Fiscal Year 2022
Unemployment Compensation Trust Fund
financial statements, we noted:

• The IDES failed to implement general
Information Technology controls over
the System.  Although IDES obtained a
System and Organization Control (SOC)
Report from the service provider who
provided the PUA system, IDES had not
implemented controls to achieve the
control objectives documented in the
SOC report.
• On March 27, 2020, the President of
the United States signed the
Coronavirus Aid, Relief, and Economic
Security (CARES) Act which provided
states the ability to provide
unemployment insurance to individuals
affected by the pandemic, including
those who would not normally be
eligible for unemployment. Based on the
Department’s records, as of June 30,
2022, 11,213 claimants received
payments totaling $3,026,210,633.
Auditors requested claimant data.
Although the claimant data was
provided, the data required
considerable manipulation in order to
make the data auditable and organized.
As a result, we were unable to conclude
the claimant data records were complete
and accurate under the Professional
Standards promulgated by the American
Institute of Certified Public
Accountants (AU-C § 500). As a result,
the auditors were unable to conduct
detailed testing to determine whether
the claimants were entitled to
benefits.
• During the audit, several adjustments
were posted to correct errors
identified by the auditors (Finding 5,
pages 19-21). This finding has been
reported since 2020.

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 as a result
of the COVID-19 Pandemic, the State’s
unemployment rate jumped to a
historically high rate of 17.4 percent
in April 2020. While unemployment rates
began to fall through Fiscal Years 2021
and 2022, implementing federal programs
created in response to the
unprecedented COVID-19 public health
emergency strained the resources of
IDES, as well as those of unemployment
agencies across the country. The
Governor notes that eligibility for the
PUA program ended in September 2021.
The Governor will continue to support
the Department’s efforts to implement
controls in the areas cited. The
Department continues to implement
improved internal controls analyzing
operational management, review, and
approval in coordination with the
Department of

Innovation and Technology, including
working with outside consultants to
implement best practices. The
Department is also working to address
the untimeliness of cash reconciliation
and inadequate internal controls
through temporary staff augmentation,
strategic hiring, and consultation with
an outside accounting firm with subject
matter expertise.

OTHER FINDINGS

The remaining findings pertain to late
payment of statutorily mandated
transfers, insufficient controls over
finances, and failure to implement
adequate Information Technology
controls.  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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