REPORT DIGEST ILLINOIS HOUSING DEVELOPMENT AUTHORITY Financial Audit For the Year Ended: June 30, 2013 Release Date: November 21, 2013 Summary of Findings: Total this audit: 3 Total last audit: 1 Repeated from last audit: 1 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 SYNOPSIS • The Authority has loan balances in the multi- family program recorded in their financial statements that should be removed due to the loans being uncollectible. • The Authority did not depreciate capital asset additions made to real estate owned. • The Authority over accrued interest receivable for program loans in the Single Family Loan Program Fund. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS LOAN RECEIVABLE ALLOWANCE FOR LOAN LOSS BALANCES OVERSTATED The Illinois Housing Development Authority (Authority) has loan balances in the multi- family program recorded in their financial statements that should be removed due to the loans being uncollectible. During our audit of the Authority’s allowance for loan loss estimate, we noted 25 loans totaling approximately $23 million were recorded on the Authority’s financial statements for which a 100% allowance reserve was recorded. The Authority anticipates that most of these loans will ultimately be written off. (Finding 1, Page 77) This finding was first reported in 2008. We recommended that the Authority continue to work with the Attorney General’s Office to get approval to write-off the uncollectible loan balances. Authority officials concurred with the recommendation and stated that they have instituted regular meetings between staff in the Legal, Accounting, Loan & Portfolio Management and Multifamily departments to collaboratively review the documents required for a write-off request submission to the Attorney General’s Office. Authority management believes this additional level of monitoring will assist the Authority in attaining a higher rate of approval on first time submission requests. (For the previous Authority response, see Digest footnote #1.) FAILURE TO DEPRECIATE CAPITAL ASSETS The Illinois Housing Development Authority (Authority) did not depreciate capital asset additions made to real estate owned. During our testing over capital assets held in the Mortgage Loan Program Fund, we noted capital spending on property held by the Authority was not being depreciated. After this was brought to the attention of the Authority, they recorded an audit adjustment of $1,567,069 to correct accumulated depreciation expense on those capital assets. (Finding 2, Page 78) We recommended the Authority implement procedures to ensure additions to capital assets are included in the annual calculation for depreciation. Authority officials concurred with the recommendation and stated that at a supervisory review of all capital additions will occur to ensure all activities have been properly recorded. OVERSTATED LOAN INTEREST RECEIVABLE AND REVENUE The Illinois Housing Development Authority (Authority) over accrued interest receivable for program loans in the Single Family Loan Program Fund. During our testing over interest receivable on loans in the Single Family Loan Program Fund, we noted there was an error in the amount of loan interest receivable and loan interest revenue recorded as of year-end. The Authority over accrued loan interest receivable and revenue by $1,811,176. An entry was recorded in the financial statements to correct this error. (Finding 3, Page 79) We recommended the Authority implement procedures to ensure reports used to record accrued interest at year-end are reviewed for accuracy. Authority officials concurred with the recommendation and stated that at a minimum an annual review will be performed for accuracy. AUDITORS’ OPINION Our auditors state the June 30, 2013 financial statements of the Illinois Housing Development Authority are presented fairly in all material respects. WILLIAM G. HOLLAND Auditor General WGH:TLK:rt SPECIAL ASSISTANT AUDITORS McGladrey LLP were our Special Assistant Auditors for this engagement. DIGEST FOOTNOTES #1 –Loan Receivable Balance and Allowance for Loan Loss Balance Overstated – Previous Authority Response Authority management concurs with the recommendation and since establishing regular communications with the Attorney General’s office the Authority has written off 34 loans totaling $2,970,956 over the last two fiscal years. In addition Authority management instituted regular meetings between staff in the Legal, Accounting, Loan & Portfolio Management and Multifamily departments to collaboratively review the documents required for a write-off request submission to the Attorney General’s office. Authority management believes this additional level of monitoring will assist the Authority with attaining a higher rate of approvals on first time submission requests and lessen the amount of denials received based on additional documentation being requested by the Attorney General’s office.