REPORT DIGEST

ILLINOIS FINANCE AUTHORITY

FINANCIAL AUDIT
FOR THE ONE YEAR ENDED JUNE 30, 2012



Release Date: December 20, 2012


Summary of Findings:
Total this audit: 2
Total last audit:  0
Repeated from last audit: 0

State of Illinois, Office of the Auditor General
WILLIAM G. HOLLAND, 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

This digest covers the Illinois Finance Authority’s
Financial Audit as of and for the year ended June 30,
2012.  The Illinois Finance Authority’s Compliance
Examination (including the Single Audit) covering the
year ended June 30, 2012 will be issued at a later date.

SYNOPSIS

• The Authority did not have adequate internal controls
to properly maintain records for monitoring covenant
compliance for bonds or loan agreements reported on the
face of the Authority’s basic financial statements.

• The Authority did not exercise adequate internal
control over financial reporting.

FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

NEED TO IMPROVE COVENANT COMPLIANCE MONITORING

The Illinois Finance Authority (Authority) did not have
adequate internal controls to properly maintain records
for monitoring covenant compliance for bonds or loan
agreements reported on the face of the Authority’s basic
financial statements.

During testing, the auditors noted the Authority could
not provide documentation filed by borrowers or present
evidence of the Authority’s monitoring of borrower
compliance with 16 of 39 (41%) significant covenants
tested, affecting 22 loan agreements or revenue bonds
reported on the face of the Authority’s basic financial
statements.  The noted significant covenants included
continuing disclosure requirements, such as providing
financial reports, ratio calculations, compliance
certifications, and insurance coverage documentation;
however, the noted significant covenants did not include
monitoring of actual principal and interest payments
required under the tested bond or loan agreements.

According to Authority management, the Authority does
not have a records management system capable of
identifying where specific records are retained within
the Authority’s files.  (Finding 1, pages 65-66)

We recommended the Authority develop, establish, and
maintain a recordkeeping system documenting receipt of
the required bond documents, which is capable of
identifying the location of documents retained by the
authority.

Authority officials agreed with our finding and
recommendation.

NEED TO IMPROVE CONTROLS OVER FINANCIAL REPORTING

The Authority did not exercise adequate internal control
over financial reporting.

During testing, the auditors noted the following:

• The Authority did not develop a basis or prepare any
calculations for the estimated arbitrage liability
accrual of $1,000,030 within the debt service fund of
the State of Illinois Revolving Fund, Series 2004 (Clean
Water) issuance under the Internal Revenue Service’s
Publication 4079, Tax Exempt Governmental Bonds
Compliance Guide.

• The Authority did not accrue interest income, totaling
$388,909, from March 2012 through June 2012 on
investments of the debt service fund under the Debt
Service Forward Delivery Agreement for the State of
Illinois Revolving Fund, Series 2004 (Clean Water)
issuance.

According to Authority management, the Authority
recorded the liability accrual based upon a conversation
between the Authority, the borrower, bond counsel, and
the bond trustee concerning the potential for a higher
arbitrage tax liability.  Further, Authority management
stated the interest income was not accrued due to staff
oversight.  (Finding 2, pages 67-68)

We recommended the Authority document the calculation of
estimated arbitrage liability based upon an accumulation
of relevant, sufficient, and reliable data and properly
record interest accruals.

The Authority officials agreed with our finding and
recommendation.

AUDITORS’ OPINION

Our auditors stated the financial statements of Illinois
Finance Authority as of and for the year ended June 30,
2012, are fairly stated in all material respects.

WILLIAM G. HOLLAND
Auditor General

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SPECIAL ASSISTANT AUDITORS

Our special assistant auditors for this audit were E.C.
Ortiz and Company, LLP.