REPORT DIGEST

Unable to verify the transfer of equipment to CMS

Missing equipment consisted of laptop and desktop computers

Department unsure if confidential information was on the missing computers

Items duplicated on the two Agencies’ records resulted in an overstatement of State assets by $223,509

Department agree with auditors

Failure to document enforcement activities in a timely or sufficient manner

Investigative Reports completed late

Investigator interviews performed late

Files did not include the acknowledgement letter sent to the complainant

The Chief of Prosecutions was late in reviewing and assigning cases

ILES screen printouts were not up to date

Department agrees with auditors

Interagency agreements were not signed before the effective date

Failure to document allocation methodology

Unable to demonstrate that an employee paid from multiple agencies was working on Department related activities

Department agrees with auditors

Property items could not be located

Items were reported to CMS at different amounts

Inaccurate amounts reported for Capital Assets

Department agrees with auditors

Social Work Examining and Disciplinary Board

Board of Nursing

State Board of Pharmacy

Board of Orthotics, Prosthetics and Pedorthics

Board of Currency Exchanges

State Banking Board

Public Accountant Registration Committee

Real Estate Administration and Disciplinary Board

Board of Debt Management Service Advisors

Real Estate Education Advisory Council

Board of Dentistry

Insurance policy forms approved or denied late

Department agrees with auditors

Shared Services

INTRODUCTION

This report presents our State compliance examination of the Department of Financial and Professional Regulation and our financial audit of the Security Deposit Fund for the year ended June 30, 2008.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INADEQUATE CONTROLS OVER COMPUTER INVENTORY

The Department was not able to locate computer equipment and did not adequately plan, coordinate, and verify the transfer of EDP equipment to the Department of Central Management Services (CMS).

The Department conducts an annual physical inventory of all equipment with an acquisition cost of $500 or more and annually reports its results to CMS. In its fiscal year 2008 Physical Inventory Report submitted to CMS, the Department reported it was unable to locate 98 of 3,771 (3%) items totaling $169,813.

Upon further inquiry with Department and CMS personnel, we noted the following:

· The missing EDP equipment consisted of approximately 35 laptop computers, 17 desktop computers, and other peripheral items. The Department “assumed” the missing items were transferred to and removed by CMS.

Upon follow-up with CMS, CMS personnel stated none of these missing items were on its post-consolidation property control records.

The Department was unable to produce property transfer records or locate the EDP equipment. The Department had not performed an assessment, and was unsure how much, if any, confidential information was on the missing computers.

· CMS provided a list of items that they removed as part of the information technology (IT) consolidation. We noted 68 items, totaling $223,509, which were on CMS’ listing and also still on Department inventory records. As a result, these items are duplicated on two Agencies’ records, thus overstating State assets by $223,509. (Finding 1, pages 15-16)

We recommended the Department immediately perform a detailed inventory of computer equipment; contact CMS in an effort to reconcile any missing items that may have been transferred to CMS, but lacked appropriate paperwork; and perform a detailed assessment to determine if any of the missing computers contained confidential information.

Department officials concurred with our recommendation and stated they initiated a detailed inventory of computer equipment, and will work with representatives from the Department of Central Management Services to reconcile any missing items that lacked appropriate paperwork. They also stated they will review current procedures to ensure better management of inventory under its jurisdiction and control.

NEED TO IMPROVE TIMELINESS AND DOCUMENTATION OF ENFORCEMENT ACTIVITIES

The Department’s Division of Professional Regulation’s Enforcement Unit did not perform and/or document enforcement activities in a timely or sufficient manner.

The Department has established and implemented guidelines and time frames for significant investigation, prosecution, and probation/compliance activities of the Enforcement Unit. Since the Department did implement guidelines to ensure that the investigation and prosecution activity is initiated and completed within reasonable time parameters, we used their guidelines and time frames as the criteria for our tests.

We reviewed 25 investigation files and noted the following deficiencies:

· In 3 out of 25 (12%) case files reviewed, the Investigative Reports were not generated within 30 days of the investigative activity. The completion of the investigative reports ranged from 75 to 126 days late.

· In 3 out of 25 (12%) case files reviewed, the Investigator did not interview the complaining witness within 30 calendar days from the date assigned to the case. The case interviews ranged from 9 to 157 days late.

· In 1 out of 25 (4%) case files reviewed, an Investigative Summary Report was not included in the file.

· In 3 out of 25 (12%) case files reviewed, no acknowledgement letter was sent to the complaint witness.

We reviewed 25 prosecution files and noted the following deficiencies:

· In 1 out of 25 (4%) case files reviewed, an Investigative Summary Report was not included in the file.

· In 1 out of 25 (4%) case files reviewed, the Investigative Summary Report was not signed by the investigator.

· In 2 out of 25 (8%) case files reviewed, the Chief of Prosecutions did not review the case and assign to an attorney within 30 days of receipt. The completion of the review and assignment ranged from 3 to 12 days late.

· We also noted the Integrated Licensing and Enforcement System (ILES) screen printouts, which were provided to us at the time of our initial testing, were not updated and did not contain current information. The ILES printouts summarize the most recent activity for each case file. (Finding 2, pages 17-19) This finding was first reported in 2004.

We recommended the Department comply with the State Records Act and maintain the documentation required within its Enforcement Unit files. We also recommended ILES be updated immediately as case file information changes or additional information becomes available. Further, the Department should allocate the resources necessary to comply with its internal guidelines for the Enforcement Unit to ensure that case files and the Regulatory Administration and Enforcement System reflect necessary and significant investigative, prosecution, and probation/compliance activities within the Department’s established time frames.

Department officials concurred with the recommendation in that investigators and prosecutors should perform and document their activities within the timeframes and in a manner set by Division policy.

Department officials stated they believe that facts presented in this audit finding show that the Department has significantly improved its performance in this area.

Department officials further stated they have been able to increase compliance by revising the Enforcement Manual, instituting 30 day case reviews with investigators and prosecutors, instituting weekly tracking reports, completing the conversion of the ILES case tracking system and hiring additional probation investigators.

The Department continues to review its processes and policies so that Division of Professional Regulation investigators and prosecutors may continue to protect the public health, safety, and welfare. (For previous Department response, see Digest Footnote #1.)

NEED TO IMPROVE CONTROLS OVER INTERAGENCY AGREEMENTS

The Department’s controls over interagency agreements were deficient.

During our examination of three interagency agreements (one between the Department and the Governor’s Office of Management and Budget, one between the Department and the Governor’s Office of Management and Budget and the Department of Labor, and one between the Department and the Department of Healthcare and Family Services), the following deficiencies were noted:

· 2 out of 3 (67%) interagency agreements tested, totaling $145,000, were not signed by all necessary parties before the effective date. The agreements were signed 14 to 105 days late.

· 1 out of 3 (33%) interagency agreements tested pertaining to legal services, totaling $72,000, did not include supporting documentation detailing the methodology used for determining the percent allocation to be paid by the Department for billing of shared costs.

· In an interagency agreement, totaling $95,000, between the Department, the Department of Labor, and the Governor’s Office of Management and Budget, the Department could not demonstrate that an employee paid from the multiple agencies (67% from the Department, 33% from the Department of Labor, and 0% from the Governor’s Office) was working on Department related activities. Timesheets maintained by the employee did not detail the amount of time the employee worked for each State agency. Additionally, no supporting documentation existed detailing the methodology used for determining the percent allocation to be paid by each State agency noted in the interagency agreement. (Finding 3, pages 20-21) This finding was first reported in 2006.

We recommended the Department ensure all interagency agreements are signed by all parties prior to the effective date of the agreement. Further, the Department should require all interagency agreements include methodology supporting the percent allocation.

Department officials concurred with the recommendation and stated they would clarify the methodology for the parties’ assumption of payment obligations in all interagency agreements to which the Department is a party. Further, the Department will endeavor to approve all such agreements prior to any performance of services thereunder. (For previous Department response, see Digest Footnote #2.)

INACCURATE PROPERTY RECORDS

The Department did not maintain complete and accurate property control records.

The Department had property and equipment totaling $10,831,178 at June 30, 2008. We selected a sample of 105 equipment items at 9 locations as of June 30, 2008 to test whether the equipment was in the correct location and properly maintained on the Department’s inventory system. We noted the following:

· 12 of 105 (11%) items totaling $8,702 could not be located by Department personnel.

· 3 of 105 (3%) items were located at sites other than the location listed on the Department’s property control listing.

· 2 of 105 (2%) items were obsolete or unusable, but still maintained on the Department’s property control listings.

· 29 of the 105 items tested were required to be reported in the fiscal year 2008 Physical Inventory Report submitted to the Department of Central Management Services (CMS) as items with a value greater than $500 or as having a high theft status.

We noted 3 of the 29 (10%) items were reported to CMS at amounts differing from the Department’s property control records. These differences ranged from $15 to $690.

During testing of equipment additions, we noted 7 of 36 (19%) equipment additions totaling $16,180 were not properly recorded on the Department’s property control records and the Agency Report of State Property forms (C-15) submitted to the Illinois Office of the Comptroller for fiscal year 2008. These errors led to inaccurate amounts on the Department’s Capital Asset Summary form (SCO-538) submitted to the Comptroller for GAAP reporting purposes. Revised C-15 and SCO-538 forms were prepared and submitted to the Comptroller. However, only $12,164 of the $16,180 unrecorded equipment additions were reported on these revised forms. Therefore, the revised C-15 and SCO-538 forms submitted understated the Department’s assets by $4,016. (Finding 08-4, pages 22-23) This finding was first reported in 2006.

We recommended the Department implement procedures to ensure property control records are accurate, including frequent physical observation and reconciliation to property control records. Also, the Department should delete all obsolete or unusable items and transfer those items to the Department of Central Management Services Surplus Property.

Department officials concurred with our recommendation and stated they will review procedures to establish better controls over the accuracy of property control records. The Department will also review obsolete or unusable items and transfer those items to the Department of Central Management Services for surplus property. (For previous Department response, see Digest Footnote # 3.)

DEPARTMENT BOARDS NOT FULLY STAFFED

The Secretary of the Department did not appoint the required number of members to the various Boards in order to fill vacancies.

· The Secretary of the Department did not appoint a member to the Social Work Examining and Disciplinary Board in order to fill a vacancy. A vacancy existed for one licensed clinical social worker since January 2004.

· The Secretary of the Department did not appoint 2 members to the Board of Nursing in order to fill vacancies. Vacancies existed for one LPN and one APN.

· The Department’s Division of Professional Regulation was not in compliance with the provisions of the Pharmacy Practice Act of 1987 (Act) (225 ILCS 85/10) regarding the State Board of Pharmacy. During our testing we noted three of nine (33%) positions (licensed pharmacist) were held by individuals with terms that expired in April 2004 (1 position) and April 2007 (two positions).

· The Secretary of the Department did not appoint members to the Board of Orthotics, Prosthetics, and Pedorthics (Board). During our testing we noted that four of six (67%) positions were held by individuals with expired terms. We also noted that one of six (17%) positions (public member) had been vacant since October 2006.

· The Department’s Division of Financial Institutions was not in compliance with the provisions of the Currency Exchange Act (Act) (205 ILCS 405/22.03) regarding the Board of Currency Exchange Advisers. During our testing we noted that seven out of seven (100%) board positions were vacant. We noted that one position has been vacant since January 1997, two positions have been vacant since January 1998, two positions have been vacant since January 1999, and two positions have been vacant since January 2001. Department personnel stated they were unaware of when the Board last met.

· The Department’s Division of Banking was not in compliance with the provisions of the State Banking Act (Act) (205 ILCS 5/78) regarding the State Banking Board. During our testing we noted that two of four (50%) Class A positions were vacant, nine of ten (90%) Class B positions were vacant, and one of two (50%) Class C positions were vacant.

· The Secretary of the Department did not appoint three members who are Licensed Certified Public Accountants to the Public Accountant Registration Committee in order to fill vacancies that have existed since November 2006, May 2007 and December 2007, respectively. In addition, one public accountant position was held by an individual whose term expired in January 2003.

· The Department’s Division of Professional Regulation was not in compliance with the provisions of the Real Estate License Act of 2000 (Act) (225 ILCS 454/25-10). We noted that one of six (17%) positions (actively engaged broker or salesperson) has been vacant since November 2005 and two of three (67%) positions (public members) have been vacant since March 2002 and September 2003, respectively. Additionally, five of six (83%) positions were held by individuals with terms that expired in October 2006 (4 positions) and October 2007 (1 position).

· The Department’s Division of Financial Institutions was not in compliance with the provisions of the Debt Management Service Act (Act) (205 ILCS 665/15.1-15.3) regarding the Board of Debt Management Service Advisors. During our testing, we noted that three out of five (60%) board positions were vacant. We noted that 2 positions have been vacant since November 2005 and 1 position has been vacant since February 2006. Additionally, two of five (40%) positions were held by individuals with terms that expired in July 2004 and July 2005. Department personnel stated they were unaware of when the Board last met.

· The Department’s Division of Professional Regulation was not in compliance with the provisions of the Real Estate License Act of 2000 (Act) (225 ILCS 454/30-10). During our testing, we noted that 1 of 7 (14%) position (licensee) on the Advisory Council has been vacant since December 2005. Additionally, 4 of 7 (57%) positions were held by individuals with terms that expired in October 2003 (1 position) and October 2006 (2 positions) and October 2007 (1 position).

· The Department’s Division of Professional Regulation was not in compliance with the provisions of the Illinois Dental Practice Act (Act) (225 ILCS 25/6). During our testing, we noted that 3 of 11 (27%) positions (2 dentists and 1 dental hygienist) were held by individuals with terms that expired in December 2006 (2 positions) and April 2007 (1 position). (Finding 14, pages 41-45) This finding was first reported in 2004.

We recommended the Secretary appoint qualifying members to these Boards as required by the Acts cited and reappoint applicable Board members in a timely manner. In those cases where the Governor’s Office is required to appoint the Board members we recommended the Department work with the Governor’s Office to fill Board vacancies by appointing qualified members to the Boards.

Department officials concurred with our recommendation regarding insufficiencies in staffing certain advisory boards. They further stated the prior administration maintained tight control over all boards, which resulted in a substantial delay in filling vacancies. This delay would sometimes result in the candidate losing interest, moving or changing occupations. The current administration has explicitly signaled that it will constructively support Department efforts so that vacancies will be filled expeditiously. (For previous Department response, see Digest Footnote # 4.)

FAILURE TO TIMELY APPROVE/DENY INSURANCE COMPANY POLICY FORMS

The Department’s Division of Insurance failed to approve/deny life, accident, and/or health insurance policy forms submitted by insurance companies in a timely manner as required by the Illinois Insurance Code.

During our testing, we noted that 19 out of 25 (76%) policy forms reviewed were not approved or denied on a timely basis. These policy forms were approved or denied from 8 to 402 days later than the maximum 90 day time period. (Finding 15, page 46) This finding was first reported in 2006.

We recommended the Department implement procedures to ensure life, accident, and/or health insurance policy forms are properly approved or disapproved in a timely manner as required by the Code.

Department officials concurred with our recommendation and stated the Division of Insurance has taken reasonable measures to partially alleviate delays in the timely approval/disapproval of life, accident, and/or health insurance policy forms but additional staff will also be required to be hired to completely resolve this issue. (For previous Department response, see Digest Footnote # 5.)

ADMINISTRATIVE AND REGULATORY SHARED SERVICE CENTER TESTING

Our compliance examination included procedures examining the Department’s expenditures from its Shared Services appropriation in Fiscal Year 2008. The Department was one of the three agencies participating in the implementation of the Administrative and Regulatory Shared Services Center (ARSSC), located in the Department of Revenue. The Department reported incurring implementation costs for the ARSSC of $327,232 during Fiscal Years 2006, 2007, and 2008. Please refer to the Analysis of Operations section of the report (p. 109-111) for more information about the Department and the ARSSC.

AUDITORS’ OPINION

Our auditors reported that the Department of Financial and Professional Regulation’s financial statement of the Security Deposit Fund #1109, as of and for the year ended June 30, 2008 is fairly stated in all material respects.

___________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:PH:pp

SPECIAL ASSISTANT AUDITORS

Sikich LLP was our special assistant auditors for this audit and examination.

DIGEST FOOTNOTES

#1 – ENFORCEMENT ACTIVITIES NOT PERFORMED TIMELY AND NOT SUFFICIENTLY DOCUMENTED

2007: The Department concurred with the recommendation in that certain Division of Professional Regulation activities were not performed timely and/or were not appropriately documented. The Department further concurred with the auditor’s recommendation that Division of Professional Regulation investigators and prosecutors should perform and document their activities within the timeframes and in a manner set forth in the Department’s policy manual. It is important to note that not all aspects of an investigation or prosecution are within the control of the Division of Professional Regulation. To that end, the Department has, in the exercise of its control of the investigation and prosecution processes, undertaken revision of the Investigation and Probation sections of its Enforcement Policy Manual. The Division is currently in the process of completing similar revisions to the Manual’s Prosecution section.

#2 – NEED TO IMPROVE CONTROLS OVER INTERAGENCY AGREEMENTS

2007: The Department concurred with the recommendation and the auditor’s statement of the results of testing and has modified its process to ensure that all interagency agreements to which it is a party describe the method of allocating the vendor payment obligation. Further, the Department will endeavor to ensure that all interagency agreements to which it is a party are approved prior to the effective date.

#3 – INACCURATE PROPERTY CONTROL RECORDS

2007: The Department concurred with the recommendation; however it noted the following: Bullet Point # 3: Two of the three items identified as the basis for the finding: P04220 Chair Red Plastic; and F01170 Dell Desktop, have been located as the result of the ongoing inventory of agency equipment. While the agency strives for precision in all administrative processes, management believes that given the large volume of property utilized and managed, the flaws described “3 of 100 [3%] items totaling $1,209 could not be located by Department personnel,” are not material. Bullet Point # 4: The item identified as the basis for the finding has been transferred to CMS as a surplus item with the correct value.

# 4 – DEPARTMENT BOARDS NOT FULLY STAFFED

2007: The Department concurred with the finding regarding insufficiencies in staffing certain advisory boards. However, the Department requested that the following improvements be noted:

Social Work Examining and Disciplinary Board:

The one licensed social worker vacancy noted in the finding was filled in April 2008.

Board of Nursing:

Of the five vacancies indicated in the finding, three were filled in April 2008 (LPN, APN/CRNA and public member). The Department has identified qualified candidates for the two remaining vacancies; at present both are moving through the appointment process.

State Board of Pharmacy:

The deficiencies noted in the finding are currently being addressed. We will continue to work with the Governor’s Office to address expirations and vacancies by identifying and reviewing qualified candidates.

Board of Orthotics, Prosthetics, and Pedorthics:

Of the deficiencies noted in the finding, the consumer member position was filled in April 2008. We are working to identify qualified candidates in a continuing effort to address term expirations and vacancies.

Public Accountant Registration Committee:

Of the deficiencies noted in the finding, the public member vacancy was filled January 2008. We are reviewing qualified candidates in a continuing effort to address term expirations and vacancies.

Massage Licensing Board:

The vacancy noted was filled in January 2008.

Real Estate Administration and Disciplinary Board:

The deficiencies noted in the finding are currently being addressed. We will continue to work with the Governor’s Office to address term expirations and vacancies by identifying and reviewing qualified candidates.

Real Estate Education Advisory Council:

Board of Dentistry:

The deficiencies noted in the finding are currently being addressed. We are reviewing qualified candidates in a continuing effort to address term expirations.

State Banking Board:

The restrictive asset categories established for the State Banking Board membership, which require the appointment of members from institutions classified by size, has made the appointment of qualified members from each category difficult. In response, the Department introduced legislation (HB 4898) to reduce the size of the Board, eliminate the requirement that members be appointed from institutions within each of several specific asset categories, and provide for the continuing service of members whose terms have expired until their successors are appointed and qualified. We believe that passage of this legislation will eliminate the problem of multiple vacancies on this Board.

Board of Currency Exchange:

The Division of Financial Institutions agrees with the recommendation regarding the vacancies on the Board of Currency Exchange Advisors. Since the FY06 audit, letters have been sent out to potential candidates for each of the subject boards and numerous applications were processed. As a result, five candidates were selected for recommendation to the Governor for the Currency Exchange Advisors Board.

Debt Management Advisors Board:

The Division of Financial Institutions agrees with the recommendation regarding the vacancies on the Debt Management Advisors Board. Since the FY06 audit, DFI sent letters out to potential candidates for each of the subject boards and numerous applications were processed. As a result, four candidates were selected for recommendation to the Governor for the Debt Management Advisors Board.

# 5– FAILURE TO TIMELY APPROVE/DENY INSURANCE COMPANY POLICY FORMS

2007: The Department concurred with the recommendation and stated

the new filings that the Division of Insurance is receiving are becoming

more complex and lengthy as companies file new products to keep up

with their competitors. Last year, the Department implemented an

expedited review process that should improve the timeliness of

approvals